<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 10, 1994
REGISTRATION NO. 33-53107
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
UAL CORPORATION AND UNITED AIR LINES, INC.
(EXACT NAME OF EACH REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE--UAL 4512--UAL 36-2675207--UAL
DELAWARE--UNITED 4512--UNITED 36-2675206--UNITED
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
1200 EAST ALGONQUIN ROAD
ELK GROVE TOWNSHIP, ILLINOIS 60007
(708) 952-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
Copies to:
LAWRENCE M. NAGIN, ESQ. PETER ALLAN ATKINS, ESQ.
UAL CORPORATION THOMAS H. KENNEDY, ESQ.
P.O. BOX 66100 ERIC L. COCHRAN, ESQ.
CHICAGO, ILLINOIS 60666 SKADDEN, ARPS, SLATE, MEAGHER &
(708) 952-4000 FLOM
(NAME, ADDRESS, INCLUDING ZIP 919 THIRD AVENUE
CODE, AND TELEPHONE NUMBER, NEW YORK, NEW YORK 10022
INCLUDING AREA CODE, OF AGENT FOR
SERVICE)
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: At the
effective time of the recapitalization (the "Recapitalization") of UAL
Corporation described in the Proxy Statement/Joint Prospectus forming a part
of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM
SECURITIES TO BE TO BE OFFERING AGGREGATE AMOUNT OF
REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share of UAL. 14,463,093 shares (1) (1) $700,462.52(1)(2)
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Series B Preferred Stock
of UAL................ 35,985 shares (1) (1) (1)
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Depositary Preferred
Shares representing the
Series B Preferred
Stock................. 35,984,175 shares (1) (1) (1)
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Series D Redeemable
Preferred Stock of
UAL................... 28,927 shares (1) (1) (1)
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Series A Senior
Debentures due 2004 of
United................ $449,802,200 (1)(2) (1)(2) (1)(2)
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Series B Senior
Debentures due 2014 of
United................ $449,802,200 (1)(2) (1)(2) (1)(2)
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</TABLE>
(1) This Registration Statement covers the shares of Common Stock, par value
$0.01 per share, of UAL (the "New Shares") and the shares of Series D
Redeemable Preferred Stock of UAL to be issued in exchange for, and upon
conversion of the shares of the Common Stock, par value $5 per share, of
UAL (the "Old Shares") in connection with the Recapitalization.
Immediately upon issuance, the Series D Redeemable Preferred Stock will be
redeemed for (i) $25.80 in cash, and (ii) either (a) Series A Debentures
due 2004 of United, Series B Debentures due 2014 of United (collectively,
the "Debentures") and Depositary Preferred Shares representing shares of
Series B Preferred Stock of UAL, (b) the cash proceeds from the sale of
such securities or (c) a mixture of cash proceeds and securities. For the
purposes of calculating the registration fee pursuant to Rule 457(f)(1),
(i) the number of Old Shares to be exchanged and converted is 28,926,185
and (ii) $746,295,573 of cash ($25.80 per Old Share), which will be paid
by UAL in connection with the Recapitalization, has been subtracted
(pursuant to Rule 457(f)(3)) from the aggregate market value of Old Shares
to be exchanged and converted in the Recapitalization. The aggregate
market value of the Old Shares has been computed by taking the average of
the high and low prices for the Old Shares on the New York Stock Exchange,
Inc. on April 6, 1994 ($127.125).
(2) As noted below, the Debentures were registered as Debt Securities of
United pursuant to the Registration Statement on Form S-3 (No. 33-57192)
filed on January 21, 1993. Of the aggregate fee calculated pursuant to
Rule 457(f), $310,208.41 is attributable to the Debentures, and the amount
of the registration fee has been reduced by such amount. The net
registration fee was paid upon the original filing.
---------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
AS PROVIDED UNDER RULE 429, THE DEBENTURES TO BE OFFERED HEREUNDER WERE
REGISTERED AS DEBT SECURITIES OF UNITED PURSUANT TO THE REGISTRATION STATEMENT
ON FORM S-3 (NO. 33-57192) FILED ON JANUARY 21, 1993.
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<PAGE>
UAL CORPORATION
UNITED AIR LINES, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING THE LOCATION IN THE PROXY STATEMENT/JOINT PROSPECTUS
OF THE INFORMATION REQUIRED TO BE INCLUDED THEREIN
IN RESPONSE TO PART I OF FORM S-4
<TABLE>
<CAPTION>
LOCATION OR HEADING IN
S-4 ITEM NUMBER AND CAPTION PROXY STATEMENT/JOINT PROSPECTUS
--------------------------- --------------------------------
<S> <C>
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus....... FACING PAGE; CROSS-REFERENCE SHEET; OUTSIDE
FRONT COVER PAGE
2. Inside Front and Outside Back
Cover Pages of Prospectus...... AVAILABLE INFORMATION; TABLE OF CONTENTS
3. Risk Factors, Ratio of Earnings
to Fixed Charges, and Other
Information.................... SUMMARY OF PROXY STATEMENT/JOINT
PROSPECTUS; --The Plan of
Recapitalization--Certain Risk Factors;--
Selected Consolidated Historical and Pro
Forma Operating Information; SPECIAL
FACTORS--Certain Risk Factors; SELECTED
CONSOLIDATED FINANCIAL AND OPERATING
INFORMATION; UNAUDITED PRO FORMA FINANCIAL
INFORMATION
4. Terms of the Transaction....... SUMMARY OF THE PROXY STATEMENT/JOINT
PROSPECTUS--The Plan of Recapitalization;
--The Plan of Recapitalization--Background
of the Recapitalization; --The Plan of
Recapitalization--Opinions of the Financial
Advisors to the Board; --Certain Federal
Income Tax Consequences; BACKGROUND OF THE
PLAN OF RECAPITALIZATION; SPECIAL FACTORS--
Opinions of the Financial Advisors to the
Board;--Purpose and Structure of the
Recapitalization;--Certain Effects of the
Recapitalization; CERTAIN FEDERAL INCOME
TAX CONSEQUENCES; THE PLAN OF
RECAPITALIZATION--Terms and Conditions;--
Establishment of ESOPs; DESCRIPTION OF
SECURITIES
5. Pro Forma Financial
Information.................... SUMMARY OF PROXY STATEMENT/JOINT
PROSPECTUS--Selected Consolidated and Pro
Forma Operating Information; UNAUDITED PRO
FORMA FINANCIAL INFORMATION
6. Material Contacts with the
Company Being Acquired......... SUMMARY OF PROXY STATEMENT/JOINT
PROSPECTUS--The Plan of Recapitalization--
Background of the Recapitalization;
BACKGROUND OF THE RECAPITALIZATION
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOCATION OR HEADING IN
S-4 ITEM NUMBER AND CAPTION PROXY STATEMENT/JOINT PROSPECTUS
--------------------------- --------------------------------
<S> <C>
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters.................... NOT APPLICABLE
8. Interests of Named Experts and
Counsel......................... SPECIAL FACTORS--Opinions of the Financial
Advisors to the Board; EXPERTS; LEGAL
OPINION
9. Disclosure of Commission
Position on Indemnification for
Securities Act Liability........ NOT APPLICABLE
10. Information With Respect to S-3
Registrants..................... NOT APPLICABLE
11. Incorporation of Certain
Information by Reference........ NOT APPLICABLE
12. Information With Respect to S-2
or S-3 Registrants.............. NOT APPLICABLE
13. Incorporation of Certain
Information by Reference........ NOT APPLICABLE
14. Information With Respect to
Registrants Other Than S-3 or S-
2 Registrants................... SUMMARY OF PROXY STATEMENT/JOINT
PROSPECTUS; MARKET PRICES OF THE OLD
SHARES; DIVIDENDS; SELECTED CONSOLIDATED
FINANCIAL AND OPERATING INFORMATION;
EXHIBIT 13.1; EXHIBIT 13.2
15. Information With Respect to S-3
Companies....................... NOT APPLICABLE
16. Information With Respect to S-2
or S-3 Companies................ NOT APPLICABLE
17. Information With Respect to
Companies Other Than S-2 or S-3
Companies....................... NOT APPLICABLE
18. Information if Proxies, Consents
or Authorizations Are to be
Solicited....................... SUMMARY OF PROXY STATEMENT/JOINT
PROSPECTUS--Date, Time and Place of
Meeting; --Vote Required; --The Plan of
Recapitalization--Interests of Certain
Persons in the Recapitalization; --No
Appraisal Rights; INTRODUCTION; --Voting
Rights and Proxy Information; --No
Appraisal Rights; SPECIAL FACTORS--
Interests of Certain Persons in the
Recapitalization; --Management
Arrangements; THE PLAN OF
RECAPITALIZATION--Revised Governance
Structure; ELECTION OF DIRECTORS;
BENEFICIAL OWNERSHIP OF SECURITIES;
EXECUTIVE COMPENSATION
19. Information if Proxies, Consents
or Authorizations are not to be
Solicited, or in an Exchange
Offer........................... NOT APPLICABLE
</TABLE>
<PAGE>
LOGO
June 10, 1994
Dear Stockholder:
At a Meeting of Stockholders of UAL Corporation scheduled to be held in the
Imperial Ballroom at the Fairmont Hotel, 200 North Columbus Drive, Chicago,
Illinois on July 12, 1994, common stockholders will be asked to approve a
recapitalization transaction that substantially alters the cost structure of
UAL's principal subsidiary, United Airlines, a change that is intended to
immediately strengthen the carrier's competitive position in worldwide aviation
markets while improving its long-term financial viability well into the future.
As part of the transaction, employees will make an investment, which is
estimated by the Company to have a net present value of approximately $4.9
billion, in the form of wage and benefit reductions, work-rule changes and
related savings. In return, through the establishment of Employee Stock
Ownership Plans, participating employees will hold, initially, approximately 55
percent of the equity in the Company with current stockholders, initially,
retaining approximately 45 percent of the equity in the Company, subject to
adjustment in certain circumstances. In addition, current common stockholders
will receive additional consideration in the form of cash, or a combination of
cash, debentures and preferred stock as described below.
We believe that the transaction directly addresses the major problem facing
United and virtually all mature air carriers in the United States: a high cost
structure that impedes effective competition with newer, low-cost carriers that
have increased significantly their U.S. domestic market share over the past
five years and that are continuing to make significant inroads into United's
traditional markets.
The employee investment is expected to reduce costs substantially throughout
United's worldwide route system. The investment specifically addresses the
critical challenge facing United in U.S. domestic markets by facilitating the
creation of a new operation--an "airline-within-an-airline"--that is intended
to compete more effectively with low-cost carriers in short-haul markets where
they are most predominant.
In addition--and importantly in a service business such as an airline--this
transaction should enhance the commitment of employees by providing a tangible
link between the Company's operating performance and the resulting rewards that
can be realized by employee-owners of the Company.
The transaction will take the form of a recapitalization. At the same time,
United will be making a public offering of its debt securities and the Company
will be making a public offering of depositary shares representing Company
preferred stock. If all of the offerings are consummated, current common
stockholders will receive an amount of cash equal to the sum of (i) $25.80,
(ii) the proceeds (without deducting the underwriting discount or other costs)
from the sale by United of $31.10 face amount of its debt securities and (iii)
the proceeds (without deducting the underwriting discount or other costs) from
the sale by the Company of depositary shares representing interests in $31.10
liquidation preference of preferred stock. If none of the offerings is
consummated, current common stockholders will receive (i) $25.80 in cash, (ii)
$31.10 face amount of United's debt securities and (iii) depositary shares
representing interests in $31.10 liquidation preference of the Company's
preferred stock. If some but not all of the offerings are consummated, current
common stockholders will receive $25.80 in cash and a combination of the cash
proceeds from the offerings and securities that will vary depending upon which
securities are sold in the applicable offering. Current common stockholders
also will retain a significant ongoing equity interest in the Company that will
be the same regardless of whether any or all of the offerings are consummated.
Under various circumstances, however, the value of the consideration to be
received by common stockholders could be less than the stated face amount of
the debt securities or the liquidation preference of the preferred stock
interests.
LOGO
<PAGE>
The attached Proxy Statement/Joint Prospectus details the proposed
transaction, including the establishment of a revised corporate governance
structure that will be implemented through, among other things, amendments to
the Company's Restated Certificate of Incorporation and Bylaws.
The Board of Directors has approved the recapitalization plan and has
determined that the proposed recapitalization is fair to the holders of the
Company's common stock. The Board of Directors recommends that holders of
common stock vote FOR approval of the recapitalization plan and the related
matters identified as Items 2 through 8 on the enclosed proxy card.
You are urged to read the information concerning the proposed
recapitalization contained in the attached Proxy Statement/Joint Prospectus,
including pages 15 through 27 that outline the benefits that the Company
expects to achieve as a result of the employee investment, including the
opinions of the Company's financial advisors, CS First Boston Corporation and
Lazard Freres & Co. The Proxy Statement/Joint Prospectus also describes a
number of other matters to be voted upon by holders of common stock at the
Meeting.
We ask you to fill out, sign and mail promptly the enclosed proxy. If you
plan to attend, please request an admission card by marking the proxy card in
the space provided. If you attend the meeting, you may vote your shares in
person whether or not you have previously submitted a proxy.
Thank you for your cooperation.
Very truly yours,
Stephen M. Wolf
Chairman of the Board
and Chief Executive Officer
2
<PAGE>
UAL CORPORATION
P.O. BOX 66919
CHICAGO, ILLINOIS 60666
----------------
NOTICE OF MEETING OF STOCKHOLDERS
To the Stockholders:
A Meeting of stockholders of UAL Corporation, a Delaware corporation (the
"Company"), will be held in the Imperial Ballroom at the Fairmont Hotel, 200
North Columbus Drive, Chicago, Illinois, on July 12, 1994, at 8:30 a.m., local
time, for the following purposes:
1. To approve the Amended and Restated Agreement and Plan of
Recapitalization, dated as of March 25, 1994 (the "Plan of
Recapitalization"). The Plan of Recapitalization provides for the
reclassification of the Company's outstanding common stock and other
amendments to the Company's Restated Certificate of Incorporation and
Bylaws, as a result of which each outstanding share of common stock, par
value $5.00 per share, of the Company (the "Old Shares") will be
reclassified as, and exchanged for, one half (0.5) of a share of new common
stock, par value $.01 per share, of the Company (the "New Shares") and one
one-thousandth of a share of Series D Redeemable Preferred Stock, without
par value, of the Company (the "Series D Redeemable Preferred Stock").
Concurrently with the solicitation of proxies in connection with the Plan
of Recapitalization, United Air Lines, Inc. ("United") expects to offer up
to $382.5 million principal amount of its Series A Debentures due 2004 (the
"Series A Debentures") (the "United Series A Offering") and up to $382.5
million principal amount of its Series B Debentures due 2014 (the "Series B
Debentures") (the "United Series B Offering") and the Company expects to
offer up to 30,600,000 depositary shares (the "Depositary Preferred
Shares") representing interests in $765.0 million liquidation preference of
Series B Preferred Stock of the Company (the "Public Preferred Stock") (the
"UAL Preferred Offering"). Immediately upon issuance, the Company will
redeem each one one-thousandth of a share of Series D Redeemable Preferred
Stock for:
(i) $25.80 in cash,
(ii) either (a) $15.55 principal amount of Series A Debentures or (b)
if the United Series A Offering is consummated, the cash proceeds
(without deducting any underwriting discount or other costs) from the
sale thereof by United pursuant to the United Series A Offering,
(iii) either (a) $15.55 principal amount of Series B Debentures or
(b) if the United Series B Offering is consummated, the cash proceeds
(without deducting any underwriting discount or other costs) from the
sale thereof by United pursuant to the United Series B Offering, and
(iv) either (a) Depositary Preferred Shares representing interest in
$31.10 liquidation preference of Public Preferred Stock or (b) if the
UAL Preferred Offering is consummated, the cash proceeds (without
deducting any underwriting discount or other costs) from the sale
thereof by the Company pursuant to the UAL Preferred Offering.
2. Subject to and conditioned upon approval of the Plan of
Recapitalization, to approve the amendment and restatement of the Company's
Restated Certificate of Incorporation and Bylaws as set forth in the Plan
of Recapitalization (the "Charter and Bylaw Amendments").
3. Subject to and conditioned upon approval of the Plan of
Recapitalization and the Charter and Bylaw Amendments, to approve the
issuance of (a) shares of Class 1 ESOP Convertible Preferred Stock to State
Street Bank and Trust Company ("State Street"), as trustee of the UAL
Corporation Employee Stock Ownership Plan Trust, from time to time, (b)
shares of Class 2 ESOP Convertible Preferred Stock (or the common shares
into which they are convertible) to State Street, as trustee of the UAL
Corporation Employee Stock Ownership Plan Trust (or in limited
circumstances as trustee of the UAL Corporation Supplemental Employee Stock
Ownership Plan Trust), or to participants in the UAL Corporation
Supplemental Employee Stock Ownership Plan, from time to time, (c) shares
of (i) Class P ESOP Voting Junior Preferred Stock, (ii) Class M ESOP Voting
Junior Preferred Stock and (iii) Class S
<PAGE>
ESOP Voting Junior Preferred Stock to State Street, as trustee of the UAL
Corporation Employee Stock Ownership Plan Trust and the UAL Corporation
Supplemental ESOP Trust, (d) shares of Class I Junior Preferred Stock to
certain individuals to be named as directors of the Company, (e) a share of
Class Pilot MEC Junior Preferred Stock to the United Airlines Pilots Master
Executive Council of the Air Line Pilots Association, International, (f) a
share of Class IAM Junior Preferred Stock to the International Association
of Machinists and Aerospace Workers or its designee and (g) shares of Class
SAM Preferred Stock to an individual to be named as a director of the
Company on behalf of its salaried and management employees and to an
additional designated stockholder.
4. Subject to and conditioned upon approval of the Plan of
Recapitalization and the Charter and Bylaw Amendments, to elect four
directors to serve as "Public Directors" of the Company until their
successors are duly elected and qualified.
5. Subject to and conditioned upon approval of the Plan of
Recapitalization and the Charter and Bylaw Amendments, to amend the
Company's 1981 Incentive Stock Program.
6. Subject to and conditioned upon approval of the Plan of
Recapitalization and the Charter and Bylaw Amendments, to amend the
Company's 1988 Restricted Stock Plan.
7. Subject to and conditioned upon approval of the Plan of
Recapitalization and the Charter and Bylaw Amendments, to amend the
Company's Incentive Compensation Plan.
8. To consider and act upon three stockholder proposals.
9. To ratify the selection of Arthur Andersen & Co. as the Company's
independent accountants for the year ending December 31, 1994.
10. To transact such other business as may properly come before the
Meeting or any adjournment or postponement thereof.
If the Plan of Recapitalization is approved and directors are elected at the
Meeting, the Meeting will be deemed to constitute the Company's 1994 annual
meeting. If the Plan of Recapitalization is not approved and/or if directors
are not elected at the Meeting, an annual meeting of stockholders for 1994 will
be scheduled in the near future.
Only holders of record of Old Shares at the close of business on June 9, 1994
are entitled to notice of, and to vote at, the Meeting and at any adjournment
or postponement thereof. A list of such holders will be open for examination
during ordinary business hours by any stockholder for any purpose germane to
the meeting at 625 North Michigan Avenue, Chicago, Illinois for a period of ten
days prior to the meeting. The list will also be available on July 12, 1994 at
the place of the Meeting.
Stockholders will not be entitled to appraisal rights in connection with any
of the matters to be voted on at the Meeting.
Stockholders are urged to fill out, sign and mail promptly the enclosed proxy
in the accompanying envelope, which requires no postage if mailed in the United
States. Proxies forwarded by or for brokers or fiduciaries should be returned
as directed. The prompt return of proxies will save the expense involved in
further communication.
By Order of the Board of Directors.
Francesca M. Maher,
Secretary
Chicago, Illinois
June 10, 1994
PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY PROMPTLY, WHETHER OR NOT YOU
INTEND TO BE PRESENT AT THE MEETING.
2
<PAGE>
UAL CORPORATION
UNITED AIR LINES, INC.
PROXY STATEMENT/JOINT PROSPECTUS
This Proxy Statement/Joint Prospectus (the "Proxy Statement/Prospectus") is
being furnished in connection with the solicitation of proxies by the Board of
Directors of UAL Corporation, a Delaware corporation (the "Company"), from
holders of the outstanding shares of common stock, par value $5.00 per share,
of the Company ("Old Shares") for use at the Meeting of Stockholders of the
Company (the "Meeting") to be held at the time and place and for the purposes
set forth in the accompanying Notice.
At the Meeting, the holders of Old Shares will be asked to consider and to
vote upon (i) the Amended and Restated Agreement and Plan of Recapitalization,
dated as of March 25, 1994 (the "Plan of Recapitalization"), which contemplates
certain transactions collectively referred to as the "Recapitalization," (ii)
subject to and conditioned upon approval of the Plan of Recapitalization, the
amendment and restatement of the Company's Restated Certificate of
Incorporation and Bylaws (the "Charter and Bylaw Amendments"), (iii) subject to
and conditioned upon approval of the Plan of Recapitalization and the Charter
and Bylaw Amendments, the approval of the issuance of (a) shares of Class 1
ESOP Convertible Preferred Stock to State Street Bank and Trust Company ("State
Street"), as trustee of the UAL Corporation Employee Stock Ownership Plan
Trust, from time to time, (b) shares of Class 2 ESOP Convertible Preferred
Stock (or the common shares into which they are convertible) to State Street,
as trustee of the UAL Corporation Employee Stock Ownership Plan Trust (or, in
limited circumstances, as trustee of the UAL Corporation ESOP Trust), or to
participants in the UAL Corporation Supplemental Employee Stock Ownership Plan
Trust from time to time, (c) shares of (1) Class P ESOP Voting Junior Preferred
Stock, (2) Class M ESOP Voting Junior Preferred Stock and (3) Class S ESOP
Voting Junior Preferred Stock to State Street, as trustee of the UAL
Corporation Employee Stock Ownership Plan Trust and the UAL Corporation
Supplemental ESOP Trust, (d) shares of Class I Junior Preferred Stock to
certain individuals to be named as directors of the Company, (e) a share of
Class Pilot MEC Junior Preferred Stock to the United Airlines Pilots Master
Executive Council ("ALPA-MEC") of the Air Line Pilots Association,
International ("ALPA"), (f) a share of Class IAM Junior Preferred Stock to the
International Association of Machinists and Aerospace Workers (the "IAM") or
its designee, and (g) shares of Class SAM Junior Preferred Stock to an
individual to be named as a director of the Company on behalf of salaried and
management employees and to an additional designated stockholder, (iv) subject
to and conditioned upon approval of the Plan of Recapitalization and the
Charter and Bylaw Amendments, the election of four "Public Directors" of the
Company, (v) subject to and conditioned upon approval of the Plan of
Recapitalization and the Charter and Bylaw Amendments, the amendment of the
Company's 1981 Incentive Stock Program, (vi) subject to and conditioned upon
approval of the Plan of Recapitalization and the Charter and Bylaw Amendments,
the amendment of the Company's 1988 Restricted Stock Plan, (vii) subject to and
conditioned upon approval of the Plan of Recapitalization, the amendment of the
Company's Incentive Compensation Plan, (viii) three stockholder proposals, and
(ix) ratification of the selection of Arthur Andersen & Co. as the Company's
independent accountants for the year ending December 31, 1994.
The Plan of Recapitalization provides for the reclassification (the
"Reclassification") of the Company's outstanding common stock and other
amendments to the Company's Restated Certificate and Bylaws as a result of
which each outstanding share of common stock, par value $5.00 per share, of the
Company (the "Old Shares") will be reclassified as, and exchanged for, one half
(0.5) of a share of new common stock, par value $0.01 per share, of the Company
(the "New Shares") and one one-thousandth of a share of Series D Redeemable
Preferred Stock, without par value, of the Company (the "Series D Redeemable
Preferred Stock"). Concurrently with the solicitation of proxies in connection
with the Plan of Recapitalization, United Air Lines, Inc. ("United") expects to
offer up to $382.5 million principal amount of its Series A Debentures due 2004
(the "Series A Debentures") (the "United Series A Offering") and up to $382.5
million principal amount of its Series B Debentures due 2014 (the "Series B
Debentures" and, together with the Series A Debentures, the "Debentures") (the
"United Series B Offering" and, together with the United Series A Offering, the
"United Debt Offerings") and the Company expects to offer up to 30,600,000
depositary shares (the "Depositary Preferred Shares") representing interests in
$765.0 million liquidation preference of Series B Preferred Stock of the
Company (the "Public Preferred Stock") (the "UAL Preferred Offering" and,
together with the United Debt Offerings, the "Offerings"). Immediately upon
issuance pursuant to the Reclassification, the Company will redeem each one
one-thousandth of a share of Series D Redeemable Preferred Stock (the
"Redemption") for:
(i) $25.80 in cash,
(ii) either (a) $15.55 principal amount of Series A Debentures or (b) if
the United Series A Offering is consummated, the cash proceeds (without
deducting any underwriting discount or other costs) from the sale thereof by
United pursuant to the United Series A Offering,
(iii) either (a) $15.55 principal amount of Series B Debentures or (b) if
the United Series B Offering is consummated, the cash proceeds (without
deducting any underwriting discount or other costs) from the sale thereof by
United pursuant to the United Series B Offering, and
(iv) either (a) Depositary Preferred Shares representing interests in
$31.10 liquidation preference of Public Preferred Stock or (b) if the UAL
Preferred Offering is consummated, the cash proceeds (without deducting any
underwriting discount or other costs) from the sale thereof by the Company
pursuant to the UAL Preferred Offering.
<PAGE>
Under various circumstances, however, the value of the consideration to be
received by stockholders could be less than the stated principal amount of the
Debentures or the liquidation preference represented by the Depositary
Preferred Shares.
The interest rates on the Debentures and the dividend rate on the Public
Preferred Stock have been set provisionally and are subject to adjustment prior
to the Meeting. See "THE PLAN OF RECAPITALIZATION--Terms and Conditions--
Pricing the Securities."
On the business day following the establishment of the adjusted rates, which
shall be not greater than ten calendar days nor less than five business days
prior to the Meeting as specified by the Company (the "Announcement Date"), the
Company will (i) issue a press release setting forth certain information
(described below) relating to the Debentures and the Public Preferred Stock and
(ii) send a mailgram to all holders of Old Shares as of the Record Date setting
forth such information. On the first business day following the Announcement
Date, the Company will publish such information in an advertisement in the
national edition of The Wall Street Journal. In addition, a toll-free number
(800-223-2064) has been established from which all holders of Old Shares can
obtain general recorded information concerning the Announcement Date. As of the
Announcement Date, holders of the Old Shares can call the toll-free number to
obtain the information relating to the Debentures and the Public Preferred
Stock. See "SPECIAL FACTORS--Certain Risk Factors--Pricing of Public Preferred
Stock and Debentures." On or promptly following the Announcement Date, the
Company will also file with the Securities and Exchange Commission an amendment
to the Registration Statement on Form S-4 to reflect the final pricing
information.
The press release, newspaper advertisement, mailgram and recorded information
described in the previous paragraph will include (i) a statement of whether the
Company expects all or any of the Offerings to be consummated, (ii) if so, the
amount of the cash proceeds to be received from the sale of the Debentures
and/or Depositary Preferred Shares that are otherwise issuable in respect of
each Old Share if any of such Offerings are consummated and (iii) a statement
of the interest rates and/or dividend rate for the Debentures or Depositary
Preferred Shares if the Offering relating to any such securities is not
consummated. To the extent the Company has announced that it expects any or all
of the Offerings to be consummated and it is subsequently determined that any
of such Offerings will not be consummated, the Company will disseminate such
information promptly in the same manner that the Company used to disseminate
the information set forth in the previous sentence and will cause the Meeting
to be rescheduled such that at least five business days will occur between the
release of such information and the Meeting. ANY STATEMENT IN CONNECTION WITH
THE FOREGOING THAT THE COMPANY EXPECTS ANY OR ALL OF THE OFFERINGS TO BE
CONSUMMATED WILL NOT BE AN ASSURANCE THAT ANY OF THE OFFERINGS WILL BE
CONSUMMATED.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked at any time
(including between the Announcement Date and the date of the Meeting) by (i)
filing with the Secretary of the Company, before the polls are closed with
respect to the vote, a written notice of revocation bearing a later date than
the proxy, (ii) duly executing a subsequent proxy relating to the same Old
Shares and delivering it to the Secretary of the Company or (iii) attending the
Meeting and voting in person (although attendance at the Meeting will not in
and of itself constitute a revocation of proxy). Any written notice revoking a
proxy in accordance with clause (i) above should be sent to: UAL Corporation,
P.O. Box 66919, Chicago, Illinois 60666, Attention: Francesca M. Maher,
Secretary. In addition, both proxies and revocations of proxy may be given by
delivering to Georgeson & Co. by means of facsimile at (212) 440-9009, before
the close of business on the day before the Meeting, both sides of an executed
form of proxy or a notice of revocation bearing a later date than the proxy.
See "SUMMARY OF PROXY STATEMENT/JOINT PROSPECTUS--The Plan of
Recapitalization."
One half of a New Share will represent an equity interest (based on Fully
Diluted Old Shares, as defined in "THE PLAN OF RECAPITALIZATION--Terms and
Conditions--General") immediately after consummation of the Recapitalization of
45% of one Old Share's current percentage equity interest in the Company,
subject to possible reduction. See "THE PLAN OF RECAPITALIZATION--Establishment
of ESOPs--Additional Shares." The funds (other than the proceeds of the
Offerings, if applicable) required to effect the Recapitalization, to pay
related expenses (including certain expenses of ALPA and the IAM) and to
provide for the Company's working capital needs after the Recapitalization are
expected to be provided from the Company's internal resources.
The Plan of Recapitalization provides for amendments to the Company's
Restated Certificate of Incorporation and Bylaws, which will provide, among
other things, for a restructuring of the entire Board of
ii
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Directors of the Company. If the Recapitalization is consummated, these
amendments, together with the obligation to convey ownership initially of at
least 55% of the Company's common equity interests by a trust, the crediting
of certain shares for future issuance for certain of its employees and
provisions that will preserve the majority voting power of the employee groups
so long as their percentage economic interest in the Company remains above
certain levels, will have the effect of a change in control of the Company and
may make more difficult a future change in control of the Company. See "THE
PLAN OF RECAPITALIZATION--Revised Governance Structure."
IN ASSESSING THE RECAPITALIZATION, EACH STOCKHOLDER SHOULD BE AWARE THAT
CERTAIN FACTORS INVOLVED IN THE RECAPITALIZATION MAY INCREASE THE RISK
ASSOCIATED WITH, AND MAY OTHERWISE ADVERSELY AFFECT THE VALUE OF, MAINTAINING
AN EQUITY INVESTMENT IN THE COMPANY. THESE FACTORS INCLUDE AN IMMEDIATE CHANGE
OF THE COMPANY'S CAPITALIZATION TO ONE THAT IS MORE LEVERAGED. SEE "SPECIAL
FACTORS--CERTAIN RISK FACTORS" AND "--CERTAIN EFFECTS OF THE
RECAPITALIZATION."
Consummation of the Recapitalization is subject to certain conditions,
including approval of the Plan of Recapitalization by holders of at least a
majority of the outstanding Old Shares. See "THE PLAN OF RECAPITALIZATION--
Terms and Conditions." Consummation of the Recapitalization is not conditioned
on, or subject to, consummation of the Offerings, although consummation of the
Offerings is conditioned on, and subject to, consummation of the
Recapitalization. In addition, none of the Offerings is conditioned on, or
subject to, the consummation of any of the other Offerings.
The address of the principal executive offices of the Company and United is
1200 East Algonquin Road, Elk Grove Township, Illinois 60007, their telephone
number at such address is (708) 952-4000 and the mailing address of the
Company and United is P.O. Box 66919, Chicago, Illinois 60666.
The Company and United have filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), covering the New Shares, the Depositary Preferred Shares,
the Public Preferred Stock, the Redeemable Preferred Stock and the Debentures
to be issued, if required, in the Recapitalization. This Proxy
Statement/Prospectus, which is first being mailed to stockholders of the
Company on or about June 10, 1994, constitutes the joint prospectus of the
Company and United included as part of the Registration Statement. The Company
has also filed a Rule 13e-3 Transaction Statement on Schedule 13E-3 (the
"Schedule 13E-3") in connection with the Recapitalization. Copies of the
Registration Statement and the Schedule 13E-3 may be obtained as set forth
below under "AVAILABLE INFORMATION."
No person is authorized in connection with any offering made hereby to give
any information or to make any representations other than those contained in
this Proxy Statement/Prospectus and, if given or made, such other information
or representations must not be relied upon as having been authorized. This
Proxy Statement/Prospectus does not constitute an offer to sell, or a
solicitation of any offer to buy, by any person in any jurisdiction in which
it is unlawful for such person to make such offer or solicitation. This Proxy
Statement/Prospectus has been prepared for use by holders of Old Shares in
determining how to vote on the matters to be presented for a vote at the
Meeting, and its use for any other purpose is not authorized. Neither the
delivery of this Proxy Statement/Prospectus nor any sale made hereunder shall
under any circumstances create any implication that information herein is
correct as of any time subsequent to the date hereof.
----------------
Like many other carriers, United overflies Cuba in order to serve other
destinations in Central and South America and the Caribbean and is required by
the Cuban government to pay fees for such overflight which United does
pursuant to a license which it has obtained from the U.S. government. This
information is accurate as of the date of this Prospectus and current
information concerning business dealings of United with the government of Cuba
or with any person or affiliate located in Cuba may be obtained from the
Florida Department of Banking and Finance, Plaza Level, The Capitol,
Tallahassee, Florida 32399-0350, telephone number (904) 488-9530.
----------------
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS PASSED UPON THE FAIRNESS OR MERITS OF THIS
TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------
The date of this Proxy Statement/Prospectus is June 10, 1994.
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AVAILABLE INFORMATION
The Company and United are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Commission. The reports, proxy statements and other information filed by
the Company and United with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the
Commission at Seven World Trade Center, 13th Floor, New York, New York 10048
and at Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material also can be obtained by mail from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. In addition, material filed by the
Company can be inspected at the offices of the New York Stock Exchange, Inc.,
20 Broad Street, New York, New York 10005, the Chicago Stock Exchange, 440
South LaSalle Street, Chicago, Illinois 60605 and the Pacific Stock Exchange,
301 Pine Street, San Francisco, California 94104.
The Company and United have filed with the Commission a Registration
Statement under the Securities Act, with respect to the New Shares, the
Depositary Preferred Shares, the Public Preferred Stock, the Series D
Redeemable Preferred Stock, and the Debentures to be issued, if required,
pursuant to or as contemplated by the Recapitalization as described in this
Proxy Statement/Prospectus. This Proxy Statement/Prospectus does not contain
all the information set forth or incorporated by reference in the Registration
Statement and the exhibits and schedules relating thereto, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement and the exhibits filed or incorporated as a part thereof, which are
on file at the offices of the Commission and may be obtained upon payment of
the fee prescribed by the Commission, or may be examined without charge at the
offices of the Commission. Statements contained in this Proxy
Statement/Prospectus as to the contents of any contract or other document
referred to herein are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement or such other document, and each such statement is
qualified in all respects by such reference.
The Company has filed a separate registration statement under the Securities
Act with respect to the Depositary Preferred Shares and the Public Preferred
Stock proposed to be sold in the UAL Preferred Offering, and United has filed a
separate registration statement under the Securities Act with respect to the
Debentures proposed to be sold in the United Debt Offerings.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company and United
pursuant to the Exchange Act are incorporated by reference in this Proxy
Statement/Prospectus.
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1993, as amended.
2. The Company's Quarterly Report on Form 10-Q for the period ended March
31, 1994.
3. The Company's Current Reports on Form 8-K dated March 28, 1994, March
29, 1994, April 28, 1994, May 3, 1994 and June 3, 1994.
4. United's Annual Report on Form 10-K for the year ended December 31,
1993.
5. United's Quarterly Report on Form 10-Q for the period ended March 31,
1994, as amended.
6. United's Current Reports on Form 8-K dated March 29, 1994 (two reports),
April 21, 1994, April 28, 1994, May 3, 1994 and June 3, 1994.
All documents and reports subsequently filed by the Company or United
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Proxy Statement/Prospectus and prior to the date of the Meeting of
Stockholders of the Company shall be deemed to be incorporated by reference in
this Proxy Statement/Prospectus and to be a part hereof from the date of filing
of such documents or reports. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Proxy Statement/Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST FROM UAL CORPORATION, P.O. BOX 66919, CHICAGO, ILLINOIS 60666
(TELEPHONE NUMBER (708) 952-4000), ATTENTION: FRANCESCA M. MAHER, SECRETARY. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUESTS SHOULD BE MADE
BY JULY 5, 1994.
iv
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TABLE OF CONTENTS
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SUMMARY OF PROXY STATEMENT/JOINT PROSPECTUS.............................. ix
The Company and United................................................. ix
Date, Time and Place of Meeting........................................ ix
Purpose of the Meeting................................................. ix
Record Date; Stockholders Entitled to Vote............................. x
Vote Required.......................................................... x
The Plan of Recapitalization........................................... xi
Effective Time of the Recapitalization............................... xiv
Conditions to the Recapitalization................................... xiv
Payment for Old Shares............................................... xv
Background of the Recapitalization................................... xv
Recommendation of the Board.......................................... xvii
Opinions of the Financial Advisors to the Board...................... xviii
Interests of Certain Persons in the Recapitalization................. xix
Certain Risk Factors................................................. xix
Certain Federal Income Tax Consequences................................ xxvii
No Appraisal Rights.................................................... xxvii
Market Prices of the Old Shares; Dividends............................. xxvii
Unaudited Pro Forma Consolidated Financial Position.................... xxix
UAL Corporation and Subsidiary Companies............................. xxix
United Air Lines, Inc. and Subsidiary Companies...................... xxxv
Selected Consolidated Historical and Pro Forma Operating Information... xl
UAL Corporation and Subsidiary Companies............................. xl
United Air Lines, Inc. and Subsidiary Companies...................... xlii
Summary of Terms of Securities......................................... xliv
INTRODUCTION............................................................. 1
Purpose of the Meeting................................................. 1
Voting Rights and Proxy Information.................................... 4
No Appraisal Rights.................................................... 5
BACKGROUND OF THE PLAN OF RECAPITALIZATION............................... 5
SPECIAL FACTORS.......................................................... 15
Certain Company Analyses............................................... 15
Certain Revenue and Earnings Scenarios................................. 20
Effect of the Recapitalization on Income Statement, Book Equity and
Cash Flow............................................................. 21
Implementation of the "Airline-Within-an-Airline" (U2)................. 23
Unit Costs............................................................. 26
Recommendation of the Board............................................ 27
Opinions of the Financial Advisors to the Board........................ 29
Opinion of CS First Boston........................................... 29
Opinion of Lazard.................................................... 34
Opinion of Valuation Firm.............................................. 39
Purpose and Structure of the Recapitalization.......................... 43
Interests of Certain Persons in the Recapitalization................... 43
Certain Risk Factors................................................... 45
Certain Effects of the Recapitalization................................ 55
Management Arrangements................................................ 55
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................. 57
LITIGATION............................................................... 62
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THE PLAN OF RECAPITALIZATION.............................................. 63
Investment for Unionized Employees...................................... 63
Investment for Salaried and Management Employees........................ 66
Revised Governance Structure............................................ 67
Composition of the Board.............................................. 67
Public Directors...................................................... 67
Independent Directors................................................. 68
Employee Directors.................................................... 68
Quorum................................................................ 69
Required Board Action................................................. 69
Term of Office; Resignation; Removal.................................. 69
Officers.............................................................. 70
Stockholder Approval Matters.......................................... 70
ESOP Voting........................................................... 70
Extraordinary Matters................................................. 71
Special Voting Provisions with Respect to Purchase and Sale of Common
Stock................................................................ 73
Rights Plan........................................................... 73
Nondilution........................................................... 73
Sunset................................................................ 73
Committees............................................................ 74
Amendment and Restatement of the Bylaws............................... 76
Terms and Conditions.................................................... 77
General............................................................... 77
Effective Time........................................................ 78
Payment for Shares.................................................... 78
Stock Options......................................................... 79
Convertible Company Securities........................................ 80
Treasury Shares....................................................... 80
Pricing the Securities................................................ 80
Record and Payment Dates.............................................. 82
Purchase of ESOP Preferred Stock...................................... 82
Representations and Warranties........................................ 82
Certain Covenants..................................................... 82
Conditions............................................................ 84
Termination........................................................... 86
Survival.............................................................. 87
Amendments; No Waivers................................................ 88
Fees and Expenses; Indemnification.................................... 88
Parties in Interest................................................... 90
Specific Performance.................................................. 90
Establishment of ESOPs.................................................. 90
General............................................................... 90
Sales of ESOP Preferred Stock......................................... 93
Additional Shares..................................................... 96
Additional Contributions.............................................. 98
Control Transactions.................................................. 98
Participation and Vesting............................................. 99
Federal Income Tax Matters............................................ 99
Plan Administration................................................... 99
ELECTION OF DIRECTORS..................................................... 100
Nominees for Election as Public Directors............................... 100
Public Directors........................................................ 100
</TABLE>
vi
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Independent and Employee Directors...................................... 101
Independent Directors................................................. 101
ALPA Director......................................................... 101
IAM Director.......................................................... 101
Salaried and Management Director...................................... 101
MARKET PRICES OF THE OLD SHARES; DIVIDENDS................................ 102
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING
INFORMATION.............................................................. 103
UAL Corporation and Subsidiary Companies................................ 103
United Air Lines, Inc. and Subsidiary Companies......................... 105
UNAUDITED PRO FORMA FINANCIAL INFORMATION................................. 107
UAL Corporation and Subsidiary Companies................................ 107
United Air Lines, Inc. and Subsidiary Companies......................... 123
CAPITALIZATION............................................................ 134
UAL Corporation and Subsidiary Companies................................ 134
United Air Lines, Inc. and Subsidiary Companies......................... 135
BENEFICIAL OWNERSHIP OF SECURITIES........................................ 136
Five Percent Beneficial Owners.......................................... 136
Securities Beneficially Owned by Directors and Executive Officers....... 137
CERTAIN INFORMATION CONCERNING THE BOARD OF DIRECTORS..................... 139
Executive Committee..................................................... 139
Audit Committee......................................................... 139
Compensation Committee.................................................. 139
Nominating Committee.................................................... 140
Pension and Welfare Plans Oversight Committee........................... 140
Compensation of Directors; Effect of "Change in Control"................ 140
Certain Relationships and Related Transactions.......................... 141
EXECUTIVE COMPENSATION.................................................... 141
Philosophy.............................................................. 141
Components.............................................................. 141
CEO Compensation........................................................ 142
Compensation for the Other Named Officers............................... 143
Committee Actions Regarding Changes in Control.......................... 143
Omnibus Budget Reconciliation Act of 1993............................... 143
Compensation Consultant and Competitive Data............................ 143
Employment Contracts and Change in Control Arrangements................. 146
Rule 405 Disclosure..................................................... 147
APPROVAL OF AMENDMENTS TO THE 1981 INCENTIVE STOCK PROGRAM................ 147
APPROVAL OF AMENDMENTS TO THE 1988 RESTRICTED STOCK PLAN.................. 149
APPROVAL OF AMENDMENTS TO THE INCENTIVE COMPENSATION PLAN................. 151
DESCRIPTION OF SECURITIES................................................. 152
The Debentures.......................................................... 152
The Capital Stock of the Company........................................ 156
The Public Preferred Stock.............................................. 158
The Depositary Preferred Shares......................................... 163
The Series D Redeemable Preferred Stock................................. 165
The ESOP Preferred Stock................................................ 167
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vii
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The Voting Preferred Stock.............................................. 170
The Director Preferred Stock............................................ 171
The Common Stock, the Series A Preferred Stock and the Junior
Participating Preferred Stock.......................................... 174
STOCKHOLDER PROPOSALS..................................................... 179
Proposal Concerning Cumulative Voting................................... 179
Proposal Concerning Contingent Executive Compensation Agreements........ 180
Proposal Concerning Confidential Voting................................. 181
FEES AND EXPENSES......................................................... 183
INDEPENDENT PUBLIC ACCOUNTANTS............................................ 183
DISCRETIONARY AUTHORITY OF PROXIES........................................ 183
EXPERTS................................................................... 184
LEGAL OPINION............................................................. 184
PROXY SOLICITATION........................................................ 184
PROPOSALS FOR 1995 ANNUAL MEETING......................................... 184
OTHER MATTERS............................................................. 184
ANNEX I--Opinion of CS First Boston Corporation
ANNEX II--Opinion of Lazard Freres & Co.
ANNEX III--Amendment to the 1981 Incentive Stock Program
ANNEX IV--Amendment to the 1988 Restricted Stock Program
ANNEX V--UAL Corporation Incentive Compensation Plan
ANNEX VI--Amendment to the UAL Corporation Incentive Compensation Plan
EXHIBITS--Volume I
Amended and Restated Agreement and Plan of Recapitalization............. A1
Restated Certificate of Incorporation................................... B1
Restated Bylaws......................................................... C1
</TABLE>
viii
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SUMMARY OF PROXY STATEMENT/JOINT PROSPECTUS
The following summary is intended only to highlight certain information
contained in the Proxy Statement/Joint Prospectus (the "Proxy
Statement/Prospectus"). This summary is not intended to be a complete statement
of all material features of the proposed Recapitalization (defined below) and
is qualified in its entirety by reference to the detailed information contained
elsewhere in this Proxy Statement/Prospectus, the Annexes and Exhibits to this
Proxy Statement/Prospectus and the other documents referred to herein.
Stockholders are urged to read this Proxy Statement/Prospectus and the Annexes
and Exhibits hereto in their entirety.
THE COMPANY AND UNITED
UAL Corporation, a Delaware corporation (the "Company"), is a holding company
and its primary subsidiary is United Air Lines, Inc., a Delaware corporation
("United"), which is wholly-owned. At the end of 1993, United served 159
airports in the United States and 32 foreign countries. During 1993, United
averaged 2,040 departures daily, flew a total of 101 billion revenue passenger
miles and carried an average of 191,000 passengers per day. At the end of 1993,
United's fleet of aircraft totaled 544. United's major hub operations are
located at Chicago, Denver, San Francisco, Washington D.C., London and Tokyo.
The address of the principal executive offices of the Company and United is
1200 East Algonquin Road, Elk Grove Township, Illinois 60007, their telephone
number at such address is (708) 952-4000 and the mailing address of the Company
and United is P.O. Box 66919, Chicago, Illinois 60666.
DATE, TIME AND PLACE OF MEETING
The Meeting of Stockholders of the Company (the "Meeting") is scheduled to be
held in the Imperial Ballroom at the Fairmont Hotel, 200 North Columbus Drive,
Chicago, Illinois on July 12, 1994 at 8:30 A.M.
PURPOSE OF THE MEETING
Holders of shares of common stock, par value $5 per share, of the Company
(the "Old Shares") are being asked to consider and vote upon:
(i) the Amended and Restated Agreement and Plan of Recapitalization,
dated as of March 25, 1994 (the "Plan of Recapitalization"), pursuant to
which, among other things, each Old Share that is outstanding at the
Effective Time (as defined below) will be converted into, and become a
right to receive one half (0.5) of a share of new common stock, par value
$0.01 per share, of the Company (the "New Shares") and one one-thousandth
of a share of Series D Redeemable Preferred Stock, without par value, of
the Company (the "Series D Redeemable Preferred Stock"). Concurrently with
the solicitation of proxies in connection with the Plan of
Recapitalization, United expects to offer up to $382.5 million principal
amount of its Series A Debentures due 2004 (the "Series A Debentures") (the
"United Series A Offering") and up to $382.5 million principal amount of
its Series B Debentures due 2014 (the "Series B Debentures" and, together
with the Series A Debentures, the "Debentures") (the "United Series B
Offering" and, together with the United Series A Offering, the "United Debt
Offerings") and the Company expects to offer up to 30,600,000 depositary
shares (the "Depositary Preferred Shares") representing interests in $765.0
million liquidation preference of Series B Preferred Stock, without par
value, of the Company (the "Public Preferred Stock") (the "UAL Preferred
Offering" and, together with the United Debt Offerings, the "Offerings").
Immediately upon issuance pursuant to this reclassification the
("Reclassification"), the Company will redeem each one one-thousandth of a
share of Series D Redeemable Preferred Stock (the "Redemption") for:
(a) $25.80 in cash,
(b) either (1) $15.55 principal amount of Series A Debentures or (2)
if the United Series A Offering is consummated, the cash proceeds
(without deducting any underwriting discount or other costs) from the
sale thereof by United pursuant to the United Series A Offering,
(c) either (1) $15.55 principal amount of Series B Debentures or (2)
if the United Series B Offering is consummated, the cash proceeds
(without deducting any underwriting discount or other costs) from the
sale thereof by United pursuant to the United Series B Offering, and
ix
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(d) either (1) Depositary Preferred Shares representing interests in
$31.10 liquidation preference of Public Preferred Stock or (2) if the
UAL Preferred Offering is consummated, the cash proceeds (without
deducting any underwriting discount or other costs) from the sale
thereof by the Company pursuant to the UAL Preferred Offering.
The combination of New Shares and cash and, if applicable, Series A
Debentures, Series B Debentures and/or Depositary Preferred Shares to be
distributed in respect of the Old Shares pursuant to the Recapitalization
is referred to herein as the "Recapitalization Consideration."
The consummation of the Recapitalization is not conditioned on, or subject
to, the consummation of any of the Offerings. In addition, none of the
Offerings is conditioned on, or subject to, the consummation of any of the
other Offerings.
Under various circumstances, the value of the consideration to be received
by common stockholders could be less than the stated principal amount of
the Debentures or the liquidation preference represented by the Depositary
Preferred Shares.
(ii) certain amendments to the Company's Certificate of Incorporation and
Bylaws (the "Charter and Bylaw Amendments") that will effectuate the
Recapitalization and put into place a revised corporate governance
structure that is contemplated by the Plan of Recapitalization;
(iii) the issuance of new classes of preferred stock that will (a)
transfer 55% (based on Fully Diluted Old Shares (as defined below, see "THE
PLAN OF RECAPITALIZATION--Terms and Conditions-- General)) (which, under
certain circumstances, may be increased to up to a maximum of 63%) of the
common equity and voting power (after giving effect to the possible
issuance or the reservation for future issuance, a year after the Effective
Time (as defined below), of additional shares of preferred stock that are
convertible into New Shares) of the Company to employee stock ownership
plans to be established for the benefit of certain groups of employees (the
"ESOPs") and (b) effectuate the corporate governance structure referred to
above by permitting different constituent groups to elect members of the
Company's Board of Directors (the "Board");
(iv) the election of four directors, designated as "Public Directors," to
the Board, as contemplated by the corporate governance structure referred
to above;
(v) certain amendments to the Company's 1981 Incentive Stock Program;
(vi) certain amendments to the Company's 1988 Restricted Stock Plan;
(vii) certain amendments to the Company's Incentive Compensation Plan;
(viii) three stockholder proposals;
(ix) ratification of the selection of the Company's independent
accountants for the year ending December 31, 1994; and
(x) such other business as may properly come before the Meeting or any
adjournment or postponement thereof.
The approval of matter (ii) will be subject to the approval of the Plan of
Recapitalization, and the approval of matters (iii) through (vii) will be
subject to the approval of the Plan of Recapitalization and the Charter and
Bylaw Amendments. See "INTRODUCTION--Purpose of the Meeting," "BACKGROUND OF
THE PLAN OF RECAPITALIZATION" and "THE PLAN OF RECAPITALIZATION."
RECORD DATE; STOCKHOLDERS ENTITLED TO VOTE
Only holders of record of Old Shares at the close of business on June 9, 1994
(the "Record Date") will be entitled to notice of, and to vote at, the Meeting
and any adjournment or postponement thereof. Stockholders of record on the
Record Date are entitled to one vote per Old Share held as of that date on any
matter that may properly come before the Meeting. See "INTRODUCTION--Voting
Rights and Proxy Information."
VOTE REQUIRED
Under the Delaware General Corporation Law (the "DGCL"), the affirmative vote
of the holders of a majority of the Old Shares outstanding on the Record Date
will be required in order to approve and adopt
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the Plan of Recapitalization and the Charter and Bylaw Amendments, the
affirmative vote of the holders of a plurality of Old Shares present in person
or represented by proxy at the Meeting will be required to elect each of the
Public Directors and the affirmative vote of the holders of a majority of Old
Shares present in person or represented by proxy at the Meeting will be
required to approve or adopt each of the other matters identified in this Proxy
Statement/Prospectus as being presented to holders of Old Shares at the
Meeting. None of the votes described above requires the separate approval of at
least a majority of the Company's unaffiliated stockholders. The Company's
directors (other than Dr. Brimmer) and executive officers, and their
affiliates, have sole or shared voting power and beneficial ownership with
respect to approximately 1.6 percent of the outstanding Old Shares, which they
intend to vote in favor of the Plan of Recapitalization and the Charter and
Bylaw Amendments. Accordingly, the affirmative vote of the holders of
approximately 48.4 percent of the outstanding Old Shares (other than directors
and executive officers and their affiliates) is required for approval of the
Plan of Recapitalization. Dr. Brimmer expects to vote his 450 Old Shares
against the Plan of Recapitalization and the Charter and Bylaw Amendments. See
"INTRODUCTION--Voting Rights and Proxy Information."
THE PLAN OF RECAPITALIZATION
The Plan of Recapitalization provides for the following transactions (the
"Recapitalization"):
(i) Reclassification--Upon the Effective Time, each outstanding Old Share,
including each share of restricted stock issued pursuant to the Company's 1988
Restricted Stock Plan, together with up to 1,000,000 Old Shares held by the
Company as treasury stock or owned by any wholly-owned subsidiary of the
Company, will be reclassified as, and converted into, one half (0.5) of a New
Share and one one-thousandth of a share of Series D Redeemable Preferred Stock.
Concurrently with the solicitation of proxies in connection with the Plan of
Recapitalization, United expects to offer up to $382.5 million principal amount
of its Series A Debentures and up to $382.5 million principal amount of its
Series B Debentures and the Company expects to offer up to 30,600,000
Depositary Preferred Shares representing interests in $765.0 million
liquidation preference of Public Preferred Stock. Immediately upon issuance
pursuant to the Reclassification, the Company will redeem each one one-
thousandth of a share of Series D Redeemable Preferred Stock for:
(a)$25.80 in cash,
(b)either (1) $15.55 principal amount of Series A Debentures or (2) if
the United Series A Offering is consummated, the cash proceeds (without
deducting any underwriting discount or other costs) from the sale thereof
by United pursuant to the United Series A Offering,
(c)either (1) $15.55 principal amount of Series B Debentures or (2) if
the United Series B Offering is consummated, the cash proceeds (without
deducting any underwriting discount or other costs) from the sale thereof
by United pursuant to the United Series B Offering, and
(d)either (1) Depositary Preferred Shares representing interests in
$31.10 liquidation preference of Public Preferred Stock or (2) if the UAL
Preferred Offering is consummated, the cash proceeds (without deducting any
underwriting discount or other costs) from the sale thereof by the Company
pursuant to the UAL Preferred Offering.
The consummation of the Recapitalization is not conditioned on, or subject
to, the consummation of any of the Offerings. In addition, none of the
Offerings is conditioned on, or subject to, the consummation of any of the
other Offerings.
One half of a New Share will represent an equity interest (based on Fully
Diluted Old Shares) immediately after consummation of the Recapitalization of
45% of one Old Share's current percentage equity interest in the Company,
although, under certain circumstances that percentage may be reduced to a
minimum of approximately 37%. See "THE PLAN OF RECAPITALIZATION--Establishment
of ESOPs--Additional Shares." The interest rate on the Series A Debentures has
been fixed provisionally at 9.00%, the interest rate on the Series B Debentures
has been fixed provisionally at 9.70% and the dividend rate on the Public
Preferred Stock has been fixed provisionally at 10.25%. The interest rates on
the Debentures and the dividend rate on the Public Preferred Stock will be
adjusted not less than five business nor more than ten calendar days before the
date of the Meeting (the "Announcement Date") to rates (which, in each case, if
there is an upward adjustment, may not be more than 112.5 basis points (i.e.,
1.125 percentage points) higher than the
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respective provisional rates, but which in the case of a downward adjustment
are not limited) that, in the opinion of the certain financial advisors to the
Company and the Unions (as defined below) and, in the case of a deadlock, based
on a process involving a third financial advisor, would permit the Debentures
and the Public Preferred Stock to trade at par on such date on a fully
distributed basis. See "THE PLAN OF RECAPITALIZATION--Terms and Conditions--
Pricing the Securities." Based on current market conditions, the Company
believes that the interest rates on the Series A Debentures and the Series B
Debentures and the dividend rate on the Depositary Preferred Shares to be
established by certain financial advisors to the Company and the Unions and, in
the case of a deadlock, based on a process involving a third financial advisor,
would not be less than the initial pricing of 9.00% for the Series A
Debentures, 9.70% for the Series B Debentures and 10.25% for the Depositary
Preferred Shares. In connection with the establishment of the final interest
and dividend rates for the Debentures and the Depositary Preferred Shares, the
financial advisors to be involved in the establishment of the interest rates on
the Series A Debentures and the Series B Debentures and the dividend rate on
the Depositary Preferred Shares may or may not deliver written statements,
reports or opinions with respect to their determination.
The underwriting agreements relating to the several Offerings are expected to
provide, as applicable, that if such Offerings are consummated, the interest
rates on the Debentures and the dividend rate on the Public Preferred Stock
represented by Depositary Preferred Shares, respectively, may be adjusted to
permit such securities to be sold at or closer to par, but if that is done, the
principal amount of the series of Debentures affected or the number of
Depositary Preferred Shares representing interests in the Public Preferred
Stock, as the case may be, will be reduced so that the aggregate amount of
interest payable annually by United on such series of Debentures or the
aggregate amount of dividends payable annually by the Company on the Public
Preferred Stock will not exceed certain maximum amounts calculated with
reference to such caps. If the Offerings are not consummated, the interest
rates borne by the Debentures and the dividend rate borne by the Public
Preferred Stock will be subject to the caps. See "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--Pricing the Securities."
On the Announcement Date, the Company will (i) issue a press release setting
forth certain information (described below) relating to the Debentures and the
Public Preferred Stock and (ii) send a mailgram to all holders of Old Shares as
of the Record Date setting forth such information. On the first business day
following the Announcement Date, the Company will publish such rates in an
advertisement in the national edition of The Wall Street Journal. In addition,
a toll-free number (800-223-2064) has been established from which all holders
of Old Shares can obtain general recorded information concerning the
Announcement Date. As of the Announcement Date, holders of the Old Shares can
call the toll-free number to obtain the information relating to the Debentures
and the Public Preferred Stock. See also "SPECIAL FACTORS--Certain Risk
Factors--Pricing of Public Preferred Stock and Debentures." On or promptly
following the Announcement Date, the Company will also file with the Securities
and Exchange Commission an amendment to the Registration Statement on Form S-4
to reflect the final pricing information.
The press release, newspaper advertisement, mailgram, and recorded
information described in the previous paragraph will include (i) a statement of
whether the Company expects all or any of the Offerings to be consummated, (ii)
if so, the amount of the cash proceeds to be received from the sale of the
Debentures and/or Depositary Preferred Shares that are otherwise issuable in
respect of each Old Share if any of such Offerings are consummated and (iii) a
statement of the interest rates and/or dividend rate for the Debentures or
Depositary Preferred Shares if the Offering relating to any such securities is
not consummated. To the extent the Company has announced that it expects any or
all of the Offerings to be consummated and it is subsequently determined that
any of such Offerings will not be consummated, the Company will disseminate
such information promptly in the same manner that the Company used to
disseminate the information set forth in the previous sentence and will cause
the Meeting to be rescheduled such that at least five business days will occur
between the release of such information and the Meeting. ANY STATEMENT IN
CONNECTION WITH THE FOREGOING THAT THE COMPANY EXPECTS ANY OR ALL OF THE
OFFERINGS TO BE CONSUMMATED WILL NOT BE AN ASSURANCE THAT ANY OF THE OFFERINGS
WILL BE CONSUMMATED.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked at any time
(including between the Announcement Date and the date of the Meeting) by (i)
filing with the Secretary of the Company, before the polls are closed
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with respect to the vote, a written notice of revocation bearing a later date
than the proxy, (ii) duly executing a subsequent proxy relating to the same Old
Shares and delivering it to the Secretary of the Company or (iii) attending the
Meeting and voting in person (although attendance at the Meeting will not in
and of itself constitute a revocation of proxy). Any written notice revoking a
proxy in accordance with clause (i) above should be sent to: UAL Corporation,
P.O. Box 66919, Chicago, Illinois 60666, Attention: Francesca M. Maher,
Secretary. In addition, both proxies and revocations of proxy may be given by
delivering to Georgeson & Co. by means of facsimile at (212) 440-9009, before
the close of business on the day before the Meeting, both sides of an executed
form of proxy or a notice of revocation bearing a later date than the proxy.
See "SUMMARY OF PROXY STATEMENT/JOINT PROSPECTUS--The Plan of
Recapitalization."
(ii) Charter and Bylaw Amendments--The Plan of Recapitalization provides for
the Charter and Bylaw Amendments that will, among other things, effectuate the
Recapitalization and put into place the revised corporate governance structure
contemplated by the Plan of Recapitalization. See "THE PLAN OF
RECAPITALIZATION--Revised Governance Structure."
(iii) The Stock Issuance--Pursuant to the Plan of Recapitalization, the
Company will issue, in addition to the securities issued as part of the
Recapitalization Consideration, (a) the Class 1 ESOP Convertible Preferred
Stock ("Class 1 ESOP Preferred Stock") to the trustee (the "ESOP Trustee") and
the Class 2 ESOP Convertible Preferred Stock ("Class 2 ESOP Preferred Stock"
and, together with the Class 1 ESOP Preferred Stock, the "ESOP Preferred
Stock") (or the New Shares into which they are convertible) to the ESOP Trustee
or for the benefit of employees pursuant to the ESOPs that will be established
for the benefit of the employee groups that will be making wage, benefit and
work-rule changes in connection with the Plan of Recapitalization, (b) the
Class P ESOP Voting Junior Preferred Stock (the "Class P Voting Preferred
Stock"), the Class M ESOP Voting Junior Preferred Stock (the "Class M Voting
Preferred Stock") and the Class S ESOP Voting Junior Preferred Stock (the
"Class S Voting Preferred Stock" and, together with the Class P Voting
Preferred Stock and the Class M Voting Preferred Stock, the "Voting Preferred
Stock") to the ESOP Trustee, (c) the Class I Junior Preferred Stock (the "Class
I Preferred Stock") to the initial independent directors who will enter into a
stockholders' agreement to vote their shares to elect the future independent
directors to the Board, (d) one share of the Class Pilot MEC Junior Preferred
Stock (the "Class Pilot MEC Preferred Stock") to the United Airlines Pilots
Master Executive Council (the "ALPA-MEC") of the Air Line Pilots Association,
International ("ALPA"), which will have the right to elect a director to the
Board (the "ALPA Director"), (e) one share of the Class IAM Junior Preferred
Stock (the "Class IAM Preferred Stock") to the International Association of
Machinists and Aerospace Workers (the "IAM" and, together with ALPA, the
"Unions"), or its designee, which will have the right to elect a director to
the Board (the "IAM Director" and together with the ALPA Director, the "Union
Directors") and (f) two shares of Class SAM Junior Preferred Stock (the "Class
SAM Preferred Stock" and, together with the Class I Preferred Stock, the Class
Pilot MEC Preferred Stock and the Class IAM Preferred Stock, the "Director
Preferred Stock") to the person nominated to serve as the salaried and
management employees' director (the "Salaried and Management Director" and,
together with the Union Directors, the "Employee Directors" ) and one share to
an additional designated stockholder, which will have the right to vote as a
class to elect the Salaried and Management Director to the Board. See "THE PLAN
OF RECAPITALIZATION--Establishment of ESOPs," "--Revised Governance Structure"
and "DESCRIPTION OF SECURITIES." The ESOP Preferred Stock is nonvoting. The
Voting Preferred Stock was established in order to allocate voting power to the
respective employee groups in proportion to the agreed upon allocation and in a
manner which was consistent with applicable law. The ESOP Preferred Stock and
the Voting Preferred Stock will initially represent a 55% equity interest
(based on Fully Diluted Old Shares), including voting interest on all matters
presented to holders of New Shares other than the election of Public Directors
(as defined below), immediately after consummation of the Recapitalization,
although under certain conditions the percentage may be increased to up to a
maximum of approximately 63%. See "THE PLAN OF RECAPITALIZATION--Establishment
of ESOPs--Additional Shares." The holders of the Voting Preferred Stock will
continue to command the same adjusted percentage of voting power (if and as so
adjusted) of the Company following the Recapitalization until the economic
interest represented by the stock held in Company sponsored benefit and
retirement plans (including stock to be issued in the future under the ESOPs)
becomes less than 20% of the common equity of the Company calculated as
described under "THE PLAN OF RECAPITALIZATION--Revised Governance Structure--
Sunset."
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(iv) Employee Investment--Certain amendments to the existing ALPA collective
bargaining agreement and the IAM collective bargaining agreements, and creation
of a salaried and management employees cost reduction program, all of which
will become effective at the Effective Time, are estimated to provide United
with approximately $8.2 billion in improved operating earnings over a twelve-
year period, which earnings are expected to have a net present value of
approximately $4.9 billion. Approximately $5.2 billion of such improvement is
expected to arise from savings in labor costs, while the remaining
approximately $3.0 billion is expected to arise from the startup of a new
short-haul "airline-within-an-airline" referred to herein as "U2", which is
expected to compete effectively against other low-cost, short-haul carriers.
See "SPECIAL FACTORS--Certain Company Analyses," and "--Implementation of the
"Airline-Within-an-Airline' (U2)."
(v) Employee Benefit Plans--Certain employee benefit plans maintained by the
Company and United will be amended to permit employees to acquire substantial
amounts of the New Shares, Depositary Preferred Shares and the Debentures. See
"THE PLAN OF RECAPITALIZATION--Terms and Conditions--Certain Covenants."
Effective Time of the Recapitalization
The Recapitalization will be consummated at such time as the Company's
amended and restated Certificate of Incorporation (the "Restated Certificate"),
which provides for the reclassification of the Old Shares, is duly filed with
the Secretary of State of the State of Delaware or at such later time as may be
mutually agreed upon by the Company and each of the Unions and as is specified
in the Restated Certificate (the "Effective Time"). The filing of the Restated
Certificate is currently anticipated to be made as promptly as practicable
after the Meeting. Such filing will be made, however, only upon satisfaction
or, where permissible, waiver of all conditions contained in the Plan of
Recapitalization and provided that the Plan of Recapitalization has not been
terminated. See "THE PLAN OF RECAPITALIZATION--Terms and Conditions--
Termination." If any of the Offerings are consummated, it is expected that they
will be consummated at the Effective Time.
Conditions to the Recapitalization
Pursuant to the Plan of Recapitalization, the obligation of the Company to
file the Restated Certificate at the Effective Time and the obligations of each
of the Unions to enter into the revised collective bargaining agreements at the
Effective Time are subject to the satisfaction of the following conditions,
among others: (i) holders of Old Shares have approved and adopted the Plan of
Recapitalization and related transactions, as identified in "INTRODUCTION--
Purpose of the Meeting," (ii) all material actions by or in respect of or
filings with any governmental body, agency, official, or authority required to
permit the consummation of the Recapitalization have been obtained, (iii) the
New Shares issuable as part of the Recapitalization have been authorized for
listing on the New York Stock Exchange, Inc. (the "NYSE"), subject to official
notice of issuance, (iv) the ESOP Trustee has received the written opinion of
Houlihan Lokey Howard & Zukin, to the effect that, as of the Effective Time,
the acquisition of the ESOP Preferred Stock by the ESOP is fair, from a
financial point of view, to the ESOP participants, (v) the Board has received
an updated solvency opinion from American Appraisal Associates, Inc. ("American
Appraisal"), (vi) all the agreements required to be executed and delivered at
the Effective Time are legal, valid and binding agreements of the Company and
the other parties thereto from and after the Effective Time, enforceable
against the Company and such other parties in accordance with their terms,
including the stock purchase agreement pursuant to which the ESOP Trustee will
purchase Class 1 ESOP Preferred Stock at the Effective Time, (vii) Mr. Gerald
Greenwald (or such other person as proposed by the Unions prior to the
Effective Time and not found unacceptable by the Company) is ready, willing and
able to assume the office of Chief Executive Officer ("CEO") of the Company and
United, (viii) the Board has received updated written opinions of each of CS
First Boston Corporation ("CS First Boston") and Lazard Freres & Co. ("Lazard")
confirming their earlier opinions, to the effect that the Recapitalization
Consideration, taken as a whole, is fair from a financial point of view to the
holders of Old Shares, (ix) the revised collective bargaining agreements have
been executed and delivered by the Unions and United and will be in full force
and effect as of the Effective Time, (x) the Board has received satisfactory
opinions of counsel, and (xi) the Company has determined that the Company will
be reasonably likely to have sufficient surplus (whether revaluation surplus or
earned surplus) or net profits under the Delaware General Corporation Law (the
"DGCL") to permit the legal payment of dividends on the ESOP Preferred Stock
and the Public Preferred Stock when due. See "THE PLAN OF RECAPITALIZATION--
Terms and
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Conditions--Conditions." The Recapitalization is not conditioned upon the
consummation of any of the Offerings.
Payment for Old Shares
To receive the Recapitalization Consideration, each holder of Old Shares must
surrender his certificates representing Old Shares, together with a duly
executed letter of transmittal, to First Chicago Trust Company of New York (the
"Exchange Agent"). Instructions regarding the surrender of certificates,
together with a form of transmittal letter to be used for this purpose, will be
forwarded to stockholders promptly after the Effective Time. STOCKHOLDERS
SHOULD NOT FORWARD CERTIFICATES WITH THE ENCLOSED PROXY CARD. STOCKHOLDERS
SHOULD SURRENDER CERTIFICATES ONLY AFTER RECEIVING INSTRUCTIONS FROM THE
EXCHANGE AGENT. In lieu of any fractional interests of New Shares and, if any
or all of the Offerings are not consummated, fractional Debentures and/or
fractional Depositary Preferred Shares, as the case may be, that each former
holder of Old Shares would otherwise be entitled to receive, the Exchange Agent
will make a pro rata distribution of the cash proceeds received by the Exchange
Agent from the sale of the aggregate fractional interests of New Shares and, if
the Offerings are not consummated, such fractional Debentures and/or such
fractional Depositary Preferred Shares. No interest will be paid or accrued in
favor of any stockholder on the amounts payable upon surrender of certificates.
Each stockholder will be responsible for the payment of transfer and other
taxes, if any. See "THE PLAN OF RECAPITALIZATION--Terms and Conditions--Payment
for Shares."
Background of the Recapitalization
Since the mid 1980s, in response to enhanced competition from low-cost air
carriers resulting from the industry's deregulation and discordant relations
between the Company and its principal unions, ALPA, the IAM and the Association
of Flight Attendants ("AFA"), several attempts to effect a potential change in
corporate control or the sale of substantial assets of the Company have
occurred or were proposed, many of which involved the participation of one or
more of the Company's unions.
In recent years, including during 1992, the Company has noted a fundamental
shift in consumer behavior, with an increased focus on the price/value
relationship. Travel preference has continued to shift to low-cost travel as
provided by carriers such as Southwest Airlines, Morris Air and Reno Air. The
Company believed that this trend was long-term and would continue even if the
weak economic conditions of the early 1990s improved. The Company determined
that its ability to be competitive in such an environment required a
substantial reduction of its operating costs.
Thus, on January 6, 1993, the Company announced a $400 million cost reduction
program, including the sub-contracting of certain services and the furlough of
2,800 employees. It also significantly reduced its aircraft purchase
commitments through 1996, with a net effect of reducing the Company's planned
capital spending through 1996 by over $6.2 billion. The Company determined that
it was necessary to reduce its single largest expense, labor costs, to be
competitive in the changed environment of the 1990s. Thus, in addition to the
subcontracting, furloughs and the implementation of a 5% salary reduction
program for certain management employees, the Company requested concessions
from its three principal unions. However, this request was rejected by the IAM
and the AFA, and ALPA requested a financial review of the Company. In light of
the unwillingness of the Unions to participate in the Company's cost-cutting
efforts, the Company thereafter announced its intention to undertake various
other cost-cutting actions, including selling its flight kitchens and
subcontracting certain ground services, opening a flight attendant domicile in
Taiwan, and evaluating the sale of the Denver flight training center. The
Company also discussed the possibility of selling its jet engine over-haul
maintenance facility in San Francisco, subcontracting its components business,
subcontracting its ground equipment over-haul business and subcontracting its
line maintenance work, building maintenance work and computer terminal
technician work.
In reports presented to the Board of Directors by Booz . Allen & Hamilton
("BAH"), BAH advised the Board that it seemed unlikely that carriers such as
United could achieve sufficient cost reductions without a major restructuring.
The report also suggested that subcontracting jet engine repair could result in
substantial cost savings. In a presentation to the Board on June 24, 1993, BAH
indicated that, in the absence of labor cooperation, the Company had four
options: (i) restructure and downsize to focus on those markets where
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United could be profitable in the long term, (ii) restructure and grow to
create a stronger domestic and international competitive position, (iii) return
value to stockholders by monetizing flying assets, services and/or other hard
assets and (iv) sell the airline in whole or in parts. On August 5, 1993, the
Board considered a presentation by BAH and members of Company's management
concerning ways to improve the Company's profitability and provide additional
shareholder value, with specific focus on establishment of one or more domestic
short-haul carriers which would be owned independently of the Company and
United and which would virtually eliminate short-haul flying by United, along
with other fundamental alterations of the Company's business and structure (the
"Fundamental Restructuring Plan").
As a result of considering the various alternatives presented to the Board
over the past several years and realizing that, in order to achieve a long term
cost reduction program, the employees of the Company must be involved in any
major restructuring of the Company, the Company's management concluded that
long term stockholder value would be maximized through the proposed
Recapitalization.
Since the spring of 1993, the Company has been engaged in extensive
discussions and negotiations with ALPA, the IAM and the AFA with respect to a
"shared solution" that would enable the Company to reduce costs and allow
certain employee groups to gain significant ownership of the Company. In
September of 1993, the AFA ceased to participate in the negotiations, which
continued with ALPA and the IAM (the "Coalition"). On December 22, 1993, an
agreement in principle was reached among the Company, ALPA and the IAM pursuant
to which (i) employee trusts would acquire approximately 53% of the common
equity and voting power of the Company, subject to increase to up to
approximately 63% based on stock price performance in the year after closing,
(ii) holders of Old Shares would receive cash, debt securities, preferred stock
and common stock, (iii) participating employees of the Company would provide
wage and benefit reductions and various work-rule changes and (iv) a new
corporate governance structure would be implemented. A definitive agreement was
signed on March 25, 1994 (the "Initial Plan of Recapitalization") reflecting
the terms of the agreement in principle.
In light of prevailing market prices for the Old Shares in May 1994 and in
view of provisions in the Initial Plan of Recapitalization which enabled the
Coalition to assert that pricing conditions to consummation of the
Recapitalization relating to the purchase of the ESOP Preferred Stock would not
be satisfied, the Coalition determined to approach the Company over possible
adjustments to the financial terms of the transaction. At the same time, the
Company felt that the Offerings, if successful, would benefit the Company's
stockholders as part of the Recapitalization and would provide greater
certainty of completion of the Recapitalization. In response to a proposal to
modify the definitive documentation from the Coalition, on May 20, 1994, the
Board determined to make an alternative proposal to the Coalition. The
Coalition accepted the Company's alternative proposal on May 22, 1994. On June
2, 1994, the Company and the Coalition executed an amendment to the definitive
documentation (the "Definitive Documentation Amendment") providing for, among
other things, (i) an increase in the percent of the common equity and voting
power initially to be acquired by the ESOPs from 53% to 55%; (ii) a decrease in
the range of average stock prices of the New Shares for the one year following
the Effective Time which would result in an increase, to up to 63%, in the
percent of common equity and voting power to be received by the ESOPs (prior to
the Definitive Documentation Amendment, the range had been $170.00 - $178.44
per share and it was decreased to $136.00 - $149.10 per share (giving effect to
the 1 for 2 common stock exchange ratio)) (see "THE PLAN OF RECAPITALIZATION--
Terms and Conditions--Additional Shares"); (iii) the inclusion of the
Offerings; (iv) revisions to the manner in which the Class 1 ESOP Preferred
Stock will be purchased by the ESOP Trustee (see "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs"); and (v) establishment of a
procedure whereby the Chief Operating Officer of the Company may be identified
subsequent to the Effective Time if not identified at or prior to the Effective
Time. In addition, certain changes were made to the optional redemption terms
of the Public Preferred Stock and the Debentures to facilitate the Offerings
(see "DESCRIPTION OF SECURITIES--The Debentures" and "--The Depositary
Preferred Stock"). As a result of the Definitive Documentation Amendment, the
purchase price of the ESOP Preferred Stock to be acquired at the Effective Time
will be determined using a market price-based formula and, accordingly, the
Coalition is not entitled to assert that the Recapitalization may not be
consummated based on the market price of the Old Shares or the expected market
price of the New Shares. See "BACKGROUND OF THE PLAN OF RECAPITALIZATION."
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Amendments to the collective bargaining agreements with ALPA and the IAM, to
be entered into upon consummation of the Plan of Recapitalization, and a
salaried and management employee cost reduction program, to be established upon
consummation of the Plan of Recapitalization, are estimated to provide United
with approximately $8.2 billion of improved operating earnings over a twelve
year period, which earnings are estimated to have a net present value of
approximately $4.9 billion. Approximately $5.2 billion of such improvement is
expected to arise from savings in labor costs, while the remaining
approximately $3.0 billion is expected to arise from earnings of a new short-
haul "airline-within-an-airline," referred to herein as "U2," which is expected
to compete effectively with low-cost short-haul carriers.
Recommendation of the Board
THE BOARD HAS APPROVED THE INITIAL PLAN OF RECAPITALIZATION AND THE PLAN OF
RECAPITALIZATION AND HAS DETERMINED THAT THE RECAPITALIZATION IS FAIR TO THE
HOLDERS OF OLD SHARES. THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PLAN
OF RECAPITALIZATION AND THE RELATED MATTERS IDENTIFIED IN CLAUSES (II) THROUGH
(VII) UNDER "PURPOSE OF THE MEETING" ABOVE.
The Board noted that the Recapitalization permits the holders of Old Shares
to receive in exchange for each Old Share (i) one half of a New Share, (ii)
$25.80 in cash, (iii) either (a) $15.55 principal amount of Series A Debentures
or (b) if the United Series A Offering is consummated, the cash proceeds
(without deducting and underwriting discount or other costs) from the sale
thereof by United pursuant to the United Series A Offering, (iv) either (a)
$15.55 principal amount of Series B Debentures or (b) if the United Series B
Offering is consummated, the cash proceeds (without deducting any underwriting
discount or other costs) from the sale thereof by United pursuant to the United
Series B Offering and (v) either (a) Depositary Preferred Shares representing
interests in $31.10 liquidation preference of Public Preferred Stock or (b) if
the UAL Preferred Offering is consummated, the cash proceeds (without deducting
any underwriting discount or other costs) from the sale thereof by the Company
pursuant to the UAL Preferred Offering. Current holders of Old Shares also will
retain a significant ongoing equity interest in the Company that will be the
same regardless of whether any or all of the Offerings are consummated. Under
various circumstances, however, the value of the consideration to be received
by stockholders could be less than the stated principal amount of the
Debentures or the liquidation preference of the Depositary Preferred Shares. In
approving the Initial Plan of Recapitalization and the Plan of
Recapitalization, the Board also considered that the majority equity position
of the employee stock ownership trusts is designed to provide additional
incentives for the Company's employees to promote the success of the Company,
which should, in part, inure to the benefit of the holders of Old Shares. All
directors, other than Dr. Brimmer, voted in favor of the Initial Plan of
Recapitalization. Dr. Brimmer has indicated that he dissented from such vote
because under current economic conditions, he did not think there were
compelling reasons to effect such a transaction at this time. With respect to
the Definitive Documentation Amendment, the Board voted in favor of the
Definitive Documentation Amendment, with Dr. Brimmer abstaining. It was
mentioned at the meeting that Mr. Olson, who was not in attendance, had
requested that his opposition to the Definitive Documentation Amendment be
noted. Mr. Olson has not expressed to the Company any reason for his position.
In reaching its decision to approve the Initial Plan of Recapitalization and
the Plan of Recapitalization, its determination that the Recapitalization is
fair to the holders of Old Shares and its decision to recommend that the
holders of Old Shares vote for approval and adoption of the Plan of
Recapitalization and related matters, the Board consulted with its legal and
financial advisors as well as the Company's management, and considered numerous
factors, including, but not limited to: (i) the business, operations, earnings,
properties and prospects of the Company and United and the perceived need for
the Company to obtain wage and benefit reductions and work-rule changes in
order to permit United to compete effectively in the aviation marketplace, (ii)
the alternatives potentially available to the Company to achieve a reduction of
wages and benefits and work-rule changes, as well as a comparison of the risks
that would be associated with the Recapitalization and with such other
alternatives, (iii) the terms of the employee investment contemplated by the
Initial Plan of Recapitalization and the Plan of Recapitalization, including
the reduction in cost expense, the favorable tax treatment of ESOP
transactions, the long-term labor contracts which limit salary increases and
the ability to establish U2, (iv) the fact that the Recapitalization will
provide the holders of Old Shares with an opportunity to receive cash, and, if
any of the Offerings are not consummated, Debentures
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and/or Depositary Preferred Shares representing interests in Public Preferred
Stock, as applicable, for a portion of the value of their Old Shares while
retaining a significant ongoing equity interest in the Company through
ownership of New Shares, (v) the terms of the proposed corporate governance
structure, which contains both certain provisions required by the Coalition and
certain provisions designed for the protection of the holders of New Shares,
(vi) the identity of the new CEO and the new Board (especially the initial
Independent Directors (as defined below)) and the Board's assessment of such
individuals, (vii) recent market prices for the Old Shares as well as market
prices for the past several years, (viii) the Federal income tax consequences
of the Recapitalization under existing law, (ix) with respect to the Plan of
Recapitalization, the terms of the Definitive Documentation Amendment providing
for an increase in the percentage of common equity and voting power initially
to be acquired by the employee trusts and a decrease in the range of average
stock prices determined one year after the Effective Time which would result in
an increase in the percent of common equity and voting power to be held by the
employee trusts, (x) with respect to the Plan of Recapitalization, the terms of
the Definitive Documentation Amendment providing for the Offerings and the
resulting potential to distribute cash, instead of Debentures and Depositary
Preferred Shares, to holders of Old Shares if the Offerings are consummated,
(xi) with respect to the Plan of Recapitalization, the use of a market price-
based formula for the purchase of the ESOP Preferred Stock to be purchased at
the Effective Time, and (xii) the opinions of CS First Boston, a nationally
recognized investment banking firm, and the opinions of Lazard, another
nationally recognized investment banking firm, that, based upon the matters
described therein, as of the date of each such opinion, the consideration to be
received by the holders of Old Shares pursuant to the Recapitalization for each
Old Share, taken as a whole, is fair to such stockholders from a financial
point of view. See "SPECIAL FACTORS--Opinions of the Financial Advisors to the
Board," "--Certain Risk Factors" and "--Certain Revenue and Earnings
Scenarios," "THE PLAN OF RECAPITALIZATION" and "MARKET PRICES OF THE SHARES;
DIVIDENDS." The Board also considered (i) the fact that the repayment of the
Debentures and the payment of dividends on the Public Preferred Stock will be
dependent on the Company's operations, assets, credit, cash flow and earning
power, (ii) that, as a result of the Recapitalization, there will be a
significant increase in the Company's long-term indebtedness, as well as a
substantial negative balance in stockholders' equity and a significant
reduction in cash reserves and (iii) the opinion of American Appraisal with
respect to certain solvency and surplus matters. See "SPECIAL FACTORS--Certain
Risk Factors," "THE PLAN OF RECAPITALIZATION" and "UNAUDITED PRO FORMA
FINANCIAL INFORMATION."
In view of the circumstances and the wide variety of factors considered in
connection with this evaluation of the Recapitalization, the Board did not find
it practicable to assign relative weights to the factors considered in reaching
its decision.
Opinions of the Financial Advisors to the Board
On July 20, 1993, the Company retained CS First Boston to assist it in
evaluating the Coalition proposals. By letter dated November 30, 1993, the
Company retained Lazard as an additional financial advisor. On December 22,
1993, March 14, 1994, March 24, 1994 and May 20, 1994, CS First Boston and
Lazard delivered to the Board their oral opinions (which in the case of the
December 22, 1993, March 24, 1994 and May 20, 1994 opinions were later
confirmed to the Board by CS First Boston and Lazard in writing) that, as of
such dates, the consideration to be received by holders of Old Shares of the
Company in connection with the Recapitalization (as constituted as of each such
date), taken as a whole, was fair to such holders of Old Shares from a
financial point of view. For further details concerning the engagement of CS
First Boston and Lazard, including fees payable to them, see "SPECIAL FACTORS--
Opinions of the Financial Advisors to the Board."
THE FULL TEXT OF THE WRITTEN OPINIONS OF CS FIRST BOSTON AND LAZARD, EACH
DATED MAY 20, 1994, THAT SET FORTH THE ASSUMPTIONS MADE, THE MATTERS CONSIDERED
AND THE REVIEW UNDERTAKEN WITH REGARD TO EACH SUCH OPINION, ARE ATTACHED AS
ANNEXES I AND II RESPECTIVELY TO THIS PROXY STATEMENT/PROSPECTUS. STOCKHOLDERS
ARE URGED TO READ SUCH OPINIONS IN THEIR ENTIRETY FOR A DESCRIPTION OF THE
PROCEDURES FOLLOWED, MATTERS CONSIDERED, ASSUMPTIONS MADE AND LIMITATIONS ON
THE REVIEW UNDERTAKEN BY SUCH FIRMS. THE OPINIONS ARE DIRECTED ONLY TO THE
FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF OLD SHARES AND
DO NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF OLD SHARES AS TO HOW SUCH
HOLDER OF OLD SHARES SHOULD VOTE.
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Interests of Certain Persons in the Recapitalization
In considering the Plan of Recapitalization, stockholders should be aware
that the executive officers and the Board members have certain interests that
present them with potential conflicts of interest in connection with the
Recapitalization. The Board was aware of these potential conflicts and
considered them among the other matters described under "SPECIAL FACTORS--
Recommendation of the Board." See "SPECIAL FACTORS--Interests of Certain
Persons in the Recapitalization."
Certain Risk Factors
In addition to the other information contained in this Proxy
Statement/Prospectus, holders of Old Shares should carefully consider the
following risk factors concerning the New Shares, the Debentures and the
Depositary Preferred Shares representing interests in the Public Preferred
Stock.
Financial Effects; Delaware Law Considerations. The Recapitalization will
immediately change the Company's capitalization to one that is more highly
leveraged. In this regard, the following discussion compares the pro forma book
effect of the Recapitalization on long-term debt, stockholder's equity and
income/loss from continuing operations with recent historical financial
information of the Company. On a pro forma book basis at March 31, 1994, the
Company would have had approximately $3.451 billion of long-term debt and a
deficit of approximately $448 million of stockholders' equity, as compared to
the approximately $2.693 billion of long-term debt and approximately $1.097
billion of stockholders' equity that was shown on the Company's balance sheet
on such date. In addition, if the Recapitalization had occurred as of January
1, 1993, the Company would have reported, on a pro forma basis, a loss from
continuing operations of approximately $38 million for the year ended December
31, 1993 and a loss from continuing operations of approximately $58 million for
the three months ended March 31, 1994, as compared to losses from continuing
operations of $31 million for the year ended December 31, 1993 and $71 million
for the three months ended March 31, 1994 that were reported for each period.
See "UNAUDITED PRO FORMA FINANCIAL INFORMATION."
The Company's earnings were inadequate to cover fixed charges and preferred
stock dividends by $98 million in 1993, by $748 million in 1992 and by $599
million in 1991. On a pro forma basis, the Company's earnings in 1993 were
inadequate to cover fixed charges and preferred stock dividends by $109
million. In addition, the Company's earnings were inadequate to cover fixed
charges and preferred stock dividends for the three month period ended March
31, 1994 by $118 million, and on a pro forma basis they were inadequate by $97
million. United's earnings were inadequate to cover fixed charges by $77
million in 1993, by $694 million in 1992 and by $604 million in 1991. On a pro
forma basis, United's earnings in 1993 were inadequate to cover fixed charges
by $63 million. In addition, United's earnings were inadequate to cover fixed
charges for the three month period ended March 31, 1994 by $130 million, and on
a pro forma basis they were inadequate by $102 million. Non-cash depreciation
and amortization are deducted in computing earnings before fixed charges. Such
non-cash charges do not significantly affect the ability of United to fund
operations, service debt, or provide funds to service the Company's preferred
stock dividends. Depreciation and amortization of United were $722 million in
1993, $695 million in 1992, $604 million in 1991 and $178 million for the three
month period ended March 31, 1994.
The DGCL requires that the payments to holders of Old Shares in the
Recapitalization be made from "surplus." In addition, the DGCL requires that
dividends, including future dividends on the Public Preferred Stock, may only
be made from surplus or the net profits of the Company for the fiscal year in
which the dividend is declared and/or the preceding fiscal year. For purposes
of the DGCL, surplus equals the excess, if any, at any given time, of the net
assets of the corporation over stated capital. In addition, such payments would
not be permitted if after giving effect to them the Company would not be able
to pay its debts as they become due in the usual course of business. The Board
believes that the Company will be able to pay such debts, based in part on the
revenue and earnings scenarios set forth below under "SPECIAL FACTORS--Certain
Revenue and Earnings Scenarios" and on American Appraisal's opinion referred to
below. See "THE PLAN OF RECAPITALIZATION--Terms and Conditions," and "UNAUDITED
PRO FORMA FINANCIAL INFORMATION."
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Given the more leveraged financial structure of the Company following the
Recapitalization, certain industry risks could have a greater adverse impact on
the Company after the Recapitalization than prior to the Recapitalization.
Governance Structure; Ability of Holders of Voting Preferred Stock to
Exercise More than 50% of the Voting Power of the Company. Although the Company
has attempted to achieve a balanced approach to its corporate governance
structure after the Recapitalization, such structure is very unusual in the
management of a large, complex public corporation, and it is not certain that
the actual operation of the corporate governance process will not result in
disputes or fail to achieve results that are in the best interests of the
Company or the holders of New Shares.
Under the terms of the Restated Certificate, the participants in the ESOPs
(and in certain circumstances the ALPA-MEC, the IAM and the Salaried and
Management Director) will hold and will be entitled to exercise approximately
55% (which under certain circumstances may be increased to up to approximately
63%) of the voting power of the Company until the common equity held by (or
credited to) the ESOPs and other employee benefit plans sponsored by the
Company is less than 20% of the common equity of the Company, all as more fully
described in "THE PLAN OF RECAPITALIZATION--Revised Governance Structure--
Nondilution" and "DESCRIPTION OF SECURITIES--The Voting Preferred Stock." The
termination of the right to exercise 55% or more of the voting power of the
Company is referred to herein as the "Sunset." See "THE PLAN OF
RECAPITALIZATION--Revised Governance Structure--Sunset." Under current
actuarial assumptions, the Company estimates that this Sunset provision will
not become operative until 2016 if additional purchases are not made by
eligible employee benefit plans. However, such plans will have the right, and
may be expected, to make additional purchases, thereby delaying the occurrence
of the Sunset. In addition, the Restated Certificate contains provisions which
may prevent the Company prior to the Sunset from taking certain specified
actions without the consent of one or both of the members of the Board elected
by ALPA and the IAM or a 75% vote of holders of New Shares and Voting Preferred
Stock. See "THE PLAN OF RECAPITALIZATION--Revised Governance Structure."
Currently, the Board is comprised of thirteen members elected annually by
holders of the Old Shares. While the existing Board may in its deliberations
consider the interests of employee groups, there is no direct representation on
the Board of specific employee groups. As more fully described below (see "THE
PLAN OF RECAPITALIZATION--Revised Governance Structure"), the Plan of
Recapitalization contemplates that directors elected by representatives of the
employee groups will participate in the governance of the Company. Following
consummation of the Recapitalization and until the Sunset, the Board will
consist of twelve members, comprised of (i) five public directors elected by
holders of the New Shares, who will include (a) three members of the existing
Board or other individuals with no previous material contact with the Company
other than as directors (the "Outside Public Directors") and (b) two
substantially full-time employees of the Company who, to the extent permitted
by law, will be the CEO and an additional senior executive (the "Management
Public Directors" and with the Outside Public Directors, the "Public
Directors"), (ii) four independent directors (the "Independent Directors")
elected by the holders of Class I Junior Preferred Stock, and intended to be a
quasi-self-perpetuating body, (iii) three directors representing various
employee groups elected as follows: (a) the ALPA Director elected by the Class
Pilot MEC Junior Preferred Stock, which will be held by the ALPA-MEC, (b) the
IAM Director elected by the Class IAM Junior Preferred Stock, which will be
held by the IAM or its designee, and (c) the Salaried and Management Director
elected by the Class SAM Preferred Stock, which will be held by the Salaried
and Management Director and an additional designated stockholder. See "THE PLAN
OF RECAPITALIZATION--Revised Governance Structure--Composition of the Board--
Public Directors," "--Independent Directors," "--Employee Directors" and
"ELECTION OF DIRECTORS."
Generally, Board actions will require a majority vote of the votes present at
a meeting at which a quorum is present. Special quorum requirements apply to
meetings of the Board. However, approval of certain extraordinary matters
generally will require, subject to certain exceptions, approval of either
three-quarters of the Board (including the concurrence of one Union Director)
or three-quarters of the shares present and voting at a stockholder meeting at
which a quorum is present. Certain extraordinary matters will require
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approval of the Public Directors, the Independent Directors or a majority of
New Shares not held by the ESOPs. See "THE PLAN OF RECAPITALIZATION--Revised
Governance Structure--Quorum," "--Required Board Action" and "--Extraordinary
Matters."
The Restated Certificate provides that until the Sunset the following
committees will be constituted: the Audit Committee, the Competitive Action
Plan ("CAP") Committee, the Compensation Committee, the Compensation
Administration Committee, the Executive Committee, the Independent Director
Nomination Committee, the Labor Committee, the Outside Public Director
Nomination Committee and the Transaction Committee (collectively, the
"Committees"). In addition, the Board may, by resolution passed by the
affirmative vote of 80% of the votes of the entire Board, including the
affirmative vote of at least one Union Director, designate one or more other
committees of the Board. Subject to certain exceptions, any act of a Committee
will require the affirmative vote of a majority of the votes entitled to be
cast by the Directors present at a meeting of such Committee and entitled to
vote on the matter in question. The Restated Certificate contains certain
provisions relating to the required quorum for committee action. See "THE PLAN
OF RECAPITALIZATION--Revised Governance Structure--Committees."
The CAP Committee will consist of eight Directors, including four Public
Directors, two Independent Directors and the two Union Directors. Of the four
Public Directors, three will be Outside Public Directors and one will be the
CEO (if the CEO is a Public Director). The function of the CAP Committee will
be, subject to certain exceptions, to oversee implementation of the Company's
Competitive Action Plan which will involve implementation of U2. The CAP
Committee will have the exclusive authority to approve on behalf of the Company
any and all modifications of or amendments to the Competitive Action Plan and
to approve on behalf of the Company any and all modifications of or amendments
to the salaried and management employee investment described in "THE PLAN OF
RECAPITALIZATION--Investment for Salaried and Management Employees."
The Executive Committee will be comprised of two Independent Directors, two
Public Directors (the CEO, if the CEO is a Public Director, and one Outside
Public Director) and two Union Directors. Subject to the DGCL, the Executive
Committee will have all the powers of the Board to manage the affairs of the
Company, except that it would not have the authority (i) to act with respect to
"Extraordinary Matters," discussed under "THE PLAN OF RECAPITALIZATION--Revised
Governance Structure--Extraordinary Matters," (ii) to take any action as to
matters specifically vested in other Committees or (iii) to take any action
that may be taken by the Board only with a vote greater than or additional to a
majority of the Board.
The Labor Committee will consist of three or more Directors, including one
Outside Public Director, at least one Independent Director and at least one
other Director, as designated by the Board, but will not include any Employee
Directors. The Labor Committee will have the exclusive authority on behalf of
the Board to approve on behalf of the Company the entering into, or any
modification of or amendment to, a collective bargaining agreement to which the
Company or any of its Subsidiaries is a party.
The Compensation Administration Committee will be comprised of two
Independent Directors and one Outside Public Director and its members will be
responsible for administering certain stock option plans and executive
compensation programs of the Company.
Fraudulent Conveyance. If a court in a lawsuit by an unpaid creditor or
representative of creditors, such as a trustee in bankruptcy, were to find
that, at the time the Company distributed to holders of Old Shares the cash and
Debentures that such holders are to receive in the Recapitalization, the
Company (i) was insolvent, (ii) was rendered insolvent by reason of such
distributions, (iii) was engaged in a business or transaction for which the
assets remaining with the Company constituted unreasonably small capital to
carry on its business or (iv) intended to incur, or believed that it would
incur, debts beyond its ability to pay as such debts matured, such court may
void the distributions to stockholders and require that such holders return the
same (or equivalent amounts) to the Company or to a fund for the benefit of its
creditors. If a
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court were to make similar findings about United's issuance of the Debentures,
such court could avoid United's obligations under the Debentures or order the
Debentures to be subordinated to all existing and future indebtedness of
United. The measure of insolvency for purposes of the foregoing would vary
depending upon the law of the jurisdiction that was being applied. Generally,
the Company would be considered insolvent if at the time of the
Recapitalization the fair value of the Company's assets is less than the amount
of the Company's total debts and liabilities or if the Company has incurred
debt beyond its ability to repay as such debt matures. In order to assist the
Board to determine the solvency of the Company, the Company retained American
Appraisal.
As stated in "SPECIAL FACTORS--Opinion of Valuation Firm," the American
Appraisal Opinion stated that, based upon and subject to the conditions and
assumptions contained therein, (a) the fair value of the aggregate assets of
each of the Company (on a consolidated basis) and United (on a consolidated
basis) will exceed their total respective liabilities (including, without
limitation, subordinated, unmatured, unliquidated and contingent liabilities),
(b) the present fair salable value of the aggregate assets of each of the
Company (on a consolidated basis) and United (on a consolidated basis) will be
greater than their respective probable liabilities on their debts as such debts
become absolute and matured, (c) each of the Company (on a consolidated basis)
and United (on a consolidated basis) will be able to pay their respective debts
and other liabilities, including contingent liabilities and other commitments,
as they mature, (d) the capital remaining in each of the Company (on a
consolidated basis) and in United (on a consolidated basis) after consummation
of the Recapitalization will not be unreasonably small for the businesses in
which the Company and United are engaged, as management of the Company and
United has indicated such businesses are conducted and as management has
indicated the businesses are proposed to be conducted following the
consummation of the Recapitalization, and after giving due consideration to the
prevailing practices in the industry in which the Company and United will be
engaged, (e) the excess of the fair value of the total assets of the Company
over the total liabilities, including contingent liabilities, of the Company,
is equal to or exceeds the value of the Recapitalization Consideration to
stockholders plus the stated capital of the Company and (f) the excess of the
fair value of the total assets of United over the total liabilities, including
contingent liabilities, of United, is equal to or exceeds the value of the
stated capital of United.
American Appraisal also indicated that it believed the excess of total assets
over pro forma liabilities was approximately $2.5 billion at December 31, 1993,
compared to approximately $1.203 billion in stockholders' equity as of such
date, determined according to generally accepted accounting principles, so
that, giving effect to the Recapitalization, the indicated excess assets of the
Company for purposes of Delaware law exceeded $1 billion. See "SPECIAL
FACTORS--Certain Risk Factors--Fraudulent Conveyance," "--Certain Revenue and
Earnings Scenarios" and "UNAUDITED PRO FORMA FINANCIAL INFORMATION."
Certain Anti-Takeover Effects. Certain provisions of the governance structure
will make it extremely difficult to acquire the Company in a transaction that
was not approved by at least one of the Union Directors or a 75% vote of the
New Shares and the Voting Preferred Stock, even if such transaction might be
beneficial to the Company's stockholders. See "THE PLAN OF RECAPITALIZATION--
Revised Governance Structure."
Pricing of Public Preferred and Debentures. As described in "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--Pricing of the Securities," the final
interest rates on the Debentures and the final dividend rate on the Public
Preferred Stock will be established shortly prior to the Meeting. Although the
procedure for establishing such final rates is designed to determine the rates
that such securities should bear for the Debentures and the Depositary
Preferred Shares representing interests in the Public Preferred Stock to trade
at par assuming such securities were fully distributed, the Plan of
Recapitalization provides that such rates may not exceed certain caps. The
underwriting agreements relating to the several Offerings will provide, as
applicable, that if such Offerings are consummated, the interest rates on the
Debentures and the dividend rate on the Public Preferred Stock respectively,
may be adjusted to permit such securities to be sold
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at or closer to par, but if that is done, the principal amount of the series of
Debentures affected or the number of Depositary Preferred Shares representing
interests in the Public Preferred Stock, as the case may be, will be reduced so
that the aggregate amount of interest payable annually by United on such series
of Debentures or the aggregate amount of dividends payable annually by the
Company on the Public Preferred Stock will not exceed certain maximum amounts
calculated with reference to such caps. If the Offerings are not consummated,
the interest rates borne by the Debentures and the dividend rate borne by the
Public Preferred Stock will be subject to the caps. See "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--Pricing the Securities." If the
prevailing market interest and dividend rates for securities comparable to the
Debentures and the Depositary Preferred Shares are higher than the rate caps
applicable to the Debentures or the Public Preferred Stock, as the case may be,
the Debentures or the Depositary Preferred Shares representing interests in the
Public Preferred Stock, as the case may be, may trade at a discount to par.
Accordingly, if the rate caps are imposed for either or both series of the
Debentures or the Depositary Preferred Shares, (a) the proceeds from an
Offering, if consummated, would be less than the face amount thereof or (b) if
the Offerings are not consummated, the securities constituting a part of the
Recapitalization Consideration would have a trading value of less than the face
amount thereof. Based on the current general market conditions, the Company
believes that the rates for either or both series of the Debentures or the
Depositary Preferred Shares may approach or exceed the maximum rates.
Investment Values; Future Investment. Cost savings envisioned by the
agreements with ALPA and the IAM and the anticipated productivity increases
could be difficult to achieve, and even if all proposed plans for employee
investment are implemented, the value of the reductions in wages and benefits
and work-rule changes and anticipated productivity increases may not be as
significant as currently calculated. Mandated job guarantees may make it
difficult to achieve significant additional productivity improvements, and, if
additional reductions in wages and benefits and work-rule changes become
desirable in management's view, such reductions in wages and benefits and work-
rule changes may be more difficult to achieve in light of the long-term nature
of the revised collective bargaining agreements that constitute elements of the
Recapitalization.
Lack of Employee Consensus. Certain employee groups may not be in favor of
the changes arising from the Recapitalization and may react in a manner that
does not facilitate achievement of the desired result. For example, the AFA has
declined to date to participate in the transaction, certain other employees who
will be participating in the wage and benefit reductions and work-rules changes
were not in favor of the transaction, and certain union organizing activity,
based on opposition to certain aspects of the transaction, has occurred. This
lack of consensus may reduce the value of the increased employee commitment
that the Company expects to achieve by virtue of the Recapitalization.
Management Change. The new CEO, Mr. Gerald Greenwald, will be required to
implement reductions in wages and benefits and work-rule changes that were
negotiated by the current management, certain members of which will retire at
the Effective Time, in an industry in which he has not previously been engaged.
In addition, it is possible that the Company may face attrition by officers and
other members of management and that the Company's new senior management may
face difficulties in implementing the new strategies or attracting additional
management employees. It is expected that a Chief Operating Officer of the
Company and United will not be identified prior to the Meeting or the Effective
Time. If this occurs, the Company would expect that members of existing senior
management would perform the functions of the Chief Operating Officer after the
Effective Time until such a person is identified in accordance with the
procedures specified in the Restated Certificate. See "THE PLAN OF
RECAPITALIZATION--Revised Governance Structure--Officers."
Reduced Flexibility. The corporate governance structure and collective
bargaining agreements with ALPA and the IAM may inhibit management's ability to
alter strategy in a volatile, competitive industry. Among the more significant
constraints are (i) a prohibition on domestic code sharing in excess of 1% of
domestic block hours, excluding several small existing agreements, without
ALPA's consent, (ii) a no layoff guarantee for all currently employed
participating union employees during the five- to six-year investment
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period and for pilots while U2 remains in operation, (iii) restrictions on
international code sharing, unless the Company can demonstrate that
international code sharing arrangements do not cause a reduction in
international flying and as long as the Company does not expand code sharing
unless the Company reduces international flying below a certain level and (iv)
an agreement not to sell the Company's Denver pilot training facility and
certain maintenance facilities. In addition, the Restated Certificate contains
significant limitations on the ability of the Company and United to sell assets
and issue equity securities absent certain specified Board or stockholder
approvals. In most circumstances, the issuance of additional equity securities
would not be counted in determining whether the Sunset has occurred.
Limitations on asset sales and equity issuances included in the Company's
Restated Certificate might make it more difficult to raise cash, even if
management desired to do so to take advantage of a perceived opportunity.
Implementation of U2. Although the Company expects to develop "an airline
within-an-airline" for short-haul markets at reduced operational costs ("U2")
as an important component of its competitive posture and has ascribed a
significant portion of the value of the transaction to the ability to implement
U2, no assurance can be given that the Company will be able to do so
effectively or to realize the financial benefits expected to be received by the
Company from implementation of U2. See "SPECIAL FACTORS--Implementation of the
"Airline Within-an-Airline' (U2)" and "--Certain Risk Factors--Implementation
of U2."
Competitive Response. Even if the Company is able to achieve cost reductions
and productivity enhancements, the Company's higher cost competitors may be
able to achieve comparable agreements with their labor groups or otherwise
reduce their operating costs and the Company's low-cost competitors may modify
their operations in response to the competitive threat posed by U2 and thus, in
such cases, may eliminate or reduce the competitive gain sought by the Company
and lead to reductions in fares and earnings. In this regard, for example,
Continental Airlines (which already has a low cost structure) has implemented a
short haul service with lower costs which would be competitive with U2, and
Delta Airlines has announced its intent to lower its overall costs
substantially. If the Company's higher cost competitors, such as Delta, were to
achieve more significant reductions in wages and benefits and work-rule changes
than those achieved by the Company, the Company's ability to respond to
competition would be hampered by the fixed long-term nature of the agreements
that constitute elements of the Recapitalization.
Labor Protective Provisions. The Company will continue in effect, or amend to
include, certain provisions of agreements with ALPA and the IAM that (i)
provide certain rights in the event of a change in control of the Company and
(ii) prohibit furloughs, within certain conditions, if the Company disposes of
25 percent or more of its assets or assets which produce 25 percent or more of
its block hours. The revised collective bargaining agreements obligate the
Company to require any carrier purchasing route authority or aircraft that
produce 25 percent or more of the Company's operating revenues or block hours
to hire and integrate an appropriate number of United employees represented by
ALPA or the IAM with seniority credit.
Tax Deductibility of Employee Stock Ownership Plan Contributions and
Dividends. Although the Company has attempted to structure the ESOPs so that
all amounts contributed thereto and dividends paid with respect to the stock
held thereunder will be deductible to the Company for Federal income tax
purposes, there are no regulations governing the deductibility of dividends
paid on the ESOP Preferred Stock and there can be no assurance that one or more
limitations under the Internal Revenue Code of 1986, as amended, will not
adversely impact the deductibility of such amounts and dividends.
Amendments to Collective Bargaining Agreements; Future Labor
Agreements. There can be no assurance that the new management of the Company in
the future will not agree to amend the collective bargaining agreements with
ALPA and the IAM in a manner that reduces or eliminates the cost savings that
are the basis for the Recapitalization. However, any such amendment must be
approved by the Labor Committee of the Board (which will not include any Union
Directors). See "THE PLAN OF
xxiv
<PAGE>
RECAPITALIZATION--Revised Governance Structure--Committees." In addition, at
the end of the current employee investment period, there can be no assurance
that the Company's labor agreements will be renegotiated in a manner that
continues in subsequent periods the cost savings that are being sought through
the Recapitalization or that does not reverse the effect of any cost savings
that will have been obtained thereby.
Possible Effect of Organization of Additional Employees. In the event that
any portion of the salaried and management employees who are not currently
represented by a union elects union representation pursuant to the Railway
Labor Act, the Company would be obligated to bargain with such union over the
terms and conditions of employment applicable to such employees, including the
terms, if any, of such employees' continuing participation in the ESOPs. This
obligation to bargain requires the Company to "exert every reasonable effort"
to reach an agreement but does not require it to agree to any change or
particular term or condition sought by the union. During the period of
negotiation, the Company would be entitled to maintain the then-existing terms
of such employees' participation in the ESOPs.
The ESOPs provide that if any group of employees who are not currently
represented by a union becomes covered by a new collective bargaining
agreement, such group of employees will not be covered under the ESOPs unless
the collective bargaining agreement so provides. Whether any new collective
bargaining agreement would provide for continuing participation in the ESOPs by
such group of employees is a matter that would be subject to mutual agreement
between the Company and the applicable union. The ESOPs provide, however, that
if the terms of any employee's employment no longer reflect all of the
reductions in wage and benefits and work-rule changes set forth in the Plan of
Recapitalization, then such employee shall cease to be covered by the ESOPs.
As a result, if any new collective bargaining agreement did not reflect the
reductions in wage and benefits and work-rule changes required by the Plan of
Recapitalization for particular employees, the Company could not agree, without
amending the ESOPs, to allow such employees to participate in the ESOPs. If any
currently unrepresented employees ceased to participate in the ESOPs under such
circumstances, the ESOPs provide that the unrepresented employees remaining in
the ESOPs would receive the shares previously intended for that newly-
represented group. The employment terms, except base pay, for the unrepresented
employees remaining in the ESOPs will be subject to change, at the Company's
discretion, so long as the net economic value of the unrepresented employees'
employment terms is not altered.
Employee Ownership and Influence. No assurance can be given that the Company,
which will be subject to significant influence by employee groups (including
through the right to voting representation in excess of economic equity
ownership, Board and Board committee representation, the requirement of
approval of certain matters by a Union Director or a 75% vote of the holders of
New Shares and Voting Preferred Stock, and participation by Union Directors in
the nomination of the Independent Directors), might not take actions that are
more favorable to such employee groups than might be taken by a company that
was not subject to such influence. The corporate governance structure after the
Recapitalization will not, however, relieve the members of the Board of their
fiduciary obligations under the DGCL.
Effect of Adjustment on Trading. As described under "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--Additional Shares," the ESOP
Preferred Stock which the Company is initially obligated to issue or credit to
the ESOPs is convertible into approximately 55% of the New Shares but, based on
the trading prices of the New Shares in the twelve months after the Effective
Time (the "Measuring Period"), may be increased to up to a maximum of
approximately 63% of the New Shares. Such potential additional issuance may
adversely limit the trading prices of the New Shares during the Measuring
Period.
Additional Issuances of Recapitalization Consideration. United has registered
under the Securities Act $449,802,200 aggregate principal amount of each series
of Debentures and the Company has registered 35,984,175 Depositary Preferred
Shares representing interests in $899,604,375 aggregate liquidation value of
the Public Preferred Stock for issuance to holders of Old Shares, Options (as
defined below) and Convertible
xxv
<PAGE>
Company Securities (as defined below) in connection with the Recapitalization.
If any of the Offerings are not consummated, United and the Company may be
required to issue a larger number of Debentures and/or Depositary Preferred
Shares in connection with the exercise of Options in the event holders thereof
fail to use a cashless exercise feature or in connection with the conversion of
certain Convertible Company Securities. However, the failure of Option holders
to utilize a cashless exercise feature would have the effect of increasing the
Company's available cash by an amount equal to the aggregate exercise price.
See "DESCRIPTION OF SECURITIES--The Debentures--General" and "--The Public
Preferred Stock--General." If any of the Offerings are not consummated, the
Company currently intends to register in the future additional securities
originally issued (or distributed following repurchase in the market), to
satisfy the exercise or conversion of Options or Convertible Company
Securities.
Financial Reporting; Market Assessment. The accounting rules governing
employers accounting for employee stock ownership plans require that
compensation expense be recorded for the ESOP Preferred Stock that is
"committed to be released" during an accounting period based on the fair value
of the ESOP Preferred Stock during such period. The difference between the fair
value and the initial recorded cost of the ESOP Preferred Stock "committed to
be released" is recorded as an adjustment to stockholders' equity. The ESOP
Preferred Stock that has been "committed to be released" is considered to be
outstanding in the if-converted earnings per share calculation for primary and
fully diluted earnings per share if the effect is dilutive. The circular
relationship between the employee stock ownership plan accounting charge and
the Company's stock price, coupled with the size of the contemplated ESOPs,
make future earnings difficult to forecast. In addition, reported book earnings
will be depressed in early years due to a mismatch between the term of employee
investments (which increase earnings) of from five years, nine months to twelve
years and the shorter period of only six years over which employee stock
ownership plan accounting charges will occur. While it is possible that the
equity research community and investors may look through employee stock
ownership plan accounting charges, it is also possible that the trading price
of the New Shares may be negatively impacted by such accounting treatment.
Complexity. Given the complex nature of the various provisions affecting the
operation of the Company after the Effective Time, it is possible that the
equity research community and investors may find the Company difficult to
evaluate, which may have the effect of reducing the trading price of the New
Shares from levels that might otherwise prevail.
Redistribution. If any of the Offerings are not consummated, in the
Recapitalization, holders of Old Shares (an equity security) will receive
Debentures and/or Depositary Preferred Shares representing interests in Public
Preferred Stock in addition to New Shares and cash. It is expected that there
will exist a period, perhaps of a lengthy duration, during which certain
recipients of such securities, concluding that the characteristics thereof are
not consistent with their investment criteria, distribute such securities into
the marketplace. During such distribution period, the supply of such securities
in the market may exceed levels that might otherwise prevail, which would
likely have the effect of depressing the price of such securities from levels
that might otherwise prevail if such securities were held solely by persons or
institutions for whom such securities satisfied their investment criteria. The
Debentures and the Depositary Preferred Shares have been approved for listing
on the NYSE subject to official notice of issuance, although there can be no
assurance that at or following the Effective Time any trading market for these
securities will develop.
Industry Conditions and Competition. The airline industry is highly
competitive and susceptible to price discounting. United's competitors include
both domestic and international carriers some of which have low cost
structures. In addition, airline profit levels are highly sensitive to elements
outside the control of the airline industry such as fuel costs, passenger
demand, taxes and terrorist activities.
Regulatory Matters. In the last several years, the Federal Aviation
Administration (the "FAA") has issued a number of maintenance directives and
other regulations relating to, among other things, collision avoidance systems,
airborne windshear avoidance systems, noise abatement and increased inspection
requirements. The Company expects to continue incurring costs to comply with
the FAA's regulations. Additional laws and regulations have been proposed from
time to time that could significantly increase the
xxvi
<PAGE>
cost of airline operations by, for instance, imposing additional requirements
or restrictions on operations. Laws and regulations have also been considered
from time to time that would prohibit or restrict the ownership and/or transfer
of international airline routes or takeoff and landing slots. Also, the award
of international routes to U.S. carriers (and their retention) is regulated by
treaties and related agreements between the United States and foreign
governments, which are amended from time to time. For example, there are
significant aviation issues between the United States and such foreign
governments as Germany, Japan and the United Kingdom that, depending on their
resolution, may significantly impact the Company's existing operations or
curtail potential expansion opportunities in important regions of the world.
The Company cannot predict what laws and regulations will be adopted or what
changes to international air transportation treaties will be effected, if any,
or how they will affect United.
Holding Company Structure. The Company is a holding company that conducts
operations solely through its subsidiaries, principally United. The Company
will rely on dividends from its subsidiaries to meet its cash requirements,
including cash requirements in connection with dividends on or redemptions of
Depositary Preferred Shares (and the Public Preferred Stock interest). As a
result of the Recapitalization, United will have substantial debt in relation
to its stockholder's equity, as determined on a pro forma basis pursuant to the
application of generally accepted accounting principles.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Recapitalization is expected not to be a taxable transaction to the
Company but will be a taxable transaction to the Company's stockholders. A
summary of certain Federal income tax consequences of the Recapitalization for
stockholders is set forth under "CERTAIN FEDERAL INCOME TAX CONSEQUENCES." See
also "SPECIAL FACTORS--Certain Risk Factors--Taxation of Recapitalization to
Stockholders."
NO APPRAISAL RIGHTS
Stockholders of the Company will not be entitled to appraisal rights in
connection with any of the matters to be voted upon at the Meeting. For a
description of pending litigation related to the Recapitalization, see
"LITIGATION."
MARKET PRICES OF THE OLD SHARES; DIVIDENDS
The Company's Old Shares are listed and traded, under the symbol UAL, on the
New York Stock Exchange, the Chicago Stock Exchange and the Pacific Stock
Exchange. At June 9, 1994, based on reports by the Company's transfer agent for
the Company's Old Shares, there were 19,156 holders of record and there were
24,572,182 Old Shares outstanding. The high and low sales prices per share for
its common stock for each quarterly period during the past two fiscal years as
reported on the NYSE Composite Tape are as follows:
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1992:
1st quarter............................................. $159 $139 1/4
2nd quarter............................................. 143 3/4 111
3rd quarter............................................. 119 3/4 103
4th quarter............................................. 128 1/8 106 1/4
1993:
1st quarter............................................. $132 1/4 $110 3/4
2nd quarter............................................. 149 3/4 118
3rd quarter............................................. 150 1/2 121 5/8
4th quarter............................................. 155 1/2 135 7/8
1994:
1st quarter............................................. $150 $123 3/4
2nd quarter (through June 10, 1994)..................... 130 1/2 --
</TABLE>
No dividends have been declared on the Old Shares since 1987.
xxvii
<PAGE>
On December 22, 1993, the last trading day prior to the public announcement
of the Agreement in Principle, the closing sales price for the Old Shares as
reported on the NYSE Composite Tape was $148 1/2 per share. On March 24, 1994,
the last trading day prior to the public announcement of the execution of the
Plan of Recapitalization, the closing sales price for the Old Shares as
reported on the NYSE Composite Tape was $123 3/4 per share. On June 10, 1994,
the date of this Proxy Statement/Prospectus, the closing sales price for the
Old Shares as reported on the NYSE Composite Tape was $ . STOCKHOLDERS SHOULD
OBTAIN CURRENT MARKET QUOTATIONS FOR THE OLD SHARES AS ONE OF THE FACTORS
RELEVANT TO ASSESSING THE VALUE OF THE NEW SHARES BEFORE VOTING ON THE PLAN OF
RECAPITALIZATION. The New Shares have been approved for listing on the NYSE
subject to official notice of issuance.
The Board does not expect to declare the regular dividend for the second
quarter of 1994, and if the Recapitalization is consummated, the Company does
not expect to pay dividends in the foreseeable future on the New Shares. See
"SPECIAL FACTORS--Certain Risk Factors."
xxviii
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL POSITION
The following are the unaudited Pro Forma Condensed Statements of
Consolidated Financial Position for each of the Company and United. These
statements are based on an assumed purchase price for the Class 1 ESOP
Preferred Stock at the Effective Time of $120 per share. The $120 per share
assumed purchase price of Class 1 ESOP Preferred Stock is based on an assumed
market price of a New Share at the Effective Time of approximately $87. (The
assumption is based upon (i) an assumed market price of an Old Share at the
Effective Time of approximately $131.5 per share, (ii) an assumed value of the
non-New Share portion of the Recapitalization Consideration of $88 per Old
Share, and (iii) a purchase price premium for the Class 1 ESOP Preferred Stock
over the assumed value of a New Share of 38%.) The actual purchase price for
the Class 1 ESOP Preferred Stock at the Effective Time will be determined
pursuant to the terms of the purchase agreement with the ESOP Trustee, which
provides for a purchase price equal to 1.38 times the Closing Price (as defined
below), except that if the Closing Price is less than 98% of the average of the
Adjusted Old Share Price (as defined below) for the five trading days
immediately preceding the Effective Date (as defined below), the purchase price
shall equal the product of 1.38 and such average price. See "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--Sale of ESOP Preferred Stock--
Leveraged ESOP." There can be no assurance as to the actual purchase price of
the Class 1 ESOP Preferred Stock, the Closing Price, or the Adjusted Old Share
Price. These statements do not purport to be indicative of the financial
position that may be obtained in the future or that would actually have been
obtained had the Recapitalization occurred on the dates indicated.
UAL CORPORATION AND SUBSIDIARY COMPANIES
The following statement sets forth the unaudited consolidated financial
position of the Company and its subsidiaries at March 31, 1994, and the
unaudited pro forma consolidated financial position of the Company and its
subsidiaries after giving effect to the Recapitalization and the Offerings, and
the payment of fees and expenses incurred in connection with the
Recapitalization. The pro forma adjustments are based upon available
information and upon certain assumptions that the Company believes are
reasonable. The statement should be read in conjunction with the selected
consolidated financial and operating information, the unaudited pro forma
financial information and the respective related notes thereto appearing
elsewhere herein. See "SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL
AND OPERATING INFORMATION--UAL Corporation and Subsidiary Companies" and
"UNAUDITED PRO FORMA FINANCIAL INFORMATION--UAL Corporation and Subsidiary
Companies." In addition, the statement should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 1993, as
amended, and Quarterly Report on Form 10-Q for the quarter ended March 31,
1994, which are incorporated in this Proxy Statement/Prospectus by reference,
and which include the Company's Consolidated Financial Statements, the related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Current Report on Form 8-K dated
May 3, 1994, which is incorporated in this Proxy Statement/Prospectus by
reference.
The pro forma statement assumes the Recapitalization is not accounted for as
an acquisition or merger and, accordingly, UAL's assets and liabilities have
not been revalued. The reclassification of Old Shares into New Shares results
in the elimination of the par value of the Old Shares and recognition of the
par value of the New Shares. The distribution of cash to holders of Old Shares
is charged to additional capital invested and retained earnings.
The ESOPs are being accounted for in accordance with the American Institute
of Certified Public Accountants Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans" ("SOP"). For the Leveraged ESOP
(as defined below, see "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs"),
the Company will issue Class 1 ESOP Preferred Stock through seven ESOP
xxix
<PAGE>
Tranches (as defined below, see "THE PLAN OF RECAPITALIZATION--Establishment of
ESOPs") at the Effective Time, approximately thirteen months following the
Effective Time, annually thereafter for four years and on January 1, 2000. As
the shares are issued to the Leveraged ESOP, the Company will report the
issuance of shares as a credit to additional capital invested based on the fair
value of the stock when such issuance occurs and report a corresponding charge
to unearned ESOP Preferred Stock. As consideration for the shares, the Company
will receive from the ESOP Trustee a series of promissory notes and cash. The
notes will not be recorded in the Company's Statement of Consolidated Financial
Position and the related interest income will also not be recorded in the
Company's Statement of Consolidated Operations. As shares of Class 1 ESOP
Preferred Stock are earned or committed to be released, an employee stock
ownership plan accounting charge will be recognized equal to the average fair
value of the shares committed to be released with a corresponding credit to
unearned ESOP Preferred Stock. Any differences between the fair value of the
shares committed to be released and the cost of the shares to the ESOP will be
charged or credited to additional capital invested. For the Non-Leveraged
Qualified ESOP (as defined below, see "THE PLAN OF RECAPITALIZATION--
Establishment of ESOPs"), a credit for the shares of Class 2 ESOP Preferred
Stock will be recorded as the shares are committed to be contributed to the
ESOP, with the offsetting entry to compensation expense. Compensation expense
will be recorded based on the fair value of the shares committed to be
contributed to the ESOP, in accordance with the SOP. The pro forma financial
statements assume that the Supplemental ESOP (as defined below, see "THE PLAN
OF RECAPITALIZATION--Establishment of ESOPs") is accounted for the same as the
Non-Leveraged Qualified ESOP (i.e., pursuant to the SOP). It is possible that,
because the Supplemental ESOP is a non-qualified plan, the Company may account
for it under Accounting Principles Board Opinion 25, "Accounting for Stock
Issued to Employees," instead. The Company would not expect this to result in a
material difference. The shares committed to be contributed to the Supplemental
ESOP will be reported outside of equity because the employees can elect to
receive their "book entry" shares from the Company in cash upon termination of
employment.
The ESOP Preferred Stock is considered to be a common stock equivalent for
accounting purposes since the shares cannot remain outstanding indefinitely and
participants cannot withdraw their shares from the plan. Under the SOP, when
computing primary and fully diluted earnings per share, only those shares
committed to be released in the case of Class 1 ESOP Preferred Stock and shares
committed to be contributed in the case of Class 2 ESOP Preferred Stock are
considered outstanding as common stock equivalents. Prospectively, as dividends
are paid by the Company to the ESOP, only dividends on allocated shares will be
recorded as a charge to equity. Since the Company controls the use of dividends
on unallocated ESOP Preferred Stock, such dividends will not be considered
dividends for financial reporting purposes. Any dividends on unallocated shares
added to participant accounts would be reported as compensation expense.
xxx
<PAGE>
UAL CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
MARCH 31, 1994
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS HISTORICAL ADJUSTMENTS PRO FORMA
------ ---------- ----------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................. $ 1,046 $ 1,498 (1a) $
(2,208)(1b)
(140)(2)
8 (11) 204
Short-term investments.................... 1,020 1,020
Other..................................... 1,837 44 (3) 1,881
------- ------- -------
3,903 (798) 3,105
------- ------- -------
Operating property and equipment........... 12,226 12,226
Less: Accumulated depreciation
and amortization.......................... (5,177) (5,177)
------- ------- -------
7,049 7,049
------- ------- -------
Other assets:
Other..................................... 1,937 1,937
------- ------- -------
$12,889 $ (798) $12,091
======= ======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Short-term borrowings, long-term debt
maturing within one year and current
obligations under capital leases......... $ 486 $ $ 486
Other..................................... 4,502 (11)(11) 4,491
------- ------- -------
4,988 (11) 4,977
------- ------- -------
Long-term debt............................. 2,693 758 (1c) 3,451
------- ------- -------
Long-term obligations under capital leases. 777 777
------- ------- -------
Other liabilities, deferred credits and
minority interest......................... 3,334 3,334
------- ------- -------
Class 2 ESOP Preferred Stock, $.01 par,
none issued............................... -- (13)
------- ------- -------
Shareholders' equity:
Series A Preferred Stock, $.01 stated
value, 6,000,000 shares issued, $100
liquidation value........................ -- -- --
Series B Preferred Stock, $.01 stated
value, 30,566 shares issued, $25,000
liquidation value........................ -- (1d) --
Class 1 ESOP Preferred Stock, $.01 par,
1,899,059 shares issued, $120 liquidation
value.................................... -- (4) --
Class 2 ESOP Preferred Stock, $.01 par,
none issued ............................. -- (4) --
Voting Preferred Stocks, $.01 par, 3
shares issued, $.01 liquidation value.... -- (5) --
Common stock, $5 par value, 25,500,662
shares issued and outstanding--
historical............................... 128 (128)(1e) --
Common stock, $.01 par value, 13,006,564
shares issued and outstanding--pro
forma(12)................................ -- (1e) --
Additional capital invested............... 963 (963)(1e)
740 (1d)
228 (4)
13 (6) 981
Retained earnings (deficit)............... 142 (1,117)(1e)
(108)(7) (1,083)
Pension liability adjustment.............. (53) (53)
Unearned compensation..................... (14) 14 (8) --
Unearned ESOP Preferred Stock............. (228)(4) (228)
Unrealized loss on investments............ (2) -- (2)
Common stock held in treasury, 929,631
shares--historical, 439,816 shares--pro
forma ................................... (67) 4 (9) (63)
------- ------- -------
1,097 (1,545) (448)
------- ------- -------
$12,889 $ (798) $12,091
======= ======= =======
</TABLE>
See the accompanying notes to Pro Forma Condensed Statement of Consolidated
Financial Position.
xxxi
<PAGE>
UAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(1) To record the Recapitalization (as described in "THE PLAN OF
RECAPITALIZATION--Terms and Conditions"). The entries assume that (i) the
Offerings of Debentures and Depositary Preferred Shares representing
interests in Public Preferred Stock are consummated, (ii) all in-the-money
Options are vested and exercised at the Effective Time using a cashless
exercise mechanism, (iii) treasury stock held by the Company immediately
prior to the Effective Time will convert into New Shares that remain
outstanding after the Recapitalization and (iv) Convertible Company
Securities that are outstanding immediately prior to the Effective Time
will not convert into the Recapitalization Consideration at the Effective
Time. The cashless exercise feature permits holders of Options to exercise
them by surrendering to the Company a portion of the proceeds of the Option
in lieu of paying the exercise price in cash. When the cashless exercise
feature is used, each element of the Recapitalization Consideration that is
issuable upon the exercise of such Options is reduced proportionately, and
the net Recapitalization Consideration (including the New Shares) that is
issued is equal in value to the spread value of the Options exercised. See
footnote 8 to the Pro Forma Condensed Statement of Consolidated Operations
for the year ended December 31, 1993.
(a) To record the proceeds from the Offerings of approximately $765 million
of Debentures and approximately $765 million of Depositary Preferred
Shares representing interests in Public Preferred Stock, net of
underwriting discount of $7 million for the Debentures and $25 million
for the Public Preferred Stock. (If the Offerings are not consummated,
the Debentures and the Depositary Preferred Shares included in entry
1(c) and 1(d) will be issued to the holders of Old Shares upon
redemption of the Series D Redeemable Preferred Stock.)
(b) To record the cash payment to holders of Old Shares upon the redemption
of the Redeemable Preferred Stock. The cash payment includes $25.80 per
share plus proceeds from the sales of $31.10 face amount of Debentures
and Depositary Preferred Shares representing interests in $31.10
liquidation preference of Public Preferred Stock (before deducting
underwriting discount), and assumes that the proceeds of the sales
equals the face amount of the securities. The pro forma adjustment also
includes the cash payment of $88 per share upon exercise of Options.
(If the amount to be sold in the Offerings is reduced as discussed in
entry 1(c) and 1(d), the amount paid to holders of Old Shares will be
reduced.)
(c) To record the issuance of $382.5 million of principal amount of Series
A Debentures and $382.5 million of principal amount of Series B
Debentures. The Debentures are being recorded at their face amount on
the assumption that they will be priced to trade at par, less the
underwriting discount of $7 million. The actual rates on the Debentures
will be reset prior to the Effective Time and the Debentures are
subject to a maximum interest rate of 112.5 basis points above the
Initial Pricing. The underwriting agreements for the United Debt
Offerings are expected to provide that if either or both of the United
Debt Offerings are consummated, the interest rates on the Debentures
being offered may be adjusted in order for the Debentures to be sold at
or closer to par, in which case the principal amount of the Debentures
will be reduced so that the annual interest expense will not exceed the
stated maximum which was calculated based upon the rate cap. If either
or both of the United Debt Offerings are not consummated and the
applicable interest rate exceeds the cap, the Debentures will be
recorded at a discount.
(d) To record the issuance of Depositary Preferred Shares representing
interests in $765 million liquidation preference of Public Preferred
Stock, net of underwriting discount of $25 million. The Public
Preferred Stock is recorded at its stated value of $.01 per share, with
the excess of liquidation value over stated value and net of
underwriting discount recorded as additional capital invested. The
dividend rate on the Public Preferred Stock will be reset prior to
Closing and is subject to a
xxxii
<PAGE>
maximum of 11.375%. The underwriting agreement for the UAL Preferred
Offering is expected to provide that if the UAL Preferred Offering is
consummated, the dividend rate may be adjusted in which case the number
of Depositary Preferred Shares will be reduced so that the annual
dividends will not exceed the stated maximum which was calculated based
on the rate cap.
(e) To record the reclassification of Old Shares into New Shares and Series
D Redeemable Preferred Stock. The Series D Redeemable Preferred Stock
is assumed to immediately convert to cash, including proceeds from the
sale of Debentures and Depositary Preferred Shares representing
interests in Public Preferred Stock. (The pro forma adjustments do not
reflect the Series D Redeemable Preferred Stock issued to the Company
upon reclassification of the treasury stock because such shares are
surrendered for cancellation immediately after issuance.)
The New Shares are recorded at their par value of $.01 per share.
Following is a summary of the entries to additional capital invested and
retained earnings (in millions):
<TABLE>
<CAPTION>
ADDITIONAL
CAPITAL RETAINED
INVESTED EARNINGS
---------- --------
<S> <C> <C>
Cancellation of Old Shares............................ $ 128 $ --
Distribution of Cash.................................. (1,091) (1,117)
------ -------
Pro forma adjustment.................................. $ (963) $(1,117)
====== =======
</TABLE>
(2) To record the cash impact of the estimated fees and transaction expenses,
including expenses for the Company, ALPA and the IAM, severance payments to
terminated officers and flight kitchen employees and payments relating to
the employment agreement with Mr. Greenwald.
(3) To record the tax effects relating to nonrecurring charges recognized as a
result of the Recapitalization.
(4) To record the initial issuance of Class 1 ESOP Preferred Stock to the
Leveraged ESOP for an aggregate purchase price of $228 million. The $228
million was determined based on (i) 1,899,059 shares of Class 1 ESOP
Preferred Stock expected to be issued in the first ESOP Tranche as of the
Effective Time and (ii) an assumed purchase price of $120 per share. The
Company and the Unions may, prior to the Effective Time, agree to increase
or decrease the number of shares of Class 1 ESOP Preferred Stock sold at
the Effective Time. The agreement with the ESOP Trustee provides that the
number of shares of Class 1 ESOP Preferred Stock sold at the Effective Time
shall be no more than 2,088,965 and no fewer than 1,709,153; provided,
however, that the number of shares sold in the first ESOP Tranche will be
adjusted if the Effective Time is before or after July 1, 1994. The actual
price per share for the first ESOP Tranche will be calculated as provided
in the ESOP Stock Purchase Agreement. Thus, the ultimate amount recorded at
the Effective Time will differ from the pro forma adjustment in order to
reflect the actual number of shares issued and the purchase price
calculated under the ESOP Stock Purchase Agreement.
Six additional ESOP Tranches will be issued to the Leveraged ESOP during
the 69 months subsequent to the Effective Time, with the total shares of
Class 1 ESOP Preferred Stock issued in the seven ESOP Tranches aggregating
approximately 14,000,000 shares (subject to increase, see "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--Additional Shares"). The price
for the subsequent ESOP Tranches will be as agreed between the Company and
the ESOP Trustee at the time of each sale. As the subsequent ESOP Tranches
are issued, the shares will be reported as a credit to additional capital
invested based on the fair value of the stock when such issuances occur
with a corresponding charge to "Unearned ESOP Preferred Stock."
The unearned ESOP Preferred Stock recorded in the pro forma adjustment
together with the unearned ESOP Preferred Stock recorded from subsequent
ESOP Tranches will be recognized as compensation expense over the
approximately six year investment period as the shares are committed to be
released.
xxxiii
<PAGE>
The difference between the compensation expense recorded, which is based
on the fair value of the stock during an accounting period, and the
recorded cost of the unearned ESOP Preferred Stock will be recorded to
additional capital invested.
The shares of Class 2 ESOP Preferred Stock will be recorded over the
approximately six year investment period as the shares are committed to be
contributed to the Non-Leveraged Qualified ESOP and credited to employees
pursuant to the Supplemental ESOP with the offsetting entry being to
compensation expense. The number of shares of Class 2 ESOP Preferred Stock
that will be issued will be equal to 17,675,345 less the number of shares
of Class 1 ESOP Preferred Stock that will be sold to the Qualified ESOP (as
defined below, see "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs").
The ESOP Preferred Stock is convertible into New Shares at any time at the
election of the ESOP Trustee at a rate of one New Share for each share of
ESOP Preferred Stock (subject to adjustment). Primarily because of
limitations imposed by the Internal Revenue Code, the ESOP consists of
three major portions: the Leveraged ESOP, the Non-Leveraged Qualified ESOP,
and the Supplemental ESOP. Shares of ESOP Preferred Stock issued under the
Leveraged ESOP and the Non-Leveraged Qualified ESOP will be held by the
ESOP Trustee under the Qualified Trust (as defined below, see "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs"). Under the Supplemental ESOP,
shares will be credited as Book-Entry Shares when earned by employees, and
will be issued to employees as New Shares, generally upon termination of
employment. ALPA has the right to elect at any time, before or after the
Effective Time, that the Supplemental ESOP be maintained by the actual
issuance of Class 2 ESOP Preferred Stock to a non-qualified trust
established under the Supplemental Plan. In general, the Plan of
Recapitalization is designed to maximize the number of shares of ESOP
Preferred Stock that may be sold to the Qualified Trust. However, because
of certain limitations imposed by the Internal Revenue Code, a portion of
the equity interest to be obtained by the ESOP Trustee may not be sold to
the Qualified Trust. The Class 1 ESOP Preferred Stock contains a fixed
dividend feature which is intended to maximize the number of shares of
Class 1 ESOP Preferred Stock that may be sold to the Qualified Trust
consistent with the applicable provisions of the Internal Revenue Code. To
the extent the Qualified Trust is unable to purchase the Class 1 ESOP
Preferred Stock, Class 2 ESOP Preferred Stock will be issued, to the extent
permitted by the limitations of the Internal Revenue Code, to the ESOP
Trustee pursuant to the Non-Leveraged Qualified ESOP. Class 2 ESOP
Preferred Stock will not contain a fixed dividend. To the extent that Class
2 ESOP Preferred Stock cannot be issued to the ESOP Trustee because of the
limitations of the Internal Revenue Code, the Company will credit Book-
Entry Shares to accounts established for the employees pursuant to the
Supplemental ESOP.
(5) To record the issuance at par of one share of Class P Voting Preferred
Stock, one share of Class M Voting Preferred Stock, and one share of Class
S Voting Preferred Stock to the Qualified ESOP. The remaining Voting
Preferred Stock will be issued when it is contributed to the Qualified ESOP
and the Supplemental ESOP. The Class P Voting Preferred Stock, the Class M
Voting Preferred Stock and the Class S Voting Preferred Stock, which are
referred to collectively as the "Voting Preferred Stock", represent and
permit, in connection with the establishment of the ESOPs, the exercise of
the voting power representing 55% (which under certain circumstances may be
increased to up to 63%) of the voting power of the Company. See
"DESCRIPTION OF SECURITIES--The Voting Preferred Stock." The Restated
Certificate provides that upon the conversion of all the ESOP Preferred
Stock into New Shares, each share of Voting Preferred Stock will be
converted into one ten-thousandth of a New Share.
(6) To account for the cashless exercise of options in the event of the
Recapitalization. (Amount of the entry is based on an assumed Old Share
price at the Effective Time of approximately $131.5 per share.)
(7) Represents the offset to entries (2), (3), (6), (8), (9) and (11).
(8) To record the vesting of the unvested restricted stock as a result of the
Recapitalization.
xxxiv
<PAGE>
(9) To record 25,000 restricted shares to Mr. Greenwald that will vest at the
Effective Time.
(10) Does not reflect the issuance of four shares of Class I Preferred Stock,
one share of Class Pilot MEC Preferred Stock, one share of Class IAM
Preferred Stock, and three shares of Class SAM Preferred Stock. These
stocks have a $.01 par value and nominal economic value. The Class I
Preferred Stock will be issued to the Independent Directors and will have
the power to elect such directors to the Board. The Class Pilot MEC
Preferred Stock will be issued to the ALPA-MEC and will have the power to
elect the ALPA Director. The Class IAM Preferred Stock will be issued to
the IAM or its designee and will have the power to elect the IAM Director.
The Class SAM Preferred Stock will be issued to the Salaried and
Management Director and to the senior executive at United who has primary
responsibility for human resources and will have the power to elect the
Salaried and Management Director. Such classes of stock are referred to
collectively as the Director Preferred Stock. See "DESCRIPTION OF
SECURITIES--The Director Preferred Stock." Upon the occurrence of an
Uninstructed Trustee Action (as defined below), the Class Pilot MEC
Preferred Stock will succeed to the voting power previously held by the
Class P Voting Preferred Stock, the Class IAM Preferred Stock will succeed
to the voting power previously held by the Class M Voting Preferred Stock
and the Class SAM Preferred Stock will succeed to the voting power
previously held by the Class S Voting Preferred Stock. See "DESCRIPTION OF
SECURITIES--The Director Preferred Stock--Uninstructed Trustee Actions."
(11) To reverse $19 million of transaction fees and expenses recorded during
the first quarter of 1994 because these expenses are included in entry
(2).
(12) The number of New Shares issued on a pro forma basis is based on Fully
Diluted Old Shares assuming the Convertible Company Securities do not
convert. See "The PLAN OF RECAPITALIZATION--Terms and Conditions--
General."
(13) The Class 2 ESOP Preferred Stock committed to be contributed to the
Supplemental ESOP will be reported outside of equity because the employees
can elect to receive their "book entry" shares from the Company in cash
upon termination of employment.
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
The following statement sets forth the unaudited consolidated financial
position of United and its subsidiaries at March 31, 1994 and the unaudited pro
forma consolidated financial position of United and its subsidiaries after
giving effect to the Recapitalization and the Offerings, and the payment of
fees and expenses incurred in connection with the Recapitalization. The pro
forma adjustments are based upon available information and upon certain
assumptions that the Company believes are reasonable. The statement should be
read in conjunction with the selected consolidated financial and operating
information, the unaudited pro forma financial information and the respective
related notes thereto appearing elsewhere herein. See "SELECTED CONSOLIDATED
HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING INFORMATION--United Air Lines,
Inc. and Subsidiary Companies" and "UNAUDITED PRO FORMA FINANCIAL INFORMATION--
United Air Lines, Inc. and Subsidiary Companies." In addition, the statement
should be read in conjunction with United's Annual Report on Form 10-K for the
year ended December 31, 1993 and Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994, as amended, which are incorporated in this Proxy
Statement/Prospectus by reference and which include United's Consolidated
Financial Statements, the related notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and the
Company's Current Report on Form 8-K dated May 3, 1994 which is incorporated in
this Proxy Statement/Prospectus by reference.
The pro forma statement assumes the Recapitalization is not accounted for as
an acquisition or merger and, accordingly, United's assets and liabilities have
not been revalued. The distribution to UAL of proceeds from the United Debt
Offerings of Debentures is charged to additional capital invested.
xxxv
<PAGE>
The ESOPs are being accounted for in accordance with the American Institute
of Certified Public Accountants Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans" ("SOP"). For the Leveraged ESOP,
the Company will issue Class 1 ESOP Preferred Stock through seven ESOP
tranches, at the Effective Time, approximately thirteen months following the
Effective Time, annually thereafter for four years and on January 1, 2000. As
the shares are issued to the Leveraged ESOP, United will report the issuance of
shares as a credit to ESOP capital based on the fair value of the stock when
such issuance occurs and report a corresponding charge to unearned ESOP
Preferred Stock. As shares of Class 1 ESOP Preferred Stock are earned or
committed to be released, compensation expense will be recognized equal to the
average fair value of the shares committed to be released with a corresponding
credit to unearned ESOP Preferred Stock. Any differences between the fair value
of the shares committed to be released and the cost of the shares to the ESOP
will be charged or credited to ESOP capital. For the Non-Leveraged Qualified
ESOP, the shares of Class 2 ESOP Preferred Stock will be recorded as the shares
are committed to be contributed to the ESOP, with the offsetting entry to
compensation expense. Compensation expense will be recorded based on the fair
value of the shares committed to be contributed to the ESOP, in accordance with
the SOP. The pro forma financial statements assume that the Supplemental ESOP
is accounted for the same as the Non-Leveraged Qualified ESOP (i.e. pursuant to
the SOP). It is possible that, because the Supplemental ESOP is a non-qualified
plan, the Company may account for it under Accounting Principles Board Opinion
25, "Accounting for Stock Issued to Employees," instead. The Company would not
expect this to result in a material difference. The unearned ESOP Preferred
Stock, ESOP capital and employee stock ownership accounting charge will be
recorded on United's books since participants in the ESOP are employees of
United.
xxxvi
<PAGE>
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
MARCH 31, 1994
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS HISTORICAL ADJUSTMENTS PRO FORMA
------ ---------- ----------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................. $ 666 $(140)(1) $
758 (3)
(765)(3)
8 (9) 527
Short-term investments.................... 542 542
Other..................................... 2,241 44 (2) 2,285
------- ----- -------
3,449 (95) 3,354
------- ----- -------
Operating property and equipment............ 12,211 12,211
Less: Accumulated depreciation
and amortization........................ (5,164) (5,164)
------- ----- -------
7,047 7,047
------- ----- -------
Other assets:
Other..................................... 1,700 1,700
------- ----- -------
$12,196 $ (95) $12,101
======= ===== =======
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Short-term borrowings, long-term debt
maturing within one year and current
obligations under capital leases......... $ 466 $ $ 466
Other..................................... 4,473 (11) (9) 4,462
------- ----- -------
4,939 (11) 4,928
------- ----- -------
Long-term debt.............................. 2,596 758 (3) 3,354
------- ----- -------
Long-term obligations under capital leases.. 774 774
------- ----- -------
Other liabilities, deferred credits and
minority interest.......................... 3,317 3,317
------- ----- -------
Shareholder's equity:
Common stock, $5 par value; 1,000 shares
authorized; 200 shares outstanding....... -- --
Additional capital invested............... 839 (765)(3)
13 (5)
4 (6) 91
Retained earnings (deficit)............... (200) (108)(7) (308)
ESOP capital.............................. 228 (4) 228
Unearned ESOP Preferred Stock............. (228)(4) (228)
Unearned compensation..................... (14) 14 (8) --
Pension liability adjustment ............. (53) (53)
Unrealized loss on investments............ (2) -- (2)
------- ----- -------
570 (842) (272)
------- ----- -------
$12,196 $ (95) $12,101
======= ===== =======
</TABLE>
See the accompanying notes to Pro Forma Condensed Statement of Consolidated
Financial Position.
xxxvii
<PAGE>
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
NOTES TO PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(1) To record the cash impact of the estimated fees and transaction expenses,
including expenses for United, ALPA and the IAM, severance payments to
terminated officers and flight kitchen employees, and payments relating to
the employment agreement with Mr. Greenwald.
(2) To record the tax effects relating to nonrecurring charges recognized as a
result of the transaction.
(3) To record the Offerings of $382.5 million principal amount of Series A
Debentures and $382.5 million principal amount of Series B Debentures and
to record the distribution of proceeds to UAL. The Debentures are being
recorded at their face amount based on the assumption that they will be
priced to trade at par, less the underwriting discount of $7 million. The
actual rates on the Debentures will be reset prior to the Effective Time
and the Debentures are subject to a maximum interest rate of 112.5 basis
points above the Initial Pricing. The underwriting agreements are expected
to provide that if either or both of the United Debt Offerings are
consummated, the interest rates may be adjusted in order for the Debentures
to be sold at or closer to par, in which case the principal amount of the
Debentures will be reduced so that the annual interest expense will not
exceed the stated maximum which was calculated based upon the rate cap. If
either or both of the United Debt Offerings are not consummated and the
interest rate exceeds the cap, the Debentures will be recorded at a
discount.
(4) To record the ESOP capital as a result of the initial issuance of shares of
UAL's Class 1 ESOP Preferred Stock to the Leveraged ESOP for an aggregate
purchase price of $228 million and to record the related charge to unearned
ESOP Preferred Stock. The $228 million was determined based on (i)
1,899,059 shares of Class 1 ESOP Preferred Stock expected to be issued in
the first ESOP Tranche as of the Effective Time and (ii) an assumed
purchase price of $120 per share. The Company and the Unions may, prior to
the Effective Time, agree to increase or decrease the number of shares of
Class 1 ESOP Preferred Stock sold at the Effective Time. The agreement with
the ESOP Trustee provides that the number of shares of Class 1 ESOP
Preferred Stock sold at the Effective Time shall be no more than 2,088,965
and no fewer than 1,709,153; provided, however, that the number of shares
sold in the first ESOP Tranche will be adjusted if the Effective Time is
before or after July 1, 1994. The actual price per share for the first ESOP
Tranche will be calculated as provided in the ESOP Stock Purchase
Agreement. Thus, the ultimate amount recorded at the Effective Time will
differ from the pro forma adjustment in order to reflect the actual number
of shares issued and the purchase price calculated under the ESOP Stock
Purchase Agreement.
Six additional ESOP Tranches will be issued to the Leveraged ESOP during the
69 months subsequent to the Effective Time, with the total shares of Class 1
ESOP Preferred Stock issued in the seven ESOP Tranches aggregating
approximately 14,000,000 shares (subject to increase, see "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--Additional Shares"). The price for
the subsequent ESOP Tranches will be as agreed between the Company and the
ESOP Trustee at the time of each sale. As the subsequent ESOP Tranches are
issued, the shares will be reported as a credit to additional capital
invested based on the fair value of the stock when such issuances occur with
a corresponding charge to "Unearned ESOP Preferred Stock."
The unearned ESOP Preferred Stock recorded in the pro forma adjustment
together with the unearned ESOP Preferred Stock recorded from subsequent
ESOP Tranches will be recognized as compensation expense over the
approximately six year investment period as the shares are committed to be
released. The difference between the compensation expense recorded, which is
based on the fair value of the stock during an accounting period, and the
initial recorded cost of the unearned ESOP Preferred Stock will be recorded
to ESOP capital.
xxxviii
<PAGE>
ESOP capital will also be recorded over the approximately six year
investment period as the shares of UAL's Class 2 ESOP Preferred Stock are
committed to be contributed to the Non-Leveraged Qualified ESOP and credited
to employees pursuant to the Supplemental ESOP with the offsetting entry
being to compensation expense. The number of shares of Class 2 ESOP
Preferred Stock that will be issued will be equal to 17,675,345 less the
number of shares of Class 1 ESOP Preferred Stock that will be sold to the
Qualified ESOP.
(5) To account for the cashless exercise of options in the event of the
Recapitalization. (Amount of the entry is based on an assumed Old Share
price at the Effective Time of approximately $131.5 per share.)
(6) To record 25,000 restricted shares to Mr. Greenwald that will vest at the
Effective Time.
(7) Represents the offset to entries (1), (2), (5), (6), (8) and (9).
(8) To record the vesting of the unvested restricted stock as a result of the
Recapitalization.
(9) To reverse $19 million of transaction fees and expenses recorded during the
first quarter of 1994 because these expenses are included in entry (1).
xxxix
<PAGE>
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING
INFORMATION
UAL CORPORATION AND SUBSIDIARY COMPANIES
The following consolidated financial information has been derived from the
Company's consolidated financial statements, for each of the fiscal years in
the five year period ended December 31, 1993, which statements have been
audited by Arthur Andersen & Co., independent public accountants, as indicated
in their reports incorporated by reference herein. Reference is made to said
reports for the years 1993 and 1992 which include an explanatory paragraph with
respect to the changes in methods of accounting for income taxes and
postretirement benefits other than pensions as discussed in the notes to the
consolidated financial statements for such years. The consolidated financial
information for the three months ended March 31, 1994 and 1993 is unaudited but
in the opinion of management includes all adjustments necessary for a fair
presentation. The table also sets forth certain information on a pro forma
basis giving effect to the Recapitalization and the Offerings. The following
should be read in conjunction with the selected consolidated financial and
operating information and the unaudited pro forma financial statements and the
respective related notes thereto appearing elsewhere herein. See "SELECTED
CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING INFORMATION--UAL
Corporation and Subsidiary Companies" and "UNAUDITED PRO FORMA FINANCIAL
INFORMATION--UAL Corporation and Subsidiary Companies." In addition, this table
should be read in conjunction with the Company's Annual Report on Form 10-K for
the year ended December 31, 1993, as amended, and Quarterly Report on Form 10-Q
for the quarter ended March 31, 1994, as amended, which are incorporated in
this Proxy Statement/Prospectus by reference and which include the Company's
Consolidated Financial Statements, the related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Current Report on Form 8-K dated May 3, 1994 which is
incorporated in this Proxy Statement/Prospectus by reference.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1993
PRO FORMA 1993 1992 1991 1990 1989
----------- ------- ------- ------- ------- -------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
CONSOLIDATED OPERATIONS
DATA:
Operating revenues(a).. $13,297 $13,325 $11,853 $10,706 $10,296 $ 9,288
Earnings (loss) from
operations............ 354(e) 263 (538) (494) (36) 465
Earnings (loss) before
extraordinary item and
cumulative effect of
accounting changes.... (38) (31) (417) (332) 94 324
Net earnings (loss).... N.A. (50) (957) (332) 94 324
STATEMENT OF
CONSOLIDATED FINANCIAL
POSITION DATA (at end
of period):
Total assets........... (b) $12,840 $12,257 $ 9,876 $ 7,983 $ 7,194
Total long-term debt
and capital lease ob-
ligations, including
current portion....... (b) 3,735 3,783 2,531 1,327 1,405
Shareholders' equity... (b) 1,203 706 1,597 1,671 1,564
OTHER DATA:
Ratio of earnings to
fixed charges......... (c) (c) (c) (c) 1.16 1.95
Ratio of earnings to
fixed charges and
preferred stock
dividends............. (c) (c) (c) (c) 1.16 1.95
UNITED OPERATING DATA:
Revenue passengers
(millions)............ 70 70 67 62 58 55
Average length of a
passenger trip in
miles................. 1,450 1,450 1,390 1,327 1,322 1,269
Revenue passenger miles
(millions)............ 101,258 101,258 92,690 82,290 76,137 69,639
Available seat miles
(millions)............ 150,728 150,728 137,491 124,100 114,995 104,547
Passenger load factor.. 67.2% 67.2% 67.4% 66.3% 66.2% 66.6%
Break even passenger
load factor........... 65.0% 65.5% 70.6% 69.7% 66.5% 62.8%
Revenue per passenger
mile.................. 11.6c 11.6c 11.3c 11.5c 11.8c 11.6c
Cost per available seat
mile.................. 8.5c 8.5c 8.9c 9.0c 9.0c 8.4c
Average price per
gallon of jet fuel.... 63.6c 63.6c 66.4c 71.6c 80.4c 63.6c
</TABLE>
x1
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED) THREE MONTHS
ENDED MARCH 31,
-----------------------------
1994
PRO FORMA 1994 1993
--------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
STATEMENT OF CONSOLIDATED OPERATIONS DATA:
Operating revenues(a).......................... $ 3,193 $ 3,195 $ 3,053
Loss from operations........................... (8)(e) (36) (121)
Loss before extraordinary item and cumulative
effect of accounting changes.................. (58) (71) (138)
Net Loss....................................... N.A. (97) (157)
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
DATA
(at end of period):
Total assets................................... $12,091 $12,889 $13,288
Total long-term debt and capital lease obliga-
tions, including current portion.............. 4,445 3,687 4,017
Shareholders' equity........................... (448) 1,097 1,137
OTHER DATA:
Ratio of earnings to fixed charges............. (d) (d) (d)
Ratio of earnings to fixed charges and pre-
ferred stock dividends........................ (d) (d) (d)
UNITED OPERATING DATA:
Revenue passengers (millions).................. 16 16 16
Average length of a passenger trip in miles.... 1,471 1,471 1,433
Revenue passenger miles (millions)............. 23,289 23,289 22,443
Available seat miles (millions)................ 35,598 35,598 35,220
Passenger load factor.......................... 65.4% 65.4% 63.7%
Break even passenger load factor............... 65.8% 66.5% 66.3%
Revenue per passenger mile..................... 11.9c 11.9c 12.0c
Cost per available seat mile................... 9.0c 9.0c 8.8c
Average price per gallon of jet fuel........... 58.6c 58.6c 65.9c
</TABLE>
- --------
(a) In the first quarter of 1994, United began recording certain air
transportation price adjustments, which were previously recorded as
commission expense, as adjustments to revenue. Operating revenues and
certain operating statistics for periods prior to 1994 have been adjusted
to conform with the current presentation. See the Company's Current Report
on Form 8-K dated May 3, 1994, which is incorporated by reference in this
Proxy Statement/Prospectus.
(b) The Pro Forma Statement of Consolidated Financial Position assumes the
transaction occurred at March 31, 1994. Therefore, pro forma information at
December 31, 1993 is not applicable.
(c) Earnings were inadequate to cover both fixed charges and fixed charges and
preferred stock dividends by $98 million in 1993, by $748 million in 1992
and by $599 million in 1991. On a pro forma basis, earnings were inadequate
to cover both fixed charges and fixed charges and preferred stock dividends
by $109 million in 1993.
(d) Earnings were inadequate to cover both fixed charges and fixed charges and
preferred stock dividends by $118 million and $224 million for the three
month periods ended March 31, 1994 and 1993, respectively. On a pro forma
basis, earnings were inadequate to cover both fixed charges and fixed
charges and preferred stock dividends by $97 million for the three months
ended March 31, 1994.
(e) The loss from operations includes an ESOP accounting charge which is
dependent on the fair market value of the ESOP Preferred Stock during the
period. The pro forma amount is based on an assumed fair value of $120 per
share. See note 4 to the Pro Forma Condensed Statement of Consolidated
Operations for both the year ended December 31, 1993 and the three months
ended March 31, 1994 for the effects of different fair value assumptions on
the ESOP accounting charge.
x1i
<PAGE>
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
The following consolidated financial information has been derived from
United's consolidated financial statements, for each of the fiscal years in the
five year period ended December 31, 1993, which statements have been audited by
Arthur Andersen & Co., independent public accountants, as indicated in their
reports incorporated by reference herein. Reference is made to said reports for
the years 1993 and 1992 which include an explanatory paragraph with respect to
the changes in methods of accounting for income taxes and postretirement
benefits other than pensions as discussed in the notes to the consolidated
financial statements for such years. The consolidated financial information for
the three months ended March 31, 1994 and 1993 is unaudited but in the opinion
of management includes all adjustments necessary for a fair presentation. The
table also sets forth certain information on a pro forma basis giving effect to
the Recapitalization and the Offerings. The following should be read in
conjunction with the selected consolidated financial and operating information
and the unaudited pro forma financial statements and the respective related
notes thereto included elsewhere herein. See "SELECTED CONSOLIDATED HISTORICAL
AND PRO FORMA FINANCIAL AND OPERATING INFORMATION--United Air Lines, Inc. and
Subsidiary Companies" and "UNAUDITED PRO FORMA FINANCIAL INFORMATION--United
Air Lines, Inc. and Subsidiary Companies." In addition, this table should be
read in conjunction with United's Annual Report on Form 10-K for the year ended
December 31, 1993 and Quarterly Report on Form 10-Q for the quarter ended March
31, 1994, which are incorporated in this Proxy Statement/Prospectus by
reference and which include United's Consolidated Financial Statements, the
related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and United's Current Report on Form 8-K
dated May 3, 1994 which is incorporated by reference in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1993
PRO FORMA 1993 1992 1991 1990 1989
----------- ------- ------- ------- ------- -------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF CONSOLI-
DATED OPERATIONS DATA:
Operating revenues(a).. $13,140 $13,168 $11,688 $10,703 $10,282 $ 9,267
Earnings (loss) from
operations............ 386(e) 295 (496) (491) (41) 464
Earnings (loss) before
extraordinary item and
cumulative effect of
accounting changes.... (8) (17) (386) (335) 96 358
Net earnings (loss).... N.A. (36) (933) (335) 96 358
STATEMENT OF CONSOLI-
DATED FINANCIAL POSI-
TION DATA (at end of
period):
Total assets........... (b) $12,153 $12,067 $ 9,907 $ 8,001 $ 7,217
Total long-term debt
and capital lease ob-
ligations, including
current portion....... (b) 3,614 3,628 2,531 1,326 1,404
Shareholder's equity... (b) 674 738 1,613 1,769 1,665
OTHER DATA:
Ratio of earnings to
fixed charges......... (c) (c) (c) (c) 1.16 2.08
UNITED OPERATING DATA:
Revenue passengers
(millions)............ 70 70 67 62 58 55
Average length of a
passenger trip in
miles................. 1,450 1,450 1,390 1,327 1,322 1,269
Revenue passenger miles
(millions)............ 101,258 101,258 92,690 82,290 76,137 69,639
Available seat miles
(millions)............ 150,728 150,728 137,491 124,100 114,995 104,547
Passenger load factor.. 67.2% 67.2% 67.4% 66.3% 66.2% 66.6%
Break even passenger
load factor........... 65.0% 65.5% 70.6% 69.7% 66.5% 62.8%
Revenue per passenger
mile.................. 11.6c 11.6c 11.3c 11.5c 11.8c 11.6c
Cost per available seat
mile.................. 8.5c 8.5c 8.9c 9.0c 9.0c 8.4c
Average price per gal-
lon of jet fuel....... 63.6c 63.6c 66.4c 71.6c 80.4c 63.6c
</TABLE>
xlii
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED) THREE MONTHS
ENDED MARCH 31,
-----------------------------
1994
PRO FORMA 1994 1993
--------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
STATEMENT OF CONSOLIDATED OPERATIONS DATA:
Operating revenues(a).......................... $ 3,171 $ 3,173 $ 3,001
Loss from operations........................... (16)(e) (44) (107)
Loss before extraordinary item and cumulative
effect of accounting changes.................. (62) (79) (129)
Net Loss....................................... N.A. (105) (148)
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
DATA
(at end of period):
Total assets................................... $12,101 $12,196 $12,515
Total long-term debt and capital lease obliga-
tions, including current portion.............. 4,325 3,567 3,864
Shareholders' equity........................... (272) 570 592
OTHER DATA:
Ratio of earnings to fixed charges............. (d) (d) (d)
UNITED OPERATING DATA:
Revenue passengers (millions).................. 16 16 16
Average length of a passenger trip in miles.... 1,471 1,471 1,433
Revenue passenger miles (millions)............. 23,289 23,289 22,443
Available seat miles (millions)................ 35,598 35,598 35,220
Passenger load factor.......................... 65.4% 65.4% 63.7%
Break even passenger load factor............... 65.8% 66.5% 66.3%
Revenue per passenger mile..................... 11.9c 11.9c 12.0c
Cost per available seat mile................... 9.0c 9.0c 8.8c
Average price per gallon of jet fuel........... 58.6c 58.6c 65.9c
</TABLE>
- --------
(a) In the first quarter of 1994, United began recording certain air
transportation price adjustments, which were previously recorded as
commission expense, as adjustments to revenue. Operating revenues and
certain operating statistics for periods prior to 1994 have been adjusted
to conform with the current presentation. See United's Current Report on
Form 8-K dated May 3, 1994 which is incorporated by reference in this Proxy
Statement/Prospectus.
(b) The Pro Forma Statement of Consolidated Financial Position assumes the
transaction occurred at March 31, 1994. Therefore, pro forma information at
December 31, 1993 is not applicable.
(c) Earnings were inadequate to cover fixed charges by $77 million in 1993, by
$694 million in 1992 and by $604 million in 1991. On a pro forma basis,
earnings were inadequate to cover fixed charges by $63 million in 1993.
(d) Earnings were inadequate to cover fixed charges by $130 million and $211
million for the three month periods ended March 31, 1994 and 1993,
respectively. On a pro forma basis, earnings were inadequate to cover fixed
charges by $102 million for the three months ended March 31, 1994.
(e) The loss from operations includes an ESOP accounting charge which is
dependent on the fair market value of the ESOP Preferred Stock during the
period. The pro forma amount is based on an assumed fair value of $120 per
share. See Note 4 to the Pro Forma Condensed Statement of Consolidated
Operations for both the year ended December 31, 1993 and the three months
ended March 31, 1994 for the effects of different fair value assumptions on
the ESOP accounting charge.
xliii
<PAGE>
SUMMARY OF TERMS OF SECURITIES
The following table summarizes the terms of the securities of the Company and
United that will be issued in connection with the Recapitalization and that
will remain outstanding upon consummation of the Recapitalization. For a more
complete description of such securities, see "DESCRIPTION OF SECURITIES." If
all of the Offerings are consummated, Debentures will be sold pursuant to the
United Debt Offerings and Depositary Preferred Shares representing interests in
the Public Preferred Stock will be sold pursuant to the UAL Preferred Offering.
If none of the Offerings are consummated, the securities that will constitute
part of the Recapitalization Consideration will consist of the Debentures, the
Depositary Preferred Shares representing interests in the Public Preferred
Stock and the New Shares. If some but not all of the Offerings are consummated,
the securities that constitute part of the Recapitalization Consideration will
vary depending upon which securities are sold in the Offerings.
xliv
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
xlv
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE ISSUER DIVIDENDS/INTEREST MATURITY REDEMPTION
- ----- ------ -------------------- ----------- -------------------
<S> <C> <C> <C> <C>
DEBENTURES
Series A Debentures... United 9.00% (provisional, 2004 at maturity (if the
not to be adjusted United Series A
above 10.125%; the Offering is not
cap can be exceeded consummated and the
if the United Series Unions request
A Debt Offering is prior to the
consummated or, if Meeting, an
not, if the optional optional redemption
redemption feature feature may be
is added) added)
Series B Debentures... United 9.70% (provisional, 2014 at maturity (if the
not to be adjusted United Series B
above 10.825%; the Offering is not
cap can be exceeded consummated and the
if the United Series Unions request
B Debt Offering is prior to the
consummated or, if Meeting, an
not, if the optional optional redemption
redemption feature feature may be
is added) added)
Depositary Preferred UAL 10.25% (provisional, perpetual after tenth
Shares, each not to be adjusted unless anniversary (or
representing 1/1,000 of above 11.375% unless redeemed fifth anniversary
a share of Public the UAL Preferred if the UAL
Preferred Stock Offering is Preferred Offering
(without par value).... consummated) is not consummated)
of issuance at
liquidation value
plus accrued and
unpaid dividends
ESOP PREFERRED STOCK
Class 1 ESOP Preferred
Stock (par value
$0.01 per share)..... UAL fixed dividend (rate perpetual not redeemable
to be determined, unless
not to exceed 7% of converted
the price paid for
the Class 1 ESOP
Preferred Stock by
the ESOP Trustee at
the Effective Time)
accrues until March
31, 2000,
participates in all
distributions to New
Shares if in excess
of the fixed
dividend but subject
to an annual cap of
12 1/2% of the value
of the New Shares
Class 2 ESOP Preferred
Stock (par value
$0.01 per share)..... UAL no fixed dividend; perpetual not redeemable
participates in all unless
distributions to New converted
Shares subject to an
annual cap of 12
1/2% of the value of
the New Shares
VOTING PREFERRED STOCK
Class P Voting
Preferred Stock (par
value $0.01 per
share)...............
Class M Voting
Preferred Stock (par UAL none perpetual not redeemable
value $0.01 per unless
share)............... converted
Class S Voting
Preferred Stock (par
value $0.01 per
share)...............
DIRECTOR PREFERRED STOCK
Class Pilot MEC
Preferred Stock (par
value $0.01 per
share)...............
Class IAM Preferred
Stock (par value perpetual automatically
$0.01 per share)..... UAL none unless redeemed
Class SAM Preferred redeemed under certain
Stock (par value circumstances,
$0.01 per share)..... including
upon termination of
voting
rights, for
liquidation value
Class I Preferred
Stock (par value
$0.01 per share)..... UAL none perpetual automatically
unless redeemed under
redeemed certain
circumstances,
including at
Sunset, for
liquidation value
New Shares (par value
$0.01 per share)....... UAL as declared perpetual not redeemable
</TABLE>
- -------
* See "DESCRIPTION OF SECURITIES--The Debentures--Consolidation, Merger or Sale
by United."
xlvi
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIQUIDATION
PREFERENCE/PRINCIPAL CONVERSION CONSOLIDATION,
AMOUNT PER SECURITY RANK VOTING RIGHTS RIGHTS MERGER ETC.
- -------------------- ---- ------------- ---------- --------------
<S> <C> <C> <C> <C>
$100 pari passu with all none none contains merger
senior, unsecured provision*
debt of United
$100 pari passu with all none none contains merger
senior, unsecured provision*
debt of United
$25 per Depositary parity with Series when six quarterly dividends none no special
Preferred Share plus A Preferred Stock; are in arrears, Public rights
accrued and unpaid senior to all other Preferred Stock votes as a
dividends preferred stock and class with Series A Preferred
New Shares Stock to elect two directors
amount to be determined junior to Public none each share holder receives
plus accrued and unpaid Preferred Stock and convertible either (i)
dividends Series A Preferred into one preferred stock
Stock; on parity New Share, with the same
with Class 2 ESOP subject to characteristics
Preferred Stock as adjustment as Class 1 ESOP
to participating Preferred Stock
dividends and or (ii) same
liquidation; senior consideration as
to other preferred New Shares into
stock, New Shares, which Class 1
and as to fixed ESOP Preferred
dividends, Class 2 Stock is
ESOP Preferred convertible
Stock
amount to be determined junior to Public none each share holder receives
plus accrued and unpaid Preferred Stock, convertible either (i)
dividends Series A Preferred into one preferred stock
Stock and as to New Share, with the same
fixed dividends, subject to characteristics
Class 1 ESOP adjustment as Class 2 ESOP
Preferred Stock; on Preferred Stock
parity with Class 1 or (ii) same
ESOP Preferred consideration as
Stock as to New Shares into
participating which Class 2
dividends and ESOP Preferred
liquidation; senior Stock is
to other preferred convertible
stock and New
Shares
votes as a class with the New each share holder receives
Shares on all matters except convertible either (i)
election of directors on which into 0.0001 preferred stock
junior to Public it does not have a vote; until New Share, with the same
Preferred Stock, Sunset, Class P, Class M and subject to characteristics
Series A Preferred Class S Preferred Stock adjustment as Voting
Stock and ESOP represent approximately 25.4%, Preferred Stock
Preferred Stock; on 20.4% and 9.2%, respectively, held or (ii)
$0.01 parity with other of the votes that may be cast same
Voting Preferred (prior to adjustment for consideration as
Stock; senior to Additional Shares); after New Shares into
other preferred Sunset, Class P, Class M and which Voting
stock and New Class S Preferred Stock Preferred Stock
Shares represent the votes of New held is
Shares issuable upon conversion convertible
of outstanding ESOP Preferred
Stock
Class Pilot MEC, Class IAM and none holder receives
Class SAM Preferred Stock vote preferred stock
to elect the ALPA Director, the with the same
IAM Director and the SAM characteristics
Director, respectively; right as Director
to elect ALPA Director Preferred Stock
terminates after Sunset when held
junior to Public there are no longer ALPA
Preferred Stock, members employed by the
Series A Preferred Company; right to elect IAM
Stock, ESOP Director terminates after the
Preferred Stock and sunset when there are no longer
$0.01 Voting Preferred IAM members employed by the
Stock; on parity Company; right to elect SAM
with other Director Director terminates after
Preferred Stock; Sunset on the earlier of when
senior to other members of ALPA or IAM are no
preferred stock and longer employees of the
New Shares Company; under certain
circumstances, Class Pilot MEC,
Class IAM and Class SAM
Preferred Stock succeed to the
voting rights represented by
Class P, Class M and Class S
Preferred Stock, respectively
$0.01 junior to Public votes to elect Independent none no special
Preferred Stock, Directors rights
Series A Preferred
Stock, ESOP
Preferred Stock and
Voting Preferred
Stock; on parity
with other Director
Preferred Stock;
senior to other
preferred stock and
New Shares
na junior to all until the Sunset, votes as a none no special
preferred stock class with the Voting Preferred rights
Stock on all matters except the
election of directors and
elects the Public Directors as
a class without the
Voting Preferred Stock; after
the Sunset, votes on all
matters as a class with the
Voting Preferred Stock
</TABLE>
xlvii
<PAGE>
PROXY STATEMENT/JOINT PROSPECTUS
----------------
UAL CORPORATION
UNITED AIR LINES, INC.
----------------
MEETING OF STOCKHOLDERS
TO BE HELD JULY 12, 1994
INTRODUCTION
This Proxy Statement/Joint Prospectus (the "Proxy Statement/Prospectus") is
being furnished in connection with the solicitation of proxies by the Board of
Directors of UAL Corporation, a Delaware corporation ("UAL" or the "Company"),
for use at the Meeting of Stockholders of the Company to be held on July 12,
1994, at 8:30 a.m., local time, in the Imperial Ballroom at the Fairmont
Hotel, 200 North Columbus Drive, Chicago, Illinois, and at any adjournment or
postponement thereof (the "Meeting"). This Proxy Statement/Prospectus, the
attached Notice of Meeting and the enclosed form of proxy are being first
mailed to holders of shares of common stock, par value $5 per share, of the
Company ("Old Shares") of the Company on or about June 13, 1994.
PURPOSE OF THE MEETING
The principal purpose of the Meeting is to consider and vote upon a proposal
to recapitalize the Company as hereinafter described. Holders of Old Shares
are being asked to consider and vote upon (i) the Amended and Restated
Agreement and Plan of Recapitalization, dated as of March 25, 1994 (the "Plan
of Recapitalization"), which contemplates certain transactions collectively
referred to as the "Recapitalization," (ii) subject to and conditioned upon
approval of the Plan of Recapitalization, the amendment and restatement of the
Company's Certificate of Incorporation and Bylaws (the "Charter and Bylaw
Amendments"), (iii) subject to and conditioned upon approval of the Plan of
Recapitalization and the Charter and Bylaw Amendments, the approval of the
issuance of (a) shares of Class 1 ESOP Convertible Preferred Stock (the "Class
1 ESOP Preferred Stock") to State Street Bank and Trust Company ("State
Street"), as trustee of the UAL Corporation Employee Stock Ownership Plan
Trust, (b) shares of Class 2 ESOP Convertible Preferred Stock (the "Class 2
ESOP Preferred Stock" and, together with the Class 1 ESOP Preferred Stock, the
"ESOP Preferred Stock") (or the common shares into which they convert) to
State Street, as trustee of the UAL Corporation Employee Stock Ownership Plan
Trust (or in limited circumstances as trustee of the UAL Corporation
Supplemental ESOP Trust) or underlying New Shares to participants in the UAL
Corporation Supplemental ESOP, (c) shares of (1) Class P ESOP Voting Junior
Preferred Stock, (2) Class M ESOP Voting Junior Preferred Stock and (3) Class
S ESOP Voting Junior Preferred Stock to State Street, as trustee of the UAL
Corporation Employee Stock Ownership Plan Trust and the UAL Corporation
Supplemental ESOP Trust, (d) shares of Class I Junior Preferred Stock to
certain individuals to be named as directors of the Company, (e) a share of
Class Pilot MEC Junior Preferred Stock to the United Airlines Pilots Master
Executive Council ("ALPA-MEC") of the Air Line Pilots Association,
International ("ALPA"), (f) a share of Class IAM Junior Preferred Stock to the
International Association of Machinists and Aerospace Workers (the "IAM") or
its designee and (g) shares of Class SAM Junior Preferred Stock to an
individual to be named as a director of the Company on behalf of salaried and
management employees of the Company (the "Salaried and Management Employees")
and to an additional designated stockholder (collectively, the "Stock
Issuance"), (iv) subject to and conditioned upon approval of the Plan of
Recapitalization and the Charter and Bylaw Amendments, the election of four
"Public Directors" of the Company, (v) subject to and conditioned upon
approval of the Plan of Recapitalization and the Charter and Bylaw Amendments,
the amendment of the Company's 1981 Incentive Stock Program, as amended (the
"1981 Stock Program"), (vi) subject to and conditioned upon approval of the
Plan of Recapitalization and the Charter and Bylaw Amendments, the amendment
of the Company's 1988 Restricted Stock Plan (the "1988 Restricted Stock
Plan"), (vii) subject to and conditioned upon approval of the Plan of
Recapitalization, the amendment
1
<PAGE>
of the Company's Incentive Compensation Plan (the "Incentive Plan"), (viii)
three stockholder proposals, (ix) ratification of the selection of Arthur
Andersen & Co. ("Arthur Andersen") as the Company's independent accountants
for the year ending December 31, 1994 and (x) such other business as may
properly come before the Meeting or any adjournment or postponement thereof.
See "BACKGROUND OF THE PLAN OF RECAPITALIZATION" and "THE PLAN OF
RECAPITALIZATION." A copy of the Plan of Recapitalization and copies of the
proposed Amended and Restated Certificate of Incorporation of the Company (the
"Restated Certificate") and the Amended and Restated Bylaws of the Company are
included elsewhere in this Proxy Statement/Prospectus.
The approval of matter (ii) will be subject to the approval of the Plan of
Recapitalization, and the approval of matters (iii) through (vii) will be
subject to the approval of the Plan of Recapitalization and the Charter and
Bylaw Amendments.
The Plan of Recapitalization provides, among other things, for the
reclassification (the "Reclassification") of the Company's Old Shares. As a
result of the Reclassification, each Old Share outstanding at the consummation
of the Recapitalization (the "Effective Time"), including each share of
restricted stock issued pursuant to the 1988 Restricted Stock Plan (which will
vest upon the Effective Time if not vested prior thereto), together with up to
1,000,000 Old Shares held by the Company as treasury stock or owned by any
wholly-owned subsidiary of the Company immediately prior to the Effective
Time, will be reclassified as, and exchanged for, one half (0.5) of a new
share of common stock, par value $0.01 per share, of the Company (the "New
Shares") and one one-thousandth of a share of Series D Redeemable Preferred
Stock, without par value, of the Company (the "Series D Redeemable Preferred
Stock"). Concurrently with the solicitation of proxies in connection with the
Plan of Recapitalization, United Air Lines, Inc. ("United") expects to offer
up to $382.5 million principal amount of its Series A Debentures due 2004 (the
"Series A Debentures") (the "United Series A Offering") and up to $382.5
million principal amount of its Series B Debentures due 2014 (the "Series B
Debentures" and, together with the Series A Debentures, the "Debentures") (the
"United Series B Offering" and, together with the United Series A Offering the
"United Debt Offerings") and the Company expects to offer up to 30,600,000
depositary shares (the "Depositary Preferred Shares") representing interests
in $765.0 million liquidation preference of Series B Preferred Stock, without
par value, of the Company (the "Public Preferred Stock") (the "UAL Preferred
Offering" and, together with the United Debt Offerings, the "Offerings").
Immediately upon issuance pursuant to the Reclassification, each one one-
thousandth of a share of Series D Redeemable Preferred Stock will be redeemed
(the "Redemption") for:
(i) $25.80 in cash,
(ii) either (a) $15.55 principal amount of Series A Debentures or (b) if
the United Series A Offering is consummated, the cash proceeds (without
deducting any underwriting discount or other costs) from the sale thereof
by United pursuant to the United Series A Offering,
(iii) either (a) $15.55 principal amount of Series B Debentures or (b) if
the United Series B Offering is consummated, the cash proceeds (without
deducting any underwriting discount or other costs) from the sale thereof
by United pursuant to the United Series B Offering, and
(iv) either (a) Depositary Preferred Shares representing interests in
$31.10 liquidation preference of Public Preferred Stock or (b) if the UAL
Preferred Offering is consummated, the cash proceeds (without deducting any
underwriting discount or other costs) from the sale thereof by the Company
pursuant to the UAL Preferred Offering
The combination of New Shares and cash and, if applicable, Series A
Debentures, Series B Debentures and Depositary Preferred Shares to be
distributed in respect of the Old Shares pursuant to the Recapitalization is
referred to herein as the "Recapitalization Consideration." Under various
circumstances, the value of the consideration to be received by stockholders
could be less than the stated principal amount of the Debentures or the
liquidation preference of the Depositary Preferred Shares.
2
<PAGE>
The consummation of the Recapitalization is not conditioned on, or subject
to, the consummation of any of the Offerings. In addition, none of the
Offerings is conditioned on, or subject to, the consummation of any of the
other Offerings.
The terms of the Debentures, the Public Preferred Stock and the Depositary
Preferred Shares are described under "DESCRIPTION OF SECURITIES--The
Debentures," "--The Public Preferred Stock" and "--The Depositary Preferred
Shares." Under the Plan of Recapitalization, the interest rate on the Series A
Debentures has been fixed provisionally at 9.00%, the interest rate on the
Series B Debentures has been fixed provisionally at 9.70% and the dividend rate
on the Public Preferred Stock has been fixed provisionally at 10.25%. Under the
Plan of Recapitalization, the interest rates on the Debentures and the dividend
rate on the Public Preferred Stock will be adjusted not less than five business
nor more than ten calendar days before the date of the Meeting (the
"Announcement Date") to rates (which in each case, if there is an upward
adjustment, may not be more than 112.5 basis points (i.e., 1.125 percentage
points) higher than the respective provisional rates, but which in the case of
a downward adjustment are not limited) that, in the opinion of certain
financial advisors to the Company and the Unions and in the case of a deadlock,
based on a process involving a third financial advisor identified by the
Company and the Unions, would permit the Debentures and the Depositary
Preferred Shares representing interests in the Public Preferred Stock to trade
at par on such date on a fully distributed basis. See "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--Pricing the Securities." Based on
current market conditions, the Company believes that the interest rates on the
Series A Debentures and the Series B Debentures and the dividend rate on the
Depositary Preferred Shares to be established by certain financial advisors to
the Company and the Unions and, in the case of a deadlock, based on a process
involving a third financial advisor, would not be less than the initial pricing
of 9.00% for the Series A Debentures, 9.70% for the Series B Debentures and
10.25% for the Depositary Preferred Shares.
The underwriting agreements relating to the several Offerings are expected to
provide, as applicable, that if such Offerings are consummated, the interest
rates on the Debentures and the dividend rate on the Public Preferred Stock,
respectively, may be adjusted (including in excess of their respective caps) to
permit such securities to be sold at or closer to par, but if that is done, the
principal amount of the series of Debentures affected and/or the number of
Depositary Preferred Shares representing interests in the Public Preferred
Stock, as the case may be, will be reduced so that the aggregate amount of
interest payable annually by United on the Debentures or the aggregate amount
of dividends payable annually by the Company on the Public Preferred Stock will
not exceed certain amounts calculated with reference to such caps. If the
Offerings are not consummated, the interest rates borne by the Debentures and
the dividend rate borne by the Public Preferred Stock will be subject to the
caps. See "THE PLAN OF RECAPITALIZATION--Terms and Conditions--Pricing the
Securities."
Each share of Series A Convertible Preferred Stock of the Company ("Series A
Preferred Stock") and each of the Air Wis Services, Inc. 7 3/4% Convertible
Subordinated Debentures Due 2010 and the Air Wis Services, Inc. 8 1/2%
Convertible Subordinated Notes Due 1995 outstanding immediately prior to the
Effective Time (each, a "Convertible Company Security") will remain
outstanding, and each holder of any such Convertible Company Security will have
the right to receive, upon conversion thereof from and after the Effective
Time, the Recapitalization Consideration with respect to each Old Share that
such holder would have been entitled to receive had such holder converted such
Convertible Company Security in full immediately prior to the Effective Time.
At the Effective Time, each outstanding employee stock option of the Company
granted under the 1981 Stock Program or the Air Wis Services, Inc. 1987 Non-
Qualified Stock Option Plan will remain outstanding, each such option then held
by active employees and officers (including persons who were officers of the
Company or United as of July 1993) (collectively, the "Options") will become
fully vested and exercisable at the Effective Time and each such Option will
thereafter represent the right to receive, until the expiration thereof in
accordance with its terms, in exchange for the aggregate exercise price for
such Option, the Recapitalization Consideration with respect to each Old Share
that such holder would have been entitled to receive had such holder exercised
such Option in full immediately prior to the Effective Time.
3
<PAGE>
VOTING RIGHTS AND PROXY INFORMATION
The Board of Directors of the Company has fixed the close of business on
June 9, 1994 as the record date (the "Record Date") for determining which
holders of Old Shares are entitled to notice of and to vote at the Meeting.
Accordingly, only holders of record of Old Shares at the close of business on
the Record Date will be entitled to vote at the Meeting. At the close of
business on June 9, 1994, there were 24,572,182 Old Shares outstanding and
entitled to vote, held by 19,156 stockholders of record. As of the close of
business on June 9, 1994, there were also 939,661 Old Shares held as treasury
stock by the Company, which Old Shares will not be voted at the Meeting.
Holders of Series A Preferred Stock will not be entitled to vote at the
Meeting.
Each holder of record of Old Shares on the Record Date is entitled to cast
one vote per Old Share, in person or by properly executed proxy, at the
Meeting. The presence in person or by properly executed proxy of the holders
of a majority of the outstanding Old Shares entitled to vote is necessary to
constitute a quorum at the Meeting.
Under the Delaware General Corporation Law (the "DGCL"), the affirmative
vote of the holders of a majority of the Old Shares outstanding on the Record
Date will be required to approve and adopt the Plan of Recapitalization and
the Charter and Bylaw Amendments, the affirmative vote of the holders of a
plurality of Old Shares present in person or represented by proxy at the
Meeting will be required to elect each of the Public Directors and the
affirmative vote of the holders of a majority of Old Shares present in person
or represented by proxy at the Meeting will be required to approve or adopt
each of the other matters identified in this Proxy Statement/Prospectus as
being presented to holders of Old Shares at the Meeting. None of the votes
described above requires the separate approval by a majority of the shares
held by the Company's unaffiliated stockholders. The Company's directors
(other than Dr. Brimmer) and executive officers, and their affiliates, have
sole or shared voting power and beneficial ownership with respect to
approximately 1.6 percent of the outstanding Old Shares, which they intend to
vote in favor of the Plan of Recapitalization and the Charter and Bylaw
Amendments. Accordingly, the affirmative vote of the holders of approximately
48.4 percent of the outstanding Old Shares (other than directors and executive
officers and their affiliates) is required for approval of the Plan of
Recapitalization. Dr. Brimmer expects to vote his 450 Old Shares against the
Plan of Recapitalization and the Charter and Bylaw Amendments.
All Old Shares that are represented at the Meeting by properly executed
proxies received prior to or at the Meeting and not revoked will be voted at
the Meeting in accordance with the instructions indicated in such proxies. IF
NO INSTRUCTIONS ARE INDICATED, SUCH PROXIES WILL BE VOTED FOR APPROVAL OF THE
PLAN OF RECAPITALIZATION, THE CHARTER AND BYLAW AMENDMENTS, THE STOCK
ISSUANCE, THE AMENDMENT OF THE 1981 STOCK PROGRAM, THE AMENDMENT OF THE 1988
RESTRICTED STOCK PLAN AND THE AMENDMENT OF THE INCENTIVE PLAN; FOR THE
ELECTION OF FOUR PUBLIC DIRECTORS; FOR THE RATIFICATION OF ARTHUR ANDERSEN;
AND AGAINST THE STOCKHOLDER PROPOSALS. The Board of Directors of the Company
does not know of any matters, other than as described in the Notice of Meeting
attached to this Proxy Statement/Prospectus, that are to come before the
Meeting. IF A PROXY IS GIVEN TO VOTE IN FAVOR OF THE PLAN OF RECAPITALIZATION,
THE PERSONS NAMED IN SUCH PROXY WILL HAVE AUTHORITY TO VOTE IN ACCORDANCE WITH
THEIR BEST JUDGMENT ON ANY OTHER MATTER THAT IS PROPERLY PRESENTED AT THE
MEETING FOR ACTION, INCLUDING WITHOUT LIMITATION, ANY PROPOSAL TO ADJOURN THE
MEETING OR OTHERWISE CONCERNING THE CONDUCT OF THE MEETING.
Abstentions will have the effect of a vote against the Plan of
Recapitalization, the Charter and Bylaw Amendments and the other matters
presented for a vote of the stockholders (other than the election of
directors). With respect to abstentions, the Old Shares are considered present
at the Meeting. The abstentions are not, however, affirmative votes for the
matters presented for a vote and, therefore, they will have the same effect as
votes against any matter presented for a vote of the stockholders (other than
the election of directors). With respect to the election of directors,
abstentions and broker non-votes will be disregarded and
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will have no effect on the outcome of the vote. Broker non-votes will have no
effect on the outcome and the vote on any of the matters presented for a vote
of stockholders at the Meeting, other than the Charter and Bylaw Amendments.
With respect to the Charter and Bylaw Amendments, broker non-votes are
considered present and, accordingly, will have the effect of a vote against the
Charter and Bylaw Amendments.
In the event that a quorum is not present at the time the Meeting is
convened, or if for any other reason the Company believes that additional time
should be allowed for the solicitation of proxies, the Company may adjourn the
Meeting with a vote of the stockholders then present. The persons named in the
enclosed form of proxy will vote any Old Shares for which they have voting
authority in favor of such adjournment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of the Company, before the polls are closed with respect to
the vote, a written notice of revocation bearing a later date than the proxy,
(ii) duly executing a subsequent proxy relating to the same Old Shares and
delivering it to the Secretary of the Company or (iii) attending the Meeting
and voting in person (although attendance at the Meeting will not in and of
itself constitute a revocation of a proxy). Any written notice revoking a proxy
in accordance with clause (i) above should be sent to: UAL Corporation, P.O.
Box 66919, Chicago, Illinois 60666, Attention: Francesca M. Maher, Secretary.
In addition, both proxies and revocations of proxy may be given by delivering
to Georgeson & Co.by means of facsimile at (212) 440-9009, before the close of
business on the day before the Meeting, both sides of an executed form of proxy
or a notice of revocation bearing a later date than the proxy.
Stockholders are urged to read this Proxy Statement/Prospectus carefully in
its entirety before deciding how to vote their Old Shares.
NO APPRAISAL RIGHTS
Stockholders of the Company will not be entitled to appraisal rights in
connection with any of the matters to be voted upon at the Meeting.
BACKGROUND OF THE PLAN OF RECAPITALIZATION
In the years following a 29-day strike by ALPA in 1985, relations between the
Company and its principal unions, ALPA, the IAM and the Association of Flight
Attendants ("AFA"), have often been discordant. During this period, a number of
significant events involving a potential change in corporate control or the
sale of substantial assets of the Company have occurred or were proposed, many
of which events involved the participation of one or more of the Company's
unions, including (i) an offer by ALPA to acquire United and the Company's
computerized reservation system for $4.5 billion in April 1987, (ii) a consent
solicitation by a group including Coniston Partners in May 1987, (iii) a
planned recapitalization, announced by the Company in May 1987, that would have
resulted in the Company's stockholders receiving $60 per share while retaining
their shares, (iv) the adoption in June 1987, following the resignation of
Richard J. Ferris as chairman of the Company, of a restructuring plan involving
the sale of the Hertz Company, Westin Hotel Company and Hilton International
Co. and a distribution of cash, which led to such sales through a tender offer
by the Company for its own shares which was completed in March 1988, (v) a
proposal by a pilot-organized entity to acquire the Company for $110 per share
in May 1988, (vi) a proposal from Marvin Davis to acquire the Company for $240
per share in August 1989, (vii) the entry into a merger agreement with Airline
Acquisition Corp. (an entity which was intended to be owned 75% by employee
stock ownership plans for the benefit of the Company's employees, 15% by
British Airways and 10% by the Company's senior management) providing for
consideration of $300 per share, which agreement was entered into in September
1989 and thereafter failed due to an inability to obtain necessary financing,
and (viii) the entry into a merger agreement with United Employee Acquisition
Corp. (an entity formed by ALPA, the IAM and AFA) providing for consideration
of $155 per share in cash, $35 per share in Company debt securities and $13 per
share in debt securities of Covia Corp., which agreement was entered into in
April 1990 and terminated in October 1990 due to an inability to obtain
necessary financing following Iraq's invasion of Kuwait.
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During this period, earnings per share from continuing operations, helped by
both the strength of the global economy and operating improvements undertaken
by the Company, grew from a loss of $3.43 in 1985 to positive earnings of
$20.20 in 1988 and $14.96 in 1989. This improving earnings posture came to a
dramatic halt in 1990 when Iraq's invasion of Kuwait sent fuel prices
skyrocketing while simultaneously dampening consumer demand for air travel.
These events, combined with the downturn in the global economy, led to
disappointing earnings per share of $4.33 in 1990 and a per share loss of
$14.31 in 1991.
In recent years, including during 1992, the Company has noted the emergence
of a fundamental shift in consumer behavior, with an increased focus on the
price/value relationship. Travel preference (of both business and leisure
travelers) has continued to shift to low-cost travel as provided by carriers
such as Southwest Airlines Co. ("Southwest"), Morris Air and Reno Air. The
Company believed that this trend was long-term and would continue even if the
weak economic conditions of the early 1990s improved. The Company determined
that its ability to be competitive in such an environment required a
substantial reduction of its operating costs.
Thus, on January 6, 1993, the Company, while recognizing that it had put in
place progressively leaner operating budgets over the prior few years,
nevertheless announced a further $400 million cost reduction program, including
the subcontracting of skycaps and certain janitorial services and the furlough
of 2,800 employees. Additionally, the Company restructured its fleet plan and
aircraft purchase commitments, cancelling firm orders for 49 Boeing aircraft,
deferring acceptance of 14 Airbus aircraft and accelerating the retirement of
25 older aircraft. The net effect of these changes was to reduce the Company's
planned capital spending through 1996 by over $6.2 billion and reduce the size
of the planned 1996 year-end fleet size by over 85 aircraft.
The Company determined that even with these changes it would be necessary to
reduce its single largest expense, labor costs, to be competitive in the
changed environment of the 1990s. Thus, in addition to the subcontracting,
furloughs and the implementation of a 5% salary reduction program for certain
management employees, the Company requested concessions from its three
principal unions on January 14, 1993. AFA rejected such request on January 14,
1993 and the IAM rejected such request on January 19, 1993. ALPA indicated that
it desired to conduct a financial review of the Company.
In light of the unwillingness of the Company's unions to participate in the
Company's cost-cutting efforts, the Company thereafter announced its intention
to undertake various other cost-cutting actions, including selling its flight
kitchens, subcontracting certain ground services, opening a flight attendant
domicile in Taiwan and evaluating the sale of the Denver flight training
center. CS First Boston Corporation ("CS First Boston") was retained February
12, 1993 to assist the Company in connection with the evaluation of a sale of
the United States flight kitchens. The Company also discussed the possibility
of subcontracting its jet repair work, selling its jet engine overhaul
maintenance facility in San Francisco, subcontracting its components business
and ground equipment overhaul business, and subcontracting its line maintenance
work, building maintenance work, and computer terminal technician work.
In March, 1993, Booz . Allen & Hamilton ("BAH") was engaged by the Company to
provide a description of, and outlook for, the U.S. airline industry and
United. The assessment focused on the domestic airline industry as represented
by the thirteen leading carriers, who together represent 99% of the U.S.
airline industry's capacity. At a meeting of the Company's Board of Directors
(the "Board") held on April 28, 1993, BAH presented a report to the Board. In
its report, BAH noted "the U.S. airline industry has historically
underperformed, particularly since deregulation when overall financial returns,
in the aggregate, have been negative. Despite this poor performance, the
industry expanded rapidly after deregulation. However, to fill the rapidly
expanding capacity, the industry had to drop prices almost continuously.
Unfortunately, for a significant portion of the post-deregulation period--most
notable in the last three years--the industry has been unable to reduce costs
as rapidly as prices, which has led to significant industry-wide losses." The
report noted that it seemed unlikely that carriers such as United could achieve
sufficient cost reduction without a
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major restructuring. The report concluded that United had to respond to major
industry imperatives by reducing competitive intensity, through redeploying
capacity into core segments and reducing costs to narrow the gap with its
principal low-cost competitors. BAH advised that to redeploy capacity to
defensible segments, United should (i) identify core capabilities as a basis
for market advantage, (ii) focus product, capacity and resource investments
into specific core areas to capitalize on those advantages, (iii) form
partnerships/alliances to serve complementary segments and (iv) withdraw from
non-core activities. In order to reduce its cost gap, United should (i) reduce
controllable costs wherever possible, (ii) work with labor to achieve wage
reductions and productivity improvements and (iii) pursue alternatives for
radical restructuring and product redesign.
In a further presentation to the Board on June 24, 1993, BAH indicated that,
in the absence of labor cooperation, the Company had four options: (i)
restructure and downsize to focus on those markets where United could be
profitable in the long term, (ii) restructure and grow to create a stronger
domestic and international competitive position, (iii) return value to
stockholders by monetizing flying assets, services and/or other hard assets and
(iv) sell the airline in whole or in parts.
On April 19, 1993, the Board received a letter from the United Airlines Union
Coalition (the "Coalition"), a group then composed of ALPA, the IAM and AFA,
expressing concern over asset sales and extensive restructuring. In response,
the Company sent a letter to the Coalition inviting a "shared solution" to the
Company's need to reduce operating costs. On June 2, 1993, Mr. Stephen M. Wolf,
Chairman of the Company, and Mr. Paul George, Senior Vice President--Human
Resources of United, met with Captain Roger D. Hall, Chairman, ALPA-MEC, Ms.
Diane Tucker, then President of the UAL/AFA Master Executive Council, and Mr.
Ken Thiede, President and General Chairman of IAM-District 141. At such
meeting, the Coalition indicated it was working on such a "shared solution". At
the time, the Company was engaged in discussions with potential purchasers of
its United States flight kitchens and final bids were due on July 20, 1993. The
Company agreed to defer any major restructuring action until July 19, 1993 and
requested that the Coalition submit a proposal by that time.
July 16 Proposal
On July 16, 1993, the Board received a letter from the Coalition (the
"Coalition July 16 Proposal") that stated that the Coalition's participation in
a cooperative restructuring was predicated on (i) employee investments by ALPA,
the IAM, AFA and United's salaried and management employees that would be
intended to produce an aggregate of $3.345 billion in employee cost savings
over five years, (ii) joint development over a 12-18 month period of a plan
intended to meet the competitive challenges facing United and projected to
provide at least $100 million in additional operating income in 1995, $200
million in 1996 and $300 million in 1997 and each year thereafter, (iii)
contribution of a substantial majority of the Company's common equity to a
trust or trusts for the benefit of the Company's employees, (iv) a
recapitalization of the Company (without additional external financing) in
which the existing stockholders would receive a substantial minority of the
Company's common stock and other consideration, (v) a balanced corporate
governance structure, (vi) a restructuring that was not dependent on third
parties (i.e., that did not require bank financing, a financial partner or a
strategic partner), (vii) a restructured Company that maintained a substantial
cash balance, (viii) negotiation of collective bargaining provisions intended
to protect the job security and work opportunities of United's employees and
(ix) preservation of the status quo during negotiation of the proposal. The
Coalition July 16 Proposal emphasized that such points were "all essential
elements of the restructuring" and "available only in the context of a
restructuring that meets the other characteristics outlined above."
On July 20, 1993, the Company retained CS First Boston to assist it in its
evaluation of the Coalition program. On July 21, 1993, the Coalition publicly
confirmed that it had provided "several concepts" to the Company with respect
thereto. On the same day, the Company publicly confirmed it was in
communication with the Coalition regarding the concepts provided to the Company
by the Coalition. Thereafter, representatives of the Company and the Coalition
commenced a series of meetings to discuss the Coalition program.
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August 5 Board Meeting
On August 5, 1993, the Board held a meeting at which it considered a
presentation by BAH and members of Company management concerning ways to
improve the Company's profitability and provide stockholder value, with
specific focus on establishment of one or more domestic short-haul carriers
which would be owned independently of the Company and United and which would
virtually eliminate short-haul flying by United, along with other fundamental
alterations of the Company's business and structure (the "Fundamental
Restructuring Plan"). The Board also received a report on the status of
discussions with the Coalition. The Board discussed the alternative of
proceeding with the Fundamental Restructuring Plan and declining participation
in the program outlined in the Coalition July 16 Proposal, the alternative of
proceeding with the Coalition program and deemphasizing the Fundamental
Restructuring Plan and the alternative of proceeding to develop both the
Coalition program and the Fundamental Restructuring Plan. The Board,
recognizing that the Coalition was offering very substantial concessions but
that significant structural matters limited the ability to provide value to
stockholders, determined both to work with the Coalition and to develop
additional details of the Coalition July 16 Proposal. The Board concluded that
a Coalition proposal should be considered only in light of, among other things,
its valuation compared to the going concern value of the Company not taking
into account any restructuring plan and the value to stockholders of other
alternatives. The Board also instructed management to continue to explore the
alternatives discussed by BAH and to pursue the sale of the United States
flight kitchens.
On August 10, Mr. Wolf and Mr. George met with Captain Hall, Mr. Kevin Lum,
who had replaced Ms. Tucker as President of the UAL/AFA Master Executive
Council, and Mr. Thiede and on August 11 the Company's representatives met with
the Coalition's representatives. At both meetings the Company conveyed the view
that, although the Company had not completed its valuation analysis, after
reviewing the program outlined by the Coalition, particularly the limitations
it imposed, the Company did not see how the program as outlined by the
Coalition permitted the Company to satisfy its key requirement in any
transaction involving the transfer of control: to deliver an appropriate
premium over market to the holders of Old Shares in a transaction that was fair
to such stockholders. At the same time, the Company expressed to the Coalition
the Board's willingness to discuss actively a transaction that involved
majority employee ownership, substantial corporate governance protection and
comprehensive job protection provisions, provided that it also satisfied the
Company's key requirement of providing substantial value to holders of Old
Shares. At the meeting among representatives, some specific approaches were
expressed as to possible areas of modifications to or enhancements of the
Coalition program in order to bridge what appeared to the Company to be a
substantial value gap. See "SPECIAL FACTORS--Certain Revenue and Earnings
Scenarios."
August 25 Board Meeting
In a meeting held on August 25, 1993, the Board reviewed the process that was
being followed and the steps that had been taken to obtain additional details
and evaluate the Coalition proposal. The Board then reviewed in detail the
various alternatives if the Company did not engage in a transaction involving
the sale of a majority of the equity to its employees, including:
. maintaining the "status quo" without undertaking extraordinary actions,
. pursuing an alternative, referred to as the "enhanced status quo"
alternative, whereby the Company would undertake certain extraordinary
cost-cutting actions, including, for example, a sale of the flight
kitchens, designed to enhance stockholder value over the "status quo"
alternative without undertaking a major restructuring of the Company and
. pursuing the Fundamental Restructuring Plan.
In considering the "status quo" alternative, the Board considered as positive
factors the prospect of labor peace, the possibility that the aviation
environment might improve and the fact that this alternative preserved the
Company's opportunity to carry out a fallback strategy. It considered as
negative factors the fact that
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this alternative did not address the Company's fundamental problems (especially
the continued expansion of low-cost carriers), and would result in continuing
unsatisfactory financial performance, the loss of a "window of opportunity"
before labor contracts reopened, the failure to provide sufficient incentive to
the unions to lower costs and the prospect of a declining price of the Old
Shares.
The Board viewed the positive aspects of pursuing the "enhanced status quo"
alternative as improved financial performance versus the "status quo"
alternative and the use of a "window of opportunity" before labor contracts
reopened. It viewed as negative factors the potential labor disruption in the
workplace, the lack of sufficient improvement of financial performance, the
failure to address the low-cost carrier problem and the possibility that United
would be subject to some adverse media/political attention, which factors would
potentially reduce the positive effects on the stock price.
Because the "enhanced status quo" alternative was viewed as preferable to the
"status quo" alternative in all aspects except the potential for labor
disruption, the Board felt the "enhanced status quo" alternative was the
appropriate comparison when evaluating the Fundamental Restructuring Plan and
other alternatives.
In considering the Fundamental Restructuring Plan, the Board noted that
pursuit of such plan would significantly improve financial performance if
successful, significantly improve stock price if successful, and take advantage
of the "window of opportunity" before labor contracts reopened. The Board also
noted that the ability of the Company to implement successfully this
alternative was uncertain and that this alternative had the potential to cause
extreme labor disruption in the workplace, to place severe limits on the
Company's ability to pursue an acceptable fallback strategy, to subject United
to extreme adverse media/political attention and to significantly depress the
Company's stock price if not successful.
The Board also recognized that the Fundamental Restructuring Plan was likely
to be challenged by the Company's unions both in Federal court and in
arbitration under the Railway Labor Act. Such a challenge could involve issues
such as (i) whether the Fundamental Restructuring Plan violated statutory
prohibitions against interference with union rights and/or unilateral carrier
actions, (ii) whether the Fundamental Restructuring Plan violated provisions in
the ALPA or AFA agreements that prohibit the Company from controlling, managing
or holding any equity interest in another carrier, (iii) whether the
Fundamental Restructuring Plan violated a provision in the AFA agreement that
prohibits establishment of an "alter ego" carrier and (iv) whether the
Fundamental Restructuring Plan violated a clause in the ALPA agreement that
restricts marketing agreements with United Express carriers. The Board
recognized that resolution of these issues could delay or prevent
implementation of the Fundamental Restructuring Plan. The Board also considered
the corporate taxation aspects of the Fundamental Restructuring Plan, including
whether the creation of one or more new short-haul carrier entities would
qualify as a tax-free reorganization under Section 355 of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code").
Finally, the Board considered that a strategy involving a sale of a majority
of the Company's equity to employees would be expected to result in labor
peace, provide significant value to the stockholders, potentially address the
low-cost carrier problem and potentially preserve the Company's opportunity to
pursue a fallback strategy. The negative aspects of such a strategy were
determined to include the fact that, if not successful, the Company would lose
some of the "window of opportunity" and that the labor unions might initiate a
destructive public relations campaign coupled with significant disruptive job
action. The Board noted that such a strategy might provide potentially less
value to stockholders than a fully successful Fundamental Restructuring Plan,
although it would likely provide more value than a failed Fundamental
Restructuring Plan.
At the August 25, 1993 Board meeting, CS First Boston made a presentation
summarizing its analyses of three alternatives to the Coalition program:
maintaining the "status quo", implementing the "enhanced status quo"
alternative (consisting of management actions that the Company believed would
increase labor force productivity or reduce labor costs but that would not
require a major restructuring) and implementing the Fundamental Restructuring
Plan, including an overview of the steps that would be required for
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implementation of each. The presentation also included a preliminary valuation
analysis of the "enhanced status quo" alternative and the Fundamental
Restructuring Plan. In order to arrive at a range of values per share of the
Company assuming implementation of the "enhanced status quo" alternative, CS
First Boston used a discounted cash flow analysis to estimate the present value
of the future cash flows that the Company could be expected to produce over a
five-year period from 1994 through 1998 in accordance with management's
forecasts adjusted to reflect the cost reductions of the "enhanced status quo"
alternative. CS First Boston estimated a preliminary value range for the
Company, assuming the implementation of the "enhanced status quo" alternative,
by adding the present value of the five-year unleveraged free cash flows of the
Company under that scenario to the present value of the Company's 1998 terminal
value. The discount rates and terminal multiples reflected then-current market
conditions. This analysis resulted in a preliminary range of values per share
of the Company, assuming the implementation of the "enhanced status quo"
alternative, of from $150 to $180.
CS First Boston's presentation included a preliminary range of values for the
Company assuming implementation of the Fundamental Restructuring Plan. CS First
Boston applied the same discounted cash flow methodology used in the "enhanced
status quo" case to the cash flows that the Company could be expected to
produce over the five-year period from 1994 through 1998 if the Fundamental
Restructuring Plan were adopted. This analysis resulted in a preliminary range
of values per share, if the Fundamental Restructuring Plan were successfully
implemented, of from $225 to $275. CS First Boston noted that this preliminary
range of values must be reduced by the expected costs of the transition to such
plan and the assumed costs of labor disruption related to the implementation of
the Fundamental Restructuring Plan, which were estimated to range from $22 to
$42 per share. After such reduction, this analysis resulted in a preliminary
range of values per share of the Company, if the Fundamental Restructuring Plan
were successfully implemented, of $183 to $253 per share. CS First Boston noted
that this range of values assumed that the transaction would not be taxable to
the Company or its stockholders and must be further reduced by the following
factors, which were not quantified: (i) the ownership share expected to be
retained by the new operators and accordingly not distributed to the Company's
stockholders, (ii) structural inefficiencies, (iii) national labor leadership
response, (iv) government reaction and (v) public relations risk.
CS First Boston also presented a preliminary analysis of a range of values
for the Company if implementation of the Fundamental Restructuring Plan was
attempted by the Company, but was ultimately blocked as a result of legal
action, and the Company subsequently adopted the "enhanced status quo"
alternative described above. CS First Boston assumed for purposes of its
analysis that the Company would have absorbed the transition expenses and labor
disruption costs associated with the Fundamental Restructuring Plan during the
pendency of the legal action. Accordingly, this analysis resulted in a
preliminary range of values per share of the Company, if the "enhanced status
quo" alternative were adopted following an unsuccessful attempt to implement
the Fundamental Restructuring Plan, of from $108 to $158.
For information relating to the qualifications of CS First Boston, the method
of its selection, the nature of, and purpose for, its analyses, the procedures
it followed in connection therewith and the compensation it has received or
will receive, see "SPECIAL FACTORS--Opinions of the Financial Advisors to the
Board."
The Board then further discussed issues concerning the various alternatives,
including their potential impact on the Company and the factors influencing the
potential success of each alternative.
At the conclusion of its deliberations, the Board determined that the Company
should identify for the Coalition a set of possible enhancements to the
Coalition program but at the same time management should proceed with the
development of various restructuring activities as and to the extent management
deemed appropriate.
In a letter to the Coalition dated August 25, 1993, the Company stated that
since August 11, 1993, the Company and its financial advisors "had performed
further analysis which has provided the Company with a clearer view of value,
both as to the Company if no Coalition transaction occurs and as to the value
of the Coalition program as reflected in the July 16th letter. The Company's
analysis has confirmed that a substantial value gap exists between the
Coalition program and the inherent value of the Company."
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In the August 25th letter, the Company outlined an approach to enhance the
Coalition's program for a majority employee ownership transaction for
consideration by the Coalition. This approach involved the following components
to enhance the Coalition's proposed structure: (i) one or more trusts for the
benefit of the Company employees would acquire 50.1% of the economic and voting
power of the Company's equity, (ii) (a) employee investment as described in the
Coalition July 16 Proposal would be supplemented by additional employee
investment amounting to $120 million in year 1 and growing to $160 million in
year 8, (b) an extension of the duration of the employee investment period by
three years, (c) the entire investment would be by verifiable pay rate/defined
contribution reductions, unless the Company agreed to alternative achievable
work-rule changes of equal value, (d) there would be no "snap-backs" and
contracts would be amendable after 8 years pursuant to Section 6 of the Railway
Labor Act, (e) in each of years 6, 7 and 8 of the investment period, all
employees would be provided a general wage rate increase of 2% per year if the
Company achieved its earnings projections and there would be no other wage
rate, per diem, allowance/premium or benefit increases during the investment
period (other than step, longevity or comparable increases for non-contract
salaried and management employees or status/promotional increases) and (f) a
profit-sharing plan to provide potential for annual lump sum cash payments to
employees if corporate performance targets are met, (iii) contract revisions
allowing the establishment of a low-cost short-haul airline within United or
the Company would be made, (iv) collective bargaining terms designed to provide
reasonable job security provisions acceptable to the Company and to United's
employees, which would not impose additional costs on United, would be agreed
to, (v) upon consummation of the transaction, each existing Old Share would
receive one new share of common stock and $100 in additional consideration,
consisting of approximately $25 in cash and additional "cash equivalent value,"
consisting of approximately $37 in value of debt with specified terms and
approximately $37 in value of preferred stock with specified terms and (vi)
special governance provisions would be applicable to the "new company."
The Company noted that the outlined approach was intended to provide a basis
for discussion and was not intended to be exhaustive and that the Company
"recognized that the [outlined] approach to enhancing the Coalition's program .
. . will require amplification, modification and amendment of various aspects
of the approach."
On September 1, 1993, the Company delivered additional material to the
Coalition on the economics of an "airline-within-an-airline" then described as
"Friendship Express" (and subsequently referred to as "U2").
On September 13, 1993, the Company announced that it had agreed to sell
certain of its United States flight kitchens to Dobbs International Services,
Inc. ("Dobbs") and Caterair International Corp. ("Caterair"). The Company also
stated that it retained the option to terminate such agreements at any time
prior to November 13, 1993.
On September 30, 1993, AFA announced that it had "terminated its
participation in the negotiations" due to the Company's decision to open a
flight attendant domicile in Taiwan. The Company had previously delayed this
action on several occasions (despite the Company's belief that it would
meaningfully increase the Company's productivity) in order to permit AFA time
to consider its participation in the transaction. Following such withdrawal by
AFA, the Company continued to have discussions with representatives of ALPA and
the IAM. All references in this document to the "Coalition" or the "Unions"
following September 30, 1993 refer to ALPA and the IAM, but not AFA.
On November 4, 1993, in response to media reports on the status of its
discussions with the Coalition, the Company announced that no definitive
proposal had been presented to the Company by the Coalition. On November 5,
1993, the Company announced it had sent a letter to the IAM containing a
proposal whereby, among other things, the Company and the IAM would enter into
a new seven-year contract relating to United States flight kitchens, in lieu of
a sale thereof, that would reduce the Company's current catering expense.
On November 6, 1993, the Coalition delivered a draft proposal to the Company
with respect to a transaction. On November 8, 1993, a representative of the
Company delivered a response to the Coalition that stated, among other things,
that such draft presented significant deficiencies in addition to reflecting a
substantial shortfall in the level of employee investment.
11
<PAGE>
November 11 Proposal
During the evening of November 11, 1993, the Coalition delivered a formal
proposal to the Company (the "Coalition November 11 Proposal"). The Coalition
November 11 Proposal provided, among other things, for the acquisition by one
or more employee stock ownership plans of securities representing 60% of the
equity interest and voting power of the Company, and receipt by the Company's
existing stockholders of a package comprised of an aggregate of $650 million in
cash paid by the Company, $500 million of debentures of the Company, $750
million of preferred stock of the Company, and common stock representing 40% of
the equity of the Company. The Coalition November 11 Proposal also stated that
it would be immediately withdrawn in the event the Company sold the flight
kitchens.
Under the Coalition November 11 Proposal, ALPA, the IAM and salaried and
management employees would make wage concessions which the Coalition valued at
$3.496 billion in nominal amount, or $2.874 billion in present value (at a 9%
discount rate). Under collective bargaining agreement modifications provided
for in such proposal, the Company would be permitted to establish a unit to
compete with low-cost carriers in the domestic short-haul market. The Coalition
indicated that it believed that the present value (at a 9% discount rate) of
this competitive capability was approximately $2.7 billion and valued its
proposal at $165.67 per Old Share. CS First Boston analyzed the Coalition
November 11 Proposal and, at a Board meeting held on November 12, 1993,
indicated to the Board that it had concluded that the Coalition November 11
Proposal was substantially deficient from the standpoint of providing adequate
value to the Company's stockholders. CS First Boston indicated that, although
it had not completed a full analysis, it had calculated the value of the
Coalition November 11 Proposal as approximately $140 per Old Share.
The Company communicated such conclusion to the Coalition on November 12,
1993 and further responded with a written alternative which sought to provide
"appropriate value" to stockholders while enabling the Coalition to achieve its
goal of majority employee ownership. Among other things, the Company's
alternative extended the employee investment period by two years, required
health insurance contributions and reduced many new hire rates. On November 12,
1993, the Coalition rejected such alternative, stating that it was willing to
continue negotiations subject to certain conditions.
Based upon the Coalition response, the Board thereafter determined that the
interests of the Company's stockholders would be best served by not exercising
the right United had to terminate the flight kitchen sale contracts prior to
November 13, 1993. The Company was then advised by the Coalition that the
Coalition November 11 Proposal was withdrawn.
On November 12, 1993, the Company issued a press release describing the
events of November 11 and 12 described above and stated that it remained
willing to continue to hold discussions with its labor unions and still
believed that a cooperative approach to solving a non-competitive labor cost
structure was in the best interests of all parties.
On November 16, 1993, Mr. Wolf met in New York with Mr. Felix Rohatyn, a
general partner of Lazard Freres & Co. ("Lazard") and a member of the National
Commission to Ensure a Strong Competitive Airline Industry from June 1993
through September 1993, in order to explore the basis for renewed discussions
with the Company's labor unions. Thereafter, the Board authorized the retention
of Lazard. After the retention of Lazard, Lazard and CS First Boston contacted
advisors to the Coalition to see if a "firm basis for continued discussion" was
possible. On December 1, 1993, Company management and representatives met with
senior Coalition officials and discussed certain significant issues, including
a mechanism designed to help bridge the difference between the Company and the
Coalition of their respective valuations of the Company after giving effect to
the concessions.
Thereafter, numerous meetings were held between representatives of the
Company and representatives of the Coalition to discuss elements of a possible
transaction.
12
<PAGE>
December 16 and 22 Board Meetings
On December 16, 1993, the Board met to discuss the status of a revised
Coalition proposal (the "Revised Coalition Proposal"). The Revised Coalition
Proposal contemplated the acquisition by the employee trusts of a minimum of
53% of the common equity, subject to increase to up to 63% based on stock price
performance in the year after closing, a recapitalization in which the holders
of Old Shares would receive cash, debt and preferred stock valued at $88, and
$4.548 billion net present value of wage and benefits reductions and work-rule
changes relating to the Company's employees. In addition, the Revised Coalition
Proposal contained a mechanism for resolving differences between the Company
and the Coalition over the present value of the employee investment and the
"Competitive Action Plan" contained in the proposal. The Coalition believed
that the elements of the Revised Coalition Proposal provided a total market
value of $6.9 billion to the Company and its stockholders; applying the same
methodology used by the Coalition, the Company and its outside advisors
believed the elements of the Revised Coalition Proposal represented $5.2
billion in market value. To resolve this dispute, the Revised Coalition
Proposal contemplated an initial acquisition of 53% of the Company common
equity by trusts for the participating employees based on the Company's
valuation of the elements of the Revised Coalition Proposal at $5.2 billion.
However, the proposal also allowed the trusts for the participating employee
groups to obtain additional equity of the Company, up to 63% in total, if and
to the extent the average trading price of the New Shares over the initial year
following the Effective Time exceeded certain levels. At such meeting, the
Board reviewed, among other things, the amount and terms of the consideration
to be received by the public stockholders, the nature of the employee
concessions, other terms of a proposed Agreement in Principle (as defined
below) incorporating such Revised Coalition Proposal, including proposed
conditions, the impact of the proposed transaction on the Company's access to
financing, and other issues related to the structure of an employee stock
ownership plan, tax effects and earnings per share and other valuation effects.
During such meeting, representatives of both CS First Boston and Lazard
indicated that despite the publicity surrounding the proposed transaction, no
third party had indicated interest in acquiring the Company as an entirety and
noted that certain factors, including the state of the leveraged acquisition
market and the fundamental need to address cost factors, might be responsible
for the lack of third party acquisition interest. At the conclusion of such
meeting, the Board instructed the Company's representatives to continue to
negotiate the open issues in the proposed Agreement in Principle with a view
towards having a definitive proposal for presentation at a December 22, 1993
Board meeting.
On December 22, 1993, the Board met again to discuss the substantially
completed Agreement in Principle with respect to the Revised Coalition
Proposal. During such meeting, the Board reviewed, among other things, the
proposed corporate governance structure of the Company going forward, issues
related to management and employee reaction to a transaction and the related
transition, the alternatives available to the Company, including potential
labor disruption (including the effect on public perception and relations with
governmental authorities) if other alternatives were pursued, and the financial
terms of the Revised
Coalition Proposal. The Board discussed the requirement of the unions that Mr.
Wolf, Mr. John C. Pope, President, and Mr. Lawrence M. Nagin, Executive Vice
President--Corporate Affairs and General Counsel, retire at the Effective Time
as well as the fact that the majority of the Board would be replaced, and
extensively discussed issues relating to management of the Company following
the transaction.
At the December 22, 1993 Board meeting, CS First Boston and Lazard gave an
overview of the Revised Coalition Proposal, including the improvements from the
Coalition's November 11 Proposal. CS First Boston and Lazard described how the
Revised Coalition Proposal would affect the Company's balance sheet. CS First
Boston and Lazard also described how the accounting rules applicable to "stock
based compensation" (which require that stock compensation expense for periodic
stock allocations be measured by the then-current market value of the shares at
the time of allocation) would apply to the share allocations in the employee
stock ownership plans contemplated under the Revised Coalition Proposal, the
resulting complexities to forecasting earnings per share and how the investment
community might analyze the situation. CS First Boston and Lazard discussed
certain valuation issues related to the debentures and the preferred stock
proposed to be issued in the Revised Coalition Proposal (including
redistribution issues and, in the case of the preferred stock, the limited
precedent for a security of the size of the contemplated issue).
13
<PAGE>
CS First Boston and Lazard described the possible impact of the proposed
transaction on the Company's credit ratings and the cash flow impact of the
proposed transaction (including the fact that the proposed employee investment
would exceed the incremental fixed charges). CS First Boston and Lazard also
described the structure and operation of the stock ownership adjustment
mechanism contained in the Revised Coalition Proposal that would increase the
employee trusts stock ownership percentage from 53% to a maximum of 63% if the
Company's average closing stock price for one year after the Effective Time
exceeded specified levels.
At such meeting, CS First Boston and Lazard indicated to the Board that, as
of such date, the consideration that would be received by holders of the Old
Shares in connection with the transaction contemplated by the proposed
Agreement in Principle, taken as a whole, was fair to such holders of Old
Shares from a financial point of view. See "SPECIAL FACTORS--Opinions of the
Financial Advisors to the Board." Following the presentations and discussions,
the Board voted (with Dr. Andrew Brimmer dissenting) to approve the Agreement
in Principle.
The Agreement in Principle (the "Agreement in Principle") was executed on
December 22, 1993 and thereafter the parties commenced preparation of
definitive documentation. The Agreement in Principle provided for a
preservation of the "status quo," subject to ratification of the transaction by
the ALPA-MEC and the IAM membership occur by January 31, 1994 and an automatic
termination of the agreement to preserve the "status quo" if definitive
documentation was not completed by March 15, 1994. The IAM membership ratified
the transaction on January 26, 1994 and the ALPA-MEC ratified the transaction
on January 28, 1994.
March 14 Board Meeting
On March 14, 1994, the Board met to discuss the status of the proposed
definitive documentation. At such meeting, the Board received presentations
from management and counsel with respect to such status, including the
documentation, the differences between such documentation and the Agreement in
Principle (including, without limitation, the issuance of the Debentures by
United rather than the Company, the inclusion of other employee plans in
calculating the 20% "Sunset" threshold as described below in "THE PLAN OF
RECAPITALIZATION--Revised Governance Structure--Sunset" and the provision for
payment of expenses of the Unions if the Plan of Recapitalization were
terminated because of another proposed transaction which was subsequently
consummated), the significant issues which remained unresolved (including,
without limitation, certain issues relating to indemnification of the IAM
relating to certain alleged claims by a former financial advisor, certain
issues relating to expenses of the Unions, certain issues relating to the
retention of a new CEO, certain issues related to the investment by Salaried
and Management Employees, the standard for Unions' review of the proxy, various
issues relating to the pricing of the Debentures and Public Preferred Stock and
to the "treasury stock method" of calculating the number of outstanding Old
Shares, and certain issues related to the ESOPs) and a discussion of the
employee stock ownership plan contemplated by the Agreement in Principle and
its relationship to the transaction, a presentation from American Appraisal
Associates, Inc. ("American Appraisal") with respect to issues of solvency and
surplus under Delaware law and a financial presentation from CS First Boston
and Lazard.
Subsequent to such Board meeting, the parties continued to discuss various
issues, principally the salaried and management employees' contribution,
adjustments based on variances in share capitalization resulting from options
and convertible securities, the terms of the employment agreement for the new
chief executive officer and advisory fees. The Board had telephonic status
meetings on March 15 and March 16, where management advised the Board about
developments in the discussions with the Coalition.
March 24 Board Meeting
On March 24, 1994, the Board met telephonically to consider the definitive
Plan of Recapitalization. At such meeting, the Board discussed the proposed
transaction, focusing on issues that had either been resolved since the March
14 Board meeting or that remained unresolved, including the maximum final
pricing of the
14
<PAGE>
Debentures and the Public Preferred Stock, the adjustments necessary to reflect
the treasury stock method of calculating fully diluted shares, the method of
pricing a call feature on the Debentures, the nature of the salaried and
management employee concession package and a proposed indemnity to the IAM
against certain alleged claims asserted against the IAM by a former financial
advisor. In addition, the proposed Independent Directors (as defined below)
were identified. After discussion, the Board voted (with Dr. Andrew Brimmer
dissenting) to approve the definitive documentation for the Recapitalization.
Dr. Brimmer has indicated that he dissented from the vote because under current
economic conditions, he did not think there were compelling reasons to effect
such a transaction at this time. See "SPECIAL FACTORS--Recommendation of the
Board." On March 25, 1994, the initial Plan of Recapitalization was executed by
the Company, ALPA and the IAM (the "Initial Plan of Recapitalization")
reflecting the terms of the Agreement in Principle.
Definitive Documentation Amendment
In light of prevailing market prices for the Old Shares in May 1994 and in
view of provisions in the Initial Plan of Recapitalization which enabled the
Coalition to assert that pricing conditions to consummation of the
Recapitalization relating to the purchase of ESOP Preferred Stock would not be
satisfied, the Coalition determined to approach the Company over possible
adjustments to the financial terms of the transaction. At the same time, the
Company felt that the Offerings, if successful, would benefit the Company's
stockholders as part of the Recapitalization and would provide greater
certainty of completion of the Recapitalization. In response to a proposal to
modify the definitive documentation from the Coalition, at a meeting of the
Board on May 20, 1994, the Board determined to make an alternative proposal to
the Coalition. At the May 20, 1994 meeting, both CS First Boston and Lazard
confirmed their view that the consideration to be received by the holders of
Old Shares in connection with the Recapitalization, taken as a whole, was fair
to such holders of Old Shares from a financial point of view. At the meeting,
representatives of CS First Boston stated that its reference range of values
for the total consideration to be received by holders of Old Shares in the
Recapitalization for one Old Share was $142 to $146 and representatives of
Lazard stated that its reference range of values for the total consideration to
be received by holders of Old Shares in the Recapitalization for one Old Share
was similar to CS First Boston's reference range with an upper end of the range
of approximately $150 per share. See "SPECIAL FACTORS--Opinion of Financial
Advisors to the Board." The Coalition accepted the Company's alternative
proposal on May 22, 1994. On June 2, 1994, the Company and the Coalition
executed an amendment to the definitive documentation (the "Definitive
Documentation Amendment") providing for, among other things, (i) an increase in
the percent of the common equity and voting power initially to be acquired by
the ESOPs from 53% to 55%; (ii) a decrease in the range of average stock prices
of the New Shares for the one year following the Effective Time which would
result in an increase, to up to 63%, in the percent of common equity and voting
power to be received by the ESOPs (prior to the Definitive Documentation
Amendment, the range had been $170.00-$178.44 per share and it was decreased to
$136.00-$149.10 per share (giving effect to the 1 for 2 common stock exchange
ratio)) (see "THE PLAN OF RECAPITALIZATION--Terms and Condition--Additional
Shares"); (iii) the inclusion of the Offerings; (iv) revisions to the manner in
which the Class 1 ESOP Preferred Stock will be purchased by the ESOP Trustee
(see "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs") and; (v)
establishment of a procedure whereby the Chief Operating Officer of the Company
may be identified subsequent to the Effective Time if not identified at or
prior to the Effective Time. In addition, certain changes were made to the
optional redemption terms of the Public Preferred Stock and the Debentures to
facilitate the Offerings (see "DESCRIPTION OF SECURITIES--The Debentures" and
"--The Depositary Preferred Stock"). As a result of the Definitive
Documentation Amendment, the purchase price of the ESOP Preferred Stock to be
acquired at the Effective Time will be determined using a market price-based
formula and, accordingly, the Coalition is not entitled to assert that the
Recapitalization may not be consummated based on the market price of the Old
Shares or the expected market price of the New Shares.
SPECIAL FACTORS
CERTAIN COMPANY ANALYSES
In connection with the consideration of the Recapitalization, United's
internal financial analysis group prepared an analysis (the "Company Analysis")
of the expected present value of the employee investments. The Company Analysis
estimated the net present value (using a 10% discount rate) of such investment
to be approximately $4.9 billion. The employee investments are expected to be
in the form of wage and benefit reductions, work-rule changes and the startup
of a new short-haul "airline-within-an-airline" referred to herein as "U2" (see
"--Implementation of the "Airline-Within-an-Airline' (U2)").
15
<PAGE>
THE COMPANY ANALYSIS IS BASED UPON A VARIETY OF ASSUMPTIONS THAT MAY NOT BE
REALIZED AND ARE SUBJECT TO SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES, MANY
OF WHICH ARE BEYOND THE COMPANY'S CONTROL. THE ACTUAL VALUE OF THE EMPLOYEE
INVESTMENTS MIGHT BE HIGHER OR LOWER THAN THE VALUE ESTIMATED IN THE COMPANY
ANALYSIS. THE COMPANY ANALYSIS HAS NOT BEEN UPDATED FOR PURPOSES OF THIS PROXY
STATEMENT/PROSPECTUS. NO ASSURANCE CAN BE GIVEN THAT THE ESTIMATED COST
SAVINGS IN THE COMPANY ANALYSIS WILL BE ACHIEVED OR THAT THE U2 OPERATION WILL
ACHIEVE THE POTENTIAL BENEFITS DESCRIBED BELOW. SEE "--CERTAIN RISK FACTORS--
INVESTMENT VALUES, FUTURE INVESTMENTS."
The employee investment relating to wage, benefit and work-rule
modifications was estimated to have a net present value in excess of $3.3
billion, including modifications associated with U2. While the current
contracts for both ALPA and the IAM become amendable in November 1994, the
value of this portion of the employee investment was not based on any
"projected" future wage rates, but rather using wage scales under the existing
contracts. Additionally, the Plan of Recapitalization specifically does not
guarantee any "snap-back" in wages or benefits at the end of the investment
period. Further, the valuation of the employee investment was reduced by the
potential for certain wage adjustments (that were not contractually
guaranteed) beginning in 1997. Despite the absence of "snap-back" provisions,
as these contracts will become amendable at that time, no valuation was made
of the benefit associated with the lack of a "snap-back" provision in the
post-investment period. In addition to the employee investment relating to
wage, benefit and work-rule modifications, net benefits of U2 (excluding labor
savings) were estimated to have a net present value of approximately $1.6
billion.
ALPA INVESTMENT
The ALPA investment consists of savings that are system-wide in nature and
that will continue for five years, nine months, as well as an additional
investment applicable solely to those pilots in the U2 operation and that will
remain in force for twelve years.
The base investment includes the following features:
.Reduction in hourly wages for all pilots of 15.7%
. Reduction in the Company contribution to the defined contribution
retirement plan from current 9% of wages (ordinary earnings,
excluding expense reimbursements) to 1% of post-transaction (reduced)
wages
.No pay raise during first three years other than existing seniority
and promotion increases
An additional investment that should assist United in competing against low-
cost carriers on short-haul routes includes:
.Further reduction of approximately 7.1% in hourly wage rates for B737
pilots in the U2 operation
. Adjustments in work-rules for U2 pilots to increase productivity vis-
a-vis the mainline United operation
Partially offsetting these investments were changes to the following
contract features:
. Increased hourly rates for pilots flying the A320 aircraft
. Potential increase in per diem and potential increase in wages in
years 4 and 5 under an arbitrated settlement based on the Company's
profitability, industry wage trends and wages at specified comparable
carriers
In addition, pilot benefits under the Company's defined benefit pension
plan, disability plan and life insurance plan will continue to be based on
pre-transaction "book" rates without regard to the 15.7% wage rate reduction.
16
<PAGE>
IAM INVESTMENT
The IAM base investment will remain in force for six years. In lieu of
creating a separate U2 workforce, the IAM made additional system-wide work-rule
changes to improve productivity and competitiveness in all areas.
The base investment includes the following features:
.Reduction in hourly wage rates for all IAM employees of 9.7%
. Elimination of the contractually provided May 1, 1994 wage increase
of 5%
.No pay raise during first three years other than existing seniority
and promotion increases
Additional work-rule changes that will remain in place for twelve years:
. Elimination of the half-hour paid lunch period
. Elimination of allowance for paid lunch period on overtime
. Provide United with the ability to outsource up to 20% of maintenance
work
Partially offsetting these investments were:
. Potential wage increase in years 4 and 5 under an arbitrated
settlement based on the Company's profitability, industry wage trends
and wages at specified comparable carriers
. Improved severance package for IAM employees affected by the flight
kitchen sale, including reemployment incentives
. Increase in pension benefits
. Inefficiencies due to the impact of job security provisions on
functions with variable workloads
. Reimbursement for relocations caused by involuntary transfers
. Subject to certain conditions and exceptions, provide IAM
representation for ramp employees at stations with greater than 40
daily departures
SALARIED AND MANAGEMENT INVESTMENT
The Salaried and Management Employee investment remains in force for five
years, nine months and consists of salary reductions and work-rule and policy
changes. In lieu of creating a separate U2 workforce, the Salaried and
Management Employee investment includes the introduction of a "market-based"
new hire program.
The base investment includes the following features:
. Reduction in wage rates of 8.25%
. No pay raise during first three years other than promotion and
existing progression increases
. Reduction in force of 127 management positions
Additional work-rule changes include:
. Elimination of the half-hour paid lunch period on overtime
. Reduced eligibility for shift differential pay
. Reduction of compensation for extended medical leave
. Reduced reimbursement for certain management relocations
. Four holidays changed to "floating" status to eliminate premium pay
for such holidays worked
. Reduce salary guarantee for part-time employees
17
<PAGE>
The market-based new-hire program includes the following features:
. Maximum compensation levels reduced to market rates at other
comparable employers (40-55% reduction)
. Requirement of 25% employee copayment on medical coverage
. Reductions in vacation, sick leave and dental insurance benefits
Partially offsetting these investments was:
. Potential wage increase in years 4 and 5, based on similar factors to
those for the ALPA and IAM-represented employees and taking into
account wage increases, if any, for such represented employees
In addition, Salaried and Management Employee benefits under the Company's
defined benefit pension plan, disability plan and life insurance plan will be
based on each employee's pre-transaction hourly rate of pay (without regard to
the 8.25% wage rate reduction) until such time as such employee's actual
hourly rate exceeds that amount or until such employee is demoted, at which
time in either case such employee's actual hourly rate will be used from that
point forward.
TOTAL LABOR SAVINGS
The changes to salaries, benefits and work-rules discussed above represented
approximately $5.2 billion in estimated savings, with an estimated net present
value of over $3.3 billion:
TOTAL LABOR SAVINGS*
(MILLIONS)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 TOTAL NPV**
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Salary Reduction ....... $190 $396 $420 $433 $452 $488 $204 $ 57 $ 71 $ 87 $105 $125 $ 67 $3,095 $2,150
Benefit Reductions...... 62 129 139 149 158 171 78 45 52 59 67 74 39 1,222 801
Potential Midterm
Increase............... 0 0 0 (32) (90) (119) (44) (3) (3) (3) (3) (3) (2) (302) (189)
Work-Rule Changes....... 12 39 73 101 120 134 138 148 154 159 165 171 87 1,501 792
Contract Improvements... (33) (53) (41) (43) (46) (47) (25) (9) (9) (9) (9) (9) (4) (337) (240)
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ------ ------
Total................. $231 $511 $591 $608 $594 $627 $351 $238 $265 $293 $325 $358 $187 $5,179 $3,313
</TABLE>
- --------
* ESTIMATES WERE PREPARED BY THE COMPANY FOR ANALYSIS PURPOSES. ACTUAL
RESULTS MAY VARY. SEE "--CERTAIN RISK FACTORS--INVESTMENT VALUES, FUTURE
INVESTMENTS." ASSUMED CLOSING DATE OF RECAPITALIZATION IS JULY 1, 1994.
** NET PRESENT VALUE WAS BASED ON A DISCOUNT RATE OF 10%.
SHORT-HAUL SAVINGS
With the emergence of low-cost, low-frills carriers such as Southwest,
United's cost structure has not been competitive in certain short-haul
markets. To date, United, burdened by higher costs than these carriers, has
maintained a full-service product in these markets to retain passengers
connecting to long-haul domestic and international flights, which are the core
of United's route network. See "--Implementation of the "Airline-Within-An-
Airline' (U2)".
The employee investments are expected to provide United with wage rates and
work-rules that are believed to be competitive with low-cost carriers. This
should permit United to be more competitive on many short-haul routes. Given
these wage rates and work-rules, United should be able to implement a low-
frills, high-frequency
18
<PAGE>
"airline-within-an-airline" that can compete for the extremely price-sensitive
local passenger. Lower labor costs and work-rule changes are the cornerstones
for achieving a variety of related cost saving actions. The combination of
labor, work-rule changes and other cost savings are intended to allow United
to be service, price and cost competitive with low-frills, low-cost carriers.
The U2 operation is expected to have the following features:
. Improved Utilization Through a combination of reducing aircraft turnaround
times, increasing frequency on existing routes and adding service in new
markets, U2 is intended to operate with a greatly improved asset
utilization. These enhancements are expected to allow United to leverage
its fixed asset base--aircraft, airport space, ground equipment and both
field and staff personnel--across a greater number of departures, and
thereby to permit improvement in the profitability of marginal operations.
. Limited Product Product and service levels will be reduced to more closely
match the service levels offered by the competition on short-haul routes:
beverage and peanuts service only, limited onboard amenities, streamlined
reservations and airport check-in processes and a reduced Mileage Plus
frequent flyer program.
. Reduced Distribution Expense The experience of low-cost carriers has
demonstrated that offering (and promoting) consistent, believably low
fares and high-frequency service increases direct airline-to-customer
ticketing. These and similar strategies employed by low-cost carriers are
intended to be implemented to reduce distribution costs.
SHORT-HAUL SAVINGS*
(MILLIONS)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 TOTAL NPV**
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Improved Utilization.... $11 $33 $ 53 $ 70 $ 80 $81 $ 85 95 $103 $115 $127 $140 $ 73 $1,066 $ 557
Limited Product......... 10 32 52 67 77 78 82 91 100 111 123 135 70 1,028 538
Reduced Distribution.... 10 28 46 60 69 70 73 81 89 99 109 120 63 917 478
--- --- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ------ ------
Total................. $31 $93 $151 $197 $226 $229 $240 $267 $292 $325 $359 $395 $206 $3,011 $1,573
</TABLE>
- --------
* ESTIMATES WERE PREPARED BY THE COMPANY FOR ANALYSIS PURPOSES. ACTUAL RESULTS
MAY VARY. SEE "--CERTAIN RISK FACTORS--INVESTMENT VALUES, FUTURE
INVESTMENTS." ASSUMED CLOSING DATE OF THE RECAPITALIZATION IS JULY 1, 1994.
**NET PRESENT VALUE WAS BASED ON A DISCOUNT RATE OF 10%.
SUMMARY OF INVESTMENTS AND SAVINGS
In total, the Plan of Recapitalization was estimated to provide United with
approximately $8.2 billion in improved operating earnings over the twelve-year
period, equating to a net present value of approximately $4.9 billion.
Approximately $5.2 billion of the total improvement was expected to arise from
savings in labor costs, with the remaining approximately $3.0 billion expected
to arise from improvements associated with the U2 operation. Of course, future
financial results are inherently subject to significant business, economic and
competitive uncertainties and contingencies and to future business decisions
taken by corporate management, and no assurance can be given that the
estimated earnings improvement will be achieved.
SUMMARY OF TOTAL SAVINGS*
(MILLIONS)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 TOTAL NPV**
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Labor Savings........... $231 $511 $591 $608 $594 $627 $351 $238 $265 $293 $325 $358 $187 $5,179 $3,313
Short-Haul Savings...... 31 93 151 197 226 229 240 267 292 325 359 395 206 3,011 1,573
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ------ ------
Total Savings......... $262 $604 $742 $805 $820 $856 $591 $506 $557 $618 $684 $753 $393 $8,190 $4,886
</TABLE>
- --------
* ESTIMATES WERE PREPARED BY THE COMPANY FOR ANALYSIS PURPOSES. ACTUAL RESULTS
MAY VARY. SEE "--CERTAIN RISK FACTORS--INVESTMENT VALUES, FUTURE
INVESTMENTS." ASSUMED CLOSING DATE FOR THE RECAPITALIZATION IS JULY 1, 1994.
**NET PRESENT VALUE WAS BASED ON A DISCOUNT RATE OF 10%.
19
<PAGE>
CERTAIN REVENUE AND EARNINGS SCENARIOS
The Company does not as a matter of course publicly disclose projections or
forecasts as to future revenues or earnings. MANAGEMENT HAS NOT UPDATED AND
REVISED AND DOES NOT INTEND TO UPDATE FURTHER OR OTHERWISE REVISE THE REVENUE
OR EARNINGS SCENARIOS CONTAINED HEREIN TO REFLECT CIRCUMSTANCES EXISTING OR
CHANGES OCCURRING AFTER MARCH 1994.
NONE OF THE COMPANY, BAH OR ANY OTHER PARTY ASSUMES ANY RESPONSIBILITY FOR
THE ACCURACY OF THE REVENUE AND EARNINGS SCENARIOS CONTAINED HEREIN. THESE
REVENUE AND EARNINGS SCENARIOS, WHILE PRESENTED WITH NUMERICAL SPECIFICITY,
ARE BASED UPON A VARIETY OF ASSUMPTIONS RELATING TO THE BUSINESSES OF THE
COMPANY THAT MAY NOT BE REALIZED AND ARE SUBJECT TO SIGNIFICANT UNCERTAINTIES
AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE COMPANY'S CONTROL. THERE CAN
BE NO ASSURANCE THAT ANY OF THE REVENUE AND EARNINGS SCENARIOS WILL BE
REALIZED, AND ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE SHOWN.
The revenue and earnings scenarios should be read together with the
information contained in "Business of the Company," "Selected Consolidated
Financial and Operating Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements,
all of which are contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1993, as amended and Quarterly Report on Form 10-Q for
the quarter ended March 31, 1994, as amended, both of which are included
elsewhere in this Proxy Statement/Prospectus.
August 1993 Revenue Scenarios. In connection with its negotiations with the
Coalition, the Company delivered in August 1993 certain revenue scenarios to
the Coalition. All of such scenarios assumed that (i) United maintained status
quo operations, (ii) recovering worldwide economies would result in higher
yields and (iii) in the longer term, unit revenue growth would slow,
reflecting a tapering off of the economic recovery and the addition of
incremental capacity in the domestic system, principally due to continued
expansion of low-cost carriers.
Such scenarios, which assumed average annual unit revenue growth rates for
the 1993-98 period ranging from 2.0% to 4.2%, were based upon certain
assumptions regarding highly uncertain variables, including but not limited to
sustained world economic upturn, absence of significant non-compensatory
competitive fare actions, absence of fuel price shocks, relatively constant
consumer propensity to spend on air travel and relatively stable industry
capacity growth. The various scenarios differed by the assumed intensity of
the early economic recovery and the severity of later economic slowdowns.
Of the revenue scenarios developed, the Company's management assigned the
highest probability of occurrence to "Scenario C" which assumed medium unit
revenue growth. The other scenarios, which varied in assumed economic
conditions, growth rates, yields, capacities, and unit revenue growth were
used to test the sensitivity of the various valuations to revenue changes from
the baseline "Scenario C" case. The August 1993 version of "Scenario C" showed
operating profits increasing from $168 million in 1993 to $620 million in
1998. The highest growth scenario showed operating profit increasing to $1.182
billion in 1998. The August 1993 scenarios did not provide for any wage
increases other than promotion and progression increases, unless there existed
contractual raises, in which case the contract raise was included.
"Scenario C" relied upon the following assumptions: (i) passenger unit
revenues growth of 5.5% in 1994 and 4.0% in 1995, reflecting a sustained
economic recovery, (ii) domestic airline industry capacity growth of 1%, (iii)
significant yield increases of 3.0% to 4.5%, reflecting a return of fares to
levels prevailing prior to Value Pricing (a pricing strategy introduced by
American Airlines ("American") in 1992 which led to significant discounting in
the airline industry) and prior to the recession, (iv) moderate traffic
increases of 2% and (v) unit revenue growth to slow to 3.0% in 1996, 2.5% in
1997 and 2.0% in 1998, reflecting industry capacity growth rising to 2% per
year, yield growth moderating to 2.0%, and traffic increases of 2%.
20
<PAGE>
March 1994 Revenue Scenario C. Subsequent to the initial development of the
revenue scenarios, the Company updated Scenario C for use in valuations
(including the valuations performed by American Appraisal and Houlihan Lokey
Howard & Zukin ("Houlihan Lokey"), the financial advisor to State Street, the
trustee (the "ESOP Trustee") of the employee stock ownership plans
contemplated by the Plan of Recapitalization (the "ESOPs"); and presentations
to rating agencies (including those given to Standard & Poor's and Moody's).
The status quo case ("Status Quo Scenario C") was based on the assumption that
(i) operations would continue as they were with no labor cost reductions and
(ii) no salary increases would be granted to any labor group (other than
promotion and progression increases) unless there existed contractual raises
in which case the contractual raise was included.
THE MOST RECENT STATUS QUO SCENARIO C MODEL WAS PREPARED AS OF MARCH 29,
1994. THIS MODEL, WHICH WAS SUBJECT TO VARIOUS ASSUMPTIONS THAT MAY NOT BE
REALIZED, HAS NOT BEEN UPDATED SINCE MARCH 29, 1994 AND IS SUBJECT TO
SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES. THERE HAVE BEEN SIGNIFICANT
DEVELOPMENTS IN THE AIRLINE INDUSTRY SINCE MARCH 29, 1994 THAT ARE NOT
REFLECTED IN THE STATUS QUO SCENARIO C MODEL SET FORTH BELOW. THE COMPANY IS
INCLUDING THIS TABLE HEREIN BECAUSE OF RULE 13E-3 OF THE EXCHANGE ACT AND
OTHER LEGAL CONSIDERATIONS AND NOT AS A FORECAST OF THE COMPANY'S REVENUES
UNDER ANY CIRCUMSTANCES. NO STOCKHOLDER OR OTHER PERSON SHOULD RELY ON SUCH
MODEL IN MAKING AN INVESTMENT DECISION WITH RESPECT TO ANY SECURITIES OF THE
COMPANY.
STATUS QUO SCENARIO C INCOME STATEMENT
(MILLIONS)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues......... $14,725 $15,794 $16,970 $17,840 $18,760 $19,684 $20,649
Operating Expenses......... 14,476 15,417 16,468 17,308 18,288 19,148 20,017
------- ------- ------- ------- ------- ------- -------
Operating Income........... 249 377 502 532 472 536 632
Interest Expense........... (318) (302) (288) (273) (259) (243) (232)
Interest Capitalized....... 51 33 42 27 18 15 15
Interest Income............ 73 73 94 113 150 184 225
Other, Net................. (10) 10 44 52 60 79 41
------- ------- ------- ------- ------- ------- -------
Earnings Before Taxes...... 45 191 394 451 441 571 681
Provision For Income Taxes. 17 73 150 171 168 217 259
------- ------- ------- ------- ------- ------- -------
Net Income................. 28 118 244 280 273 354 422
Addback
Depreciation/Amortization. 745 756 812 872 942 974 1,023
------- ------- ------- ------- ------- ------- -------
Cash From Operations....... $ 773 $ 874 $ 1,056 $ 1,152 $ 1,215 $ 1,328 $ 1,445
</TABLE>
EFFECT OF THE RECAPITALIZATION ON INCOME STATEMENT, BOOK EQUITY AND CASH FLOW
The effect of the Recapitalization on the Company's equity will be to
immediately reduce it by approximately $1.5 billion due primarily to the
distribution of cash and Debentures as part of the Recapitalization
Consideration, vesting of unvested restricted stock and transaction costs.
Based on the Company's analyses, the reduction in book equity was expected to
be earned back by year end 1997. The reasons for the rapid recovery of the
reduction in equity were increases in net income and the effect of employee
stock ownership plan accounting. Additionally, the Company's cash balance was
expected to grow to be $3.7 billion greater than what it would have otherwise
been had the Recapitalization not been consummated.
The following analysis shows the anticipated effect on income statement,
book equity and cash flow resulting from the Recapitalization. This analysis
is based on an assumed purchase price for the Class 1 ESOP Preferred Stock at
the Effective Time of $120 per share. The analysis for subsequent purchases of
such Stock assumes a 14% compounded growth rate for the market price of New
Shares and a purchase price premium for the Class 1 ESOP Preferred Stock in
excess of the market price for the New Shares which is initially approximately
38%, declining in each successive year. The $120 per share assumed purchase
price of Class 1 ESOP Preferred Stock at the Effective Time is based on an
assumed market price of a New Share at
21
<PAGE>
the Effective Time of approximately $87. The assumption is based upon (i) an
assumed market price of an Old Share at the Effective Time of approximately
$131.5 per share, (ii) an assumed value of the non-New Share portion of the
Recapitalization Consideration of $88 per Old Share, and (iii) a purchase
price premium for the Class 1 ESOP Preferred Stock over the assumed value of a
New Share of 38%. The actual purchase price for the Class 1 ESOP Preferred
Stock at the Effective Time will be determined pursuant to the terms of the
purchase agreement with the ESOP Trustee, which provides for a purchase price
equal to 1.38 times the Closing Price (as defined below), or except that if
the closing price is less than 98% of the average of the Adjusted Old Share
Price (as defined below) for the five trading days immediately preceding the
Effective Date, the purchase price shall equal the product of 1.38 and such
average price. See "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs--Sale
of ESOP Preferred Stock--Leveraged ESOP." There can be no assurance as to the
purchase price of the Class 1 ESOP Preferred Stock either at or subsequent to
the Effective Time, the Closing Price, or the Adjusted Old Share Price or the
actual growth rate, if any, for the market price of the New Shares during the
six year wage investment period. This analysis does not purport to be
indicative of the results of operations that may be obtained in the future. A
change in the purchase price of the Class 1 ESOP Preferred or the New Share
market price growth rate will effect the analysis set forth below. For
example, a change in the assumed purchase price of the Class 1 ESOP Preferred
Stock to $130 would increase the cumulative change in the cash balance in the
year 2000 by $80 million. Changing the New Share market price growth rate
assumption from 14% to 10% has the effect of reducing cumulative cash by
approximately $70 million.
CHANGES TO INCOME, BOOK EQUITY AND CASH FLOW*
(IN MILLIONS)
RECAPITALIZATION BETTER/(WORSE) THAN STATUS QUO
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999 2000
----- ---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Flight Kitchen Sale
Savings (Net)............ $ 16 $ 38 $ 49 $ 49 $ 45 $ 48 $ 50
Employee Investment
Savings.................. 262 604 742 805 820 856 591
ESOP Accounting Charge.... (191) (390) (391) (393) (397) (405) (99)
----- ---- ------ ------ ------ ------ ------
Operating Income.......... 87 252 400 461 468 499 542
Interest Expense**........ (37) (73) (80) (84) (84) (84) (84)
Interest Income........... (7) (3) 16 36 60 84 100
----- ---- ------ ------ ------ ------ ------
Earnings Before Taxes..... 43 176 334 413 444 499 558
Income Taxes***........... (16) (67) (127) (157) (169) (190) (212)
----- ---- ------ ------ ------ ------ ------
Net Income................ 27 109 207 256 275 309 346
Non-Cash ESOP Accounting
Charge****............... 191 390 391 393 397 405 99
Deferred Taxes............ 1 16 43 59 67 82 40
----- ---- ------ ------ ------ ------ ------
Funds From Operations..... 219 515 641 708 739 796 485
Series A and B Preferred
Stock Dividends.......... (40) (80) (64) (55) (55) (55) (55)
----- ---- ------ ------ ------ ------ ------
Net Cash Flow............. $ 179 $435 $ 578 $ 653 $ 684 $ 741 $ 430
Change in Cash Balance
(cumulative)............. $ 179 $614 $1,192 $1,845 $2,529 $3,270 $3,700
Change in Book Equity
(cumulative)............. $ 178 $597 $1,132 $1,726 $2,343 $3,002 $3,391
</TABLE>
- --------
* ASSUMES EXISTING SERIES A PREFERRED STOCK IS CONVERTED ON THE FIRST
REDEMPTION DATE (MAY 1996). EXCLUDES EFFECTS OF NON-RECURRING CHARGES WITH
THE EXCEPTION OF SEVERANCE BENEFITS PAID TO FLIGHT KITCHEN WORKERS WHICH
WERE NETTED FROM EMPLOYEE INVESTMENT. SEE "UNAUDITED PRO FORMA FINANCIAL
INFORMATION." ASSUMES CLOSING DATE OF THE RECAPITALIZATION IS JULY 1,
1994.
** INTEREST AND DIVIDEND RATES ON THE DEBENTURES AND THE PREFERRED STOCK HAVE
NOT BEEN ADJUSTED FROM THE INITIAL PRICING (AS DEFINED BELOW, SEE "THE
PLAN OF RECAPITALIZATION--TERMS AND CONDITIONS--PRICING THE SECURITIES").
IF THE RATES WERE TO BE ADJUSTED TO THEIR MAXIMUM RATES (ASSUMING NO CALL
FEATURE IS INCLUDED), THE EFFECT WOULD BE, AFTER FULL CONVERSION OF THE
SERIES A PREFERRED STOCK, TO INCREASE ANNUAL INTEREST EXPENSES BY $10
MILLION AND ANNUAL DIVIDENDS PAYABLE BY $10 MILLION AND REDUCE CUMULATIVE
CASH FLOW OVER THE SEVEN YEAR PERIOD PRESENTED BY APPROXIMATELY $100
MILLION.
*** FOR PURPOSES OF THIS ANALYSIS, INCOME TAXES WERE COMPUTED USING THE
STATUTORY RATES.
**** SEE "--CERTAIN RISK FACTORS--FINANCIAL REPORTING; MARKET ASSESSMENT."
22
<PAGE>
As shown above, the Recapitalization is expected to result in an improvement
to cash flow averaging over $550 million per year through the year 2000. This
improvement, aggregating $3.7 billion (excluding the cash consideration
distributed to stockholders as part of the Recapitalization Consideration), is
expected to result from (i) the employee investment which reduces cash expenses
an average of $700 million per year, (ii) favorable tax treatment on ESOP
transactions, which is expected to provide over $400 million in annual tax
deductions during the ESOP allocation period, and (iii) partially offsetting
the factors described above, the additional interest expense on the Debentures,
dividends on the Depositary Preferred Shares and foregone interest on the cash
consideration distributed to stockholders in the Recapitalization. The Company
expects that at the Effective Time, taking into account the distribution of
cash in the Recapitalization, it will have an opening cash balance of
approximately $1.6 billion (assuming the Effective Time occurs on June 30,
1994). Cash generated after the Effective Time is assumed to accumulate in a
cash account; if the available cash was used to repay debt, free cash flow
would improve further.
Due to the accounting rules for stock-based compensation such as the ESOPs,
it is expected to be difficult to compare the financial performance of the
Company to companies without significant stock-based compensation. In addition
to this, since there is a circular relationship between the Company's financial
results and its stock price (See "--Certain Risk Factors--Financial Reporting;
Market Assessment" and "--Opinions of the Financial Advisors to the Board"), it
is expected that certain financial analysts may adjust the way they analyze the
Company's performance. While there can be no assurances the Company's financial
performance will be considered other than as reported under generally accepted
accounting principles, the Company believes that the following analysis is
consistent with the manner in which certain analysts will evaluate the
Company's performance.
EARNINGS PER SHARE ANALYSIS*
<TABLE>
<CAPTION>
1995 PER SHARE
(MILLIONS) BASIS**
---------- ---------
<S> <C> <C>
Net Income (Status Quo Scenario C)........................ $118 $ 3.67
Change in Net Income due to Recapitalization.............. 109 3.39
---- ------
Net Income (Post-Recapitalization)........................ 227 7.06
Preferred Stock Dividends Requirements***................. (92) (2.86)
---- ------
Net Income Available to Common............................ 135 4.20
Employee Stock Ownership Plan Accounting Charge (after-
tax)****................................................. 242 7.53
---- ------
Net Income Available to Common (adjusted)................. $377 $11.73
==== ======
</TABLE>
- --------
* THE FIRST FULL YEAR OF THE RECAPITALIZATION (1995) WAS USED FOR
ILLUSTRATIVE PURPOSE.
** PER SHARE AMOUNTS ASSUMES 32.14 MILLION FULLY DILUTED SHARES.
*** PREFERRED STOCK DIVIDEND REQUIREMENTS REPRESENT PUBLIC PREFERRED STOCK
WHICH IS NOT CONVERTIBLE TO COMMON STOCK.
**** FOR PURPOSES OF THIS ANALYSIS, INCOME TAXES WERE COMPUTED USING STATUTORY
RATES.
IMPLEMENTATION OF THE "AIRLINE-WITHIN-AN-AIRLINE " (U2)
Background
In recent years, low-cost carriers, especially Southwest, have grown rapidly.
These carriers offer the consumer air travel service with frequent departures,
minimal inflight service, and simplified fares that are substantially below
standard industry pricing. The consumer acceptance of such carriers has been
especially strong in short-haul markets (markets under 750 miles) in which
consumers readily opt for reliable, low-priced air transportation over the full
service product (typically at higher prices) traditionally offered by carriers.
23
<PAGE>
Due to its current cost structure, United has experienced difficulty
competing with low-cost carriers in short-haul markets. When a low-cost carrier
enters a short-haul market, it typically does so with fares substantially below
those existing prior to its entry and with the expectation of stimulating
demand and gaining market share. When a low-cost carrier enters a short-haul
market where United operates, United is faced with three choices:
Do Nothing Continue service and do not match the lower fares. Traffic
that is connecting to other United flights would be retained.
However, without competitive fares in the non-stop short-haul
market, lost market share as well as a decline in revenues
would occur. As a result, the economics of the segment would
deteriorate and it almost certainly would become very
unprofitable.
Abandon Discontinue service in the market. This would alleviate losses
on the non-stop, short-haul segment, assuming the aircraft can
be profitably redeployed or sold. However, it would also
deprive United of traffic that connects from the short-haul
segment to the carrier's long-haul operations. The loss of
these passengers would hurt the profitability of "beyond"
segments that rely on the connecting traffic. Typically, this
decrease in profitability on all "beyond" segments more than
offsets the benefit from abandoning a short-haul market.
Match Fares Continue service and match the new low fares. Revenue and
profitability would decline, but the retention of both local
and connecting traffic would generally result in less
deterioration to earnings than either the "Do Nothing" or
"Abandon" choices.
Accordingly, United often elects to remain in markets following the entrance
of low-cost competition and match the lower fares even though doing so results
in operating losses.
While United believes that matching lower fares is the optimal strategy in
the short-run, it recognizes that it cannot suffer losses in these markets
indefinitely. The ideal strategy, which would allow United to compete
profitably in markets with low-cost competition, is an alternative which is not
currently available to United, that is, to compete with low-cost carriers on a
cost basis. This strategy requires a cost structure similar to that of the low-
cost carriers. United would need to reduce both labor and non-labor costs and
increase productivity in order to establish a competitive cost structure that
would allow United to profitably retain and increase market share. In order to
achieve a competitive cost structure productivity increases are important
elements of the Recapitalization.
The Plan of Recapitalization permits the implementation of the low-cost
strategy described above by providing for the establishment of U2, an airline-
within-an-airline. U2 provisions of the labor agreements permit reduced labor
rates and work-rule changes which are expected to lower costs and improve
productivity. To maximize the benefits associated with those provisions, the
Company will establish separate pilot positions for the U2 operation as well as
a set of U2 routes that are intended to fully leverage potential productivity
and cost savings. The product, pricing, and distribution attributes of U2
markets will be altered from United's to resemble those of a low-cost airline.
U2 markets are expected to be flown as a branded product feature of United
bearing its own distinct name. THERE CAN BE NO ASSURANCE THAT THE U2 OPERATION
WILL BE SUCCESSFULLY IMPLEMENTED OR, IF IMPLEMENTED, THAT THE RESPONSES OF
VARIOUS COMPETITORS WILL NOT REDUCE OR ELIMINATE THE BENEFITS SOUGHT TO BE
OBTAINED.
Operations and Route Systems
Key operational elements of U2 are expected to be as follows:
Short-haul missions U2 will operate within the contiguous United States
in non-stop city pairs of up to 750 nautical miles in
"stage length," other than flying between United's
hubs and/or international gateway cities (except for
Los Angeles basin to San Francisco bay area service
which may be flown by U2). At
24
<PAGE>
least 10% of U2 flying must be in city pairs that
United has not served for 24 months prior to the
introduction of U2 service into that city pair.
High frequency One of the key characteristics of an efficient short-
haul operation is high frequency scheduling within a
market. United intends to schedule U2 to average
approximately ten frequencies per day in most
markets.
Rapid turn-arounds United intends to reduce aircraft turn-around time in
the U2 operation to 20 minutes as compared to
United's current 40 to 45 minutes. The rapid turn-
around time is expected to be achieved through
product simplification (e.g., reduced food service
deliveries) and the streamlining of customer and ramp
service procedures.
Increased By combining high frequency with faster turn-arounds,
utilization utilization of aircraft, facilities and other
equipment is expected to increase, thereby lowering
unit costs. As compared with United's fleet, the
utilization goal of the U2 fleet is anticipated to
improve 16% to 11.0 hours per day from 9.5 hours per
day. The increased utilization should allow more
trips to be flown by the same fleet of aircraft.
Product
U2 is expected to be marketed as a branded product of United with its own
distinct name (such as "Business One" and "Connoisseur Class" are today).
Travel between U2 and United should appear seamless to the consumer. U2 flights
are expected to feed United long-haul domestic and international flights and
connect with United Express flights.
U2 is expected to offer a simplified, lower-frills product as compared to
mainline United service and will be cost competitive with other low-cost
carriers. Key product features that will differentiate U2 from the mainline
product are:
. Reduced food service
. Reduced onboard amenities
. Expedited customer airport check-in
While the U2 product clearly should be different from mainline United, it is
also expected to be distinguishable from other low-cost carriers.
. Unlike some short-haul carriers, U2 may offer added value to the consumer
by providing seat assignments
. To help retain high yield connecting traffic to mainline United, U2
currently plans to offer first class seating
. Capitalizing on United's marketing strength and global route network, U2
consumers will be able to participate in one of the industry's highest
rated frequent flyer programs--United's Mileage Plus program. While the
program may be adjusted somewhat for U2 travel, the program's benefits
are expected to help to generate a U2 revenue premium over the
competition.
Fare Structure
In most markets in which U2 is expected to compete, fares have already been
reduced by other low-cost carriers, and United's fares have been reduced to
competitive levels. U2 intends to maintain United's current pricing practice of
matching competitors' low fares, although U2 intends to heavily promote low
fare levels. The objective in maintaining and promoting the low fares is to
build customer trust so that when they purchase a ticket on a U2 flight, they
know they are obtaining competitive value in the market and do not need to shop
the fare.
25
<PAGE>
Distribution
The experience of low-cost carriers has demonstrated that offering and
promoting consistent, believably low fares and high-frequency service increases
direct airline-to-customer ticketing. These and similar strategies employed by
low-cost carriers are expected to be implemented to reduce distribution costs.
Roll-out
The Company expects that U2 will be rolled out no later than four to six
months after the Effective Time and will be implemented in the short-haul
markets as quickly as possible. It is currently expected that by year 5, U2
will operate approximately 130 aircraft and represent approximately 20% of
system "block hours". Block hours is a measure of the time an aircraft is in
motion (i.e. from the time it pushes back from the gate at the departing
airport until it pulls up to the gate upon arrival). Factors affecting the rate
of roll-out include market conditions, pilot attrition, growth of the airline
and changes in the fleet plan.
B737 aircraft are expected to be utilized in the U2 operations. To maximize
fleet efficiency and to have the flexibility of swapping aircraft between the
U2 and United fleet, no changes are expected to be made to livery or interior
configuration.
UNIT COSTS
Unit cost, a common industry measure of cost effectiveness, measures the cost
of flying one airplane seat one mile. Due principally to the base employee
investments, increased productivity, the U2 labor provisions and the other
savings associated with the U2 operation, U2's unit costs (calculated on an
incremental basis for short-haul markets) are expected to drop by 30% from
United's existing costs on short-haul routes:
U2 UNIT COST COMPARISON
(PER AVAILABLE SEAT MILE)
<TABLE>
<CAPTION>
U2 BETTER/(WORSE) THAN
------------------------------
CURRENT
UNITED UNITED SOUTHWEST
SHORT- ------------- --------------
SOUTHWEST(1) HAUL(2) U2(2) AMT. PCT. AMT. PCT.
------------ ------- ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Expense Category
Wages & Benefits(3)... 2.4c 3.5c 2.6c 0.9c 25% (0.2)c (9)%
Fuel & Oil............ 1.1 1.1 1.1 -- -- -- --
Aircraft Ownership(4). 0.7 0.8 0.7 0.1 16 -- --
Aircraft Mainte-
nance(5)............. 0.6 0.3 0.2 0.1 22 0.4 64
Commissions(6)........ 0.5 1.0 0.6 0.4 36 (0.1) (21)
Advertising........... 0.2 0.2 0.3 (0.1) (12) (0.1) (10)
Food & Beverage....... 0.0 0.5 0.0 0.5 98 -- --
Other................. 1.7 3.1 1.9 1.2 41 (0.2) (11)
--- ---- --- ------ ------
7.2c 10.5c 7.4c 3.1c 30% (0.2)c (2)%
</TABLE>
- --------
(1) SOUTHWEST'S RESULTS ARE FOR 1993 (EXCLUDING MORRIS AIR).
(2) UNITED AND U2 STEADY-STATE UNIT COSTS REFLECTING OPERATING ECONOMICS ON
ROUTES COMPARABLE TO SOUTHWEST'S AND ARE ADJUSTED TO REFLECT AN ALL-COACH
CONFIGURATION.
(3) DUE TO THE NON-CASH NATURE OF THE EMPLOYEE STOCK OWNERSHIP PLAN ACCOUNTING
CHARGE AND IN ORDER TO MAKE THE COMPANY'S UNIT EXPENSES MORE COMPARABLE TO
SOUTHWEST'S UNIT EXPENSE LEVELS, THE EMPLOYEE STOCK OWNERSHIP PLAN
ACCOUNTING CHARGE HAS BEEN EXCLUDED. THE INCLUSION OF SUCH CHARGE WOULD
HAVE THE AFFECT OF INCREASING U2 WAGES AND BENEFITS EXPENSES BY 0.23c
ASSUMING AN ESOP PREFERRED STOCK PURCHASE PRICE OF $120.
(4) NORMALIZED TO SOUTHWEST LEVEL.
(5) SOUTHWEST OUTSOURCES A HIGHER PERCENTAGE OF MAINTENANCE WORK THAN UNITED
DOES. THUS WHILE SOUTHWEST'S AIRCRAFT MAINTENANCE UNIT COST IS MUCH HIGHER
THAN UNITED'S, ITS UNIT LABOR EXPENSE RELATED TO MAINTENANCE IS LOWER.
(6) FOR COMPARABILITY PURPOSES, UNITED AND U2 COMMISSION EXPENSE EXCLUDES
INTERNATIONAL "OVERRIDE" COMMISSIONS.
26
<PAGE>
System-wide labor unit costs are expected to be reduced by 11% as a result of
the Recapitalization. The impact of this expected reduction is a 4% drop in
United's total unit cost which would result in a unit cost 10% lower than the
industry average.
UNITED VS. INDUSTRY AVERAGE NET UNIT COSTS(1)
(CENTS PER AVAILABLE SEAT MILE)
<TABLE>
<CAPTION>
POST-TRANSACTION
BETTER/(WORSE) THAN
----------------------
POST- CURRENT AVERAGE
INDUSTRY CURRENT TRANSACTION ---------- ----------
AVERAGE UNITED UNITED(2) AMT. PCT. AMT. PCT.
-------- ------- ----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Expense Category
Wages & Benefits(3)......... 3.3c 3.1c 2.8c 0.3c 11% 0.5c 16%
Fuel & Oil.................. 1.2 1.2 1.2 -- -- -- --
Rentals & Landing Fees...... 1.0 1.0 1.0 -- -- -- --
Depr. & Amortization........ 0.6 0.5 0.5 -- -- 0.1 12
Aircraft Maintenance........ 0.3 0.2 0.2 -- -- 0.1 29
Other....................... 1.8 1.7 1.7 -- -- 0.1 5
--- --- --- --- --- --- ---
8.2c 7.7c 7.4c 0.3c 4% 0.8c 10%
</TABLE>
- --------
(1) FULL YEAR 1993 RESULTS FOR THE "INDUSTRY" (DEFINED AS AMERICAN, DELTA,
NORTHWEST, UNITED AND USAIR) BASED ON THE FINANCIAL RESULTS ANNOUNCED BY
SUCH AIR CARRIERS.
(2) INCLUDES IMPACT OF FIRST FULL YEAR OF EMPLOYEE CONCESSIONS, BUT EXCLUDES
"OTHER SAVINGS" ASSOCIATED WITH U2.
(3) DUE TO THE NON-CASH NATURE OF THE EMPLOYEE STOCK OWNERSHIP PLAN ACCOUNTING
CHARGE AND TO IMPROVE COMPARABILITY TO THE INDUSTRY AVERAGE UNIT EXPENSE
LEVELS, THE EMPLOYEE STOCK OWNERSHIP PLAN ACCOUNTING CHARGE HAS BEEN
EXCLUDED. THE INCLUSION OF SUCH CHARGE WOULD HAVE THE AFFECT OF INCREASING
POST-TRANSACTION WAGES AND BENEFITS EXPENSES BY 0.24c ASSUMING AN ESOP
PREFERRED STOCK PURCHASE PRICE OF $120. SEE "--CERTAIN RISK FACTORS--
FINANCIAL REPORTING; MARKET ASSESSMENT."
RECOMMENDATION OF THE BOARD
The Board has approved the Initial Plan of Recapitalization and the Plan of
Recapitalization and has determined that the Recapitalization is fair to the
holders of Old Shares. The Board recommends that stockholders vote FOR the Plan
of Recapitalization and the related matters identified in clauses (ii) through
(vii) in the first paragraph under "INTRODUCTION--Purpose of the Meeting."
The Board noted that the Recapitalization permits the holders of Old Shares
to receive in exchange for each Old Share (i) one half of a New Share, (ii)
$25.80 in cash, (ii) either (a) $15.55 principal amount of Series A Debentures
or (b) if the United Series A Offering is consummated, the cash proceeds
(without deducting any underwriting discount or other costs) from the sale
thereof by United pursuant to the United Series A Offering, (iii) either (a)
$15.55 principal amount of Series B Debentures or (b) if the United Series B
Offering is consummated, the cash proceeds (without deducting any underwriting
discount or other costs) from the sale thereof by United pursuant to the United
Series B Offering and (iv) either (a) Depositary Preferred Shares representing
interests in $31.10 liquidation preference of Public Preferred Stock or (b) if
the UAL Preferred Offering is consummated, the cash proceeds (without deducting
any underwriting discount or other costs) from the sale thereof by the Company
pursuant to the UAL Preferred Offering. Current holders of Old Shares also will
retain a significant ongoing equity interest in the Company that will be the
same regardless of whether any or all of the Offerings are consummated. Under
various circumstances, the value of the consideration to be received by
stockholders could be less than the principal face amount of the Debentures or
the liquidation preference of the Depositary Preferred Shares. In approving the
Initial Plan of Recapitalization and the Plan of Recapitalization, the Board
also considered that the majority equity position of the employee stock
ownership plans is designed to provide additional incentives for the Company's
employees to promote the success of the Company, which should, in part, inure
to the benefit of the holders of Old Shares. The Board noted that no third
party had expressed an interest in acquiring the Company as an entirety and
considered the fact that the Initial Plan of Recapitalization and the Plan of
Recapitalization
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would not prevent the Company from pursuing such an alternative if it arose. At
the March 24, 1994 Board Meeting, the Board (with Dr. Brimmer dissenting) voted
in favor of the Initial Plan of Recapitalization. Dr. Brimmer has indicated
that he dissented from such vote because under current economic conditions, he
did not think there were compelling reasons to effect such a transaction at
this time. With respect to the Definitive Documentation Amendment, the Board
voted in favor of the Definitive Documentation Amendment, with Dr. Brimmer
abstaining. It was mentioned at the meeting that Mr. Olson, who was not in
attendance, had requested that his opposition to the Definitive Documentation
Amendment be noted. Mr. Olson has not expressed to the Company any reason for
his position.
In reaching its decisions to approve the Initial Plan of Recapitalization and
the Plan of Recapitalization, its determination that the Recapitalization is
fair to the holders of Old Shares and its decision to recommend that the
holders of Old Shares vote for approval and adoption of the Plan of
Recapitalization, the Board consulted with its legal and financial advisors as
well as the Company's management, and considered numerous factors, including,
but not limited to: (i) the business, operations, earnings, properties and
prospects of the Company and United and the perceived need for the Company to
obtain wage and benefit reductions and work-rule changes in order to permit
United to compete effectively in the aviation marketplace, (ii) the
alternatives potentially available to the Company to achieve wage and benefit
reductions and work-rule changes, as well as a comparison of the risks that
would be associated with the Recapitalization and with such other alternatives,
(iii) the terms of the employee investments contemplated by the Initial Plan of
Recapitalization and the Plan of Recapitalization, including the reduction in
cash expense, the favorable tax treatment of the ESOP transactions, the long-
term labor contracts which limit salary increases and the ability to establish
U2, (iv) the fact that the Recapitalization will provide the holders of Old
Shares with an opportunity to receive cash and, if any of the Offerings are not
consummated, Debentures and Depositary Preferred Shares representing interests
in Public Preferred Stock, as applicable, for a portion of the value of their
Old Shares while retaining a significant ongoing equity interest in the Company
through ownership of New Shares, (v) the terms of the proposed corporate
governance structure, which contains both certain provisions required by the
Coalition and certain provisions designed for the protection of the holders of
New Shares, (vi) the identity of the new chief executive officer and the new
Board (especially the Independent Directors) and the Board's assessment of such
individuals, (vii) recent market prices for the Old Shares as well as market
prices for the past several years, (viii) the Federal income tax consequences
of the Recapitalization under existing law, (ix) with respect to the Plan of
Recapitalization, the terms of the Definitive Documentation Amendment providing
for an increase in the percentage of common equity and voting power initially
to be acquired by the employee trusts and a decrease in the range of average
stock prices determined one year after the Effective Time which would result in
an increase in the percent of common equity and voting power to be held by the
employee trusts, (x) with respect to the Plan of Recapitalization, the terms of
the Definitive Documentation Amendment providing for the Offerings and the
potential to distribute cash, instead of Debentures and/or Depositary Preferred
Shares, to holders of Old Shares if the Offerings are consummated, (xi) with
respect to the Plan of Recapitalization, the use of a market price-based
formula for the purchase of the ESOP Preferred Stock to be purchased at the
Effective Time, and (xii) the opinions of CS First Boston, a nationally
recognized investment banking firm, and the opinions of Lazard, another
nationally recognized investment banking firm, that, based upon the matters
described therein, as of the date of each such opinion, the consideration to be
received by the holders of Old Shares pursuant to the Recapitalization for each
Old Share, taken as a whole, was fair to such stockholders from a financial
point of view. See "--Opinions of the Financial Advisors to the Board," "--
Certain Risk Factors" and "--Certain Revenue and Earnings Scenarios," "THE PLAN
OF RECAPITALIZATION" and "MARKET PRICES OF THE OLD SHARES; DIVIDENDS." In
connection with considering such factors, the Board generally viewed factors
(i) through (iv), (vii), (viii) and (x) through (xii) as supporting the Board's
fairness belief and factor (vi) as neutral (however, the Board was favorably
impressed with the identity of the Independent Directors). With respect to
factor (v), while the Board generally viewed such factor as supporting the
Board's fairness belief, the Board did consider that certain aspects of the
governance provisions, such as the ability of the participants in the ESOP to
continue to hold more than 50% of the voting power of the Company until the
economic equity interest held by the ESOPs and other employee benefit plans
sponsored by the Company becomes less than 20% of the value of the common
equity of the
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Company (see "THE PLAN OF RECAPITALIZATION--Revised Governance Structure--
Nondilution"), would not support the Board's fairness belief. With respect to
factor (ix), while the Board viewed this factor as not supporting its fairness
belief, it recognized that in order to obtain the benefits of the Definitive
Documentation Amendment, it was necessary to make such changes. The Board also
considered (a) the fact that the repayment of the Debentures and the payment of
dividends on the Public Preferred Stock will be dependent on the Company's
operations, assets, credit, cash flow and earning power, (b) that, as a result
of the Recapitalization, there will be a significant increase in the Company's
long-term indebtedness, as well as a substantial negative balance in
stockholders' equity and a significant reduction in cash reserves and (c) the
opinion of American Appraisal with respect to certain solvency and surplus
matters. See "--Certain Risk Factors," "THE PLAN OF RECAPITALIZATION" and
"UNAUDITED PRO FORMA FINANCIAL INFORMATION." In connection with considering
such factors, the Board generally viewed factors (a) and (b) as not supporting
the Board's fairness belief and factor (c) as neutral.
In view of the circumstances and the wide variety of factors considered in
connection with this evaluation of the Recapitalization, the Board did not find
it practicable to assign relative weights to the factors considered in reaching
its decision.
OPINIONS OF THE FINANCIAL ADVISORS TO THE BOARD
Opinion of CS First Boston
On December 22, 1993, March 14, 1994, March 24, 1994 and May 20, 1994, CS
First Boston delivered to the Board its oral opinion that, as of such dates,
the consideration to be received by holders of Old Shares of the Company in
connection with the Recapitalization (as constituted as of each date), taken as
a whole, was fair to such holders of Old Shares from a financial point of view.
On December 22, 1993, March 24, 1994 and May 20, 1994, CS First Boston
delivered to the Board its written opinions that, as of such dates, the
consideration to be received by holders of Old Shares in connection with the
Recapitalization, taken as a whole, was fair to such holders of Old Shares from
a financial point of view.
THE FULL TEXT OF THE WRITTEN OPINION OF CS FIRST BOSTON DATED MAY 20, 1994
WHICH SETS FORTH THE ASSUMPTIONS MADE, THE MATTERS CONSIDERED AND THE REVIEW
UNDERTAKEN WITH REGARD TO SUCH OPINION, IS ATTACHED AS ANNEX I TO THIS PROXY
STATEMENT/PROSPECTUS. STOCKHOLDERS ARE URGED TO READ SUCH OPINION IN ITS
ENTIRETY. CS FIRST BOSTON'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE
CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF OLD SHARES AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF OLD SHARES AS TO HOW SUCH HOLDER
SHOULD VOTE. THE SUMMARY OF THE OPINION OF CS FIRST BOSTON SET FORTH IN THIS
PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINION. THE TEXTS OF THE WRITTEN OPINIONS OF CS FIRST BOSTON
DATED DECEMBER 22, 1993 AND MARCH 24, 1994 ARE SUBSTANTIALLY THE SAME AS THE
TEXT OF THE MAY 20, 1994 OPINION (EXCEPT WITH RESPECT TO CHANGES TO THE PLAN OF
RECAPITALIZATION EFFECTED PURSUANT TO THE DEFINITIVE DOCUMENTATION AMENDMENT).
THE TEXT OF THE CS FIRST BOSTON OPINION DATED MAY 20, 1994 (AND THE DESCRIPTION
OF SUCH OPINION SET FORTH HEREIN) DOES NOT REFLECT A CHANGE TO THE PLAN OF
RECAPITALIZATION MADE SUBSEQUENT TO MAY 20, 1994, WHICH MADE EACH OF THE
OFFERINGS INDEPENDENT OF THE OTHER OFFERINGS (I.E., NONE OF THE OFFERINGS IS
NOW CONDITIONED ON, OR SUBJECT TO, THE CONSUMMATION OF ANY OF THE OTHER
OFFERINGS). CS FIRST BOSTON HAS ADVISED THE COMPANY, HOWEVER, THAT HAD SUCH
CHANGE BEEN MADE PRIOR TO THE DATE OF ITS OPINION, IT WOULD NOT HAVE AFFECTED
CS FIRST BOSTON'S ABILITY TO DELIVER ITS OPINION OR THE CONCLUSION SET FORTH
THEREIN.
In arriving at its opinions, CS First Boston (i) reviewed the Plan of
Recapitalization and its related schedules, (ii) reviewed certain publicly
available business and financial information relating to the Company, (iii)
reviewed certain other information, including financial forecasts, provided to
CS First Boston by the Company and (iv) met with the Company's management to
discuss the business of the Company. CS First Boston also considered certain
financial and stock market data for the Company and compared that data with
similar data for other publicly held companies in businesses similar to those
of the Company, and it considered the financial terms of certain other business
combinations that have recently been effected. CS First Boston also considered
such other information, financial studies, analyses and investigations and
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<PAGE>
financial, economic and market criteria that it deemed relevant. CS First
Boston also reviewed the alternative of not effecting the Recapitalization and
of implementing the Fundamental Restructuring Plan described under "BACKGROUND
OF THE PLAN OF RECAPITALIZATION," which, if fully implemented, might result in
a greater value to stockholders than the Recapitalization; however, the opinion
assumed that the Board determined, in light of various factors relating to the
implementation of the Fundamental Restructuring Plan and the availability of
the Recapitalization, not to pursue such implementation. CS First Boston did
assume, however, for purposes of the analyses described below, that, if the
Recapitalization were not effected, the Company would implement the "enhanced
status quo" alternative described under "BACKGROUND OF THE PLAN OF
RECAPITALIZATION," consisting of a variety of significant actions to reduce
costs and, therefore, to enhance profitability and stockholder value.
In connection with its review, CS First Boston did not independently verify
any of the foregoing information and CS First Boston relied on such information
being complete and accurate in all material respects. With respect to the
financial forecasts, CS First Boston assumed that they had been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the Company's management as to the future financial performance of
the Company. In addition, CS First Boston did not make an independent
evaluation or appraisal of any of the assets of the Company, nor was it
furnished with any such appraisals. CS First Boston was not requested to, and
did not, solicit third party offers to acquire all or any part of the Company,
nor, to CS First Boston's knowledge, has any interest in making such an offer
been presented by any third party, including in response to the public
disclosure regarding discussions between the Company and the Coalition. CS
First Boston assumed that the results expected by the Company's management to
be obtained from the Recapitalization, including those arising from the
employee investment contemplated by the Plan of Recapitalization, will be
realized. CS First Boston's opinion was necessarily based solely upon
information available to it and business, market, economic and other conditions
as they existed on, and could be evaluated as of, the date of such opinion. CS
First Boston's opinion did not address the Company's underlying business
decision to effect the Recapitalization.
The following is a summary of the analyses that CS First Boston utilized in
arriving at its opinion as to the fairness of the consideration to be received
by the holders of Old Shares of the Company in connection with the
Recapitalization, taken as a whole, from a financial point of view and that CS
First Boston discussed with the Board at the December 22, 1993, March 14, 1994,
March 24, 1994 and May 20, 1994 Board meetings.
Valuation of the Company
For purposes of its opinion as to the fairness of the consideration to be
received by holders of Old Shares in connection with the Recapitalization,
taken as a whole, from a financial point of view, CS First Boston arrived at a
reference range of values for the Company using three principal valuation
methodologies: a discounted cash flow analysis, a publicly traded comparable
company analysis and a comparable acquisitions analysis. At the December 22,
1993 Board meeting, CS First Boston advised the Board that its overall
reference range per share was $160 to $200. CS First Boston did not update its
overall reference range at the March 14, 1994 or March 24, 1994 Board meetings
but it advised the Board at those meetings that if it had updated its reference
range, the updated range would have been somewhat lower than the range given in
December. As of May 20, 1994, CS First Boston had determined that its overall
reference range per share was $135 to $175. CS First Boston advised the Board
that the changes in the reference range resulted from changes in a number of
factors, including, but not limited to, higher interest rates, lower airline
stock prices and updated financial forecast information. The methodologies used
by CS First Boston and the resulting ranges of values, which were described to
the Board at the December 22, 1993 Board meeting but which were not updated for
the Board at the March 14, 1994, March 24, 1994 or May 20, 1994 Board meetings,
are described below. If CS First Boston had updated these analyses, the
resulting ranges of values would have been lower than the ranges that resulted
from CS First Boston's December 22, 1993 analyses.
Discounted Cash Flow Analysis. Using a discounted cash flow analysis, CS
First Boston estimated the present value of the future cash flows that the
Company could be expected to produce over a five-year period from 1994 through
1998 under various assumptions and in accordance with management's forecasts.
The
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<PAGE>
analysis assumed that the "enhanced status quo" alternative would be
implemented. CS First Boston determined an equity market value reference range
for the Company by adding (i) the present value (using discount rates
determined on the basis of an industry weighted average cost of capital
ranging from 8.0% to 10.0%) of the five-year unleveraged free cash flows of
the Company and (ii) the present value of the Company's 1998 terminal value.
The terminal values were determined by multiplying 1998 projected earnings
before interest, taxes, depreciation and amortization ("EBITDA") and 1998
projected net income by a range of multiples determined based on comparable
companies and comparable acquisitions (ranging from 3.5 times to 5.5 times
1998 EBITDA and 11.0 times to 15.0 times 1998 net income). This analysis
resulted in a range of values per Old Share of the Company on December 22,
1993 of from $160 to $200.
Publicly Traded Comparable Company Analysis. CS First Boston reviewed and
compared the financial, operating and market performance of the following
group of five domestic commercial airline companies with that of the Company:
AMR Corporation, Continental Airlines, Delta Air Lines, Southwest Airlines and
USAir Group (the "Comparable Group"). CS First Boston examined certain
publicly available or estimated financial data of the Comparable Group,
including total revenue, operating cash flow, operating income, net income to
common shares, earnings per share, depreciation and amortization, interest
expense and capitalized interest, rental expense and net cash flow per share.
CS First Boston also examined and compared various operating ratios and
certain capitalization data. CS First Boston also reviewed market data,
including various trading multiples such as stock price to earnings per share,
equity market capitalization to net cash flow (net income plus depreciation
and amortization) and enterprise value to EBITDA (before and after adjusting
for off-balance sheet operating rental payments). CS First Boston also
considered other financial data (including margins and growth rates) as well
as certain operating information, such as yields and load factors, for the
Comparable Group. This analysis resulted in a range of values per Old Share of
the Company on December 22, 1993 of from $130 to $135.
Comparable Acquisition Analysis. CS First Boston also reviewed selected
acquisitions in the airline industry, including Continental Air/Air Canada,
Trans World Airlines/Carl Icahn and NWA Inc./Wings Holdings, including the
multiples of enterprise value to revenues (ranging from .85 times to 1.10
times) and equity market value to net cash flow (ranging from 1.5 times to 7.6
times) represented by the consideration in those transactions. This analysis
resulted in a range of values per Old Share of the Company on December 22,
1993 of from $120 to $200.
Recapitalization Consideration
For purposes of its opinion as to the fairness of the consideration to be
received by holders of Old Shares in connection with the Recapitalization,
taken as a whole, from a financial point of view, CS First Boston arrived at a
reference range of values for the consideration to be received by the holders
of Old Shares in the Recapitalization, consisting of cash, New Shares and, if
the Offerings are not consummated, Debentures and Depositary Preferred Shares
representing the interests in, Public Preferred Stock. The interest rates on
the Debentures and the dividend rate on the Public Preferred Stock were
initially set upon the execution of the Plan of Recapitalization. The interest
or dividend rate on each such security will be reset, as of a date to be
determined that is not fewer than five calendar days and not greater than ten
calendar days prior to the Meeting to the rate required to cause each such
security to trade at 100% of its aggregate principal amount (in the case of
the Debentures) or at 100% of its aggregate liquidation preference (in the
case of the Public Preferred Stock) (collectively, "par"), on a fully
distributed basis, as of such date (subject to a maximum potential increase,
in each case, of 112.5 basis points (1.125 percentage points)). Accordingly,
CS First Boston's opinion was based on the assumption that (if the Offerings
are not consummated) the final rates to be borne by such securities would be
set so that the Debentures and the Public Preferred Stock would trade, as of
such date, on a fully distributed basis, at par. CS First Boston advised the
Board at the March 24, 1994 meeting that the reduction of the maximum
potential increase in the interest rates on the Debentures and the dividend
rate on the Public Preferred Stock from 150 basis points (1.5 percentage
points) (which was the size of the rate cap arrangement provided for in the
Agreement in Principle) to 112.5 basis points (1.125
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<PAGE>
percentage points) (the size of the rate cap arrangement provided for in the
Plan of Recapitalization) could reduce the value of the Debentures and the
Public Preferred Stock to be received by the holders of Old Shares in the
Recapitalization by an amount that CS First Boston advised the Board was not
material to the consideration to be received by the holders of Old Shares in
the Recapitalization, taken as a whole. CS First Boston's opinion does not
represent CS First Boston's view, if the Offerings are not consummated, as to
what the trading value of the securities actually will be when the securities
are issued to the holders of the Old Shares following consummation of the
Recapitalization. The actual trading values of such securities could be higher
or lower depending upon changes in interest rates, dividend rates, market
conditions, general economic conditions and other factors that generally
influence the price of securities. Because of the large aggregate amount of the
securities (particularly the Public Preferred Stock) that would be issued to
holders of Old Shares if the Offerings are not consummated and other factors,
such securities may trade initially, and for an extended period thereafter, at
prices below those at which they would trade on a fully distributed basis.
Furthermore, any valuation of securities is only an approximation, subject to
uncertainties and contingencies. If the Offerings are consummated, the interest
rates on the Debentures and the dividend rate on the Public Preferred Stock may
be set at rates that are in excess of the limitations contained in the
Recapitalization Agreement, in which event the principal amount of the series
of Debentures affected or the number of Depositary Preferred Shares, as the
case may be, will be reduced so that the aggregate amount of interest payable
by United or dividends payable by UAL, as the case may be, with respect to such
security will not exceed amounts specified in the Recapitalization Agreement,
and the amount of the proceeds from the sale of such securities to be received
by holders of Old Shares will be reduced accordingly. In addition, in certain
other circumstances such proceeds could be less than the stated face amount or
liquidation preference of such securities. CS First Boston's opinion was based
on the assumption that, if the Offerings are consummated, the proceeds of the
Debentures and the Depositary Preferred Shares to be received by the holders of
Old Shares will not be less than the principal amounts of Debentures and the
number of Depositary Preferred Shares that would have been distributed to the
holders of Old Shares had the Offerings not been consummated.
Valuation of the New Shares
The principal valuation methodology used by CS First Boston with respect to
the New Shares to be received by holders of Old Shares in the Recapitalization
was the earnings and cash flow multiple method. A supplemental method referred
to as the "gives/gets" method was also analyzed. These methodologies are
described below:
Earnings and Cash Flow Multiple Method. CS First Boston arrived at a range of
values for the New Shares by reviewing the public market multiples of the
Comparable Group and applying a range of multiples to the Company's estimated
1994 and 1995 earnings per share and net cash flow per share pro forma for the
consummation of the Recapitalization. Because of the way the accounting rules
applicable to "stock based compensation" (which require that stock compensation
expense for periodic stock allocations be measured by the then-current market
value of the shares at the time of allocation) will apply to the share
allocations within the ESOPs, there are complexities as to forecasting future
earnings per share of the Company. The size of the employee stock ownership
plan accounting charge will be affected by the stock price, and the employee
stock ownership plan accounting charge will reduce reported earnings per share
which, in turn, may affect the stock price. In light of this, for purposes of
its analyses, CS First Boston applied a range of multiples to forecasted
results based on two cases: one assuming ratable allocation of the shares
within the ESOPs over the period of the concessions and the other assuming
immediate, full allocation (the latter methodology eliminates the need to
estimate future stock price performance in order to project the Company's
earnings per share). CS First Boston applied a discount to the resulting values
to reflect the potential dilution from the equity collar arrangement (which
will operate to increase the employee trusts' equity ownership from 55% to a
maximum of 63% if the Company's average stock closing price for one year
exceeds certain levels specified in the Plan of Recapitalization). This
analysis resulted in a public market equity value reference range for the
portion of a New Share to be received as part of the Recapitalization
Consideration for one Old Share on December 22, 1993 of $80 to $82, on March
14, 1994 of $73 to $77 and
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on May 20, 1994 of $55 to $59. CS First Boston advised the Board that the
change in the reference range resulted from changes in a number of factors,
including, but not limited to, higher interest rates, lower airline stock
prices, updated financial forecast information and the amendments to the Plan
of Reorganization. Based on the assumptions described above under
"Recapitalization Consideration", the other assumptions described herein and
the equity value reference range for the New Shares set forth above, on May 20,
1994, CS First Boston's reference range of values for the total consideration
to be received by holders of Old Shares in the Recapitalization for one Old
Share was $142 to $146.
"Gives/Gets" Method
"Gives/Gets" is a summary valuation methodology whereby the impact of the
employee investment and the distribution of the Debentures and Public Preferred
Stock on the Company's unaffected stock price (i.e., unaffected by the
possibility of an extraordinary transaction) is considered. The "gives/gets"
analysis started with the trading value of Old Shares, reduced by the increase
in the stock price attributable, in CS First Boston's view, to market
speculation about a possible employee investment transaction (minus the present
value of the enhancements contained in the "enhanced status quo" alternative
that the Company would have implemented if it had pursued such alternative but
would not implement if the Recapitalization were effected) and added to this
pre-transaction value the present value of the employee investment and the
incremental value realized on the sale of the flight kitchens to arrive at an
implied total equity value. CS First Boston subtracted from this amount the
cash and securities (other than the New Shares) to be delivered to the holders
of Old Shares to arrive at an implied post-transaction market value. Using this
methodology, CS First Boston arrived at a valuation for the portion of a New
Share to be received as part of the Recapitalization Consideration for one Old
Share on December 22, 1993 of $85, which was presented to the Board primarily
for the purpose of describing the possible adjustment in the percent equity to
be held by the ESOPs based on the trading price of the New Shares during the
first year following the Effective Time (see "THE PLAN OF RECAPITALIZATION--
Establishment of ESOPs--Additional Shares"). CS First Boston did not update
this analysis at the March 14, 1994, March 24, 1994 or May 20, 1994 Board
meetings.
In arriving at its written opinions dated December 22, 1993, March 24, 1994
or May 20, 1994 and in discussing its opinions with the Board, CS First Boston
performed certain financial analyses, portions of which are summarized above.
The summary set forth above does not purport to be a complete description of CS
First Boston's analyses. CS First Boston believes that its analyses must be
considered as a whole and that selecting portions of its analyses could create
an incomplete view of the process underlying the opinions. In addition, CS
First Boston may have given various analyses more or less weight than other
analyses, and may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be CS First Boston's
view of the actual value of the Company. No company or transaction used in the
publicly traded comparable company analysis or the comparable acquisition
analysis summarized above is identical to the Company or the Recapitalization.
Accordingly, any such analysis of the value of the Company involves complex
considerations and judgments concerning differences in the potential financial
and operating characteristics of the comparable companies as well as other
factors relating to the trading and the acquisition values of the comparable
companies. These and other limitations, including potential legal restrictions
on airline ownership, may detract from the usefulness of either publicly traded
comparable company multiples or purchase price multiples from prior airline
acquisitions as valuation methodologies. In performing its analyses, CS First
Boston made numerous assumptions with respect to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of the Company and all of which are beyond the
control of CS First Boston. The results of the analyses performed by CS First
Boston are not necessarily indicative of actual values, which may be
significantly more or less favorable than suggested by such analyses.
The analyses described above were prepared solely as part of CS First
Boston's analysis of the fairness of the Recapitalization Consideration to the
holders of Old Shares. The analyses do not purport to be appraisals or to
reflect the prices at which a company might actually be sold or the actual
trading value of the Debentures, the Depositary Preferred Shares or the New
Shares.
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CS First Boston is an internationally recognized investment banking firm and
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes. The Board
selected CS First Boston to act as its financial advisor on the basis of CS
First Boston's international reputation and CS First Boston's familiarity with
the Company and the airline industry in general and its experience in the
restructuring of other public companies in similar types of transactions. CS
First Boston has previously acted as financial advisor to the Company in
connection with financing and other matters unrelated to the Recapitalization
for which it has received customary compensation. In the course of its
business, CS First Boston actively trades the debt and equity securities of the
Company for its own account and for the accounts of customers. Accordingly, CS
First Boston may at any time hold a long or short position in such securities.
As compensation for rendering the opinion described above and assisting the
Company in evaluating, structuring, planning and negotiating the financial
aspects of the Recapitalization, the Company has paid CS First Boston a
retainer of $250,000 and since January 1994 CS First Boston has been receiving
an advisory fee of $100,000 per month, as well as reimbursement of reasonable
out-of-pocket expenses (including fees and disbursements). While the Company
agreed to pay CS First Boston a fee of $2 million contingent upon consummation
of the Recapitalization, CS First Boston's contingent fee is subject to
adjustment based upon amounts paid to other financial advisors in the
Recapitalization. Accordingly, the aggregate amount that CS First Boston will
receive if the Recapitalization is consummated, including retainer and advisory
fees and expense reimbursements paid by the Company, is $5 million (the success
fee to be paid to Lazard upon consummation of the Recapitalization, as
described below under "--Opinion of Lazard") plus the amount by which CS First
Boston's expense reimbursements exceed Lazard's expense reimbursements. The
Company has agreed to indemnify CS First Boston and its affiliates, their
respective directors, officers, partners, agents and employees and each person,
if any, controlling CS First Boston or any of its affiliates against certain
liabilities, including certain liabilities under the Federal securities laws,
relating to or arising out of its engagement.
Opinion of Lazard
On December 22, 1993, March 14, 1994, March 24, 1994 and May 20, 1994, Lazard
delivered to the Board its oral opinion that, as of such dates, the
consideration to be received by holders of Old Shares in connection with the
Recapitalization, taken as a whole, was fair to such holders of Old Shares from
a financial point of view. On December 22, 1993 March 24, 1993 and May 20,
1994, Lazard delivered to the Board its written opinions that, as of such
dates, the consideration to be received by holders of Old Shares in connection
with the Recapitalization, taken as a whole, was fair to such holders of Old
Shares from a financial point of view.
THE FULL TEXT OF THE WRITTEN OPINION OF LAZARD DATED MAY 20, 1994, WHICH SETS
FORTH THE ASSUMPTIONS MADE, THE MATTERS CONSIDERED AND THE REVIEW UNDERTAKEN
WITH REGARD TO SUCH OPINION, IS ATTACHED AS ANNEX II TO THIS PROXY
STATEMENT/PROSPECTUS. HOLDERS OF OLD SHARES ARE URGED TO READ SUCH OPINION IN
ITS ENTIRETY. LAZARD'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE
CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF OLD SHARES AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF OLD SHARES AS TO HOW SUCH HOLDER
SHOULD VOTE. THE SUMMARY OF THE OPINION OF LAZARD SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION. THE TEXTS OF THE WRITTEN OPINIONS OF LAZARD DATED DECEMBER 22,
1993 AND MARCH 24, 1994, ARE SUBSTANTIALLY THE SAME AS THE TEXT OF THE MAY 20,
1994 OPINION (EXCEPT WITH RESPECT TO CHANGES TO THE PLAN OF RECAPITALIZATION
EFFECTED PURSUANT TO THE DEFINITIVE DOCUMENTATION AMENDMENT). THE TEXT OF THE
LAZARD OPINION DATED MAY 20, 1994 (AND THE DESCRIPTION OF SUCH OPINION SET
FORTH HEREIN) DOES NOT REFLECT A CHANGE TO THE PLAN OF RECAPITALIZATION MADE
SUBSEQUENT TO MAY 20, 1994, WHICH MADE EACH OF THE OFFERINGS INDEPENDENT OF THE
OTHER OFFERINGS (I.E., NONE OF THE OFFERINGS IS NOW CONDITIONED ON, OR SUBJECT
TO, THE CONSUMMATION OF ANY OF THE OTHER OFFERINGS). LAZARD HAS ADVISED THE
COMPANY, HOWEVER, THAT HAD SUCH CHANGE BEEN MADE PRIOR TO THE DATE OF ITS
OPINION, IT WOULD NOT HAVE AFFECTED LAZARD'S ABILITY TO DELIVER ITS OPINION OR
THE CONCLUSION SET FORTH THEREIN.
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In arriving at its opinions, Lazard (i) reviewed the Plan of Recapitalization
and its related schedules, (ii) reviewed certain publicly available business
and financial information relating to the Company, (iii) reviewed certain other
information, including financial forecasts, provided to Lazard by the Company
and (iv) met with the Company's management to discuss the business of the
Company. Lazard also considered certain financial and stock market data for the
Company and compared that data with similar data for other publicly held
companies in businesses similar to those of the Company. Lazard also considered
such other information, financial studies, analyses and investigations and
financial, economic and market criteria that it deemed relevant. Lazard also
reviewed the alternative of not effecting the Recapitalization and of
implementing the Fundamental Restructuring Plan described under "BACKGROUND OF
THE PLAN OF RECAPITALIZATION," which, if fully implemented, might result in a
greater value to stockholders than the Recapitalization; however, the opinion
assumed that the Board determined, in light of various factors relating to the
implementation of the Fundamental Restructuring Plan and the availability of
the Recapitalization, not to pursue such implementation. Lazard did assume,
however, for purposes of the analyses described below, that, if the
Recapitalization were not effected, the Company would implement the "enhanced
status quo" alternative described under "BACKGROUND OF THE PLAN OF
RECAPITALIZATION," consisting of a variety of significant actions to reduce
costs and, therefore, to enhance profitability and stockholder value.
In connection with its review, Lazard did not independently verify any of the
foregoing information and Lazard relied on such information being complete and
accurate in all material respects. With respect to the financial forecasts,
Lazard assumed that they had been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the Company's management as
to the future financial performance of the Company. In addition, Lazard did not
make an independent evaluation or appraisal of any of the assets of the
Company, nor was it furnished with any such appraisals. Lazard was not
requested to, and did not, solicit third party offers to acquire all or any
part of the Company, nor, to Lazard's knowledge, has any interest in making
such an offer been presented by any third party, including in response to the
public disclosure regarding discussions between the Company and the Coalition.
Lazard assumed that the results expected by the Company's management to be
obtained from the Recapitalization, including those arising from the employee
investment contemplated by the Plan of Recapitalization will be realized.
Lazard's opinion was necessarily based solely upon information available to it
and business, market, economic and other conditions as they existed on, and
could be evaluated as of, the date of such opinion. Lazard's opinion did not
address the Company's underlying business decision to effect the
Recapitalization.
The following is a summary of the analyses that Lazard utilized in arriving
at its opinion as to the fairness of the consideration to be received by the
holders of Old Shares of the Company in connection with the Recapitalization,
taken as a whole, from a financial point of view and that Lazard discussed with
the Board at the December 22, 1993, March 14, 1994, March 24, 1994 and May 20,
1994 Board meetings.
Valuation of the Company
For purposes of its opinion as to the fairness of the consideration to be
received by holders of Old Shares in connection with the Recapitalization,
taken as a whole, from a financial point of view, Lazard arrived at a reference
range of values for the Company using three principal valuation methodologies:
a discounted cash flow analysis, a publicly traded comparable company analysis
and an unaffected trading value analysis. At the December 22, 1993 Board
meeting, Lazard advised the Board that its overall reference range per share
was $150 to $190. Lazard did not update its overall reference range at the
March 14, 1994 or March 24, 1994 Board meetings but it advised the Board at
those meetings that if it had updated its reference range, the updated range
would have been somewhat lower than the range given in December. As of May 20,
1994, Lazard had determined that its overall reference range per share was $135
to $160. Lazard advised the Board that the changes in the reference range
resulted from changes in a number of factors, including, but not limited to,
higher interest rates, lower airline stock prices and updated financial
forecast information. The methodologies used by Lazard and the resulting ranges
of values, which were described to the Board at the
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December 22, 1993 Board meeting but which were not updated for the Board at the
March 14, 1994, March 24, 1994 or May 20, 1994 Board meetings, are described
below. If Lazard had updated these analyses, the resulting ranges of values
would have been lower than the ranges that resulted from Lazard's December 22,
1993 analyses.
Discounted Cash Flow Analysis. Using a discounted cash flow analysis, Lazard
estimated the present value of the future cash flows that the Company could be
expected to produce over a ten-year period from 1994 through 2003 under various
assumptions in accordance with management's forecasts. The analysis assumed
that the "enhanced status quo" alternative would be implemented. Lazard
determined a range of total values for the Company by adding (i) the present
value (using discount rates ranging from 8.0% to 12.0%) of the ten-year
unleveraged free cash flows of the Company and (ii) the present value of the
Company's 2003 terminal value. A range of terminal values was determined by
multiplying 2003 projected net income by a range of multiples determined based
on the trading multiples of selected publicly traded comparable companies (AMR
Corporation, Continental Airlines, Delta Air Lines, Southwest Airlines and
USAir Group (the "Comparable Group")) and other factors (ranging from 11.0
times to 15.0 times 2003 net income). This analysis resulted in a range of
values per Old Share for the Company on December 22, 1993 of from $170 to $210.
Publicly Traded Comparable Company Analysis. Lazard reviewed and compared the
financial, market and operating performance of the companies in the Comparable
Group with that of the Company. Of the companies in the Comparable Group,
Lazard focused its analyses principally on AMR Corporation, Delta Air Lines and
Southwest Airlines. Lazard examined certain publicly available financial data,
including total revenue, EBITDA, earnings before interest and taxes, earnings
per share and net cash flow (net income plus depreciation) per share and
reviewed various trading multiples for the Comparable Group. Lazard also
considered other financial data (including margins and growth rates) as well as
certain operating information (such as yields and load factors) for the
Comparable Group. This analysis resulted in a range of appropriate multiples
for the Company, which, in turn, resulted in a range of values per Old Share of
the Company on December 22, 1993 of from $140 to $180.
Unaffected Trading Value Analysis. Lazard reviewed the history of the trading
prices of the Company's common stock over various periods and at various times
(including prior to the first public disclosure of the Coalition's proposal for
a restructuring of the Company in July 1993) and compared such prices to the
prices of other airline companies over such periods and at such times in order
to estimate a normalized trading value for the Old Shares that would not
reflect a significant premium attributable to the disclosure of, or market
speculation about, a possible employee investment transaction. This analysis
resulted in an unaffected trading range per Old Share of the Company on
December 22, 1993 of from $130 to $135.
Recapitalization Consideration
For purposes of its opinion as to the fairness of the consideration to be
received by holders of Old Shares of the Company in connection with the
Recapitalization, taken as a whole, from a financial point of view, Lazard
arrived at a reference range of values for the consideration to be received by
the holders of Old Shares in the Recapitalization, consisting of cash, New
Shares and, if the Offerings are not consummated, Debentures and Depositary
Preferred Shares representing interests in the Public Preferred Stock. The
interest rates on the Debentures and the dividend rate on the Public Preferred
Stock were initially set upon the execution of the Plan of Recapitalization.
The interest or dividend rate on each such security will be reset, as of a date
to be determined that is not fewer than five calendar days and not greater than
ten calendar days prior to the Meeting, to the rate required to cause each such
security to trade at 100% of its aggregate principal amount (in the case of the
Debentures) or at 100% of its aggregate liquidation preference (in the case of
the Public Preferred Stock) (collectively, "par"), on a fully distributed
basis, as of such date (subject to a maximum potential increase, in each case,
of 112.5 basis points (1.125 percentage points)). Accordingly, Lazard's opinion
was based on the assumption that (if the Offerings are not consummated) the
final rates to be borne by such securities would be set so that the Debentures
and the Public Preferred Stock would trade, as of such
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date, on a fully distributed basis, at par. Lazard advised the Board at the
March 24, 1994 meeting that the reduction of the maximum potential increase in
the interest rates on the Debentures and the dividend rate on the Public
Preferred Stock from 150 basis points (1.5 percentage points) (which was the
rate cap provided for in the Agreement in Principle) to 112.5 basis points
(1.125 percentage points) (the rate cap provided for in the Plan of
Recapitalization) could reduce the value of the Debentures and the Public
Preferred Stock to be received by the holders of Old Shares in the
Recapitalization by an amount that Lazard advised the Board was not material to
the consideration to be received by the holders of Old Shares in the
Recapitalization, taken as a whole. Lazard's opinion does not represent
Lazard's view, if the Offerings are not consummated, as to what the trading
value of the securities actually will be when the securities are issued to
holders of the Old Shares following consummation of the Recapitalization. The
actual trading values of such securities could be higher or lower depending
upon changes in interest rates, dividend rates, market conditions, general
economic conditions and other factors that generally influence the price of
securities. Because of the large aggregate amount of the securities
(particularly the Public Preferred Stock) that would be issued to holders of
Old Shares if the Offerings are not consummated and other factors, such
securities may trade initially, and for an extended period thereafter, at
prices below those at which they would trade on a fully distributed basis.
Furthermore, any valuation of securities is only an approximation, subject to
uncertainties and contingencies. If the Offerings are consummated, the interest
rates on the Debentures and the dividend rate on the Public Preferred Stock may
be set at rates that are in excess of the limitation contained in the
Recapitalization Agreement, in which event the principal amount of the series
of Debentures affected or the number of Depositary Preferred Shares, as the
case may be, will be reduced so that the aggregate amount of interest payable
by United or dividends payable by UAL, as the case may be, with respect to such
security will not exceed amounts specified in the Recapitalization Agreement,
and the amount of the proceeds from the sale of such securities to be received
by holders of Old Shares will be reduced accordingly. In addition, in certain
other circumstances such proceeds could be less than the stated principal
amount or liquidation preference of such securities. Lazard's opinion was based
on the assumption that, if the Offerings are consummated, the proceeds of the
Debentures and the Depositary Preferred Shares to be received by the holders of
Old Shares will not be less than the principal amounts of Debentures and the
number of Depositary Preferred Shares that would have been distributed to the
holders of Old Shares had the Offerings not been consummated.
Valuation of the New Shares
The principal valuation methodology used by Lazard with respect to the New
Shares to be received by holders of Old Shares in the Recapitalization was the
earnings and cash flow multiple method. The "gives/gets" method was also
analyzed. These methodologies are described below:
Earnings and Cash Flow Multiple Method. Lazard arrived at a range of values
for the New Shares by reviewing the public market multiples of the Comparable
Group and the Company, and applying a range of multiples to the Company's
estimated 1994 and 1995 earnings per share and net cash flow per share pro
forma for the consummation of the Recapitalization. Because of the way the
accounting rules applicable to "stock based compensation" (which require that
stock compensation expense for periodic stock allocations be measured by the
then-current market value of the shares at the time of allocation) will apply
to the share allocations within the ESOPs, there are complexities to
forecasting future earnings per share of the Company. The size of the employee
stock ownership plan accounting charge will be affected by the stock price, and
the employee stock ownership plan accounting charge will reduce reported
earnings per share which, in turn, may affect the stock price. For purposes of
its analyses, Lazard applied a range of multiples to forecasted results based
on two cases: one assuming ratable allocation of the shares within the ESOPs
over the period of the concessions and the other assuming immediate, full
allocation (the latter methodology eliminates the need to estimate future stock
price performance in order to project the Company's earnings per share). Lazard
applied a discount to the resulting values to reflect the potential dilution
from the equity collar arrangement (which will increase the employee trusts'
equity ownership from 55% to a maximum of 63% if the Company's average stock
closing price for one year exceeds certain levels specified in the Plan of
Recapitalization). This analysis resulted in a public market equity value
reference range for the portion of a New Share to be received
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as part of the Recapitalization Consideration for one Old Share on December 22,
1993 of $80 to $82, on March 14, 1994 of $73 to $77 and on May 20, 1994 of $55
to $61. Lazard advised the Board that the changes in the reference range
resulted from changes in a number of factors, including but not limited to,
higher interest rates, lower airline stock prices, updated financial forecast
information and the amendments to the Plan of Reorganization. Based on the
assumptions described above under "Recapitalization Consideration", the other
assumptions described herein and the equity value reference range for the New
Shares set forth above, on May 20, 1994, Lazard's reference range of values for
the total consideration to be received by holders of Old Shares in the
Recapitalization for one Old Share was $141 to $149.
"Gives/Gets" Method
"Gives/Gets" is a summary valuation methodology whereby the impact of the
employee investment and the distribution of the Debentures and Public Preferred
Stock on the Company's unaffected trading value is considered. The "gives/gets"
analysis started with the trading value of Old Shares, reduced by the increase
in the stock price attributable, in Lazard's view, to market speculation about
a possible employee investment transaction (determined as described under "--
Unaffected Trading Value Analysis" above) (minus the present value of the
enhancements contained in the "enhanced status quo" alternative that the
Company would have implemented but would not in the Recapitalization) and added
to this pre-transaction value the present value of the employee investment and
the incremental value realized on the sale of the flight kitchens to arrive at
an implied total equity value. Lazard subtracted from this amount the cash and
securities (other than the New Shares) to be delivered to the holders of the
Old Shares to arrive at an implied post-transaction market value. Using this
methodology, Lazard arrived at a valuation for the portion of a New Share to be
received as part of the Recapitalization Consideration for one Old Share on
December 22, 1993 of approximately $85, which was presented to the Board
primarily for the purpose of describing the possible adjustment in the percent
equity to be held by the ESOPs based on the trading price of the New Shares
during the first year following the Effective Time (See "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--Additional Shares"). Lazard did not
update this analysis at the March 14, 1994, March 24, 1994 or May 20, 1994
Board meetings.
In arriving at its written opinions dated December 22, 1993, March 24, 1994
and May 20, 1994, and in discussing its opinions with the Board, Lazard
performed certain financial analyses, portions of which are summarized above.
The summary set forth above does not purport to be a complete description of
Lazard's analyses. Lazard believes that its analyses must be considered as a
whole and that selecting portions of its analyses could create an incomplete
view of the process underlying the opinions. In addition, Lazard may have given
various analyses more or less weight than other analyses, and may have deemed
various assumptions more or less probable than other assumptions, so that the
ranges of valuations resulting from any particular analysis described above
should not be taken to be Lazard's view of the actual value of the Company. No
company used in the publicly traded comparable company analysis summarized
above is identical to the Company. Accordingly, any such analysis of the value
of the Company involves complex considerations and judgments concerning
differences in the potential financial and operating characteristics of the
comparable companies as well as other factors relating to the trading values of
the Comparable Group. In performing its analyses, Lazard made numerous
assumptions with respect to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of the Company and all of which are beyond the control of Lazard. The
results of the analyses performed by Lazard are not necessarily indicative of
actual values, which may be significantly more or less favorable than suggested
by such analyses.
The analyses described above were prepared solely as part of Lazard's
analysis of the fairness of the Recapitalization Consideration to the holders
of Old Shares. The analyses do not purport to be appraisals or to reflect the
prices at which a company might actually be sold or the actual trading value of
the Debentures, the Depositary Preferred Shares or the New Shares.
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Lazard is an internationally recognized investment banking firm and
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes. Lazard was
chosen by the Company to act as financial advisor in connection with the
negotiations with the Coalition and the Recapitalization because of its
familiarity with the Company and the airline industry in general, because of
its general experience in restructuring other public companies in similar
types of transactions and because it was believed that the experience of Mr.
Felix Rohatyn, a general partner of Lazard, who had been on the National
Commission to Ensure a Strong Competitive Airline Industry, would provide
additional valuable insight on the Company's situation and its discussions
with the Coalition.
In consideration for Lazard's services, the Company paid Lazard a retainer
of $500,000 in January 1994 and agreed to pay Lazard a financial advisory fee
of $100,000 per month (prorated for any portion of a full month) payable on
the last day of each month beginning January 31, 1994. The Company has agreed
to reimburse Lazard for its out-of-pocket expenses, including reasonable fees
and disbursements of counsel. The Company has also agreed to pay Lazard a
success fee of $5 million upon the completion of the Recapitalization against
which the retainer and financial advisory fees and expense reimbursements will
be credited. The Company has agreed to indemnify Lazard and its affiliates,
their respective directors, officers, partners, agents and employees and each
person, if any, controlling Lazard or any of its affiliates against certain
liabilities, including certain liabilities under the Federal securities laws,
relating to or arising out of its engagement.
OPINION OF VALUATION FIRM
In order to assist the Board, the Company retained American Appraisal, a
nationally recognized independent valuation firm. American Appraisal delivered
an oral report to the Board at the March 14, 1994 meeting and a written
opinion to the Board and the Company dated as of March 14, 1994 (the "American
Appraisal Opinion"). It is a condition to consummation of the Recapitalization
that the Board shall have received an updated opinion from American Appraisal
substantially similar to the American Appraisal Opinion as of the Effective
Time. See "THE PLAN OF RECAPITALIZATION--Terms and Conditions." The full text
of the American Appraisal Opinion, which sets forth the assumptions made, the
matters considered and the review undertaken with regard to such opinion is
filed as an Exhibit to the Registration Statement of which this Proxy
Statement/Prospectus is a part. The summary of the American Appraisal Opinion
set forth in this Proxy Statement/Prospectus is qualified in its entirety by
reference to the full text of such opinion.
In rendering the American Appraisal Opinion, American Appraisal valued the
assets of the Company (on a consolidated basis) and United (on a consolidated
basis), as going concerns, both immediately before and after, and giving
effect to, the Recapitalization. The valuation included the aggregate assets
of the business enterprise of each of the Company (on a consolidated basis)
and United (on a consolidated basis), or total invested capital as represented
by the total net working capital, tangible plant, property and equipment and
intangible assets of the respective business enterprises. American Appraisal
stated that it believed this to be a reasonable basis on which to value the
Company and United and that nothing has come to its attention that caused it
to believe that each of the Company (on a consolidated basis) and United (on a
consolidated basis), before and after the Recapitalization, will not be going
concerns.
The American Appraisal Opinion is subject to the conditions that (i) any
sale of each of the Company (on a consolidated basis) or United (on a
consolidated basis) will be completed as the sale of an ongoing business
entity within a commercially reasonable period and (ii) a "commercially
reasonable period" of time means at least twelve months for a willing buyer
and a willing seller to agree on price and terms, plus the time necessary to
complete the sale of the Company (on a consolidated basis) and United (on a
consolidated basis). In connection with the opinion of the fair value of each
of the Company (on a consolidated basis) and United (on a consolidated basis),
American Appraisal was provided historical and projected operating results. In
addition to this information, American Appraisal was provided other operating
data and information, all of which has been accepted by American Appraisal,
without independent verification, as representing a fair
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statement of historical and projected results of each of the Company (on a
consolidated basis) and United (on a consolidated basis) in the opinion of the
management of each of the Company and United. However, the American Appraisal
Opinion states that, in the course of its investigation, nothing has led it to
believe that its acceptance and reliance on such operating data and information
was unreasonable.
American Appraisal's determination of the fair value of each of the Company
(on a consolidated basis) and United (on a consolidated basis) was based on the
generally accepted valuation principles used in the market and discounted cash
flow approaches, described as follows:
Market Approach--Based on current stock market prices of publicly held
companies whose businesses are similar to that of the Company (on a
consolidated basis) and United (on a consolidated basis) and premiums paid
over market price by acquirors of total or controlling ownership in such
businesses.
Discounted Cash Flow Approach--Based on the present value of each of the
Company's (on a consolidated basis) and United's (on a consolidated basis)
future debt-free operating cash flow as estimated by the managements of
each of the Company (on a consolidated basis) and United (on a consolidated
basis) and contained in Status Quo Scenario C. The present value is
determined by discounting the projected operating cash flow at a rate of
return that reflects the financial and business risks of each of the
Company (on a consolidated basis) and United (on a consolidated basis).
In determining the amount that would be required to pay the total probable
liabilities on the respective dates that the Company's (on a consolidated
basis) and United's (on a consolidated basis) liabilities and contingent
liabilities become absolute and matured, for purposes of their opinion,
American Appraisal applied valuation techniques, including present value
analysis, using appropriate rates over appropriate periods to the amounts that
will be required from time to time to pay such liabilities and contingent
liabilities as they become absolute and matured based on their scheduled
maturities.
In the course of its investigation of identified contingent liabilities, the
areas brought to the attention of American Appraisal by the managements of the
Company (on a consolidated basis) and United (on a consolidated basis)
included, (i) environmental matters, (ii) the adequacy of the corporate
insurance program, (iii) tax audit exposure, (iv) the liability for the pension
and welfare benefits program, (v) labor and collective bargaining issues and
(vi) various lawsuits and claims filed and/or pending against the Company (on a
consolidated basis) and United (on a consolidated basis).
Reserves for contingent liabilities have been made in the pro forma
consolidated balance sheet prepared and furnished to American Appraisal by each
of the managements of the Company (on a consolidated basis) and United (on a
consolidated basis), and provisions for the ongoing expenses related to these
issues have been included with the projection of income and expenses presented
in the financial projections, and are considered in American Appraisal's
valuation study as ongoing business operating expenses. American Appraisal has
taken these identified contingent liabilities into account in rendering the
American Appraisal Opinion and has concluded that such liabilities and ongoing
expenses do not require any qualification of the American Appraisal Opinion.
American Appraisal's conclusion is based on: (i) its review of various
acquisition transactions, including leveraged transactions and significant
debt-financed recapitalization transactions, involving corporations engaged in
businesses similar to those of each of the Company (on a consolidated basis)
and United (on a consolidated basis), (ii) the opinion of the managements of
each of the Company (on a consolidated basis) and United (on a consolidated
basis) that the issues concerning various lawsuits, claims and other identified
contingent liabilities do not and are not reasonably likely to have a material
adverse effect on the consolidated financial position of each of the Company
(on a consolidated basis) and United (on a consolidated basis) and (iii) its
discussions with the managements, accountants, consultants and counsel of each
of the Company (on a consolidated basis) and United (on a consolidated basis),
concerning claims and other contingent liabilities and the possible effect of
the foregoing on each of the Company and United as well as its investigation of
the various lawsuits.
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American Appraisal assumed that the total liabilities of each of the Company
(on a consolidated basis) and United (on a consolidated basis) will be only
those liabilities set forth in the financial projections and the pro forma
balance sheet as of December 31, 1993 of each of the Company (on a consolidated
basis) and United (on a consolidated basis) and the identified contingent
liabilities referred to in the American Appraisal Opinion. The American
Appraisal Opinion states that, in the course of its investigation, nothing came
to American Appraisal's attention that caused American Appraisal to believe
such assumptions to be unreasonable. The pro forma balance sheet used by
American Appraisal is the unaudited pro forma condensed balance sheet as of
December 31, 1993 for each of the Company (on a consolidated basis) and United
(on a consolidated basis), each adjusted to give effect to the planned
financing of the Recapitalization and restated to reflect the fair value of
each of the Company (on a consolidated basis) and United (on a consolidated
basis).
The Company's and United's management has represented to American Appraisal,
and American Appraisal has relied on the representations of the managements of
the Company and United, that no adverse changes have occurred since the
preparation of the Company's and United's pro forma balance sheet and financial
analyses that would materially impact its content. The American Appraisal
Opinion states that nothing has come to American Appraisal's attention that
would lead it to believe that its reliance on such representations is
unreasonable.
In connection with the American Appraisal Opinion, American Appraisal made
such reviews, analyses and inquiries as it has deemed necessary and appropriate
under the circumstances. Among other things, American Appraisal (i) reviewed
the documents related to the Recapitalization and reporting documents filed
with the Commission, (ii) reviewed financial analyses and inquired of
managements of the Company and United as to the foundation for any such
analyses and the basic assumptions made in the preparation of Status Quo
Scenario C relating to the type of business, geographic markets, domestic and
international economic conditions and capital facilities and working capital
requirements, (iii) reviewed audited and unaudited historical income
statements, balance sheets and statements of sources and uses of funds of the
Company and United as provided by management and its accountants, (iv) visited
the Company's and United's headquarters and selected facilities to discuss
historical and estimated operating results and industry data, including the
impact of future trends on the industry and the Company and United, as well as
the effects of the Recapitalization, (v) reviewed internal financial analyses
and other internally generated data of the Company and United including asset
valuations, (vi) inquired of managements of the Company and United and their
respective financial advisors as to estimated levels of cash and working
capital required by the Company and United, (vii) reviewed certain publicly
available economic, financial and market information as it relates to the
business operations of the Company and United, (viii) reviewed information
regarding businesses similar to the Company and United and investigated the
financial terms and post-transaction performance of recent acquisitions, (ix)
consulted with industry, economic and statistical experts, as necessary, (x)
discussed all of the foregoing information, where appropriate, with managements
of the Company and United and their respective agents, accountants and
financial advisors and (xi) conducted such other studies, analyses and
investigations as American Appraisal deemed relevant or necessary for purposes
of the opinion.
American Appraisal assumed, without independent verification, that the pro
forma balance sheet and financial analyses provided to American Appraisal have
been reasonably prepared and reflect the best available estimates, at the time
they were prepared, of the future financial results and condition of the
Company and United, and that there has been no material adverse change in the
assets, financial condition, business or prospects of the Company and United
since the date of the most recent financial statements made available to
American Appraisal. American Appraisal stated that nothing has come to its
attention that would lead it to believe that the foregoing assumption is
unreasonable.
Although American Appraisal did not independently verify the accuracy and
completeness of the Status Quo Scenario C and forecasts, or any of the
assumptions, estimates or judgments referred to therein, or the basis therefor,
and although no assurances can be given that such Status Quo Scenario C and
forecasts can be
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realized or that actual results will not vary materially from those projected,
American Appraisal stated that nothing had come to its attention during the
course of its engagement that lead it to believe that any information reviewed
by it or presented to it in connection with its rendering of the American
Appraisal Opinion is unreasonable or inaccurate in any material respect or that
it was unreasonable for it to utilize and rely upon the financial analyses,
financial statements, assumptions, description of the business and liabilities,
estimates and judgments or statements of the managements of the Company and
United and their respective counsel, accountants and financial advisors. The
American Appraisal Opinion is necessarily based on business, economic, market
and other conditions as they existed at the time of the opinion and as they
could be evaluated by American Appraisal at such time.
The American Appraisal Opinion stated that, based upon and subject to the
conditions and assumptions contained therein, (a) the fair value of the
aggregate assets of each of the Company (on a consolidated basis) and United
(on a consolidated basis) will exceed their total respective liabilities
(including, without limitation, subordinated, unmatured, unliquidated and
contingent liabilities), (b) the present fair salable value of the aggregate
assets of each of the Company (on a consolidated basis) and United (on a
consolidated basis) will be greater than their respective probable liabilities
on their debts as such debts become absolute and matured, (c) each of the
Company (on a consolidated basis) and United (on a consolidated basis) will be
able to pay their respective debts and other liabilities, including contingent
liabilities and other commitments, as they mature, (d) the capital remaining in
each of the Company (on a consolidated basis) and in United (on a consolidated
basis) after consummation of the Recapitalization will not be unreasonably
small for the businesses in which the Company and United are engaged, as
management of the Company and United has indicated such businesses are
conducted and as management has indicated the businesses are proposed to be
conducted following the consummation of the Recapitalization, and after giving
due consideration to the prevailing practices in the industry in which the
Company and United will be engaged, (e) the excess of the fair value of the
total assets of the Company over the total liabilities, including contingent
liabilities, of the Company, is equal to or exceeds the value of the
Recapitalization Consideration to stockholders plus the stated capital of the
Company and (f) the excess of the fair value of the total assets of United over
the total liabilities, including contingent liabilities, of United, is equal to
or exceeds the value of the stated capital of United.
American Appraisal indicated that it believed the excess of total assets over
pro forma liabilities was approximately $2.5 billion at December 31, 1993,
compared to approximately $1.203 billion in stockholders' equity as of such
date, determined according to generally accepted accounting principles, so
that, giving effect to the Recapitalization, the indicated excess assets of the
Company for purposes of Delaware law exceeded $1 billion.
The American Appraisal Opinion will not be binding on creditors of the
Company. Accordingly, there can be no assurance that a court would value the
Company's assets on a going-concern basis in order to determine whether the
Company was insolvent at the time of the Recapitalization or that, regardless
of the method of valuation, a court would not determine that the Company was
insolvent at such time. The Board and management believe that the Debentures
will be incurred by the Company for proper purposes and in good faith, that the
Company will receive reasonably equivalent value or fair consideration for
incurring such indebtedness and that, based on present forecasts and other
financial information, at the time of the Recapitalization, the Company will be
solvent, will have sufficient capital to carry on its business and will be able
to pay its debts as they mature. See "--Certain Revenue and Earnings Scenarios"
and "UNAUDITED PRO FORMA FINANCIAL INFORMATION."
As compensation for its services, American Appraisal received a fee of
$50,000 from the Company upon execution of the engagement agreement and
$110,000 plus expenses upon delivery of the final American Appraisal Opinion
and will receive $20,000 plus expenses upon delivery of the updated opinion. In
addition, the Company agreed to indemnify and hold harmless American Appraisal
with respect to any claim arising from any untrue information furnished by the
Company or from any services relating to the American Appraisal Opinion, except
in the case a loss is found to have resulted from American Appraisal's
negligence or misfeasance or willful or knowing violation of law or breach of
the engagement agreement.
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PURPOSE AND STRUCTURE OF THE RECAPITALIZATION
The purpose of the Recapitalization is to recapitalize the Company and
thereby provide the holders of Old Shares with an opportunity to receive cash
or a combination of cash, Debentures and Depositary Preferred Shares
representing interests in Public Preferred Stock for a portion of their Old
Shares, while permitting the holders of Old Shares to retain a significant
ongoing equity interest in a Company that is expected to have a lower cost
structure and be more competitive and to provide performance incentives to the
Company's employees by providing them with significant equity participation in
the Company through the ESOPs. The Recapitalization is being effected at the
present time because the Board believes that it is the best available
alternative to maximize value to the Company's stockholders while achieving
significant wage and benefit reductions and work-rule changes that the Board
believes are necessary to position United to compete in the aviation
marketplace. See "BACKGROUND OF THE PLAN OF RECAPITALIZATION" and "--
Recommendation of the Board."
The use of shares of Series D Redeemable Preferred Stock has been chosen in
order to comply with technical aspects of Delaware law that may be applicable
to the Recapitalization. The Company does not intend to send certificates for
Series D Redeemable Preferred Stock to the holders of Old Shares, and, in lieu
thereof, cash (if the Offerings are consummated) or cash, Debentures (if either
or both of the United Debt Offerings are not consummated) and Depositary
Preferred Shares (if the UAL Preferred Offering is not consummated) will be
paid based upon the number of shares of Series D Redeemable Preferred Stock
issued in the Reclassification and the redemption price per one one-thousandth
of a share of Series D Redeemable Preferred Stock.
It is expected that if the Plan of Recapitalization is not approved by the
Company's stockholders, or if the Recapitalization is not consummated for any
other reason, the Company's current management, under the direction of the
Board, will continue to manage the Company as an ongoing business. In such
event, management would take other actions intended to achieve a lower cost
structure intended to allow the Company to compete effectively in the global
aviation marketplace, which may include actions described in this Proxy
Statement/Prospectus relating to the "enhanced status quo" alternative or
Fundamental Restructuring Plan described under "BACKGROUND OF THE PLAN OF
RECAPITALIZATION."
INTERESTS OF CERTAIN PERSONS IN THE RECAPITALIZATION
In considering the Plan of Recapitalization, stockholders should be aware
that the executive officers and the Board members have certain interests,
described below, that present them with potential conflicts of interest in
connection with the Recapitalization. The Board was aware of these potential
conflicts and considered them among the other matters described under "--
Recommendation of the Board."
The transactions contemplated by the Plan of Recapitalization will constitute
a "change in control" under the Employment Agreements (as defined below) with
Messrs. Wolf and Pope, the severance agreements entered into by United with all
other executive officers, the 1988 Restricted Stock Plan, and the 1981 Stock
Program as well as the Retirement Plan for outside directors and its related
trust. See "CERTAIN INFORMATION CONCERNING THE BOARD OF DIRECTORS--Compensation
of Directors; Effect of "Change in Control' " and "EXECUTIVE COMPENSATION--
Employment Contracts and Change in Control Arrangements."
The Plan of Recapitalization provides that Messrs. Wolf, Pope and Nagin will
retire from all positions they hold with the Company and all of its
subsidiaries at or immediately prior to the Effective Time and that no other
officer of the Company or United may be terminated for a period of six months
following the Effective Time unless such termination is approved by at least
two Outside Public Directors (as defined below, see "THE PLAN OF
RECAPITALIZATION--Revised Governance Structure--Public Directors") and the
Chief Executive Officer (the "CEO") of the Company (Mr. Greenwald).
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Pursuant to agreements originally entered into upon the commencement of their
employment in 1987, 1988 and 1988, respectively, with the Company and United as
subsequently amended (the "Officer Agreements"), upon their retirements in
accordance with the Plan of Recapitalization, each of Messrs. Wolf, Pope and
Nagin will be entitled to receive: (1) a cash payment (based on a multiple of
three times current salary and deemed bonus) equal to approximately $4.3
million, $1.8 million and $1.1 million, respectively, (2) lifetime travel
privileges (and reimbursement of related taxes, with certain limitations in Mr.
Nagin's case) on United for each of them and their spouses and other eligible
dependents, (3) continued coverage under United's medical and other welfare
benefit plans (limited to three years in Mr. Pope's case) and (4) certain other
benefits, including certain pension-related benefits, see "EXECUTIVE
COMPENSATION--Pension Plan Table."
The 1988 Restricted Stock Plan provides that all restricted shares awarded
thereunder shall vest upon the occurrence of a "change in control." As of May
16, 1994, Messrs. Wolf, Pope, Nagin, Guyette, O'Gorman and George beneficially
own 10,000, 26,500, 13,000, 11,000, 7,500 and 10,200 restricted shares,
respectively.
Options to acquire Old Shares awarded under the 1981 Stock Program held by
executive officers become exercisable in connection with the occurrence of a
"change in control." Upon consummation of the transactions contemplated by the
Plan of Recapitalization, each such Option will automatically be converted into
an option to acquire (i) one half of a New Share, (ii) $25.80 in cash, (iii)
either (a) $15.55 principal amount of Series A Debentures or (b) if the United
Series A Offering is consummated, the cash proceeds (without deducting any
underwriting discount or other costs) from the sale thereof by United pursuant
to the United Series A Offering, (iv) either (a) $15.55 principal amount of
Series B Debentures or (b) if the United Series B Offering is consummated, the
cash proceeds (without deducting any underwriting discount or other costs) from
the sale thereof by United pursuant to the United Series B Offering and (v)
either (a) Depositary Preferred Shares representing interests in $31.10
liquidation preference of Public Preferred Stock or (b) if the UAL Preferred
Offering is consummated, the cash proceeds (without deducting any underwriting
discount or other costs) from the sale thereof by the Company pursuant to the
UAL Preferred Offering. As of May 31, 1994, Messrs. Wolf, Pope, Nagin, Guyette,
O'Gorman and George held such Options (with an exercise price of $131 or less)
to purchase respectively 125,000 Old Shares (all of which are exercisable as of
May 31, 1994 and with an average exercise price of $89.99) 150,000 Old Shares,
(all of which are exercisable as of May 31, 1994 with an average exercise price
of $95.81), 60,000 Old Shares (45,000 of which are exercisable as of May 31,
1994 and 15,000 of which will become exercisable immediately prior to the
Effective Time and with an average exercise price of $107.85), 82,120 Old
Shares (67,120 of which are exercisable as of May 31, 1994 and 15,000 of which
will become exercisable immediately prior to the Effective Time and with an
average exercise price of $101.59), 30,000 (15,000 of which are exercisable as
of May 31, 1994 and 15,000 of which will become exercisable immediately prior
to the Effective Time and with an average exercise price of $124) and 56,250
Old Shares (41,250 of which are exercisable as of May 31, 1994 and 15,000 of
which will become exercisable immediately prior to the Effective Time and with
an average exercise price of $108.69). In addition, Messrs. Wolf, Pope and
O'Gorman hold such Options to purchase 225,000, 60,000 and 30,000 Old Shares at
prices in excess of $131.
The Company has amended the 1988 Restricted Stock Plan, the 1981 Stock
Program and the Incentive Plan, in each case, subject to stockholders' approval
and consummation of the transactions contemplated by the Plan of
Recapitalization. Each of the amendments is intended to permit awards under the
related plan to continue to be deductible by the Company for Federal income tax
purposes under Section 162(m) of the Internal Revenue Code. In addition, the
amendment to the 1981 Stock Program reserves an additional 1,200,000 New Shares
(subject to increase in the event of an adjustment relating to the New Shares
described in "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs--Additional
Shares") for issuance upon the exercise of options granted thereunder, and the
amendment to the Incentive Plan permits each participant to elect to defer all
or any portion of any bonus otherwise payable thereunder.
See "CERTAIN INFORMATION CONCERNING THE BOARD OF DIRECTORS--Compensation of
Directors; Effect of "Change in Control' " for certain information with respect
to the effect of the Recapitalization on benefits provided to members of the
Company's Board.
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See "THE PLAN OF RECAPITALIZATION--Terms and Conditions--Fees and Expenses;
Indemnification" for certain information with respect to indemnification and
insurance coverage to be provided by the Company to, among others, directors
and executive officers of the Company following the Effective Time.
CERTAIN RISK FACTORS
In addition to the other information contained in this Proxy
Statement/Prospectus, holders of Old Shares should carefully consider the
following risk factors concerning the New Shares, the Debentures and the
Depositary Preferred Shares representing interests in the Public Preferred
Stock.
Financial Effects; Delaware Law Considerations. The Recapitalization will
immediately change the Company's capitalization to one that is more highly
leveraged. In this regard, the following discussion compares the pro forma
book effect of the Recapitalization on long-term debt, stockholder's equity
and income/loss from continuing operations with recent historical financial
information of the Company. On a pro forma book basis at March 31, 1994, the
Company would have had approximately $3.451 billion of long-term debt and a
deficit of approximately $448 million of stockholders' equity, as compared to
the approximately $2.693 billion of long-term debt and approximately $1.097
billion of stockholders' equity that was shown on the Company's balance sheet
on such date. In addition, if the Recapitalization had occurred as of January
1, 1993, the Company would have reported, on a pro forma basis, a loss from
continuing operations of approximately $38 million for the year ended December
31, 1993 and a loss from continuing operations of approximately $58 million
for the three months ended March 31, 1994, as compared to losses from
continuing operations of $31 million for the year ended December 31, 1993 and
$71 million for the three months ended March 31, 1994 that were reported for
each period. See "UNAUDITED PRO FORMA FINANCIAL INFORMATION."
The Company's earnings were inadequate to cover fixed charges and preferred
stock dividends by $98 million in 1993, by $748 million in 1992 and by $599
million in 1991. On a pro forma basis, the Company's earnings in 1993 were
inadequate to cover fixed charges and preferred stock dividends by $109
million. In addition, the Company's earnings were inadequate to cover fixed
charges and preferred stock dividends for the three month period ended March
31, 1994 by $118 million, and on a pro forma basis they were inadequate by $97
million. United's earnings were inadequate to cover fixed charges by $77
million in 1993, by $694 million in 1992 and by $604 million in 1991. On a pro
forma basis, United's earnings in 1993 were inadequate to cover fixed charges
by $63 million. In addition, United's earnings were inadequate to cover fixed
charges for the three month period ended March 31, 1994 by $130 million, and
on a pro forma basis they were inadequate by $102 million. Non-cash
depreciation and amortization are deducted in computing earnings before fixed
charges. Such non-cash charges do not significantly affect the ability of
United to fund operations, service debt, or provide funds to service the
Company's preferred stock dividends. Depreciation and amortization of United
were $722 million in 1993, $695 million in 1992, $604 million in 1991 and $178
million for the three month period ended March 31, 1994.
The Delaware General Corporation Law (the "DGCL") requires that the payments
to holders of Old Shares in the Recapitalization be made from "surplus." In
addition, the DGCL requires that dividends, including future dividends on the
Public Preferred Stock, may only be made from surplus or the net profits of
the Company for the fiscal year in which the dividend is declared and/or the
preceding fiscal year. For purposes of the DGCL, surplus equals the excess, if
any, at any given time, of the net assets of the corporation over stated
capital. Valuation of the Company's assets at their fair value (as supported
by the American Appraisal Opinion referred to above) would create capital
surplus that under the DGCL may be used for such payments. In addition, such
payments would not be permitted if after giving effect to them the Company
would not be able to pay its debts as they become due in the usual course of
business. The Board believes that the Company will be able to pay such debts,
based in part on the revenue and earnings scenarios set forth above under "--
Certain Revenue and Earnings Scenarios" and on the American Appraisal Opinion
referred to above. See "THE PLAN OF RECAPITALIZATION--Terms and Conditions,"
and "UNAUDITED PRO FORMA FINANCIAL INFORMATION." Given the more leveraged
financial
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structure of the Company following the Recapitalization, certain industry
risks could have a greater adverse impact on the Company after the
Recapitalization than might have been the case prior to the Recapitalization.
Governance Structure
Although the Company has attempted to achieve a balanced approach to its
corporate governance structure after the Recapitalization, such structure is
very unusual in the management of a large, complex public corporation, and it
is not certain that the actual operation of the corporate governance process
will not result in disputes or inability to achieve results that are in the
best interests of the Company or holders of New Shares.
Following consummation of the Recapitalization and until the Sunset, the
Board will be comprised of twelve members elected as follows: (i) five public
directors ("Public Directors") elected by holders of the New Shares, including
(a) three members of the existing Board or other individuals who previously
had no material contact with the Company other than as directors and (b) two
substantially full-time employees of the Company intended to be the CEO and an
additional senior executive of the Company, (ii) four independent directors
elected by the initial independent directors intended to be a quasi self-
perpetuating body, (iii) three directors representing various employee groups
elected as follows: (a) one director elected by the ALPA-MEC, (b) one director
elected by the IAM or its designee (the director elected by the ALPA-MEC and
the director elected by the IAM or its designee are referred to collectively
as the "Union Directors") and (c) one director (the "Salaried and Management
Director" and, with the Union Directors, the "Employee Directors") elected by
holders of the Class SAM Preferred Stock (the Salaried and Management Director
and an additional designated stockholder). Generally, approval of ordinary
Board actions will require a majority vote of the votes present at a meeting
at which a quorum is present and approval of certain extraordinary matters
will require, subject to certain exceptions, approval of either three-quarters
of the Board (including the concurrence of one Union Director) or three-
quarters of the shares present and voting at a stockholders' meeting at which
a quorum is present. In addition, certain extraordinary matters will require
approval of the Public Directors, the Independent Directors or a majority of
shares not held by the ESOPs. The following Committees will be constituted:
the Audit Committee, the Competitive Action Plan ("CAP") Committee, the
Compensation Committee, the Compensation Administration Committee, the
Executive Committee, the Independent Director Nomination Committee, the Labor
Committee, the Outside Public Director Nomination Committee and the
Transaction Committee. Public Directors and Independent Directors will be
represented on all committees and the Employee Directors will be represented
on the Executive Committee, the CAP Committee, the Independent Director
Nomination Committee and the Compensation Committee. See, "THE PLAN OF
RECAPITALIZATION-- Revised Governance Structure".
Under the terms of the Restated Certificate, the participants in the ESOPs
(and in certain circumstances the ALPA-MEC, the IAM and the Salaried and
Management Director ) will continue to hold more than 50% of the voting power
of the Company until the economic equity interest held by or credited to the
ESOPs and other employee benefit plans sponsored by the Company is less than
20% of the common equity of the Company, all as more fully described in "THE
PLAN OF RECAPITALIZATION--Revised Governance Structure--Sunset." The
termination of the right to exercise more than 50% of the voting power of the
Company is referred to herein as the "Sunset." See "THE PLAN OF
RECAPITALIZATION--Revised Governance Structure--Sunset." Under current
actuarial assumptions, the Company estimates that this Sunset provision will
not become operative until 2016 if additional purchases are not made by
eligible employee benefit plans. However, such plans will have the right, and
may be expected to, make additional purchases, thereby delaying the occurrence
of the Sunset. In addition, the Restated Certificate contains a number of
provisions which may prevent the Company prior to the Sunset from taking
certain specified actions without the consent of one or both of the members of
the Board elected by ALPA and the IAM or a 75% vote of holders of New Shares
and Voting Preferred Stock. See "THE PLAN OF RECAPITALIZATION--Revised
Governance Structure."
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Fraudulent Conveyance
If a court in a lawsuit by an unpaid creditor or representative of creditors,
such as a trustee in bankruptcy, were to find that, at the time the Company
distributed to holders of Old Shares the cash and (unless the United Debt
Offerings are consummated) Debentures that such holders are to receive in the
Recapitalization, the Company (i) was insolvent, (ii) was rendered insolvent by
reason of such distributions, (iii) was engaged in a business or transaction
for which the assets remaining with the Company constituted unreasonably small
capital to carry on its business or (iv) intended to incur, or believed that it
would incur, debts beyond its ability to pay as such debts matured, such court
may void the distributions to stockholders and require that such holders return
the same (or equivalent amounts) to the Company or to a fund for the benefit of
its creditors. If a court were to make similar findings about United's issuance
of the Debentures, such court could avoid United's obligations under the
Debentures or order the Debentures to be subordinated to all existing and
future indebtedness of United.
The measure of insolvency for purposes of the foregoing would vary depending
upon the law of the jurisdiction that was being applied. Generally, however,
the Company would be considered insolvent if at the time of the
Recapitalization the fair value of the Company's assets is less than the amount
of the Company's total debts and liabilities or if the Company has incurred
debt beyond its ability to repay as such debt matures. As described in "SPECIAL
FACTORS--Opinion of Valuation Firm," the American Appraisal Opinion was
rendered orally to the Board at the March 14, 1994 meeting and in a written
opinion to the Board and the Company dated as of March 14, 1994. In rendering
the American Appraisal Opinion, American Appraisal valued the assets of the
Company (on a consolidated basis) and United (on a consolidated basis), as
going concerns, both immediately before and after, and giving effect to, the
Recapitalization. The valuation included the aggregate assets of the business
enterprise of each of the Company (on a consolidated basis) and United (on a
consolidated basis), or total invested capital as represented by the total net
working capital, tangible plant, property and equipment and intangible assets
of the respective business enterprises. American Appraisal stated that it
believed this to be a reasonable basis on which to value the Company and United
and that nothing has come to its attention that caused it to believe that each
of the Company (on a consolidated basis) and United (on a consolidated basis),
before and after the Recapitalization, will not be going concerns.
As stated in "SPECIAL FACTORS--Opinion of Valuation Firm," the American
Appraisal Opinion stated that, based upon and subject to the conditions and
assumptions contained therein, (a) the fair value of the aggregate assets of
each of the Company (on a consolidated basis) and United (on a consolidated
basis) will exceed their total respective liabilities (including, without
limitation, subordinated, unmatured, unliquidated and contingent liabilities),
(b) the present fair salable value of the aggregate assets of each of the
Company (on a consolidated basis) and United (on a consolidated basis) will be
greater than their respective probable liabilities on their debts as such debts
become absolute and matured, (c) each of the Company (on a consolidated basis)
and United (on a consolidated basis) will be able to pay their respective debts
and other liabilities, including contingent liabilities and other commitments,
as they mature, (d) the capital remaining in each of the Company (on a
consolidated basis) and in United (on a consolidated basis) after consummation
of the Recapitalization will not be unreasonably small for the businesses in
which the Company and United are engaged, as management of the Company and
United has indicated such businesses are conducted and as management has
indicated the businesses are proposed to be conducted following the
consummation of the Recapitalization, and after giving due consideration to the
prevailing practices in the industry in which the Company and United will be
engaged, (e) the excess of the fair value of the total assets of the Company
over the total liabilities, including contingent liabilities, of the Company,
is equal to or exceeds the value of the Recapitalization Consideration to
stockholders plus the stated capital of the Company and (f) the excess of the
fair value of the total assets of United over the total liabilities, including
contingent liabilities, of United, is equal to or exceeds the value of the
stated capital of United.
American Appraisal also indicated that it believed the excess of total assets
over pro forma liabilities was approximately $2.5 billion at December 31, 1993,
compared to approximately $1.203 billion in stockholders' equity as of such
date, determined according to generally accepted accounting principles, so
that, giving effect to the Recapitalization, the indicated excess assets of the
Company for purposes of Delaware law exceeded $1 billion.
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Certain Anti-Takeover Effects
Certain provisions of the governance structure will make it extremely
difficult to acquire the Company in a transaction that was not approved by at
least one of the Union Directors or 75% of the vote of the New Shares and the
Voting Preferred Stock (as defined below, see "DESCRIPTION OF THE SECURITIES--
The Voting Preferred Stock--General"), even if such transaction might be
beneficial to the Company's stockholders. In particular, the provision
described below in "THE PLAN OF RECAPITALIZATION--Revised Governance
Structure--Nondilution" will prevent the occurrence of an acquisition of the
Company for an extended period following the Effective Time if the holders of
over 90% of the Voting Preferred Stock disapprove such acquisition.
Pricing of Public Preferred Stock and Debentures
Pricing of Public Preferred Stock and Debentures. As described in "THE PLAN
OF RECAPITALIZATION--Terms and Conditions--Pricing of the Securities," the
final interest rates on the Debentures and the final dividend rate on the
Public Preferred Stock will be established not less than five business nor more
than ten calendar days before the Meeting. Although the procedure for
establishing such final rates is designed to determine the rates that such
securities should bear for the Debentures and the Depositary Preferred Shares
representing interests in the Public Preferred Stock to trade at par assuming
such securities were fully distributed, the Plan of Recapitalization provides
that such rates may not exceed certain caps. The underwriting agreements
relating to the several Offerings are expected to provide, as applicable, that
if such Offerings are consummated, the interest rates on the Debentures and the
dividend rate on the Public Preferred Stock may be adjusted (including in
excess of their respective caps) to permit such securities to be sold at or
closer to par, but if that is done, the principal amount of the series of
Debentures affected or the number of Depositary Preferred Shares representing
interests in the Public Preferred Stock, as the case may be, will be reduced so
that the aggregate amount of interest payable annually by United on such series
of Debentures or the aggregate amount of dividends payable annually by the
Company on the Public Preferred Stock will not exceed certain maximum amounts
calculated with reference to such caps. The underwriting agreements for the
Offerings are expected to provide that if the Offerings are not consummated,
the interest rates borne by the Debentures and the dividend rate borne by the
Public Preferred Stock will be subject to the caps. See "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--Pricing the Securities." If the
prevailing market interest and dividend rates for securities comparable to the
Debentures and the Depositary Preferred Shares are higher than the rate caps
applicable to the Debentures or the Public Preferred Stock, as the case may be,
the Debentures or the Depositary Preferred Shares representing interests in the
Public Preferred Stock, as the case may be, may trade at a discount to par.
Accordingly, if the rate caps are imposed for either or both series of the
Debentures or the Depositary Preferred Shares, (a) the proceeds from an
Offering, if consummated, would be less than the face amount thereof, or (b) if
the Offerings are not consummated, the securities constituting a part of the
Recapitalization Consideration would have a trading value of less than the face
amount thereof. Based on the current general market conditions, the Company
believes that the rates for either or both series of the Debentures or the
Depositary Preferred Shares may approach or exceed the maximum rates.
Investment Values; Future Investments
Cost savings envisioned by the agreements with ALPA and the IAM and the
anticipated productivity increases discussed herein are estimates prepared by
the Company for analytical purposes. Such cost savings and anticipated
productivity increases could be difficult to achieve, and, even if all proposed
plans for employee investments are implemented, the value of the reductions in
wages and benefits and work-rule changes and anticipated productivity increases
may not be as significant as currently calculated. Mandated job guarantees may
make it difficult to achieve significant additional productivity improvements,
and, if additional reductions in wages and benefits and work-rule changes
become desirable in management's view, such reductions in wages and benefits
and work-rule changes may be more difficult to achieve in light of the long-
term nature of the revised collective bargaining agreement with ALPA and the
IAM that constitute elements of the Recapitalization (the "Collective
Bargaining Agreements").
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Lack of Employee Consensus
Certain employee groups may not be in favor of the changes arising from the
Recapitalization and may react in a manner that does not facilitate achievement
of the desired results. For example, the AFA has declined to date to
participate in the transaction, certain other employees who will be
participating in the wage and benefit reductions and work-rule changes were not
in favor of the transaction, and certain union organizing activity, based on
opposition to certain aspects of the transaction, has occurred. This lack of
consensus may reduce the value of the increased employee commitment the Company
expects to achieve by virtue of the Recapitalization.
Management Change
The current Chairman and Chief Executive Officer of the Company, Mr. Stephen
M. Wolf, President, Mr. John C. Pope, and Executive Vice President--Corporate
Affairs and General Counsel, Mr. Lawrence M. Nagin, will retire at the
Effective Time. The new chief executive officer selected by ALPA and the IAM,
Mr. Gerald M. Greenwald, will be required to implement reductions in wages and
benefits and work-rule changes that he did not directly negotiate in an
industry in which he has not previously been engaged. In addition, it is
possible that the Company may face attrition by officers and other members of
management and that the Company's new senior management may face difficulties
in implementing strategies or attracting additional management employees. It is
expected that a Chief Operating Officer of the Company and United will not be
identified prior to the Meeting or the Effective Time. If this occurs, the
Company would expect that members of existing senior management would perform
the functions of the Chief Operating Officer after the Effective Time until
such a person is identified in accordance with the procedures specified in the
Restated Certificate. See "THE PLAN OF RECAPITALIZATION--Revised Governance
Structure--Officers."
Reduced Flexibility
The corporate governance structure and Collective Bargaining Agreements with
ALPA and the IAM may inhibit management's ability to alter strategy in a
volatile, competitive industry. Among the more significant constraints are (i)
a prohibition on domestic code sharing in excess of 1% of domestic block hours,
excluding several small existing agreements, without ALPA's consent, (ii) a no
layoff promise for all currently employed participating union employees during
the five- to six-year investment period and, for pilots, while U2 remains in
operation (which constraint is ameliorated as normal attrition reduces the
impact of the no-layoff promise), (iii) restrictions on international code
sharing, unless the Company can demonstrate that international code sharing
arrangements do not cause a reduction in international flying and as long as
the Company does not expand code sharing once the Company reduces international
flying below a certain level and (iv) an agreement not to sell the Company's
Denver pilot training facility and certain maintenance facilities. In addition,
the Restated Certificate contains restrictions on the ability of the Company
and United to sell assets and issue equity securities absent certain specified
Board or stockholder approvals. In most circumstances, the issuance of
additional equity securities would not be counted in determining whether the
Sunset has occurred.
Limitations on asset sales and equity issuances included in the Company's
Restated Certificate might make it more difficult to raise cash, even if
management desired to do so to take advantage of a perceived opportunity.
Implementation of U2
Although the Company expects to develop U2 as an important component of its
competitive posture and has ascribed a significant portion of the value of the
Recapitalization to the ability to implement U2, no assurance can be given that
the Company will be able to do so effectively or to realize the financial
benefits expected to be received by the Company from the implementation of U2.
The success of U2 will be based not only upon the nature of the Company's
business plan but also upon the strategies and plans implemented by existing
low-cost competitors and by new entrants into the low-cost market. In addition,
even if the business
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concept of U2 is successful, (i) U2 will comprise no more than 20% of United's
system block hours up to two million block hours systemwide and no more than
25% of the system block hours in excess of two million, (ii) U2 can only
operate in markets in the lower 48 states with stage lengths up to 750
nautical miles and cannot fly between United's hub or international gateway
cities except for Los Angeles basin--San Francisco bay area service, which
excludes U2 from such heavily traveled routes as the transcontinental routes
and New York/Chicago, Chicago/Denver and Chicago/Washington Dulles, (iii) U2
cannot operate aircraft larger than a B737-300 and (iv) for the first six
years, U2 can only operate up to 90% of monthly block hours in markets
previously served (within 24 months) by United. If United's systemwide
widebody flying (i.e., flying performed in B-757 or larger aircraft) falls
below (i) 95% of the widebody block hours projected in the Company's October
1993 fleet plan for any twelve month period from the Effective Time through
1999 or (ii) a certain minimum level for any twelve month period between 2000
and 2006, the total flying performed in the U2 operation must be reduced by
the shortfall in widebody flying. Even if implemented as planned, U2 will not
have costs which are as low as those of certain low-cost competitors. U2 must
rely upon factors other than lowest cost to secure market share and be
successful.
Competitive Response
Even if the Company is able to achieve cost reductions and productivity
enhancements, the Company's higher cost competitors may be able to achieve
comparable agreements with their labor groups or otherwise reduce their
operating costs and the Company's low-cost competitors may modify their
operations in response to the competitive threat posed by U2 and thus, in each
case, may eliminate or reduce the competitive gain sought by the Company and
lead to reductions in fares and earnings. In this regard, for example,
Continental Airlines (which already has a low cost structure) has implemented
a low cost, short haul service which would be competitive with U2, and Delta
has announced its intent to lower its overall costs substantially. If the
Company's higher cost competitors were to achieve more significant reductions
in wages and benefits and work-rule changes than those achieved by the
Company, the Company's ability to respond to competition would be hampered by
the fixed long-term nature of the agreements that constitute elements of the
Recapitalization.
Labor Protective Provisions
The Company will continue in effect, or amend to include, certain provisions
of agreements with ALPA and the IAM that (i) provide certain rights in the
event of a change in control of the Company and (ii) prohibit furloughs,
within certain conditions, if the Company disposes of 25 percent or more of
its assets or assets which produce 25 percent or more of its block hours. The
revised Collective Bargaining Agreements obligate the Company to require any
carrier purchasing route authority or aircraft that produce 25 percent or more
of the Company's operating revenues or block hours to hire an appropriate
number of United employees represented by ALPA or the IAM with seniority
credit.
Tax Deductibility of Employee Stock Ownership Plan Contributions and
Dividends
Although the Company has attempted to structure the ESOPs so that all
amounts contributed thereto and dividends paid with respect to the stock held
thereunder will be deductible to the Company for Federal income tax purposes,
there are no regulations governing the deductibility of dividends paid on the
ESOP Preferred Stock and there can be no assurance that one or more current or
future limitations under the Internal Revenue Code will not adversely impact
the deductibility of such amounts and dividends. The deductibility of such
amounts depends, to some extent, on the conclusions set forth in an opinion
rendered to the ESOP Trustee by Houlihan Lokey and there can be no assurance
that the Internal Revenue Service (the "IRS") will agree with the methodology
set forth in such opinion. With respect to tax deductions associated with the
Class 1 ESOP Preferred Stock, the amount of such deductions is directly
related to the purchase prices of the Class 1 ESOP Preferred Stock. See "THE
PLAN OF RECAPITALIZATION--Terms and Conditions--Purchase of ESOP Preferred
Stock." With respect to tax deductions associated with the Class 2 ESOP
Preferred Stock, the amount of such deductions is directly related to the
value of such stock in the future when such deductions will be available to
the Company. For additional information on the tax consequences relating to
the ESOPs, see "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs--Federal
Income Tax Matters."
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Amendments to Collective Bargaining Agreements; Future Labor Agreements
There can be no assurance that the new management of the Company in the
future will not agree to amend the Collective Bargaining Agreements with ALPA
and the IAM in a manner that reduces or eliminates the cost savings that are
the basis of the Recapitalization. However, any such amendment must be approved
by the Labor Committee of the Board (which will not include any Union Directors
(as defined below)). See "THE PLAN OF RECAPITALIZATION--Revised Governance
Structure--Committees." In addition, at the end of the current employee
investment period, there can be no assurance that the Company's labor
agreements will be renegotiated in a manner that continues in subsequent
periods the cost savings that are being sought through the Recapitalization or
that does not reverse the effect of any cost savings that will have been
obtained thereby.
Possible Effect of Organization of Additional Employees
In the event any portion of the management and salaried employees that are
not currently represented by a union elects union representation pursuant to
the Railway Labor Act, the Company would be obligated to bargain with such
union over the terms and conditions of employment applicable to such employees,
including the terms, if any, of such employees' continuing participation in the
ESOPs. This obligation to bargain requires the Company to "exert every
reasonable effort" to reach an agreement but does not require it to agree to
any change or particular term or condition sought by the union. During the
period of negotiation, the Company would be entitled to maintain the then-
existing terms of such employees' participation in the ESOPs.
The ESOPs provide that if any group of employees that are not currently
represented by a union becomes covered by a new collective bargaining
agreement, such group of employees will not be covered under the ESOPs unless
the collective bargaining agreement so provides. Whether any new collective
bargaining agreement would provide for continuing participation in the ESOPs by
such group of employees is a matter that would be subject to mutual agreement
between the Company and the applicable union. The ESOPs provide, however, that
if the terms of any employee's employment no longer reflect all of the
reductions in wages and benefits and work-rule changes set forth in the Plan of
Recapitalization, then such employee shall cease to be covered by the ESOPs.
As a result, if any new collective bargaining agreement did not reflect the
reductions in wages and benefits and work-rule changes required by the Plan of
Recapitalization for particular employees, the Company could not agree, without
amending the ESOPs, to allow such employees to participate in the ESOPs. If any
currently unrepresented employees ceased to participate in the ESOPs under such
circumstances, the ESOPs, however, provide that the unrepresented employees
remaining in the ESOPs would receive the shares previously intended for that
newly-represented group. The employment terms, except base pay, for the
unrepresented employees remaining in the ESOPs will be subject to change, at
the Company's discretion, so long as the net economic value of the
unrepresented employees' employment terms is not altered.
Employee Ownership and Influence
No assurance can be given that the Company, which will be subject to
significant influence by employee groups (including through the right to voting
representation in excess of economic equity ownership, Board and Board
committee representation, the requirement of approval of certain matters by a
Union Director or a 75% vote of the holders of New Shares and Voting Preferred
Stock, and participation by Union Directors in the nomination of the
Independent Directors (as defined below, see "THE PLAN OF RECAPITALIZATION--
Revised Governance Structure")), might not take actions that are more favorable
to such employee groups than might be taken by a company that was not subject
to such influence. The corporate governance structure after the
Recapitalization will not, however, relieve the members of the Board of their
fiduciary obligations under the DGCL.
Effect of Adjustment on Trading
As described under "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs--
Additional Shares," the ESOP Preferred Stock which the Company is initially
obligated to issue or credit to the ESOPs is
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convertible into approximately 55% of the New Shares but, based on the trading
prices of the New Shares in the twelve months after the Effective Time (the
"Measuring Period"), may be increased up to a maximum of approximately 63% of
the New Shares. Such potential additional issuance may adversely limit the
trading prices of the New Shares during the Measuring Period.
Additional Issuances of Recapitalization Consideration
United has registered under the Securities Act of 1933 $449,802,200
aggregate principal amount of each series of Debentures and the Company has
registered 35,984,175 Depositary Preferred Shares representing interests in
$899,604,375 aggregate liquidation preference of the Public Preferred Stock
for issuance to holders of Old Shares, Options and Company Convertible
Securities in connection with the Recapitalization. If any of the Offerings
are not consummated, United and the Company may be required to issue a larger
number of Debentures and Depositary Preferred Shares representing interests in
Public Preferred Stock in connection with the exercise of Options in the event
holders thereof fail to use a cashless exercise feature or in connection with
the conversion of certain Convertible Company Securities (as defined below).
However, the failure of Options holders to utilize a cashless exercise feature
would have the effect of increasing the Company's available cash by an amount
equal to the aggregate exercise price. See "DESCRIPTION OF SECURITIES--The
Debentures--General" and "--The Public Preferred Stock--General." If the
Offerings are not consummated, the Company currently intends to register in
the future additional securities originally issued (or distributed following
repurchase in the market), to satisfy the exercise or conversion of Options or
Convertible Company Securities.
Financial Reporting; Market Assessment
The accounting rules governing employers accounting for employee stock
ownership plans require that compensation expense be recorded for the ESOP
Preferred Stock "committed to be released" during an accounting period based
on the fair value of the ESOP Preferred Stock during such period. The
difference between the fair value and the initial recorded cost of the ESOP
Preferred Stock "committed to be released" is recorded as an adjustment to
stockholders' equity. The ESOP Preferred Stock that has been "committed to be
released" is considered to be outstanding in the if-converted earnings per
share calculation for primary and fully diluted earnings per share if the
effect is dilutive. The circular relationship between the employee stock
ownership plan accounting charges and the Company's stock price, coupled with
the size of the contemplated ESOPs, make future earnings difficult to
forecast. In addition, reported book earnings will be depressed in early years
due to the mismatch between the term of employee investments (which increase
earnings) of from five years, nine months to twelve years and the shorter
period of only six years over which employee stock ownership plans accounting
charges will occur. While it is possible that the equity research community
and investors may look through employee stock ownership plan accounting
charges, it is also possible that the trading price of the New Shares may be
negatively impacted by such accounting treatment.
Complexity
Given the complex nature of the various provisions affecting the operation
of the Company after the Effective Time, it is possible that the equity
research community and investors may find the Company difficult to evaluate,
which may have the effect of reducing the trading price of the New Shares from
levels that might otherwise prevail. In addition, equity issuances (other than
Permitted Bankruptcy Equity (as defined below, see "THE PLAN OF
RECAPITALIZATION--Revised Governance Structure--Extraordinary Matters"))
generally will be disregarded when calculating the percentage of Common Equity
(as defined below, see "THE PLAN OF RECAPITALIZATION--Revised Governance
Structure--Sunset") for Sunset purposes, which may negatively impact the
market value of the New Shares and other equity of the Company.
Redistribution
If any of the Offerings are not consummated, in the Recapitalization,
holders of Old Shares (an equity security) will receive Debentures and/or
Depositary Preferred Shares representing interests in Public
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Preferred Stock in addition to New Shares and cash. It is expected that there
will exist a period, perhaps of a lengthy duration, during which certain
recipients of such securities, concluding that the characteristics thereof are
not consistent with their investment criteria, distribute such securities into
the marketplace. During such distribution period, the supply of such securities
in the market may exceed levels that might otherwise prevail, which would
likely have the effect of depressing the price of such securities from levels
that might otherwise prevail if such securities were held solely by persons or
institutions for whom such securities satisfied their investment criteria. The
Debentures and the Depositary Preferred Shares have been approved for listing
on the New York Stock Exchange Inc. (the "NYSE"), subject to official notice of
issuance, although there can be no assurance that at or following the Effective
Time any trading market for these securities will develop.
Taxation of Recapitalization to Stockholders
For United States Federal income tax purposes, the Recapitalization will be a
taxable transaction to public stockholders that are citizens or residents of
the United States. Such a stockholder whose Old Shares are exchanged for the
Recapitalization Consideration in the Recapitalization will realize gain or
loss in the Recapitalization measured by the difference, if any, between (i)
the fair market value of the Recapitalization Consideration received by such
stockholder in the Recapitalization, and (ii) such stockholder's tax basis
in the Old Shares exchanged in the Recapitalization. If the Offerings are
consummated, in whole or in part, gain realized by a public stockholder in the
Recapitalization will be recognized, but only to the extent such gain does not
exceed the amount of cash (or cash and Debentures, as the case may be) received
by such stockholder in the Recapitalization. If the Offerings are not
consummated, gain realized by a public stockholder in the Recapitalization will
be recognized, but only to the extent such gain does not exceed the sum of (i)
the fair market value of the Debentures and (ii) the amount of cash received by
such stockholder in the Recapitalization. If the Offerings are consummated, in
whole or in part, the maximum taxable gain associated with the transaction will
not exceed $88 per Old Share, or such lesser amount, if as a result of the
Offerings the amount of cash (or cash and Debentures, as the case may be)
exchanged in the Recapitalization is less than $88 per Old Share. If the
Offerings are not consummated, assuming that the Debentures have a fair market
value of $31.10 per Old Share, the maximum taxable gain associated with the
transaction will not exceed $56.90 per Old Share (i.e., the sum of the assumed
fair market value of the Debentures and the amount of cash received). The
character of any gain recognized by a public stockholder in the
Recapitalization may be ordinary income or capital gain depending upon whether
the receipt of cash (or Debentures and cash) by the stockholder has the effect
of a dividend distribution as to such stockholder or is treated as a sale or
exchange. Any loss realized by a public stockholder in the Recapitalization
will not be recognized. The operation of the basis allocation rules would
provide that any such loss would be effectively carried over into the basis of
the New Shares (and Depositary Preferred Shares if the Offerings are not
consummated) that are received in the Recapitalization. However, there can be
no assurance that any such loss would ultimately be recognized by any
particular stockholder. For a more detailed discussion of the Federal income
tax consequences of the Recapitalization, see "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES."
Industry Risks
If the Recapitalization is accomplished, certain risks associated with the
aviation industry will continue to face the Company. Given the more leveraged
financial structure of the Company following the Recapitalization, certain of
these industry risks could have a greater adverse impact on the Company after
the Recapitalization than might have been the case prior to the
Recapitalization.
Industry Conditions and Competition
The airline industry is highly competitive and susceptible to price
discounting. United's competitors include major domestic carriers such as
American, Delta, and Northwest, major international carriers such as British
Airways and Japan Air Lines, and domestic carriers such as Southwest,
Continental and other
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carriers with lower cost structures. Airline profit levels are highly sensitive
to, and during the last four years have been significantly impacted by, adverse
changes in fuel costs, average yield (fare levels) and passenger demand.
Passenger demand and yields have been adversely affected by, among other
things, the general state of the economy, the Persian Gulf War and actions
taken by carriers with respect to fares. As a result of this adverse operating
environment, from 1990 to 1993 the domestic airline industry incurred
unprecedented losses. During this period, Eastern Air Lines, Pan American World
Airways and Midway Airlines were liquidated, and Continental Airlines, America
West Airlines and Trans World Airlines filed for bankruptcy.
The emergence in recent years of several new carriers, typically with low
cost structures, has further increased the competitive pressures on the major
U.S. airlines. In some cases, the new entrants have initiated or triggered
price discounting. Aircraft, skilled labor and gates at most airports continue
to be readily available to start-up carriers. Although new entrant carriers
generally commence service with only a few city pairs and have a high rate of
failure, the commencement of service by new carriers on United's routes could
negatively impact United's operating results. In addition, certain existing
U.S. domestic carriers compete primarily by offering low-cost air service on
route networks that do not employ hub and spoke systems. These discount air
carriers have significantly affected the yields of major domestic carriers such
as United and, in certain instances, have made certain markets uneconomical for
carriers such as United.
In the spring of 1992, American introduced a new fare structure followed by a
deeply discounted summer sale, steps that were generally matched by other U.S.
airlines (including United), resulting in substantially depressed industry
yields and significant 1992 losses at all major U.S. airlines (with one
exception). American and the rest of the domestic airline industry have
abandoned that pricing structure, and fare levels have increased in 1993 and
early 1994 from 1992 levels. Nonetheless, significant discounts continue to
exist and may be increased at any time. The introduction of broadly-available,
deeply discounted fares by a major U.S. airline would likely result in lower
yields for the entire industry and could have a material adverse effect on the
Company's operating results.
Aircraft Fuel
Since fuel costs constitute a significant portion of the Company's operating
costs (approximately 12% during 1993), significant changes in fuel costs would
materially affect the Company's operating results. Fuel prices continue to be
susceptible to, among other factors, political events, and the Company cannot
predict near- or longer-term fuel prices. In the event of a fuel supply
shortage resulting from a disruption of imports or otherwise, higher fuel
prices or curtailment of scheduled service could result. A one cent change in
the cost per gallon of fuel (based on 1993 consumption levels) impacts
operating expense by approximately $2.25 million per month.
In August 1993, the United States increased taxes on fuel, including aircraft
fuel, by 4.3c per gallon. Airlines are exempt from this tax increase until
October 1, 1995. When implemented, this new tax will increase the Company's
annual operating expenses by approximately $75 million based on United's 1993
domestic fuel consumption levels.
Regulatory Matters
In the last several years, the Federal Aviation Administration (the "FAA")
has issued a number of maintenance directives and other regulations relating
to, among other things, collision avoidance systems, airborne windshear
avoidance systems, noise abatement and increased inspection requirements. The
Company expects to continue incurring costs to comply with the FAA's
regulations.
Additional laws and regulations have been proposed from time to time that
could significantly increase the cost of airline operations by, for instance,
imposing additional requirements or restrictions on operations. Laws and
regulations have also been considered from time to time that would prohibit or
restrict the
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ownership and/or transfer of international airline routes or takeoff and
landing slots. Also, the award of international routes to U.S. carriers (and
their retention) is regulated by treaties and related agreements between the
United States and foreign governments, which are amended from time to time. For
example, there are significant aviation issues between the United States and
such foreign governments as Germany, Japan and the United Kingdom that,
depending on their resolution, may significantly impact the Company's existing
operations or curtail potential expansion opportunities in important regions of
the world. The Company cannot predict what laws and regulations will be adopted
or what changes to international air transportation treaties will be effected,
if any, or how they will affect United.
Holding Company Structure
The Company is a holding company that conducts operations solely through its
subsidiaries, principally United. The Company will rely on dividends from its
subsidiaries to meet its cash requirements, including cash requirements in
connection with dividends on or redemptions of the Public Preferred Stock (and
related Depositary Preferred Shares). As a result of the Recapitalization,
United will have substantial debt in relation to its stockholder's equity, as
determined on a pro forma basis pursuant to the application of generally
accepted accounting principles.
CERTAIN EFFECTS OF THE RECAPITALIZATION
The Recapitalization will significantly increase the Company's long-term
indebtedness, significantly reduce cash reserves and create a substantial
negative balance in stockholders' equity. See "--Certain Risk Factors," "THE
PLAN OF RECAPITALIZATION" and "UNAUDITED PRO FORMA FINANCIAL INFORMATION."
As a result of the Recapitalization, a new corporate governance structure
will be implemented, a new board of directors will be elected and a new chief
executive officer will be appointed. See "--Management Arrangements," "THE PLAN
OF RECAPITALIZATION--Revised Governance Structure" and "ELECTION OF DIRECTORS."
The New Shares will be registered under the Exchange Act, which requires,
among other things, that the Company furnish certain information to its
stockholders and to the Commission and comply with the Commission's proxy rules
in connection with meetings of the Company's stockholders. The Recapitalization
will result in the Old Shares becoming eligible for deregistration under the
Exchange Act.
Although the Company will not meet certain normal requirements for NYSE
listing following the Recapitalization, such as the requirement of a minimum
net worth, the NYSE has informed the Company that it will permit listing
(subject to official notice of issuance) of the New Shares immediately
following consummation of the Recapitalization.
Except for the Plan of Recapitalization, there are no present plans or
proposals that would result in any material extraordinary corporate
transaction, such as a merger, reorganization, liquidation, relocation of
operations, or sale or transfer of a material amount of assets involving the
Company or its subsidiaries, or any material change in the Company's corporate
structure, business or composition of its management of which the current Board
is aware.
The Recapitalization will be accounted for as a redemption of shares that is
not subject to purchase accounting and, therefore, assets and liabilities will
be carried at their historical cost and there will be no increase in goodwill
amortization or other purchase accounting effects (such as increased
depreciation charges) resulting from the Recapitalization that would reduce
earnings.
MANAGEMENT ARRANGEMENTS
Under a Retention Agreement, dated as of January 1, 1994 (the "Retention
Agreement"), ALPA and the IAM agreed to employ Mr. Gerald Greenwald as a
consultant with respect to the transactions contemplated by the Plan of
Recapitalization. Mr. Greenwald, the former Vice Chairman of Chrysler
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Corporation, was previously associated with a transaction proposed in 1990 by
an entity controlled by the Company's three principal unions, which transaction
was terminated in October 1990.
Under the Retention Agreement, Mr. Greenwald is entitled to a consulting fee
of $80,000 per month from January 1994 to the Effective Time and if the
Retention Agreement is terminated under certain circumstances (e.g.,
termination by the Unions without cause), an additional $1 million payment at
the Effective Time. The Retention Agreement contemplates that Mr. Greenwald and
the Company will execute a five-year employment agreement (the "Greenwald
Agreement"), which agreement will become effective at the Effective Time.
Pursuant to the Greenwald Agreement, the Company will pay to Mr. Greenwald at
the Effective Time a fee of $1 million. Under the Greenwald Agreement, Mr.
Greenwald will receive a salary of $725,000 per year, reduced by 8.25%
(equivalent to the salaried and management concession) and a non-guaranteed
target bonus of $725,000 per year, which target bonus will be payable if Mr.
Greenwald's performance is "consistent with the applicable Board Committee's
objectives and directions" and the Company's performance "does not compel" a
lesser bonus. In addition, the applicable Board Committee will take into
account (i) airline industry trends and (ii) the Company's financial
performance (including cumulative profitability since the Effective Time) in
determining the extent of Mr. Greenwald's bonus. Pursuant to the Greenwald
Agreement, Mr. Greenwald will receive options to acquire 200,000 New Shares,
with an exercise price equal to the fair market value of the New Shares on the
day following the Effective Time. Fifty percent of such options will vest at
the Effective Time and the remainder will vest over 5 years. All options and
restricted stock vest on any termination of Mr. Greenwald's employment other
than termination by the Company for cause or a voluntary resignation. The
options, to the extent vested, will remain outstanding for 10 years,
notwithstanding termination of Mr. Greenwald's employment for any reason,
including "cause". Mr. Greenwald will also receive 50,000 New Shares of
restricted stock, vesting 50% at the Effective Time and the remaining 50% over
5 years. Additional options and restricted stock will be issued to the extent
the equity adjustment mechanism is triggered. See "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--Additional Shares."
The Greenwald Agreement also entitles Mr. Greenwald to an annual pension
equal to the greater of the pension that would accrue under Company plans with
credit for 30 years of service or $500,000 per year. Such pension is payable at
any time elected by Mr. Greenwald following retirement or termination of
employment. Mr. Greenwald's retirement benefit will continue to be paid to his
spouse at 67% of his benefit level under a joint survivor annuity. The
Retention Agreement specifies that benefits under such pension must be funded
in full at the Effective Time through a trust at an estimated amount of $6.4
million.
If Mr. Greenwald's employment is terminated by the Company without "cause" or
by him for "good reason", his salary and guaranteed $725,000 bonus will
continue for 3 years (or, if greater, the remainder of the 5 year contract
term). Generally, the Company will not be entitled to a deduction for Federal
income tax purposes with respect to the amounts described above to the extent
that such amounts exceed $1 million in any year.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Skadden, Arps, Slate, Meagher & Flom has served as tax counsel to the Company
in connection with the Recapitalization. The following expresses Skadden, Arps,
Slate, Meagher & Flom's opinion to the Company as to the material Federal
income tax consequences that, under currently applicable law, should arise from
the Recapitalization. The following discussion is applicable only to public
stockholders who are citizens or residents of the United States and are not
foreign corporations. The discussion may not be applicable with respect to Old
Shares acquired as compensation, including Old Shares acquired upon the
exercise of options or Old Shares held under the Company's employee benefit
plans, or to Old Shares held as other than capital assets. Moreover, the
discussion is not applicable to public stockholders who hold, or who are
related within the meaning of Section 318 of the Internal Revenue Code to
stockholders who hold, employee stock options of the Company. Furthermore,
state and local tax consequences of the Recapitalization are not addressed in
the discussion. Stockholders should note that the opinions of Skadden, Arps,
Slate, Meagher & Flom are not binding on the IRS or any court, and the Company
has not sought, and does not intend to seek, a ruling from the IRS as to the
Federal income tax consequences of the Recapitalization.
STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE
APPLICATION OF THE FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATION, AS
WELL AS TO THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR FOREIGN TAX
LAWS TO WHICH THEY MAY BE SUBJECT.
1. The Recapitalization taken as a whole will constitute a
"recapitalization" of the Company within the meaning of Section 368(a)(1)(E) of
the Internal Revenue Code. Accordingly, the Recapitalization will not be a
taxable transaction to the Company, but will be a taxable transaction to the
public stockholders with the consequences described below.
2. A public stockholder whose Old Shares are exchanged for the
Recapitalization Consideration in the Recapitalization will realize gain or
loss in the Recapitalization measured by the difference, if any, between (i)
the fair market value of the Recapitalization Consideration received by such
stockholder in the Recapitalization, and (ii) such stockholder's tax basis in
the Old Shares exchanged in the Recapitalization; however, only gain to the
extent of the amount of cash and the fair market value of Debentures, if any,
received in the Recapitalization will be recognized. Accordingly, whether or
not the Offerings are consummated as contemplated, either in whole or in part,
gain realized by a public stockholder in the Recapitalization will be
recognized, but only to the extent such gain does not exceed the amount of cash
(or the amount of cash and the fair market value of Debentures, as the case may
be) received by such stockholder in the Recapitalization; any gain in excess of
the amount of cash (or the amount of cash and the fair market value of
Debentures, as the case may be) received will not be recognized. If the
Offerings are consummated, in whole or in part, the maximum taxable gain
associated with the transaction will not exceed $88 per Old Share, or such
lesser amount, if as a result of the Offerings the amount of cash (or the
amount of cash and the fair market value of Debentures, as the case may be)
exchanged in the Recapitalization is less than $88 per Old Share. If the
Offerings are not consummated, assuming that the Debentures have a fair market
value of $31.10 per Old Share, the maximum taxable gain associated with the
transaction will not exceed $56.90 per Old Share (i.e., the sum of the assumed
fair market value of the Debentures and the amount of cash received).
Any loss realized by a public stockholder in the Recapitalization will not be
recognized. The operation of the basis allocation rules would provide that any
such loss would be effectively carried over into the basis of the New Shares
(and Public Preferred Stock (as represented by Depositary Preferred Shares) if
the UAL Preferred Offering is not consummated) that are received in the
Recapitalization. However, there can be no assurance that any such loss would
ultimately be recognized by any particular stockholder. Stockholders that may
realize a loss on the Recapitalization should consult their own tax advisors
regarding the application of these rules and the recognition of any loss.
3. The character of any gain recognized by a public stockholder in the
Recapitalization will depend upon whether the receipt of cash (or Debentures
and cash) by the stockholder has the effect of a dividend
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distribution as to such stockholder or is treated as a sale or exchange. If the
exchange of Old Shares for cash (or Debentures and cash) is treated as a sale
or exchange, any gain recognized will be capital gain that, in general, will be
long-term capital gain if the Old Shares have been held for more than one year
at the Effective Time and short-term capital gain if the Old Shares have been
held for one year or less at such time.
Section 302 of the Internal Revenue Code provides guidance as to whether a
distribution has the effect of the distribution of a dividend. Under Section
302, a distribution will not have the effect of the distribution of a dividend,
and any gain recognized will be capital gain rather than a dividend, if the
distribution is not "essentially equivalent to a dividend" or one of several
other tests is satisfied. Section 318 of the Internal Revenue Code applies to
all of these tests. Under Section 318, a stockholder is deemed to own
constructively Old Shares and New Shares (and possibly shares of Public
Preferred Stock (as represented by Depositary Preferred Shares)) that are
actually owned, and in some cases constructively owned, by certain related
individuals and entities or that may be acquired by such stockholder or such
related individuals or entities by option or conversion, including through
employee stock options. Furthermore, the Section 302 tests are applied after
taking into account any related transactions that are part of a single
integrated plan. Thus, the issuance of the ESOP Preferred Stock and Voting
Preferred Stock to the ESOP pursuant to the Recapitalization will be treated as
part of a single integrated recapitalization plan, and it is possible that
dispositions or acquisitions by a public stockholder of Old Shares or New
Shares (or possibly Public Preferred Stock (as represented by Depositary
Preferred Shares)) contemporaneous with the Recapitalization may be considered
to be part of the same integrated plan.
A public stockholder that does not acquire additional Old Shares or New
Shares (or possibly Public Preferred Stock) in a transaction that may be
integrated with the Recapitalization (a "Qualified Public Stockholder") will be
entitled to capital gain treatment if, under all of the facts and
circumstances, the exchange results in a "meaningful reduction" of the
Qualified Public Stockholder's proportionate stock interest in the Company. In
general, for a stockholder's proportionate interest in the Company to undergo a
meaningful reduction, such stockholder must experience a reduction in interests
in one or more of the following areas: (i) control of the Company through
voting, (ii) earnings of the Company through dividends, and (iii) assets of the
Company upon liquidation. Based upon a published ruling of the IRS, a Qualified
Public Stockholder whose relative stock interest in the Company is "minimal"
and who exercises no control over the affairs of the Company will be eligible
for capital gain treatment assuming that his percentage ownership in the
Company decreases as a result of the Recapitalization.
It is also possible that a public stockholder may satisfy other "safe harbor"
tests that establish whether a distribution does not have the effect of a
dividend and should be treated as a sale or exchange. Tax counsel to the
Company has not opined as to the character of any gain that a particular
stockholder may realize in the Recapitalization because of the inherently
factual nature of the determination that each such stockholder must make.
Public stockholders should consult their tax advisors as to whether any such
"safe harbor" test may be satisfied.
If an exchange has the effect of a dividend distribution to a public
stockholder, the gain to such stockholder will be treated as a dividend, which
is not in excess of each such stockholder's ratable share of the undistributed
earnings and profits of the Company. The remainder of any gain will be treated
as gain from the exchange of property. A corporate stockholder will generally
be entitled to the 70% dividends received deduction with respect to any such
dividend. However, under the rules for "extraordinary dividends," a corporate
stockholder may be required to reduce its basis in a New Share or share of
Public Preferred Stock immediately before any sale or disposition of such stock
under Section 1059 of the Internal Revenue Code. In general, such basis
reduction must occur if a corporate stockholder has not held its Old Share for
more than two years before the dividend announcement date and the amount of
such dividend equals or exceeds certain threshold percentages of the
stockholder's adjusted basis in the Old Share. Corporate stockholders should
consult their tax advisors with regard to the application and operation of
these rules.
4. A public stockholder's tax basis in the New Shares (and, if the UAL
Preferred Offering is not consummated, in the Public Preferred Stock (as
represented by Depositary Preferred Shares)) received in the Recapitalization
will be equal to the stockholder's tax basis in the Old Shares exchanged
therefor in the
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Recapitalization, increased by the amount of any gain recognized by the
stockholder and decreased by the amount of cash received if the Offerings are
consummated or, if the Offerings are not consummated, in whole or in part, the
sum of (i) the fair market value of the Debentures and (ii) the amount of cash
received. If the Offerings are not consummated, the aggregate basis of the New
Shares and Public Preferred Stock (as represented by Depositary Preferred
Shares) will be allocated among the stock received in proportion to the
relative fair market values of the New Shares and Public Preferred Stock (as
represented by Depositary Preferred Shares) at the Effective Time. The holding
period of such New Shares (and, if the Offerings are not consummated, of the
Public Preferred Stock (as represented by Depositary Preferred Shares)) will
include the holding period of the Old Shares exchanged in the Recapitalization.
Gain, loss and tax basis (determined as described above) must be calculated
separately for each block of Old Shares (i.e., Old Shares acquired at the same
time in a single transaction) held by a public stockholder.
5. If the Offerings are not consummated, in whole or in part, holders of Old
Shares who receive Debentures in the Recapitalization will have a basis in such
Debentures equal to their fair market value as of the Effective Time.
6. The excess of net long-term capital gains over net short-term capital
losses may be taxed at a lower rate than ordinary income for certain non-
corporate taxpayers. A capital gain is long-term if the asset is held for more
than one year and is short-term if the asset is held for one year or less. The
distinction between capital gain or loss and ordinary income or loss is also
relevant for purposes of, among other things, the limitation on the
deductibility of capital losses.
7. The following discussion summarizes certain additional Federal income tax
considerations for public stockholders that receive Public Preferred Stock (as
represented by Depositary Preferred Shares), if the proposed UAL Preferred
Offering is not consummated:
(i) Distributions with respect to the Public Preferred Stock (as
represented by Depositary Preferred Shares) will be treated as dividends to
the extent of the current or accumulated earnings and profits of the
Company and will be subject to tax as ordinary income. A distribution that
is treated as a dividend would be includable in income at the time such
distribution is received. To the extent that the amount of a distribution
exceeds such earnings and profits, it will be treated as a tax-free return
of capital to the extent of the investor's adjusted tax basis in the Public
Preferred Stock (as represented by Depositary Preferred Shares) and will be
applied against and reduce the investor's adjusted tax basis in the Public
Preferred Stock (as represented by Depositary Preferred Shares). The
remaining amount of any distribution that exceeds the investor's adjusted
tax basis in the Public Preferred Stock (as represented by Depositary
Preferred Shares) will be taxed as capital gain and will be long-term
capital gain if the investor's holding period for such shares is more than
one year and short-term capital gain if the investor's holding period for
such shares is one year or less. A corporate investor will generally be
entitled to the 70% dividends received deduction with respect to dividends
paid on the Public Preferred Stock (as represented by Depositary Preferred
Shares), subject to the limitations of Sections 246 and 246A of the
Internal Revenue Code of 1986, as amended (the "Code").
(ii) The treatment of a redemption of the Public Preferred Stock (as
represented by Depositary Preferred Shares) by the Company for cash will be
governed by Section 302 of the Code. An investor that owns Public Preferred
Stock (as represented by Depositary Preferred Shares) and that will own no
stock (or Public Preferred Stock (as represented by Depositary Preferred
Shares)) of the Company after the redemption (determined under certain
constructive ownership rules set forth in Section 318 of the Code)
generally will recognize capital gain or loss equal to the difference
between the amount of cash received and the investor's tax basis in the
Public Preferred Stock (as represented by Depositary Preferred Shares).
Such capital gain or loss will be long-term, if the investor held the
Public Preferred Stock (as represented by Depositary Preferred Shares) for
more than one year, and short-term capital gain if the investor's holding
period for such shares is one year or less.
Even though, upon a partial redemption of Public Preferred Stock (as
represented by Depositary Preferred Shares), an investor will surrender
such stock in return for cash, the transaction may be
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treated, for tax purposes, as a distribution with respect to the stock
owned by such investor taxable as a dividend under Section 301 of the Code
to the extent of the Company's current or accumulated earnings and profits.
Such a partial redemption will generally not be treated as a sale or
exchange of the stock redeemed unless the redemption results in a
"meaningful reduction" in an investor's stock interest in the Company. For
this purpose, an investor's stock interest in the Company will be
determined under certain constructive ownership rules set forth in Section
318 of the Code. Whether a redemption will result in a meaningful reduction
depends on the particular investor's facts and circumstances. However,
based on Revenue Ruling 77-426, a redemption of Public Preferred Stock (as
represented by Depositary Preferred Shares) would result in a meaningful
reduction where the investor owns no common stock of the Company (including
other shares deemed owned). There is uncertainty as to whether Revenue
Ruling 77-426 would apply where the investor's percentage ownership of the
Series B Preferred Stock, that is represented by the Public Preferred Stock
(as represented by Depositary Preferred Shares), is not reduced as a result
of the transaction.
If the partial redemption of the Public Preferred Stock (as represented
by Depositary Preferred Shares) is treated as a dividend, the investor's
tax basis in the redeemed shares would be transferred to the investor's
remaining actual stock holdings in the Company. If the holder does not
retain any actual stock ownership in the Company, the holder may lose such
basis entirely.
Any redemption treated as a dividend to a corporate investor would be
treated as an extraordinary dividend. Such investor would generally reduce
its tax basis (but not below zero) in stock of the Company to the extent of
the "nontaxed portion" of such dividend (i.e., generally, the portion, if
any, of a dividend that qualifies for the corporate dividends received
deduction). Moreover, at the time stock of the Company is sold or disposed
of, the gain otherwise recognized, if any, will be increased to the extent
that the stock would have had a negative basis had it not been for the
above-mentioned limitations that such tax basis not be reduced below zero.
If a partial redemption of the Public Preferred Stock (as represented by
Depositary Preferred Shares) qualifies as a sale or exchange for tax
purposes, the investor will recognize capital gain or loss equal to the
difference between the amount of cash received and the investor's tax basis
in the Public Preferred Stock (as represented by Depositary Preferred
Shares). Such capital gain or loss will be long-term, if the investor held
the Public Preferred Stock (as represented by Depositary Preferred Shares)
for more than one year, and short-term capital gain if the investor's
holding period for such shares is one year or less.
(iii) The sale or exchange of the Public Preferred Stock (as represented
by Depositary Preferred Shares) will generally result in taxable gain or
loss equal to the difference between the amount of cash or other property
received and the investor's adjusted tax basis in the Public Preferred
Stock (as represented by Depositary Preferred Shares). Gain or loss on a
sale or exchange of Public Preferred Stock (as represented by Depositary
Preferred Shares) will generally be capital gain or loss, which will be
long-term capital gain if the investor owned the Public Preferred Stock (as
represented by Depositary Preferred Shares) for more than one year and
short-term capital gain if the investor's holding period for such shares is
one year or less.
(iv) The Public Preferred Stock that is received in the
Recapitalization should not be classified as "Section 306 stock" because
the holders of Public Preferred Stock (as represented by Depositary
Preferred Shares) should not avoid gain recognition by reason of Section
305(a) of the Internal Revenue Code, the receipt of the Public Preferred
Stock (as represented by Depositary Preferred Shares) should not be
substantially the same as the receipt of a stock dividend, and the holders
of Public Preferred Stock (as represented by Depositary Preferred Shares)
should not have a basis in such stock which is determined by reference to
the basis of Section 306 stock. In addition, the requirements of Section
306(b)(4) of the Internal Revenue Code may be satisfied by holders of
Public Preferred Stock (as represented by Depositary Preferred Shares). In
general, Section 306(b)(4) is satisfied if it is established that the
distribution and disposition of Public Preferred Stock (as represented by
Depositary Preferred Shares) was not in pursuance of a plan having as one
of its principal purposes the avoidance of Federal income tax. If the
Public Preferred Stock (as represented by Depositary Preferred Shares) were
to be
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classified as "Section 306 stock" and Section 306(b)(4) were not satisfied,
this would, in general, result in the amount realized on a disposition of
such stock (other than in a redemption) as being treated as ordinary income
to the extent that the amount realized were not in excess of the amount
that would have been a dividend if, instead of the stock, the Company had
distributed cash in an amount equal to the fair market value of the stock.
Therefore, such amount would be ordinary income up to the stockholder's
share of the amount of earnings and profits of the Company available for
distribution. If the amount realized were to exceed the amount that would
have been a dividend, the remainder would be treated as gain from the sale
of such stock to the extent that it exceeds the adjusted basis of the
stock.
8. Stockholders who receive cash in lieu of fractional New Shares, Public
Preferred Stock (as represented by Depositary Preferred Shares) and/or
Debentures should be treated as having received the cash in redemption of the
fractional security interest. If the cash payment for the fractional security
interest exceeds the adjusted tax basis in the fractional security interest, a
stockholder should realize gain to the extent of the excess cash. If the cash
payment is less than the adjusted basis in the fractional security interest
exchanged, a stockholder should realize a loss. Such gain or loss should be
capital gain or loss, assuming that the Old Share is held as a capital asset by
the stockholder. Stockholders should consult their tax advisors regarding the
appropriate treatment of any cash that is received in exchange for fractional
security interests.
9. Dividend and interest payments received by a United States Alien (as
defined below) may be subject to United States Federal withholding tax. A
United States Alien holder will not be subject to United States Federal income
or withholding tax on any gain realized on the taxable sale or exchange of the
New Shares, Public Preferred Stock (as represented by Depositary Preferred
Shares) or the Debentures unless either (a) the gain is derived from sources
within the United States and the United States Alien is an individual who was
present in the United States for 183 days or more during the taxable year or
(b) the stock sold or exchanged is a "United States Real Property Interest" as
defined in Section 897(c)(l) of the Internal Revenue Code at any time during
the five years prior to the sale or exchange of the stock or at any time during
the time that the United States Alien held such stock, whichever time is
shorter. The New Shares or the Public Preferred Stock (as represented by
Depositary Preferred Shares) will be a United States Real Property Interest
only if, at any time during the five years prior to the sale or exchange of
such stock or at any time during the period that the United States Alien held
such stock, whichever time is shorter, the Company is a "United States real
property holding corporation" as defined in Section 897(c)(2) of the Internal
Revenue Code and the United States Alien directly or constructively owned more
than 5% of that class of stock of the Company being sold or exchanged. The
Company is not a "United States real property holding corporation" for Federal
income tax purposes.
A "United States Alien" is any person who, for United States Federal income
tax purposes, is a foreign corporation, a nonresident alien individual, a
nonresident alien fiduciary or a foreign estate or trust, or a foreign
partnership that includes as a member any of the foregoing persons.
10. Certain non-corporate holders of the New Shares, Public Preferred Stock
(as represented by Depositary Preferred Shares) or Debentures may be subject to
backup withholding at a rate of 31% on payment of dividends or interest on such
securities, as the case may be. Backup withholding will apply only if (i) such
a holder fails to furnish its Taxpayer Identification Number ("TIN") which, for
an individual, would be his or her Social Security number, (ii) such a holder
furnishes an incorrect TIN, (iii) the payor is notified by the IRS that such
holder has failed to properly report payments of interest or dividends or (iv)
under certain circumstances, such holder fails to certify under penalties of
perjury that he or she has furnished a correct TIN and has not been notified by
the IRS that he or she is subject to backup withholding for failure to report
payments of interest or dividends. These backup withholding rules may also
apply to payments of cash and Debentures by the Exchange Agent (as defined
below) in the Recapitalization (including cash in lieu of a fractional
securities interest). Stockholders should consult their tax advisors regarding
their qualification for exemption from backup withholding and the procedures
for obtaining such an exemption if applicable.
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The amount of any backup withholding from a payment to a holder of the New
Shares, Public Preferred Stock (as represented by Depositary Preferred Shares)
or Debentures will be allowed as a credit against such security holder's
Federal income tax liability and may entitle such security holder to a refund,
provided that the required information is furnished to the IRS.
11. The Recapitalization will result in an "ownership change" within the
meaning of Federal income tax law provisions dealing with net operating loss
carryforwards, alternative minimum tax credits and other similar tax
attributes. Thus, as a technical matter there will be limitations on the
Company's ability to utilize such carryforwards and credits from periods
predating the Recapitalization. However, as a practical matter, application of
those limitations to the Company is not expected to impair the Company's
ability to use its tax attributes.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE ARE FOR GENERAL
INFORMATION ONLY. EACH STOCKHOLDER SHOULD CONSULT A TAX ADVISOR AS TO THE
PARTICULAR CONSEQUENCES OF THE RECAPITALIZATION THAT MAY BE APPLICABLE TO SUCH
STOCKHOLDER, INCLUDING THE APPLICATION OF STATE, LOCAL, AND FOREIGN TAX LAWS.
LITIGATION
Two actions are pending in the Court of Chancery of the State of Delaware in
and for New Castle County with respect to the Recapitalization. Both actions
are brought as class actions, purportedly on behalf of a class consisting of
all stockholders of UAL Corporation.
The first action, Kaufman et al. v. Wolf et al., Civil Action No. 13312, was
commenced by three stockholders of the Company on or about December 30, 1993.
Named as defendants, in additional to the Company, ALPA and the IAM, were
Stephen M. Wolf, John C. Pope, Neil A. Armstrong, Andrew F. Brimmer, Richard P.
Cooley, E. Mandell de Windt, John F. McGillicuddy, Harry Mullikin, James J.
O'Connor, Frank A. Olson and Ralph Strangis. The Kaufman complaint alleges,
among other things, that defendants have violated their fiduciary duties to the
Company stockholders in connection with the proposed transaction between the
Company, ALPA and the IAM. The complaint seeks, among other things, an
injunction against the consummation of the Agreement in Principle, an order
rescinding the transaction if it has been consummated and an award of
unspecified damages in favor of plaintiffs and the class.
The second action, Krasner v. UAL Corp. et al., Civil Action No. 13316, was
commenced by a stockholder of the Company on or about January 6, 1994. Named as
defendants in addition to the Company, ALPA and the IAM, were Stephen M. Wolf,
John C. Pope, Neil A. Armstrong, Andrew F. Brimmer, Richard P. Cooley, Carla A.
Hills, Fujio Matsuda, John F. McGillicuddy, Harry Mullikin, James J. O'Connor,
Frank A. Olson, Ralph Strangis and Paul E. Tierney, Jr. The Krasner complaint
alleges, among other things, that defendants have violated their fiduciary
duties in connection with the proposed transaction. It seeks a declaratory
judgment that the individual defendants have breached their fiduciary duties to
the class, an injunction against the consummation of the transaction and
against "the enforcement of any anti-takeover device," an order requiring the
individual defendants to "explor[e] third-party interest" in acquiring the
Company and to "accept [ ] the highest offer obtainable for the public
shareholders or permit [ ] the shareholders to make that decision free from any
coercion" and an award of unspecified damages in favor of plaintiff and the
class.
Both the Kaufman action and the Krasner action are at a preliminary stage.
Defendants have not responded to the complaint in either action, no discovery
has been taken and plaintiffs have not yet moved for class certification.
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THE PLAN OF RECAPITALIZATION
The information contained in this Proxy Statement/Prospectus with respect to
the Plan of Recapitalization is qualified in its entirety by reference to the
complete text of the Plan of Recapitalization, a copy of which is included
elsewhere in this Proxy Statement/Prospectus.
INVESTMENT FOR UNIONIZED EMPLOYEES
Wage and Benefit Adjustments
Employees represented by ALPA and the IAM will receive reductions of 15.7
percent and 9.7 percent, respectively, from basic wage rates in effect at the
Effective Time. A 5 percent increase previously scheduled to take effect for
IAM-represented employees on May 1, 1994 will be eliminated. ALPA employees
participating in U2 will be subject to further wage reductions as described
below. However, the normal increases for seniority steps and promotions will
be maintained.
The reduced wage rates will remain in effect for five years, nine months
following the Effective Time for ALPA, and six years for the IAM, except that
during the fourth and fifth years following the Effective Time each employee
group may receive a wage increase. If the parties are unable to negotiate the
amount of such an increase, a neutral arbitrator will determine the amount, if
any (and not to exceed 5 percent each year), based upon airline industry
trends, profitability of the Company and wage rates for other specified major
air carriers. In addition, the neutral arbitrator may determine the amount of
increase in the ALPA per diem, if any (not to exceed $.25), based upon the
same factors.
Upon the Effective Time, the Company contribution to the self-directed
retirement plan provided for each ALPA-represented pilot will be reduced from
9 percent of wages to 1 percent of wages. In addition, the vacation accrual
schedule for pilots during their first ten years of employment will be reduced
to the vacation accrual schedule for pilots employed by Southwest. For IAM-
represented employees, the current half-hour paid lunch period will be
eliminated and the standard work day increased to eight hours exclusive of the
unpaid lunch period. In addition, the premium for a paid lunch on overtime
also will be eliminated.
All wage and benefit reductions will remain in effect pursuant to the
Railway Labor Act until the effective date of the revised collective
bargaining agreements negotiated and/or arbitrated pursuant to procedures
stated in the Plan of Recapitalization and described in this Proxy
Statement/Prospectus.
AFA Participation
If, prior to the Effective Time, AFA and the Company determine that AFA will
participate in the Recapitalization, flight attendants will incur a
combination of wage reductions, benefit changes and work-rule modifications
negotiated between management and AFA, and determined by management in its
sole judgment to equal $416 million net present value, including an
appropriate agreed upon contribution associated with the competitive action
plan contemplated with respect to U2 by the Plan of Recapitalization (the
"Competitive Action Plan"). If AFA participates on this basis, the duration of
wage and benefit reductions (other than the contribution in respect of the
Competitive Action Plan) applicable to the other employee groups will be
reduced by nine months.
Competitive Action Plan
In addition to wage and benefit reductions affecting all employees, ALPA and
IAM have agreed to permit the Company to establish a Competitive Action Plan
pursuant to which United would establish an "airline-within-an-airline"
currently referred to as "U2," which is designed to compete with existing low-
cost carriers in short-haul markets. The Unions will represent U2 employees in
the same class and craft, and United and U2 will have the same seniority lists
and will remain a single carrier for Federal Aviation Act and Railway Labor
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Act purposes. The Company, at its discretion, may establish a distinct U2
corporate division but does not currently plan to establish U2 as a separate
subsidiary of either United or the Company.
The pilot wages and work-rules for the U2 operation are contained in
amendments to the ALPA collective bargaining agreement. These work-rule changes
are designed to facilitate a high-frequency, rapid turn-around, streamlined
service operation. Pursuant to those changes in the ALPA collective bargaining
agreement, ALPA-represented pilots in the U2 operation would receive wage rates
approximately 7.1 percent less than the reduced mainline United rates for
similar equipment in the United operation. Pilots assigned to the U2 operation
will also be expected to fly more hours each month. As a result, pilot staffing
requirements in the U2 operation are expected to be reduced and U2 pilots
should have the opportunity to achieve monthly pay equivalent to comparable
mainline United pilots by flying more hours each month. The U2 operation would
be subject to modified work-rules designed for the U2 operation. The U2
supplement would have an initial term equivalent to the basic agreement; it
would also provide, however, for two renewal periods following the initial
term, for a total of 12 years following the Effective Time. With respect to the
two renewal periods, certain unresolved economic issues would be submitted to
interest arbitration. In such interest arbitrations, the arbitrator would be
required to establish the renewal terms on the basis of wages and work-rules
then in effect at Southwest or such other short-haul carrier as then operates
the largest number of B737 or equivalent aircraft other than American, Delta
Air Lines, Continental Airlines, Northwest Airlines and USAir. ALPA-represented
employees would be barred from striking over the U2 employment terms determined
through interest arbitration under this process.
U2 would be permitted to operate on any non-stop city pair of 750 nautical
miles or less in the contiguous 48 states, using B737-300 or smaller aircraft,
subject to the following restrictions: (a) U2 could not operate between United
hub cities and/or international gateway cities except the Los Angeles basin and
the San Francisco Bay area service, (b) U2 block hours could not exceed 20
percent of United's systemwide block hours up to 2 million block hours per
year, and 25 percent of the systemwide block hours thereafter, provided that in
the sixth through twelfth years following closing, U2 could begin operation
between any city pairs not serviced by United during the prior 24 months, (c)
if system widebody block hours (i.e., block hours flown by B757 or larger
aircraft) fall below (i) 95% of the widebody block hours projected in the
Company's October 1993 fleet plan for any twelve month period from the
Effective Time through 1999 or (ii) a certain minimum level for any twelve
month period between 2000 and 2006, U2 operations must be reduced by the amount
of such shortfall and (d) 10 percent of U2 monthly block hours must be between
city pairs not served by United within the prior 24 months.
To permit rapid implementation of U2, the Competitive Action Plan provides
that United pilots can be involuntarily placed into the U2 operation, but such
employees must be "red-circled" to maintain the monthly income they would have
earned had they remained in their existing positions in the mainline United
operation. United pilots who voluntarily bid into or remain in the U2
operations, and new hires, will not be red-circled.
IAM-represented employees assigned to the U2 operation will be governed by
the same revised Collective Bargaining Agreements as all other IAM-represented
employees. The IAM agreements, governing all IAM-represented employees, contain
certain specific modifications that can not be amended for 12 years. These
include (a) elimination of the paid half-hour lunch period and increasing hours
of service to eight hours exclusive of the unpaid lunch and elimination of a
paid meal period on overtime, (b) a provision that the Company will assign IAM
ramp servicemen at any U.S. station that has a sustained flight level of 40 or
more daily departures for a period of six months (and may discontinue such
assignments if the flight activity falls below 30 daily departures on a
sustained level) and may assign no more than 25 percent of such positions to
part-time ramp servicemen and (c) a provision, subject to certain restrictions,
that the Company may contract out up to 20 percent of its maintenance work,
determined annually on a dollar value basis, subject to the condition that
subcontracting will not cause a layoff.
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Job Security Provisions
The ALPA collective bargaining agreement will be amended to add a new section
that would supersede and supplement several existing job security provisions.
The principal terms of this new section are as follows:
(i) All commercial flight operations conducted by United, the Company or
any corporate affiliate must be performed by United pilots under the terms
of the United-ALPA agreement, except for (a) feeder flying conducted by
United Express or similar carriers operating small aircraft, (b) certain
domestic code sharing currently in effect and additional domestic code
sharing not to exceed 1 percent of the Company's total domestic block hours
and (c) international code sharing arrangements with foreign carriers so
long as the arrangements do not cause a reduction in international flying
and the Company does not expand international code sharing once it reduces
international flying below a specified minimum level;
(ii) United may not transfer aircraft or international routes to other
carriers that will use the assets to provide feed to United pursuant to an
agreement with United;
(iii) United may not enter into any successorship transaction unless the
successor agrees to adopt the United-ALPA agreement, to employ United
pilots pursuant to such agreement, to recognize ALPA and to provide United
pilots with seniority credit if the successor is an air carrier;
(iv) The Company will continue in effect, or amend to include, certain
provisions of a Letter of Agreement that (a) provide ALPA with enumerated
rights in the event of a change of control of the Company, (b) prohibit
furloughs, within certain conditions, if the Company disposes of 25 percent
or more of its assets or assets which produce 25 percent or more of its
block hours and (c) obligate the Company to require any carrier purchasing
aircraft or route authority that produce 25 percent or more of the
Company's operating revenues or block hours to hire an appropriate number
of United pilots with seniority credit;
(v) With certain exceptions, the Company may not sell or otherwise
dispose of its Denver training center or contract with any person or entity
to conduct or supervise United pilot training;
(vi) The Company may not establish a pilot domicile outside of the United
States without ALPA's consent, except for temporary domiciles permitted
under the existing agreement; and
(vii) Subject to specified exceptions, no pilot employed as of the date
of closing may be furloughed while the agreement remains in effect.
The IAM collective bargaining agreements will be amended to provide a number
of job security provisions as well. The principal terms of these amendments are
as follows:
(i) Subject to certain exceptions, no IAM represented employee employed
as of the date of the Effective Time may be furloughed during the term of
the agreement;
(ii) Subject to certain conditions, the Company may not contract out work
if the subcontract would result in the layoff of any IAM-represented
employee;
(iii) The Company may not contract out ramp service work at any station
at which it currently employs IAM-represented ramp servicemen;
(iv) Subject to certain exceptions, the Company may not sell or otherwise
dispose of its maintenance facilities in San Francisco, Oakland or
Indianapolis, its Miami flight kitchen or its four employee cafeterias;
(v) The Company may not perform any regularly scheduled heavy maintenance
outside the United States without IAM approval;
(vi) The Company will transfer dispatch work currently performed in
London to Chicago-based, IAM-represented dispatchers;
(vii) The IAM agreements will contain change of control provisions,
successorship and code sharing restrictions similar to those provided to
ALPA; and
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(viii) At least 80% of maintenance work must be performed by United and
not be outsourced.
No Strike Clauses
The ALPA and IAM revised Collective Bargaining Agreements will contain no
strike clauses, including a prohibition on sympathy strikes in support of other
unions, to be effective until the amendable dates of such agreements.
Other Collective Bargaining Agreement Modifications
Both the ALPA and IAM revised Collective Bargaining Agreements will be
subject to additional amendments, which do not have any material financial
effect, of a type made in the ordinary course of collective bargaining
negotiations.
IAM-represented employees who lose, or have lost, employment with United as a
result of the sale of United flight kitchens to Dobbs and Caterair will receive
labor protective provisions benefits modeled after the Allegheny-Mohawk Labor
Protective Provisions previously utilized by the Civil Aeronautics Board.
INVESTMENT FOR SALARIED AND MANAGEMENT EMPLOYEES
United will establish employment terms for the employees of United who
perform the functions currently performed by the management and salaried
employees of United (including any functions that such group of employees begin
performing in the future). The basic cost reduction package for United's U.S.
based Salaried and Management Employees will be in effect for a period of five
years, nine months following the Effective Time, except as noted below. The
components of the basic cost reduction package include pay reductions (base pay
reduced 8.25%, shift differentials redefined, overtime paid lunch eliminated,
four fixed holidays converted to floating holidays for operational employees),
changes in work-rules, sick leave policy and management relocation policy and a
one-time reduction in force of 127 management employees.
The Company's United States Salaried and Management Employees may receive an
appropriate wage rate increase of not more than 5% beginning in the fourth year
(and, if applicable, the fifth year) following the Effective Time through a
program determined by management whose criteria are consistent with certain
specified standards that take into account (i) airline industry trends, (ii)
United's financial performance (including cumulative profitability over the
prior three years) and (iii) the wage rate levels for comparable employees of
American, Delta, USAir and Northwest Airlines.
Salaried employees hired February 1, 1994 and later will be hired in
accordance with a new hire pay and benefit compensation program. In addition,
no wage increase or wage raises, other than increases for legitimate promotions
from one job group to another job group, progression type increases and
increases resulting from the wage adjustment process outlined above, may be
given to Salaried and Management Employees during the basic investment period.
Salaried and management per capita base payroll may not increase by more than
the percentage increase in the IAM per capita base payroll in any investment
year (excluding increases resulting from the mid-term wage adjustment process
for IAM-represented employees) or by 2% in any investment year (except 1.5% in
the fourth and fifth investment years), whichever is less. For the purposes of
the foregoing limitation, increases resulting from the wage adjustment process
outlined above may not be included.
United will modify its United States personnel policies to provide that it is
United's intention to conduct its business so that any salaried employee whose
date of employment is before February 1, 1994 and who is affected when United
declares a surplus in his or her organization will not be laid off
involuntarily, and the Company will make every reasonable effort to offer
surplus employees an opportunity of continued employment in his or her current
work status (i.e., full- or part-time), although it may be in a different
classification and/or location within the United States. Surplus employees who
must relocate in order to
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continue employment will be eligible for relocation assistance. These
provisions do not apply in the case of an employee who is discharged for cause
or violation of Company rules, codes or articles of conduct or in the case of
surpluses that result from an act of nature, a labor dispute, government
action, revocation of operating certificate, war, unavailability of fuel or
other circumstances beyond the control of the Company. These provisions also do
not apply to discharges of employees who are in a probationary period and,
unless amended, will not be in effect beyond the five year, nine month period
(a five year period if the AFA participates) following the Effective Time.
See "SPECIAL FACTORS--Certain Risk Factors--Possible Effect of Organization
of Additional Employees" with respect to the possible impact of organization of
management and salaried employees.
REVISED GOVERNANCE STRUCTURE
The information contained in this Proxy Statement/Prospectus with respect to
the revised governance structure of the Company is qualified in its entirety by
reference to the complete text of the Restated Certificate and Restated Bylaws,
copies of which have been attached as exhibits to this Proxy
Statement/Prospectus, and to the other agreements and documents referred to
herein that are filed as exhibits to the Registration Statement of which this
Proxy Statement/Prospectus is a part.
Composition of the Board
Following the consummation of the Recapitalization, subject to the rights of
holders of Series A Preferred Stock and the Depository Preferred Shares
representing interests in Public Preferred Stock to elect a total of two
additional directors in the event of certain dividend arrearages (the
"Preferred Stock Dividend Default Rights"), and prior to the Sunset, the Board
will consist of 12 directors, who will include (i) five Public Directors, (ii)
four Independent Directors, (iii) two Union Directors and (iv) one Salaried and
Management Director (the Union Directors and the Salaried and Management
Director, collectively, are referred to as the "Employee Directors"). For
information relating to the initial nominees for election as Public Directors
and certain other persons chosen to serve as the other directors if the
Recapitalization is consummated, see "ELECTION OF DIRECTORS." Following the
Sunset, subject to the Preferred Stock Dividend Default Rights and the
occurrence of either or both of the ALPA Termination Date and the IAM
Termination Date (both as defined below, see "--Sunset"), the Board will
consist of 12 directors of whom nine will be elected by the holders of the New
Shares and three will be Employee Directors.
Public Directors
Until the Sunset, five directors, who are designated as Public Directors (the
"Public Directors") will be elected by holders of the New Shares and will
consist of (a) three individuals who are not and have never been an officer or
employee of, or a provider of professional services to, the Company or any of
its subsidiaries (the "Outside Public Directors") and (b) two substantially
full-time employees of the Company or any of its subsidiaries, one of whom, in
addition, to the fullest extent such additional qualification is permitted by
law, will be, at the time of election, the CEO, and the other of whom, in
addition, to the fullest extent such additional qualification is permitted by
law, will be a senior executive officer of the Company satisfactory to the CEO
(the "Management Public Directors"). Until the Sunset, at the expiration of the
term of each Outside Public Director and to fill vacancies, Outside Public
Directors will be nominated or appointed, as appropriate, by an "Outside Public
Director Nomination Committee" comprised of the Outside Public Directors. Any
amendment or modification of the rights, powers, privileges or qualifications
of the Outside Public Directors or the Outside Public Director Nomination
Committee will, in addition to the approval required by law or as described
below under the Restated Certificate, require the concurrence of all of the
Outside Public Directors or the affirmative vote of at least a majority in
voting power of the outstanding capital stock of the Company entitled to vote
thereon excluding shares held by the ESOP Trustee. In addition, until the
Sunset, Management Public Directors will be nominated or appointed, as
appropriate, by a majority vote of the entire Board.
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Mr. John F. McGillicuddy, Mr. James J. O'Connor and Mr. Paul E. Tierney, Jr.,
who are incumbent members of the Board, have been nominated to be the Outside
Public Directors, and Mr. Gerald M. Greenwald has been nominated to be the
Management Public Director. The second Management Public Director will be
identified prior to or at the Effective Time and will be appointed to the Board
at the Effective Time. For additional information on these individuals, see
"ELECTION OF DIRECTORS--Nominees for Election as Public Directors."
Independent Directors
The four directors designated as Independent Directors (the "Independent
Directors") will be elected by the holders of Class I Preferred Stock (as
defined below, see "DESCRIPTION OF SECURITIES--The Director Preferred Stock--
Class I Preferred Stock"), who will be the Independent Directors. Each
Independent Director, upon becoming an Independent Director, acquires a share
of Class I Preferred Stock and becomes a party to the Class I Preferred
Stockholders' Agreement pursuant to which the stockholders will agree to vote
their shares to elect the Independent Directors nominated in accordance with
the procedures set forth below and to refrain from transferring their shares of
Class I Preferred Stock other than to a person who has been elected to serve as
an Independent Director and who agrees to be subject to the provisions of the
Class I Preferred Stockholders' Agreement.
None of the Independent Directors may have, without the consent of both Union
Directors and all of the Public Directors, a current or prior material
affiliation or business relationship with the Company (other than an
affiliation that results from being a member of the Board) or be an officer,
director, trustee or official of any labor organization that serves as a
collective bargaining "representative" under the Railway Labor Act or the
National Labor Relations Act. In addition, generally, at least two of the four
Independent Directors at the time of their initial nomination or appointment to
the Board must (i) be a senior executive officer of a private or public company
with revenues in excess of $1 billion during such company's prior fiscal year
and/or (ii) be a member of the board of directors of at least one other public
company with a market capitalization in excess of $1 billion as of the date of
such company's most recent annual financial statements.
The Independent Directors will be nominated or appointed, as appropriate, by
an "Independent Director Nomination Committee" consisting of the Independent
Directors and the Employee Directors. Approval of such nomination or
appointment requires a majority of the Independent Directors and the
concurrence of at least one Union Director.
ALPA and the IAM have identified Mr. Duane D. Fitzgerald, Mr. Richard D.
McCormick, Mr. John K. Van de Kamp and Mr. Paul A. Volcker as the initial
Independent Directors and such identified persons have agreed to serve as the
Independent Directors. For additional information on these individuals, see
"ELECTION OF DIRECTORS--Independent Directors."
Employee Directors
The three Employee Directors will be elected as follows: (i) one director
(the "ALPA Director") will be elected by the holder of the Class Pilot MEC
Preferred Stock (as defined below, see "DESCRIPTION OF SECURITIES--The Director
Preferred Stock"), which will be the ALPA-MEC, (ii) one director (the "IAM
Director" and, together with the ALPA Director, the "Union Directors") will be
elected by the holder of the Class IAM Preferred Stock (as defined below, see
"DESCRIPTION OF SECURITIES--The Director Preferred Stock"), which will be the
IAM or its designee, and (iii) one director (the "Salaried and Management
Director") will be elected by the holders of the Class SAM Preferred Stock (as
defined below, see "DESCRIPTION OF SECURITIES--The Director Preferred Stock"),
who will be the Salaried and Management Director and an additional designated
stockholder (the "SAM Designated Stockholder"), each selected as described
below, voting separately as a class.
The replacement Salaried and Management Director will be nominated by the
System Roundtable. The System Roundtable will establish a selection committee
of four employees to select the nominee for Salaried
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and Management Employee Director from time to time. The SAM Designated
Stockholder generally will be the senior executive of United who has primary
responsibility for human resources. The Salaried and Management Director will
acquire two shares of Class SAM Preferred Stock, and the SAM Designated
Stockholder will acquire one share of Class SAM Preferred Stock upon becoming
the Salaried and Management Director and the SAM Designated Stockholder,
respectively, and each will become a party to the Class SAM Preferred
Stockholders' Agreement pursuant to which the stockholders will agree to vote
their shares to elect the Salaried and Management Director nominated by the
System Roundtable and to refrain from transferring the shares of Class SAM
Preferred Stock other than to a person who has been elected to serve as the
Salaried and Management Director or to the senior executive of United who has
primary responsibility for human resources and, in each case, who agrees to be
subject to the provisions of the Class SAM Preferred Stockholders' Agreement.
The "System Roundtable" is a body of Salaried and Management Employees
empaneled to review and discuss issues relating to the Company and their effect
on Salaried and Management Employees.
Vacancies of Employee Directors may be filled only by the holder or holders
of the class of stock that elected such director.
Mr. John Peterpaul has been identified as the initial IAM Director, Captain
Roger D. Hall has been identified as the initial ALPA Director, and Mr. Joseph
V. Vittoria has been identified as the initial Salaried and Management
Director. For additional information on Mr. Peterpaul, Captain Hall and Mr.
Vittoria, see "ELECTION OF DIRECTORS--IAM Director", "--ALPA Director" and "--
Salaried and Management Director."
Quorum
Until the Sunset, a quorum at a Board meeting will exist only if (a)
directors with at least a majority of the votes entitled to be cast by the
entire Board are present (i.e., seven votes) and (b) unless consented to by the
two Union Directors, if less than all votes are present, the number of votes
constituting a majority of the votes present is no greater than the sum of (i)
two plus (ii) the number of Independent Director votes present at the meeting.
For example, if three Independent Director votes are present, the total number
of Director votes present may not be more than nine in order for a quorum to be
present. The foregoing quorum provisions were requested by the Unions and
agreed to by the Company in connection with negotiating the terms of the
Recapitalization.
Required Board Action
Except as may be required by law or as set forth in the Restated Certificate
(including the matters described below under "--Extraordinary Matters" or "--
Special Voting Provisions with Respect to Purchase and Sale of Common Stock"),
approval of all Board action will require a majority vote of the total number
of director votes present at a meeting at which a quorum is present. Until the
Sunset, in the event of a vacancy of an Independent Directorship, the remaining
Independent Directors will as a group continue to have four votes (divided
equally among the remaining Independent Directors). Until the Sunset, in the
event of a vacancy on the Board of an Employee Directorship or a Public
Directorship, or in the event of a vacancy of an Independent Directorship that
immediately prior to the occurrence of such vacancy was held by a member of a
Board Committee of which only one Independent Director was a member, then,
subject to the fiduciary duties of the remaining Directors or members of such
Board Committee, as the case may be, then in office, neither the Board nor such
Board Committee may take any action (other than to fill such vacancy) until
after the earlier of (i) 20 days following the occurrence of such vacancy and
(ii) the time that such vacancy is filled in accordance with the Restated
Certificate.
Term of Office; Resignation; Removal
Each Director will hold office until the next annual meeting of stockholders
and until his or her successor is elected and qualified, subject to such
Director's earlier death, resignation or removal. In addition, the term
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of an Outside Public Director or an Independent Director will automatically
terminate if such Director ceases to meet the qualifications of an Outside
Public Director or Independent Director, as the case may be. Any Director may
resign at any time upon written notice to the Company. Directors may not be
removed from office except (i) without cause, by the class of stockholders that
elected them, or (ii) "for cause" as determined under the DGCL.
Officers
All decisions to hire or fire members of senior management (other than the
CEO) will be taken by the Board or pursuant to the authority typically
delegated by it to the CEO; provided, however, with respect to the initial
appointment of the Chief Operating Officer following the Effective Time, such
person shall be elected or appointed by the Board and shall not be found to be
unacceptable by two of the three Outside Public Directors. Until the Sunset,
hiring a new CEO will require the approval of a majority of the Board following
a recommendation by the Executive Committee, which will act as the search
committee. If, at the first meeting of stockholders following the hiring of a
new CEO (other than the initial CEO following the Effective Time), such CEO is
not elected to the Board as a Public Director by the stockholders entitled to
vote on such election, such CEO will be removed from office and a successor CEO
will be selected. Any successor CEO will be appointed to fill the Public
Directorship vacated by the predecessor CEO. Incumbent officers at the
Effective Time may not be terminated for a period of six months following the
Effective Time unless such termination is approved by two Outside Public
Directors and the CEO. As part of the Recapitalization, certain officers have
agreed to retire at or prior to the Effective Time. See "SPECIAL FACTORS--
Interests of Certain Persons in the Recapitalization."
Stockholder Approval Matters
Stockholder approval will not be a condition to any action of the Company
except as required by DGCL or as described below under "--Extraordinary
Matters" or "--Special Voting Provisions with Respect to Purchase and Sale of
Common Stock". Until the Sunset, except as otherwise required by law or by the
Restated Certificate, the presence in person or by proxy of the holders of
outstanding shares representing at least a majority of the total voting power
of all outstanding shares entitled to vote at a meeting of stockholders will
constitute a quorum at a meeting of stockholders.
ESOP Voting
Allocated shares of Voting Preferred Stock (and, under any limited
circumstances required by law in which matters are submitted to it for a vote,
the ESOP Preferred Stock) held by the Qualified ESOP (as defined in "--
Establishment of ESOPs--Sales of ESOP Preferred Stock--Leveraged ESOP") will be
voted by participants, as named fiduciaries under ERISA, on a confidential pass
through basis. The ESOP Trustee is obligated to vote as instructed by the
participants to whom the Voting Preferred Stock has been allocated, and the
shares which are allocated command the entire voting power of each class of
Voting Preferred Stock. ALPA has made an agreed-upon election pursuant to which
the shares of Class P Voting Preferred Stock allocated to former employees who
were ALPA members will be voted by the ESOP Trustee. Unallocated shares and
allocated shares which were not voted by the participants in the Qualified ESOP
will be voted as described below by those ESOP participants who are employees
who choose so to direct State Street. State Street will (except as may be
required by law) vote the unallocated and otherwise unvoted shares in the
proportions directed by participants who give instructions to State Street with
respect to such shares; each participant who is an employee has the right to
give such directions to State Street in the proportion that the participant's
allocated shares bears to the allocated shares of all participants giving such
directions. Shares held by the Supplemental ESOP (as defined in "--
Establishment of ESOP--Sales of ESOP Preferred Stock--Non-Qualified ESOP") will
be voted as instructed by the administrative committee appointed under the
Supplemental ESOP. The Supplemental ESOP provides that the administrative
committee shall consider the sentiments of participants concerning the vote,
but is not required to take any particular action in response thereto. The
Supplemental ESOP provides that it shall be amended at the request of ALPA to
provide for
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pass-through voting by participants. See "--Establishment of ESOPs". The
foregoing provisions also govern instructions to be given to State Street in
the event of a tender offer (including a Control Transaction, see "--
Establishment of ESOPs--Control Transaction").
Extraordinary Matters
Except as provided below, certain matters described below ("Extraordinary
Matters") generally will require, in addition to any voting requirements under
the DGCL, approval of at least either three-quarters of the Board (including
the concurrence of one Union Director) or three-quarters of the shares present
and voting at a stockholder meeting at which a quorum is present. In addition,
the vote of at least 66 2/3% of the outstanding voting stock that is not owned
by an "interested stockholder" will be required to approve a "business
combination" under Section 203 of the DGCL, where applicable. Extraordinary
Matters include:
(a) Amendments to the Restated Certificate (other than certain technical
amendments), substantive amendments to the Bylaws and mergers or
consolidations of the Company or any of its subsidiaries or a sale, lease
or exchange of all or substantially all of the assets of the Company or
United involving a person that has been formed by or is an affiliate of one
or more labor groups representing employees of the Company or any of its
subsidiaries or a person determined by the Board to be a person in which a
substantial group of employees of the Company or any of its subsidiaries,
acting as an organized group, owns a majority ownership interest (a "Labor
Affiliate") (the Extraordinary Matters described in this paragraph (a)
require, in addition to the approvals described above, either (i) six
affirmative votes cast by Directors who are not Employee Directors or (ii)
the affirmative vote of a majority of the shares of capital stock not held
by ESOPs);
(b) Mergers or consolidations of the Company or any of its subsidiaries
or a sale, lease or exchange of all or substantially all of the assets of
the Company or United involving a person who is not a Labor Affiliate;
(c) Dissolutions;
(d) Entry into any new line of business outside the "airline business"
(defined generally as the business of operating a domestic air carrier,
together with any business or activities reasonably related to or in
support of all of such operations engaged in by the Company or any
subsidiary at or immediately prior to the Effective Time), or the making of
any investment (in excess of five percent of the total assets of the
Company and its subsidiaries on a consolidated basis) outside the airline
business;
(e) The making of any domestic airline acquisition or any material
investment in another airline including ordinary course investments in
excess of one half of one percent of the total assets of the Company and
its subsidiaries on a consolidated basis;
(f) The adoption of any material amendment to the Rights Agreement (as
defined below, see "--Rights Plan") or taking of any material actions,
including the redemption of rights, under the Rights Agreement;
(g) The sale, lease, exchange, surrender to or at the direction of a
lessor, or other disposition (a "Disposition") by the Company or any of its
Subsidiaries of assets for "Gross Proceeds" (defined to exclude taxes and
sales costs) that, when added to the Gross Proceeds from (i) the
Disposition of other such assets during the preceding 365 day period
resulting in Gross Proceeds in excess of $5 million and (ii) the
Disposition of other such assets during a recently completed preceding
twelve calendar month period resulting in Gross Proceeds of $5 million or
less, collectively exceeds $200 million; provided that (A) Gross Proceeds
included in clauses (i) and (ii) will not include Gross Proceeds from any
transactions consummated prior to the Effective Time and (B) the $5 million
set forth in clauses (i) and (ii) may be increased by action of the Board
on an annual basis based on the affirmative vote of at least 75% of the
votes entitled to be cast by the entire Board, which must include the
concurrence of at least one Union Director; provided, further, that such
approval will not be required for certain specified transactions (or count
against the $200 million Gross Proceeds calculation above) including: (1)
secured aircraft financings, (2) sale-leaseback and leveraged lease
transactions, or sales or similar transfers of receivables,
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for financing purposes, (3) Dispositions of assets if replacement assets
(consisting of assets of the same class as the assets being disposed of)
generally have been ordered or acquired within the six calendar month
period prior to such Dispositions of assets or so ordered or acquired
within 365 days following the Disposition of assets for which no
replacement assets had been previously acquired, (4) Dispositions providing
Gross Proceeds in an amount up to 10% of the book value (net of
depreciation) of the Company's fixed assets at the time of the most recent
quarterly financial statements of the Company if (A) Directors entitled to
cast at least 75% of the votes entitled to be cast by the entire Board,
including all of the Independent Directors, determine by resolution of the
Board that such asset Disposition is necessary to (I) cure a default under
material financing agreements binding upon the Company or any of its
subsidiaries or any of their respective properties, or avoid a default
thereunder that, absent such Disposition, would be reasonably likely to
occur within 90 days or (II) remedy a material adverse development in the
Company's business or condition, and (B) the Gross Proceeds of such asset
Disposition are used to remedy the condition referred to in clause (A)
(provided, that the exception afforded by this clause (4) will be available
not more than once in any consecutive five-year period), (5) certain
ordinary course Dispositions designed to allow the Company and its
subsidiaries to continue many of their existing practices without
significant restrictions that may involve Dispositions of assets, (6)
Dispositions of assets (other than air frames, engines and related spare
parts) if (A) made pursuant to a discrete asset management program that
provides for the Disposition of not more than an aggregate of $25 million
of assets and (B) such discrete asset management program is approved
annually by either the Board or the stockholders as an Extraordinary Matter
in accordance with the voting thresholds outlined above and (7)
Dispositions of assets that individually, or when aggregated with other
assets in the same or related Dispositions, are not in excess of a de
minimis amount, either with respect to periods prior to December 31, 1994
or pursuant to a distinct asset management program approved in accordance
with the procedures set forth in clause (6) above; and
(h) The issuance of equity or equity equivalent securities (including
convertible debt, but excluding non-voting, non-convertible preferred stock
the issuance of which will be permitted without limit) (a "Non-Dilutive
Issuance"); provided that such issuance shall not constitute an
Extraordinary Matter if any of the following occur: (A) (I) three quarters
of the votes entitled to be cast by the entire Board, including all the
Independent Directors, determine that such issuance is in the best
interests of the Company, (II) such issuance is subject to the First
Refusal Agreement (as defined below, see "DESCRIPTION OF SECURITIES--The
Common Stock, the Series A Preferred Stock and the Junior Participating
Preferred Stock--Common Stock--Right of First Refusal") and (III) if such
issuance occurs during the 365-day period commencing on the Effective Time,
the Board by the affirmative vote of a majority of the votes entitled to be
cast by the Directors present at a meeting of the Board at which a quorum
is present, which vote must include the affirmative votes of both Union
Directors, approves an equitable adjustment to the number of Additional
Shares (as defined below, see "--Establishment of ESOPs--Additional
Shares") to be issued pursuant to the Plan of Recapitalization, (B) three-
quarters of votes entitled to be cast by the entire Board, including all
the Independent Directors, determines (I) that the Company is insolvent
(or, absent a material positive change in the Company's results of
operations over the immediately succeeding 90 days from the results
contained in the Company's regularly prepared projections, that the Company
will become insolvent within 90 days), which determination is confirmed by
written opinions of two nationally recognized investment banking firms that
further opine (giving effect to the facts and circumstances applicable to
the Company, including discussions with prospective equity investors) that
the sale of equity securities is necessary to avoid or remedy such
insolvency (the "Bankruptcy Opinions") and (II) that, after giving effect
to the proposed issuance of additional equity securities (the "Permitted
Bankruptcy Equity"), the Company would no longer be or not become
"insolvent" in the time frame referred to in the Bankruptcy Opinions (the
"Solvency Determination") and such issuance of Permitted Bankruptcy Equity
satisfies the following three conditions: (X) such issuance does not exceed
the amount determined by the Board to be reasonably necessary to allow the
Board to make the Solvency Determination, (Y) a binding commitment for the
sale of such Permitted Bankruptcy Equity is entered into within 90 days of
the delivery of the Bankruptcy Opinions and (Z)
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the terms of the First Refusal Agreement have been complied with in all
material respects by the Company, or (C) such issuance is pursuant to (I)
the exercise, conversion or exchange of equity securities outstanding
immediately prior to the Effective Time, (II) the Company's 1981 Stock
Program, 1988 Restricted Stock Plan or Incentive Plan, each as amended in
accordance with the Plan of Recapitalization, (III) the UAL Corporation
1992 Stock Plan for Outside Directors or (IV) any other equity incentive
compensation plan approved by the affirmative vote of three quarters of the
votes entitled to be cast by the entire Board, including all the
Independent Directors.
Special Voting Provisions with Respect to Purchase and Sale of Common Stock
Until the Sunset, any purchases of New Shares by the Company (other than to
fulfill its obligations to issue or retain New Shares in connection with the
exercise of employee options issued pursuant to employee benefit plans or to
retain New Shares in connection with tax withholding obligations in connection
with the exercise of employee options or restricted stock), or any sale by the
Company of any New Shares to a Company sponsored pension, retirement or other
employee benefit plan for the account of employees (other than pursuant to the
First Refusal Agreement or in connection with the creation and operation of the
ESOPs to which the ESOP Preferred Stock is issued), whether for cash or non-
cash consideration, including, without limitation, employee concessions, must
be approved by a majority of the Board, including at least 80% of the votes of
the Public Directors.
Rights Plan
The Rights Agreement between the Company and First Chicago Trust Company of
New York, dated as of December 11, 1986, as amended (the "Rights Agreement"),
which currently contains a "flip-in" trigger for the acquisition of 15% or more
of the Old Shares, will be amended to provide that the transactions
contemplated by the Recapitalization Agreement will not result in the Rights
(as defined in the Rights Agreement) being triggered. In addition, effective
immediately prior to the Effective Time, the Rights Agreement will be amended
to provide that the ESOP Preferred Stock will have the same number of attached
Rights associated as would be attached to the same number of New Shares to
which the ESOP Preferred Stock will be convertible. See "DESCRIPTION OF
SECURITIES--The Common Stock, the Series A Preferred Stock and the Junior
Participating Preferred Stock--Junior Participating Preferred Stock--Preferred
Share Purchase Rights."
Nondilution
As described under "DESCRIPTION OF SECURITIES--The Voting Preferred Stock--
Voting Rights," at the Effective Time, the holders of Voting Preferred Stock
will vote as a single class with the New Shares and will represent
approximately 55% of the votes to be cast on matters submitted to the vote of
the New Shares and Voting Preferred Stock (other than the election of Directors
and such matters for which a vote by separate class is required under the
DGCL). The number of votes represented by such Voting Preferred Stock is
subject to increase at the first anniversary of the Effective Time based on the
market price of the New Shares during the first year following the Effective
Time as described in "--Establishment of ESOPs--Additional Shares." The Voting
Preferred Stock will generally continue to represent approximately 55% of the
aggregate voting power of the New Shares and the Voting Preferred Stock, as
adjusted under certain circumstances, until the Sunset.
Sunset
The "Sunset" will occur when (i) the New Shares issuable upon conversion of
the outstanding ESOP Preferred Stock, plus (ii) any Common Equity and Available
Unissued ESOP Shares held in the ESOPs, in any other employee benefit plans
sponsored by the Company or any of its subsidiaries for the benefit of its
employees, represent, in the aggregate, less than 20% of the Common Equity and
Available Unissued ESOP Shares of the Company. "Common Equity" is defined as,
in the aggregate, the New Shares outstanding at
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the time in question and the New Shares issuable upon conversion of the ESOP
Preferred Stock outstanding at the time in question, together with the New
Shares represented by the Permitted Bankruptcy Equity outstanding at the time
in question, if any, but excluding any equity or equity equivalent securities
(other than Permitted Bankruptcy Equity and equity to be issued in connection
with the ESOPs) issued in connection with a Non-Dilutive Issuance, including,
without limitation, any equity or equity equivalent securities outstanding
immediately prior to the Effective Time that were not included in the
calculation of the Fully Diluted Old Shares as set forth and defined in "--
Terms and Conditions--General." "Available Unissued ESOP Shares" is generally
defined as the number of New Shares to be issued in connection with the ESOPs
which have not yet been issued.
If the Sunset occurs, the Company will file a restated certificate of
incorporation providing for more customary corporate governance provisions, the
number of Directors will remain at twelve (of which three will be Employee
Directors), the Outside Public Director Nomination Committee will nominate the
Board's nominees for election of directors (other than the Employee Directors)
to be elected by the stockholders at a meeting which will be held promptly
thereafter and upon the effectiveness of such election the term of the then
incumbent Directors will terminate, and there will be no special director or
voting rights, except that (a) the ALPA Director will be elected by the holder
of the Class Pilot MEC Preferred Stock until there are no longer any persons
represented by ALPA (or any successor organization) employed by the Company or
any affiliate (the "ALPA Termination Date"), the IAM Director will be elected
by the holder of the Class IAM Preferred Stock until there are no longer any
persons represented by the IAM (or any successor organization) employed by the
Company or any affiliate (the "IAM Termination Date") and the Salaried and
Management Director will be elected by the holders of the Class SAM Preferred
Stock until the earlier of the ALPA Termination Date and the IAM Termination
Date, each voting separately in a class, and (b) the Union Directors would
continue to serve on Committees as provided below.
Under current actuarial assumptions, the Company estimates that the Sunset
will occur in the year 2016 if no additional purchases were made by eligible
employee trusts and retirement plans. However, employees have the right to, and
may be expected to, make additional purchases through such trusts and plans
that will have the effect of delaying the Sunset. In certain circumstances
described under "DESCRIPTION OF SECURITIES--The Director Preferred Stock--
Uninstructed Trustee Action," the Sunset may not occur until 2010 even though
the conditions for the Sunset have occurred.
Committees
The Restated Certificate provides that until the Sunset the following
committees will constitute the Board Committees: the Audit Committee, the
Competitive Action Plan ("CAP") Committee, the Compensation Committee, the
Compensation Administration Committee, the Executive Committee, the Independent
Director Nomination Committee, the Labor Committee, the Outside Public Director
Nomination Committee and the Transaction Committee (collectively, the
"Committees"). In addition, the Board may, by resolution passed by the
affirmative vote of 80% of the votes of the entire Board, including the
affirmative vote of at least one Union Director, designate one or more other
committees of the Board. Except as provided below, any act of a Committee will
require the affirmative vote of a majority of the votes entitled to be cast by
the Directors present at a meeting of such Committee and entitled to vote on
the matter in question. The Restated Certificate contains certain provisions
relating to the required quorum for committee action.
The Audit Committee will consist of the four Independent Directors and the
three Outside Public Directors or such fewer number of such Directors (in as
nearly as practicable that same proportion of Independent Directors and Outside
Public Directors) as shall qualify for audit committee membership under
applicable rules of the securities exchanges or other similar trading market on
which the New Shares are traded. The Audit Committee will be primarily
concerned with (i) reviewing the professional services and independence of the
Company's independent auditors and the scope of the annual external audit as
recommended by the independent auditors, (ii) ensuring that the scope of the
annual external audit is
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sufficiently comprehensive, (iii) reviewing, in consultation with the
independent auditors and the internal auditors, the plan and results of the
annual external audit, the adequacy of the Company's internal control systems
and the results of the Company's internal audits, and (iv) reviewing, with
management and the independent auditors, the Company's annual financial
statements, financial reporting practices and the results of each external
audit. The Audit Committee will also have the authority to consider the
qualifications of the Company's independent auditors, to make recommendations
to the Board as to their selection and to review and resolve disputes between
such independent auditors and management relating to the preparation of the
annual financial statements.
The CAP Committee will consist of eight Directors, including four Public
Directors, two Independent Directors and the two Union Directors. Of the four
Public Directors, three will be Outside Public Directors and one shall be the
CEO (if the CEO is a Public Director). The two Independent Director members
shall be appointed by the Independent Director Nomination Committee which
appointment will require the affirmative vote of all of the votes entitled to
be cast by the Independent Directors. The function of the CAP Committee will be
to oversee implementation of the Company's Competitive Action Plan. The CAP
Committee will have the exclusive authority, acting for and on behalf of the
Board and consistent with the protection of the interests of the holders of New
Shares, to approve on behalf of the Company any and all modifications of or
amendments to the Competitive Action Plan. However, to the extent such
modifications or amendments relate to changes to any provision of the revised
Collective Bargaining Agreements with the IAM and ALPA, the two Union Directors
on the CAP Committee will neither be entitled to vote nor be counted in
determining the presence of a quorum of such committee in connection therewith.
Notwithstanding the foregoing, only the Labor Committee may approve on behalf
of the Company any such changes to such Collective Bargaining Agreements. In
addition, the CAP Committee will have the exclusive authority, acting for and
on behalf of the Board, to approve on behalf of the Company any and all
modifications of or amendments to the salaried and management employee
investment described in "--Investment for Salaried and Management Employees".
Such modifications or amendments must be approved by the affirmative vote of at
least a majority of the votes of the entire CAP Committee, including at least
two Union Directors and all of the Outside Public Directors.
The Compensation Committee will consist of seven Directors, including two
Independent Directors, two Public Directors and the three Employee Directors.
Of the two Public Directors, one will be an Outside Public Director appointed
by the Outside Public Director Nomination Committee, and one will be the CEO
(if the CEO is a Public Director). The two Independent Directors members will
be appointed by the unanimous approval of the Independent Director Nomination
Committee. The principal functions of the Compensation Committee will be to
review and recommend to the Board the compensation and benefit arrangements to
be established for the officers of the Company and to review general policy
matters relating to compensation and benefit arrangements of non-union
employees of the Company. The Compensation Committee will also administer the
stock option plans and executive compensation programs of the Company,
including bonus and incentive plans applicable to officers and key employees of
the Company. Subject to the final approval of the Compensation Committee
(except as described in the following paragraph), the Compensation Committee
may delegate to the Compensation Administration Committee specific
responsibilities with respect to the compensation of the CEO.
The Compensation Administration Committee will consist of two Independent
Directors and one Outside Public Director, each of whom will be (a) a
"disinterested person" or "disinterested administrator" or any related
successor concept under Rule 16b-3 (or any successor provision) promulgated
pursuant to Section 16 of the Exchange Act and (b) an "outside director" or any
related successor concept under Section 162(m) (or any successor provision) of
the Code. The Outside Public Director will be appointed by the Outside Public
Director Nomination Committee. The two Independent Directors will be appointed
by the Independent Director Nomination Committee, which appointment shall
require the affirmative vote of all the Independent Directors. The principal
function of the Compensation Administration Committee will be to administer the
stock option plans and executive compensation programs of the Company to the
extent
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such functions cannot or are not appropriate to be performed by the
Compensation Committee in light of any provision of the Internal Revenue Code,
the securities laws, any other applicable law or any regulations promulgated
under any of the foregoing. Any action of the Compensation Administration
Committee must also be approved by the Compensation Committee, unless such
approval would prevent a stock option plan that is intended to qualify under
Rule 16b-3 (or any successor provision) from receiving the benefits of Rule
16b-3 or such approval would prevent an executive compensation program (on a
component thereof), that is intended to qualify for an exception under Section
162(m) (or any successor provision) from qualifying for such exception.
The Executive Committee will be comprised of two Independent Directors, two
Public Directors (the CEO, if the CEO is a Public Director, and one Outside
Public Director) and two Union Directors. Subject to the DGCL, the Executive
Committee will have all the powers of the Board to manage the affairs of the
Company except that it would not have the authority to act with respect to any
of the "Extraordinary Matters" discussed above, to take any action as to
matters specifically vested in other Committees or take any action that may be
taken by the Board only with a vote greater than or additional to a majority of
the Board. In the event a new CEO is to be selected prior to the Sunset, the
Executive Committee will function as a search committee to identify a successor
CEO.
The Labor Committee will consist of three or more Directors, including one
Outside Public Director, at least one Independent Director and at least one
other Director, as designated by the Board, but will not include any Employee
Directors. The Labor Committee will have the exclusive authority on behalf of
the Board to approve on behalf of the Company the entering of, or any
modification or amendment to, a collective bargaining agreement to which the
Company or any of its subsidiaries is a party.
The Transaction Committee will consist of seven Directors, consisting of the
four Independent Directors and the three Outside Public Directors. The function
of the Transaction Committee will be to evaluate and advise the Board with
respect to any proposed merger or consolidation of the Company or any of its
Subsidiaries with or into, the sale, lease or exchange of all or substantially
all of the Company's or any of its Subsidiaries' property or assets to, or a
significant business transaction with, any Labor Affiliate.
Amendment and Restatement of the Bylaws
Pursuant to the Plan of Recapitalization the Company's Bylaws will be amended
and restated (the "Restated Bylaws"). The Restated Bylaws provide that until
the Sunset many matters will be governed by the Restated Certificate including,
among others: (i) quorum requirements at any meeting of the stockholders, the
Board or any Board Committee; (ii) number, composition and term of office of
directors; (iii) removal of Directors; (iv) filling of vacancies on the Board
and on Board Committees; (v) designation of Board Committees; (vi) the
composition, function and powers of the Executive Committee; (vii) the
appointment, term of office, filling of vacancies and removal of officers of
the Company; and (viii) any substantive amendment to the Restated Bylaws.
Furthermore, the Restated Bylaws provide that, subject to certain exceptions,
following the Sunset many provisions of the existing Bylaws of the Company will
be reinstated.
In addition, the Restated Bylaws provide, among other things, for other
changes to the existing Bylaws including, but not limited to the following: (i)
the ability, until the Sunset, of any two directors, the CEO or the secretary
of the Company to call a special meeting of the Board; (ii) until the Sunset,
subject to the fiduciary obligations of the directors, the CEO will be elected
as one of the Management Public Directors; (iii) the term of the CEO (other
than Mr. Greenwald as the initial CEO) will automatically terminate if he is
not elected as Management Public Director by the stockholders at the first
meeting of stockholders for the election of directors at which he is eligible
for nomination as a Management Public Director; and (iv) until the Sunset, non-
substantive amendments to the Restated Bylaws may be adopted either by a
majority vote of the entire Board or by 75% in the voting power of the stock
entitled to vote at a stockholder meeting in which a quorum is present. In
addition, the Restated Bylaws contain other procedural sections, some of which
operate only until the Sunset and some of which become operative only after the
Sunset.
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TERMS AND CONDITIONS
General
The Plan of Recapitalization provides for the reclassification of the Old
Shares and other amendments to the Company's Certificate of Incorporation and
Bylaws. Immediately prior to the Effective Time each outstanding Old Share,
including each share of restricted stock issued pursuant to the 1988 Restricted
Stock Plan (which will vest upon the Effective Time if not vested prior
thereto), together with up to 1,000,000 Old Shares held by the Company as
treasury stock or owned by any wholly-owned subsidiary of the Company
immediately prior to the Effective Time, will, without any further action on
the part of the holder thereof, be reclassified as, and exchanged for, one half
(0.5) of a New Share and one one-thousandth of a share of Series D Redeemable
Preferred Stock. Concurrently with the solicitation of proxies in connection
with the Plan of Recapitalization, United will be offering up to $382.5 million
principal amount of its Series A Debentures pursuant to the United Series A
Offering and up to $382.5 million principal amount of its Series B Debentures
pursuant to the United Series B Offering and the Company will be offering up to
30,600,000 Depositary Preferred Shares representing interests in $765.0 million
liquidation preference of Public Preferred Stock pursuant to the UAL Preferred
Offering. Immediately upon issuance pursuant to the Reclassification, each one
one-thousandth of a share of Series D Redeemable Preferred Stock will be
redeemed for:
(i) $25.80 in cash,
(ii) either (a) $15.55 principal amount of Series A Debentures or (b) if the
United Series A Offering is consummated, the cash proceeds (without
deducting any underwriting discount or other costs) from the sale thereof by
United pursuant to the United Series A Offering,
(iii) either (a) $15.55 principal amount of Series B Debentures or (b) if the
United Series B Offering is consummated, the cash proceeds (without
deducting any underwriting discount or other costs) from the sale thereof by
United pursuant to the United Series B Offering and
(iv) either (a) Depositary Preferred Shares representing interests in $31.10
liquidation preference of Public Preferred Stock or (b) if the UAL Preferred
Offering is consummated, the cash proceeds (without deducting any
underwriting discount or other costs) from the sale thereof by the Company
pursuant to the UAL Preferred Offering.
The consummation of the Recapitalization is not conditioned on, or subject
to, the consummation of any of the Offerings. In addition, none of the
Offerings is conditioned on, or subject to, the consummation of any of the
other Offerings.
The New Shares to be issued in the Recapitalization will represent an equity
interest (based on the Fully Diluted Old Shares described below and taking into
account the 0.5 common stock exchange ratio and taking into account the shares
of ESOP Preferred Stock the Company is initially obligated to issue)
immediately after the Recapitalization of 45% of one Old Share's current
percentage equity interest. Such equity interest is subject to adjustment as
described below under "--Establishment of ESOPs--Additional Shares."
"Fully Diluted Old Shares" were calculated as follows: the sum of (i) Old
Shares outstanding (net of unvested restricted shares), (ii) unvested
restricted shares, (iii) net options shares issued assuming the treasury stock
method of accounting (pursuant to which the deemed proceeds to the Company from
the deemed
exercise of in-the-money options are applied to repurchase shares for the
treasury at an assumed market price per Old Share of $173) and (iv) shares
issuable upon conversion of the Series A Preferred Stock. Due to their high
conversion premium, the Air Wis Services, Inc. 7 3/4% Convertible Subordinated
Debentures Due 2010 and Air Wis Services, Inc. 8 1/2% Convertible Subordinated
Notes Due 1995 were not assumed to be converted and were not included in the
calculation of Fully Diluted Old Shares. The number of Fully Diluted Old
Shares, as shown below, is fixed for purposes of the Plan of Recapitalization
and the issuance of shares of
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ESOP Preferred Stock to the ESOPs although the actual number of Old Shares that
are reclassified pursuant to the Recapitalization may change due to vesting of
restricted stock and the exercise of options:
<TABLE>
<S> <C>
Old Shares (net)................................................ 24,450,896
Unvested restricted shares...................................... 119,643
Option shares (net)............................................. 521,780
Old Shares upon conversion of Series A Preferred Stock.......... 3,833,866
----------
Fully Diluted Old Shares........................................ 28,926,185
----------
</TABLE>
Because the calculation of Fully Diluted Old Shares is based on the exercise
of net option shares (using the treasury stock method) and the conversion of
all the Series A Preferred Stock, neither of which is expected to occur at the
Effective Time, the New Shares then outstanding are expected to represent less
than 45% of the Common Equity of the Company (taking into account the New
Shares and the ESOP Preferred Stock only) at the Effective Time.
As contemplated by the Plan of Recapitalization, the Company has elected to
issue Depositary Preferred Shares, each representing an interest in one one-
thousandth of a share of Public Preferred Stock, which is the equivalent of $25
liquidation preference of Public Preferred Stock. Each share of Public
Preferred Stock will have a liquidation preference of $25,000. See "Description
of Securities--The Depositary Preferred Stock."
Effective Time
The Recapitalization, the Stock Issuance, the amendments to the 1981 Stock
Program, the 1988 Restricted Stock Plan and the Incentive Plan and the revised
Collective Bargaining Agreements with ALPA and the IAM will become effective at
such time as the Restated Certificate, which provides for the reclassification
of the Old Shares, is duly filed with the Secretary of State of the State of
Delaware or at such later time as may be mutually agreed upon by the Company
and each of ALPA and the IAM and as is specified in the Restated Certificate
(the "Effective Time"). The filing of the Restated Certificate is currently
anticipated to be made as promptly as practicable after the Meeting. Such
filing shall be made, however, only upon satisfaction or, where permissible,
waiver of all conditions contained in the Plan of Recapitalization and provided
that the Plan of Recapitalization has not been terminated. See "--Terms and
Conditions" and "--Termination." If any or all of the Offerings are
consummated, it is expected that they will be consummated at or prior to the
Effective Time.
Payment for Shares
As soon as practicable after the Effective Time, the Company will send or
cause First Chicago Trust Company of New York (the "Exchange Agent") to send
and otherwise make available a letter of transmittal to each record holder of
Old Shares as of the Effective Time to be used to transmit a certificate or
certificates that immediately prior to the Effective Time represented Old
Shares (an "Old Certificate" or "Old Certificates") to the Exchange Agent. Such
letter of transmittal will advise the holder of the effectiveness of the
Recapitalization and the procedures for surrendering to the Exchange Agent the
Old Certificate or Certificates for exchange into Recapitalization
Consideration and will specify that the delivery will be effected and the risk
of loss and title will pass, only upon proper delivery of the Old Certificate
or Certificates to the Exchange Agent. Stockholders should surrender the Old
Certificate or Certificates only together with a letter of transmittal.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY
CARD.
Each holder of Old Shares that have been converted into the right to receive
the Recapitalization Consideration, upon surrender to the Exchange Agent of the
Old Certificate or Certificates together with a properly completed letter of
transmittal, will be entitled to receive the Recapitalization Consideration for
each Old Share formerly represented by such Old Certificate. Until so
surrendered, each Old Certificate will, after the Effective Time, represent for
all purposes only the right to receive such Recapitalization Consideration. If
any payment of the Recapitalization Consideration is to be made to a person
other than the registered
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holder of the Old Shares, the Old Certificates so surrendered must be properly
endorsed or otherwise be in proper form for transfer, and any applicable
transfer or other taxes must have been paid to the Exchange Agent by the person
requesting such payment or such person must have established to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
In the event any Old Certificate is lost, stolen or destroyed, based on an
affidavit to that fact by the person claiming such Old Certificate to be lost,
stolen or destroyed, the Company will issue in exchange for such lost, stolen
or destroyed Old Certificate the Recapitalization Consideration deliverable in
respect thereof. When authorizing such issue of the Recapitalization
Consideration in exchange therefor, the Company may, in its discretion and as a
condition precedent to the issuance thereof, require the person claiming
ownership of such lost, stolen or destroyed Old Certificates to give the
Company a bond in such sum as it may direct, or otherwise indemnify the Company
in a manner satisfactory to it, against any claim that may be made against the
Company with respect to the Old Certificates alleged to have been lost, stolen
or destroyed.
After the Effective Time, there will be no further registration of transfers
of Old Shares. If, after the Effective Time, Old Certificates representing Old
Shares are presented to the Company or its transfer agent, such Old
Certificates will be cancelled and exchanged for the Recapitalization
Consideration.
Fractional New Shares and, if the applicable Offerings are not consummated,
fractional Depositary Preferred Shares (based on $25 of liquidation preference
per whole Depositary Preferred Share) and fractional Debentures (based on $100
principle amount per whole Debenture) will not be issued as part of the
Recapitalization and such fractional interests will not entitle the beneficial
or record owner thereof to any rights of a stockholder or creditor of the
Company. In lieu of any fractional New Shares and, if applicable, fractional
Depositary Preferred Shares and fractional Debentures to which a former holder
of Old Shares otherwise would be entitled, such holder will be entitled to
receive from the Exchange Agent a cash payment based on pro-rata distribution
of the proceeds received by the Exchange Agent from the sale of the aggregate
fractional New Shares, fractional Depositary Preferred Shares and fractional
Debentures. Such cash payments will be made to each such holder of Old Shares
only upon proper surrender of such holder's Old Certificates formerly
representing Old Shares, together with a properly completed and duly executed
transmittal letter and any other required documents.
All Recapitalization Consideration, including cash in lieu of fractional
interests, if not claimed at the first anniversary of the Effective Time, will
be transferred by the Exchange Agent to the Company, after which time persons
entitled thereto may look, subject to applicable escheat and other similar
laws, only to the Company for payment thereof. No interest will be paid or
accrued on any portion of the Recapitalization Consideration, including cash in
lieu of fractional interests. No dividends or other distributions declared or
made after the Effective Time with respect to New Shares with a record date
after the Effective Time will be paid to the holder of any unsurrendered Old
Certificate or Certificates with respect to the New Shares that such holder is
entitled to receive until the holder of such Old Certificate or Certificates
has properly surrendered the same.
Stock Options
Upon consummation of the Recapitalization, each outstanding employee stock
option of the Company granted under any employee stock option or compensation
plan or arrangement of the Company will remain outstanding, each such option
then held by employees or former employees of the Company, whether or not then
vested or exercisable immediately prior to the Effective Time (collectively,
the "Options"), if provided by the terms thereof (or if accelerated in
accordance with the relevant plan) will become fully vested and exercisable and
after the Effective Time each option will thereafter represent the right to
receive, in exchange for the aggregate exercise price for such option, the
Recapitalization Consideration with respect to each Old Share that such holder
would have been entitled to receive had such holder been vested in such option
and exercised such option in full immediately prior to the Effective Time.
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Convertible Company Securities
Each share of Series A Preferred Stock and each of the Air Wis Services,
Inc. 7 3/4% Convertible Subordinated Debentures Due 2010 and the Air Wis
Services, Inc. 8 1/2% Convertible Subordinated Notes Due 1995 (collectively,
the "Convertible Company Securities") outstanding immediately prior to the
Effective Time will remain outstanding, and each holder of any such
Convertible Company Security will have the right to receive the
Recapitalization Consideration with respect to each Old Share that such holder
would have been entitled to receive upon conversion had such holder converted
such Convertible Company Security in full immediately prior to the Effective
Time.
Treasury Shares
Pursuant to the Plan of Recapitalization, each Old Share held by the Company
as treasury stock or owned by any wholly-owned subsidiary of the Company
immediately prior to the Effective Time (the "Treasury Shares"), up to a
maximum of 1,000,000 Treasury Shares (the "Retained Treasury Shares"), will be
reclassified and converted into the Recapitalization Consideration, with all
Treasury Shares in excess of 1,000,000 being surrendered for cancellation
immediately prior to the Effective Time and no payment shall be made with
respect thereto. Immediately following the Effective Time, the Company and
each of its wholly owned subsidiaries will surrender for cancellation the
Redeemable Preferred Stock received upon reclassification of the Retained
Treasury Shares and no payment will be made in respect thereof.
Pricing the Securities
Under the Plan of Recapitalization, the interest rate on the Series A
Debentures has been fixed provisionally at 9.00%, the interest rate on the
Series B Debentures has been fixed provisionally at 9.70% and the dividend
rate on the Public Preferred Stock has been fixed provisionally at 10.25% (the
"Initial Pricing"). On the Trading Day immediately preceding the Announcement
Date (as defined below), CS First Boston (in consultation with Lazard) on
behalf of the Company and Keilin & Bloom (or such other investment banking
firm as may be reasonably selected by the Unions) on behalf of the Unions (the
"Primary Banking Firms") will seek to mutually determine the interest or
dividend rate that each of the Debentures and the Public Preferred Stock
should bear in order for the Debentures and Depositary Preferred Shares to
trade at par as of the close of business, New York time, on the last day on
which the NYSE is open for business ("Trading Day") immediately preceding the
Announcement Date, assuming that the Debentures or the Depositary Preferred
Shares were fully distributed on such Trading Day. "Announcement Date" means a
Trading Day that will be not fewer than five business days nor more than ten
calendar days preceding the date of the Meeting, such date to be disclosed to
the Unions not fewer than ten calendar days prior thereto. If the Primary
Banking Firms are unable to agree on the applicable rate of the Public
Preferred Stock and the Debentures (the "Applicable Rates") with respect to a
specified security, then (i) a third financial advisor identified by the
Company and the Unions, which is expected to be Salomon Brothers Inc (the
"Deadlock Firm"), will render its determination, based on such factors as it
deems relevant and in accordance with such procedures as it deems appropriate
(which may include discussions or consultations with one or more managers of
the Offerings), on the Trading Day immediately preceding the Announcement
Date, as to the Applicable Rate with respect to such securities, and (ii) the
Applicable Rate with respect to such Security or Securities will be the
average of the two closest rates specified in the determinations of the
Primary Banking Firms and the Deadlock Firm, rounded to the nearest one one-
hundredth of a percent, provided, however, that, while there is no limitation
on a downward adjustment, in no event shall the Applicable Rate with respect
to the Debentures or the Public Preferred Stock exceed 10.125% in the case of
the Series A Debentures, 10.825% in the case of the Series B Debenture and
11.375% in the case of the Public Preferred Stock. See "SPECIAL FACTORS--
Certain Risk Factors--Investment Values; Future Investments." Based on current
market conditions, the Company believes that the interest rates on the Series
A Debentures and the Series B Debentures and the dividend rate on the
Depositary Preferred Shares to be established by certain financial advisors to
the Company and the Unions and, in the case of a deadlock, based on a process
involving a third financial advisor, would not be less than the initial
pricing of 9.00% for the Series A Debentures, 9.70% for the Series B
Debentures and 10.25% for the Depositary Preferred Shares. In connection with
the establishment of the final interest and dividend rates for the Debentures
and the Depositary Preferred Shares, the Primary
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Banking Firms or the Deadlock Firm may or may not deliver written statements,
reports or opinions with respect to their determination. Salomon Brothers Inc
has been selected as a co-manager of the Offerings of the Debentures, and may
participate in the Offering of the Public Preferred Stock.
The underwriting agreements relating to the several Offerings are expected to
provide, as applicable, that if such Offerings are consummated, the interest
rates on the Debentures and the dividend rate on the Public Preferred Stock
represented by the Depositary Preferred Shares, respectively, may be adjusted
(including in excess of their respective caps) to permit such securities to be
sold at or closer to par, but if that is done, the principal amount of the
series of Debentures affected or the number of Depositary Preferred Shares
representing interests in the Public Preferred Stock, as the case may be, will
be reduced so that the aggregate amount of interest payable annually by United
on the Debentures and the aggregate amount of dividends payable annually by the
Company on the Public Preferred Stock will not exceed certain maximum amounts
calculated with reference to such caps. If any of the Offerings are not
consummated, the interest rates borne by the Debentures of any series of
Debentures not subject to a consummated Offering and the dividend rate borne by
the Public Preferred Stock if the UAL Preferred Offering is not consummated
will be subject to the caps. See "THE PLAN OF RECAPITALIZATION--Terms and
Conditions--Pricing the Securities."
On the Announcement Date, the Company will (i) issue a press release setting
forth certain information (described below) relating to the Debentures and the
Public Preferred Stock and (ii) send a mailgram to all holders of Old Shares as
of the Record Date setting forth such information. On the first business day
following the Announcement Date, the Company will publish such rates in an
advertisement in the national edition of The Wall Street Journal. In addition a
toll-free number (800-223-2064) has been established from which all holders of
Old Shares can obtain general recorded information concerning the Announcement
Date. As of the Announcement Date, holders of the Old Shares can call the toll-
free number to obtain the information relating to the Debentures and the Public
Preferred Stock. See also "SPECIAL FACTORS--Certain Risk Factors--Pricing the
Public Preferred and the Debentures." On or promptly following the Announcement
Date, the Company will also file with the Securities and Exchange Commission an
amendment to the Registration Statement on Form S-4 to reflect the final
pricing information.
The press release, newspaper advertisement, mailgram and recorded information
described in the previous paragraph will include (i) a statement of whether the
Company expects all or any of the Offerings to be consummated, (ii) if so, the
amount of the cash proceeds to be received from the sale of the Debentures
and/or Depositary Preferred Shares that are otherwise issuable in respect of
each Old Share if any of such Offerings are consummated and (iii) a statement
of the interest rates and/or dividend rate for the Debentures or Depositary
Preferred Shares if the Offering relating to any such securities is not
consummated. To the extent the Company has announced that it expects any or all
of the Offerings to be consummated and it is subsequently determined that any
of such Offerings will not be consummated, the Company will disseminate such
information promptly in the same manner that the Company used to disseminate
the information set forth in the previous sentence and will cause the Meeting
to be rescheduled such that at least five business days will occur between the
release of such information and the Meeting. Any statement in connection with
the foregoing that the Company expects the Offerings to be consummated will not
be an assurance that the Offerings will be consummated.
The provisional rates of interest that the Debentures will bear and the
maximum rates of interest that they may bear upon adjustment are based upon the
assumption that the Debentures will not be callable prior to their respective
stated maturities. The Plan of Recapitalization provides that the Unions may
request, a reasonable period of time prior to the Announcement Date, that
either or both of the series of Debentures may be callable pursuant to
redemption provisions to be established for each of the Debentures to apply if
the applicable United Debt Offering is consummated. If so requested, the
Primary Banking Firms will establish the incremental increase in pricing
resulting from the addition of the call feature on either or both of the series
of Debentures, as the case may be, above the Applicable Rate, with any
disagreement to be resolved with the assistance of the Deadlock Firm. The
Coalition may withdraw the request for a call feature at any time up to the
issuance of the press release on the Announcement Date.
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Record and Payment Dates
If the applicable Offerings are not consummated, the quarterly record dates
(and corresponding dividend payment dates) for the payment of dividends on the
Public Preferred Stock (through the Depositary Preferred Shares) will be the
same as the quarterly record dates (and corresponding dividend payment dates)
for the payment of dividends on the Series A Preferred Stock and the semi-
annual record dates (and corresponding interest payment dates) for the payment
of interest on the Debentures will be the same as two of the quarterly record
dates (and corresponding dividend payment dates) for the payment of dividends
on the Series A Preferred Stock.
Purchase of ESOP Preferred Stock
The Preferred Stock Purchase Agreement, originally dated as of March 25, 1994
and amended as of June 2, 1994, between the Company and the ESOP Trustee (the
"ESOP Stock Purchase Agreement"), provides for the initial purchase by the
Qualified ESOP (as defined below, see "Establishment of ESOPs--Sales of ESOP
Preferred Stock") of the Class 1 ESOP Preferred Stock for a price equal to 1.38
times the Closing Price (as defined below, see "Establishment of ESOPs--
Leveraged ESOP") except that if the closing price is less than 98% of the
average of the Adjusted Old Share Price (as defined below, see "Establishment
of ESOPs--Leveraged ESOPs") in the five trading days immediately preceding the
Effective Date the purchase price shall equal the product of 1.38 and such
average price. See "--Establishment of ESOPs--Sales of ESOP Preferred Stock."
The ESOP Stock Purchase Agreement also provides that additional sales of Class
1 ESOP Convertible Preferred Stock will be made to the ESOP Trustee on the
first day of the thirteenth month after the Effective Time, on each of the next
four anniversaries of such date, and on January 1, 2000. The price for the
subsequent sales will be as agreed upon between the Company and the ESOP
Trustee. The Company may, with the consent of the Unions (which may not be
unreasonably withheld), make the subsequent sales at earlier times, provided
that earlier sales shall not alter the timing or amount of the allocation of
shares to participants' accounts. If agreements cannot be reached with the ESOP
Trustee to make the subsequent sales, the Company will contribute the shares
which would have been sold. For additional information concerning the purchase
of the Class 1 ESOP Preferred Stock and for information on the Class 2 ESOP
Preferred Stock, see "--Establishment of ESOPs--Sales of ESOP Preferred Stock."
In addition, pursuant to the Plan of Recapitalization, the dividend rate on the
Class 1 ESOP Preferred Stock may not be more than 7% of the initial purchase
price.
Representations and Warranties
The Plan of Recapitalization contains various customary representations and
warranties relating to, among other things, (a) on the part of the Company, as
to, (i) organization and similar corporate matters, (ii) authorization,
execution, delivery, performance and enforceability of the Plan of
Recapitalization and related matters, (iii) capital structure, (iv)
subsidiaries, (v) documents filed by the Company with the Commission and the
accuracy of information contained therein, (vi) absence of material changes
with respect to the business of the Company since December 31, 1993, (vii)
generally, subject to certain exceptions, compliance with the "status quo"
provisions of the Agreement in Principle which are substantially similar to the
provisions of the first paragraph below under "--Certain Covenants" during the
period from December 22, 1993 until March 25, 1994 and (viii) the opinion of
financial advisors as to the fairness of the Recapitalization Consideration,
and (b) on the part of each of the Unions, as to, (i) organization and similar
matters and (ii) authorization, execution, delivery, performance and
enforceability of the Plan of Recapitalization.
Certain Covenants
Pursuant to the Plan of Recapitalization, the Company agreed that during the
period from the date of the Plan of Recapitalization until the Effective Time,
the Company and its subsidiaries will be subject to certain restrictions on
their conduct and will generally only take actions in the ordinary course of
business consistent with past practice; in particular, the Company and its
subsidiaries may not, among other things, without the prior written consent of
the Unions, subject to certain agreed upon exceptions: (i) issue, sell, dispose
of, pledge or otherwise encumber any equity securities of the Company or any
subsidiary (or securities
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exercisable into or for such securities), (ii) reclassify, combine, split,
subdivide, redeem, purchase or otherwise acquire any securities of the Company,
(iii) declare or pay any dividend or distribution on the Old Shares, (iv)
increase the compensation of any of its directors, officers or key employees,
or increase its expenses relating to employee benefits, (v) incur any material
amount of long-term indebtedness, make any material loans, advances or capital
contributions to any other person, mortgage or pledge any of its material
assets or (vi) enter into any agreement or arrangement to do any of the
foregoing. The Company also agreed, among other things, subject to certain
exceptions until the Effective Time (i) not to take any actions that would
violate or be inconsistent with the job protection provisions of the collective
bargaining agreements with each of the Unions, (ii) not to take any action
relating to certain matters requiring supermajority votes under the Restated
Certificate (as discussed above under "--Revised Governance Structure--
Extraordinary Matters") and (iii) not to alter or amend the Board's resolutions
or any of its policies, practices, procedures or employee benefit plans in any
manner that would adversely affect the right or ability of the employees of the
Company or United to purchase equity securities of the Company. The Company has
agreed to restore certain severance benefits to former employees of United who
have been terminated as a result of the sale of United's flight kitchens to
Dobbs or Caterair. These severance benefits had been in effect from December
22, 1993, upon execution of the Agreement in Principle, until March 15, 1994,
when the "status quo" provision of the Agreement in Principle terminated.
In addition to the covenants described above, the Company agreed to take
actions that will facilitate the implementation of the Plan of
Recapitalization. In particular, the Company agreed, among other things, (i)
subject to receipt of updated fairness opinions from CS First Boston and
Lazard, to convene a meeting of stockholders to approve each of the Plan of
Recapitalization, the Restated Certificate, the election of the initial Public
Directors to the Board of Directors of the Company and the issuance of the ESOP
Preferred Stock as part of the Recapitalization (the "Shareholder Vote
Matters"), the approval of each such matter to be conditioned on approval of
all such matters, and amendments to the Company's 1981 Incentive Stock Plan and
1988 Restricted Stock Plan and Incentive Compensation Plan (the "Company Plan
Matters"), in connection with which the Company agreed to prepare, file with
the Commission and mail to its stockholders this Proxy Statement, (ii) to
provide each of ALPA and the IAM and their agents with reasonable access to
offices, employees, properties, books and records of the Company and its
Subsidiaries in connection with the Plan of Recapitalization and the
transactions contemplated thereby, (iii) subject to certain exceptions, not to
encourage, solicit, participate in or initiate discussions or negotiations
with, or provide any information to, any other person concerning any merger,
sale of assets, sale of, or tender or exchange offer for, shares of capital
stock or similar transaction, involving a change of control of the Company or
all or substantially all of the assets of the Company (an "Acquisition"), (iv)
to provide each of ALPA and the IAM with notices of certain significant events,
(v) to amend the directed account plans, 401(k) plans and stock purchase plan
maintained by the Company and United to permit employees of the Company and
United following the Effective Time to acquire, in addition to amounts held in
the ESOPs, the following securities: (X) up to the lesser of (1) 30% of the
outstanding New Shares held by persons other than the ESOPs and (2) 20% of the
aggregate number of outstanding New Shares and New Shares issuable upon
conversion of the ESOP Preferred Stock outstanding or to be issued (including
Available Unissued ESOP Shares) and (Y) except with respect to the Company's
stock purchase plan, up to (1) 20% of the outstanding Depositary Preferred
Shares, (2) 20% of the outstanding principal amount of Series A Debentures and
(3) 20% of the outstanding principal amount of Series B Debentures, subject to
the following additional limits: (A) no employee group of the Company or its
subsidiaries may individually acquire more than 10% of any class of securities
referred to in clause (X) and (Y) above through such plans, (B) in the case of
the directed account plans, no "Employee Group" (defined as each of ALPA, the
IAM and the salaried and management employees) may individually acquire more
than 2% of any such class of securities in any monthly subscription period
through such plans, (C) no Employee Group may individually acquire more than 2%
of the outstanding New Shares held by persons other than the ESOPs (in addition
to New Shares received in the Recapitalization) through such plans during the
six-month period beginning at the Effective Time and (D) no New Shares may be
acquired through such plans during the six-month period ending on the last day
of the Measuring Period, (vi) to cause United to execute and deliver new
collective bargaining agreements or amendments to existing collective
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bargaining agreements with each of ALPA and the IAM and to establish and cause
United to establish appropriate employment terms for the employees of the
Company and United who perform the functions currently performed by the
salaried and management employees of the Company and United, (vii) to retain an
appraisal firm to provide an opinion in writing as to whether the Company would
have sufficient surplus under the DGCL to permit the consummation of the
Recapitalization (the "Solvency Letter") and that if the appraisal firm
concludes that sufficient surplus is so available, the Board will take all
lawful and appropriate action to revalue the Company's assets and liabilities
to permit consummation of the Recapitalization and (viii) to execute at the
Effective Time the Greenwald Agreement and to perform all of its obligations
under such agreement and to execute and deliver prior to the Effective Time all
the documents and agreements required to be executed and delivered by the
Company pursuant to the Plan of Recapitalization including documents and
agreements relating to the Debentures and the Depositary Preferred Shares, the
purchase of stock by the ESOPs (including the ESOP Stock Purchase Agreement),
the establishment of the ESOP Trusts, the retention and conduct of the Exchange
Agent, the subscription agreements relating to the various classes of stock to
be issued as part of the Recapitalization, the amendment to the Rights
Agreement, the Class I Stockholders' Agreement, the Class SAM Stockholders'
Agreement and the First Refusal Agreement (collectively, the "Closing
Agreements").
Pursuant to the Plan of Recapitalization, each of ALPA and the IAM agreed,
among other things, (i) prior to the Effective Time and after any termination
of the Plan of Recapitalization to hold confidential information received from
the Company and its subsidiaries in confidence, (ii) to execute and deliver at
the Effective Time the relevant Collective Bargaining Agreement between each
Union and the Company, (iii) not to nominate or cause to be nominated any
Outside Public Director and (iv) to use their best efforts to cause any
Independent Director vacancy to be filled.
Pursuant to the Plan of Recapitalization, each of ALPA and the IAM and the
Company mutually agreed, among other things, (i) to use their best efforts to
consummate the Plan of Recapitalization and (ii) to cooperate in connection
with preparation and filing of documents with any governmental agency or
authority. In addition, if the AFA, prior to the Effective Time, agrees to
provide, in the sole judgment of the Company, an investment equal to $416
million (present value in January 1994 dollars), then the parties, should an
agreement be reached on all aspects of the AFA's participation (e.g.,
governance), will revise all applicable documents to reduce the investment
period for ALPA, the IAM and the salaried and management employees by nine
months and to distribute 12.62% of the ESOP Preferred Stock to the AFA such
that after such distribution, 40.4% of the ESOP Preferred Stock is allocated to
ALPA employees, 32.44% to IAM employees, 14.54% to the salaried and management
employees and 12.62% to the AFA employees.
Conditions
Pursuant to the Plan of Recapitalization, the obligation of the Company to
file the Restated Certificate at the Effective Time and the obligations of each
of the Unions to enter into the revised Collective Bargaining Agreements at the
Effective Time are subject to the satisfaction of the following conditions,
among others: (i) the Shareholder Vote Matters have been approved and adopted
by the stockholders of the Company in accordance with the Certificate of
Incorporation and Bylaws of the Company and in accordance with the DGCL, (ii)
any applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 relating to the Recapitalization has expired or been
terminated, (iii) the Registration Statement has become effective under the
Securities Act and is not the subject of any stop order or governmental
proceedings seeking a stop order, (iv) all material actions by or in respect of
or filings with any governmental body, agency, official, or authority required
to permit the consummation of the Recapitalization have been obtained, (v) the
New Shares issuable as part of the Recapitalization (including New Shares
issuable upon conversion of the ESOP Preferred Stock and upon conversion of the
Convertible Company Securities) have been authorized for listing on the NYSE
subject to official notice of issuance, (vi) there has been no change in the
DGCL enacted or any applicable decision of a court of competent jurisdiction
decided after the date of the Plan of Recapitalization and prior to the
Effective Time that would cause the Restated Certificate or Restated Bylaws to
fail to comply in any material respect with the applicable provisions of the
DGCL, (vii) the ESOP Trustee has received the
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written opinion of Houlihan Lokey, to the effect that, as of the Effective
Time, the acquisition of the ESOP Preferred Stock by the ESOPs at the Effective
Time is fair, from a financial point of view, to the ESOP participants, (viii)
the Board has received the Solvency Letter, (ix) (A) there has not been
instituted or pending any action, proceeding, application, claim, or
counterclaim by any United States federal, state or local government or
governmental authority or agency, including the Department of Transportation,
before any court or governmental regulatory or administrative agency, authority
or tribunal, that (x) restrains or prohibits or is reasonably likely to
restrain or prohibit the making or consummation of, or is reasonably likely to
recover material damages or other relief as a result of, the Recapitalization,
or the receipt by holders of the Old Shares of the full amount of the
Recapitalization Consideration, or restrains or prohibits or is reasonably
likely to restrain or prohibit the performance of, or is reasonably likely to
recover material damages or other relief as a result of, the Plan of
Recapitalization or any of the transactions contemplated thereby or (y)
prohibits or limits or seeks to prohibit or limit the ownership or operation by
either Union, the ESOP Trustee, any of the ESOPs or any participant therein of
all or any substantial portion of the capital stock, business or assets of the
Company or any of its subsidiaries or compels or seeks to compel either Union,
the ESOP Trustee, any of the ESOPs or any participant therein to dispose of or
hold separate all or any substantial portion of the capital stock, business or
assets of the Company or any of its subsidiaries or imposes or seeks to impose
any material limitation on the ability of either Union, the ESOP Trustee, any
of the ESOPs or any participant therein, to conduct such business or own such
assets, (B) there has not been instituted or be pending any action, proceeding,
application, claim or counterclaim by any other person, before any such body,
that is reasonably likely to result in any of the consequences referred to in
clauses (A)(x) or (A)(y) above, and (C) there has not been any United States
Federal, state or local statute, rule, regulation, decree, order or injunction
promulgated, enacted, entered, or enforced by any United States Federal, state
or local government agency or authority or court, that has any of the effects
referred to in clauses (A)(x) or (A)(y) above, (x) all conditions to the
obligations of the parties to the Closing Agreements to consummate such
transactions have been satisfied or are capable of being satisfied concurrently
upon the occurrence of the Effective Time, (xi) the Closing Agreements will be
legal, valid and binding agreements of the Company and the other parties
thereto from and after the Effective Time, enforceable against the Company and
such other parties in accordance with their terms and (xii) Mr. Greenwald (or
such other person as will be proposed by the Unions prior to the Effective Time
and not found unacceptable by the Company) will be ready, willing and able to
assume the office of CEO of the Company and United. The ESOP Stock Purchase
Agreement applicable to the sale of Class 1 ESOP Convertible Preferred Stock
which will occur at the Effective Time is a Closing Agreement. See "--Purchase
of ESOP Preferred Stock," "--Certain Covenants" and "--Establishment of ESOPs--
Sales of ESOP Preferred Stock."
Pursuant to the Plan of Recapitalization, the obligations of each of the
Unions to enter into the relevant revised Collective Bargaining Agreements at
the Effective Time are subject to the satisfaction of the following further
conditions, among others: (i) the Company will perform, both individually and
collectively, in all material respects all of its covenants, agreements or
other obligations required to be performed by it under the Plan of
Recapitalization at or prior to the Effective Time and (ii) the representations
and warranties of the Company set forth in the Plan of Recapitalization will be
true and correct, both individually and collectively, in all material respects
at or prior to the Effective Time as if made at and as of such time.
Pursuant to the Plan of Recapitalization, the obligation of the Company to
file the Restated Certificate at the Effective Time is subject to the
satisfaction of the following further conditions, among others: (i) each Union
will perform, both individually and collectively, in all material respects, all
of its covenants, agreements or other obligations required to be performed by
it, under the Plan of Recapitalization, at or prior to the Effective Time, (ii)
the representations and warranties of ALPA and the IAM set forth in the Plan of
Recapitalization will be true and correct, both individually and collectively,
in all material respects at and as of the Effective Time as if made at and as
of such time, (iii) the Board will receive the written opinions of each of CS
First Boston and Lazard, each dated as of the Announcement Date, confirming
their earlier opinions, to the effect that the consideration to be received by
the holders of Old Shares in the Recapitalization taken as a whole is fair from
a financial point of view to the holders of Old Shares, (iv) the
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revised Collective Bargaining Agreements have been executed and delivered by
ALPA and the IAM and will be in full force and effect as of the Effective Time,
(v) the Board will receive the written opinions of Skadden, Arps, Slate,
Meagher & Flom relating to the issuance of stock and Debentures, the ability to
revalue surplus under the DGCL, the absence of violation of certain applicable
laws resulting from the issuance of the ESOP Preferred Stock, the tax treatment
to the Company resulting from the Recapitalization and the deductibility of
contributions made to and dividends paid to the ESOP following the Effective
Time and (vi) the Company will determine that it is reasonably likely to have
sufficient earnings and profits such that, based on the opinion of counsel
described in clause (v) above, the dividends paid on the Class 1 ESOP Preferred
Stock that are used to repay the debt evidenced by a note to be delivered in
connection with the purchase of the ESOP Preferred Stock are reasonably likely
to be deductible under Section 404 of the Internal Revenue Code and (vii) the
Company will determine that the Company will be reasonably likely to have
sufficient surplus (whether revaluation surplus or earned surplus) or net
profits under the DGCL to permit the legal payment of dividends on the ESOP
Preferred Stock and the Public Preferred Stock when due.
Consummation of the Recapitalization is not, however, conditioned upon the
consummation of any or all of the Offerings.
Termination
The Plan of Recapitalization will terminate and the Recapitalization will be
abandoned (notwithstanding any approval of the Shareholder Vote Matters by the
stockholders of the Company) if the Effective Time does not occur by 11:59 p.m.
on August 31, 1994 (the "Outside Termination Time"). In addition, the Plan of
Recapitalization may be terminated and the Recapitalization may be abandoned at
any time prior to the Outside Termination Time and prior to the Effective Time
(notwithstanding any approval of the Shareholder Vote Matters by the
stockholders of the Company) (a) by mutual written consent of each of ALPA and
the IAM and the Company, (b) by any of ALPA, the IAM or the Company if (i) the
stockholders of the Company do not approve the Shareholder Vote Matters at the
Meeting or (ii) any court of competent jurisdiction in the United States or
other United States Federal, state or local governmental body issues an order,
decree or ruling or take any other action restraining, enjoining or otherwise
prohibiting the Recapitalization and such order, decree, ruling or other action
has become final and nonappealable, (c) by either ALPA or the IAM if (i) the
Board withdraws or modifies in a manner materially adverse to such Union its
approval or recommendation of the Recapitalization or the Shareholder Vote
Matters or recommends, or fails to recommend against, another Acquisition, (ii)
the Board resolves to do any of the foregoing, (iii) the Company breaches,
either individually or collectively, in any material respect any of its
material representations, warranties, covenants or other agreements contained
in the Plan of Recapitalization, (iv) any person acquires "beneficial
ownership" (as defined in the Rights Agreement) or the right to acquire
beneficial ownership of, or any "group" (as such term is defined in Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder)
is formed that beneficially owns, or has the right to acquire beneficial
ownership of, more than 15% of the then outstanding Old Shares, or becomes an
"Acquiring Person" under the Rights Agreement or (v) there occurs a "Share
Acquisition Date" or "Distribution Date" as defined under the Rights Agreement
or (d) by the Company if (i) either ALPA or the IAM breaches, either
individually or collectively, in any material respect, any of their material
representations, warranties, covenants or other agreements contained in the
Plan of Recapitalization or (ii) the Board, acting in accordance with the
provisions of the Plan of Recapitalization relating to Acquisitions other than
the Recapitalization, withdraws or modifies in a manner adverse to either ALPA
or the IAM its approval or recommendation of the Recapitalization or recommends
another Acquisition, or resolves to do any of the foregoing.
Pursuant to the Plan of Recapitalization, if the Effective Time does not
occur on or before August 12, 1994, the Company may, by written notice to each
of the Unions, terminate its "status quo" obligations described above in the
first paragraph of "--Certain Covenants," provided that the Company's right to
so terminate its obligations will not be available in the event the Company's
failure to fulfill any obligation under the Plan of Recapitalization has been
the cause of or resulted in the failure of the Effective Time to occur on
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or before such date. In addition, in the event the Company elects to terminate
its obligations in accordance with the preceding sentence, either of the
Unions may terminate the Plan of Recapitalization.
If the Plan of Recapitalization is terminated and abandoned as described in
the two preceding paragraphs, the Plan of Recapitalization, subject to certain
exceptions, will become void and of no effect with no liability on the part of
the Company or either of ALPA or the IAM. However, if the failure of the
Effective Time to occur at or prior to the Outside Termination Time results
from either (i) a material breach of a specific material representation or
warranty contained in the Plan of Recapitalization by one of the parties
thereto under circumstances where the breaching party had actual knowledge at
the date of the Plan of Recapitalization that such representation or warranty
was materially false or misleading or (ii) a material breach of a specific
material covenant (a breach described in clause (i) or (ii) as modified by
proviso (A) hereto, being called a "Willful Breach") and one of the other
parties thereto has established, as determined by a court of competent
jurisdiction, that such Willful Breach has occurred, the breaching party will
be liable to the other parties thereto, for proximate and provable damages
resulting from such Willful Breach (which shall include the reasonable fees
and expenses of such non-breaching parties, including reasonable attorney's
fees and expenses, incurred in connection with the transactions contemplated
thereby other than in connection with any litigation or other dispute between
or among parties thereto); provided (A) to the extent that the material breach
of a specific material covenant is not determinable solely by an objective
fact (e.g. any best efforts obligation or requirement of reasonableness), such
breach will be actionable thereunder only if the breaching party knew (or
demonstrated reckless disregard for whether) its action or failure to act was
in violation of such covenant and (B) such calculation of damages will not
include consequential or punitive damages and will be the sole and exclusive
remedy of the non-breaching parties in the event of a Willful Breach. With
respect to a Willful Breach, "knowledge" (or any corollary thereof) or
"reckless disregard" will mean the knowledge or reckless disregard of the
senior executives or officials of the Company and United or the Unions, as the
case may be, each of whom will conclusively be deemed to have read the Plan of
Recapitalization.
Survival
The representations and warranties and agreements contained in the Plan of
Recapitalization and in any certificate or other writing delivered pursuant
thereto will not survive the Effective Time unless expressly provided in such
agreement. The following agreements will survive the Effective Time:
agreements relating to Reclassification of Old Shares, redemption of the
Redeemable Preferred Stock, surrender and exchange of the Old Shares, issuance
of ESOP Preferred Stock, Director Preferred Stock and Additional Shares,
treatment of Options, treatment of Convertible Company Securities, resignation
of existing directors and officers of the Company, amendment to the Restated
Certificate of Incorporation of United, restrictions on the ability of the
employees of the Company or United to purchase equity securities of the
Company, amendments to directed account plans, 401(k) plans and stock purchase
plans of the Company or United, employment terms of the salaried and
management employees, the employment of Mr. Greenwald, the selection of a
chief operating officer and the Closing Agreements, employee and director
benefit plans, agreements, policies and arrangements of the Company or United,
prohibition against nominations of Public Directors by the Unions, best
efforts by the Unions to fill Independent Director vacancies, certain matters
relating to fees and expenses; and certain agreements relating to
indemnification (all such surviving agreements being referred to herein as the
"Express Agreements"). Except with respect to any Collective Bargaining
Agreements with the IAM and ALPA and the Express Agreements, from and after
the consummation of each of the transactions contemplated to take place at or
about the Effective Time, each of the parties to the Plan of Recapitalization
(in their capacities as such) will have fully released, discharged, waived and
renounced (collectively, the "Releases") any and all claims, controversies,
demands, rights, disputes and causes of action it may have had at or prior to
the Effective Time against, and will have agreed not to initiate any suit,
action or other proceeding involving, each of the other parties thereto, its
officials, officers, directors, employees, accountants, counsel, consultants,
advisors and agents and, if applicable, security holders relating to or
arising out of the Plan of Recapitalization or the transactions contemplated
thereby. However, the foregoing Releases do not apply to any claims,
controversies, demands, rights, disputes and causes of action arising from and
after the
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Effective Time (and based on facts and circumstances arising from and after the
Effective Time) under any of the documents, instruments or transactions entered
into, filed or effected in connection with the Recapitalization (other than the
Plan of Recapitalization, to the extent provided in this paragraph).
Amendments; No Waivers
The Plan of Recapitalization provides that (a) any provision of the Plan of
Recapitalization may be amended or waived prior to the Effective Time if such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company and each Union or, in the case of a waiver, by the party against
whom the waiver is to be effective; provided that no amendment to or waiver of
an Express Agreement will be effective against a person entitled to enforce
such Express Agreement unless agreed to in writing by such person, and
provided, further, that after the adoption of the Shareholder Vote Matters by
the stockholders of the Company, no such amendment or waiver will, without the
further approval of such stockholders if and to the extent such approval is
required by the DGCL, alter or change (i) the amount or kind of consideration
to be received in connection with the Recapitalization, (ii) any term of the
Restated Certificate or (iii) any of the terms or conditions of the Plan of
Recapitalization if such alteration or change would materially adversely affect
the holders of any shares of capital stock of the Company, and (b) no failure
or delay by any party in exercising any right, power or privilege under the
Plan of Recapitalization will operate as a waiver thereof nor will any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
provided in the Plan of Recapitalization will be cumulative and, except as set
forth in the Plan of Recapitalization, not exclusive of any rights or remedies
provided by law.
Fees and Expenses; Indemnification
Pursuant to the Plan of Recapitalization, except as agreed by the Company and
the Unions in writing or as set forth below, all fees, costs and expenses
incurred in connection with the Plan of Recapitalization will be paid by the
party incurring such fee, cost or expense. The Company and the Unions agreed
that the fees, costs and expenses of the Deadlock Firm and American Appraisal
will be paid by the Company. The Company and the Unions agreed that the fees of
the Company's principal financial and legal advisors to be incurred by the
Company in connection with the transactions contemplated by the Plan of
Recapitalization (other than in connection with the Offerings), will not exceed
$25 million. In addition, the Company has agreed to pay the following fees: (i)
up to $4.15 million in fees and expenses payable to counsel, investment banking
firms, experts, consultants or others relating to the structuring and
establishment of the ESOPs or otherwise benefitting the Company as part of the
Recapitalization, (ii) out-of-pocket expenses and fees paid, payable or
reimbursable to others by or pursuant to agreements with and among either or
both of the Unions (the "Coalition Fees"), subject to the following: (A) prior
to the Effective Time, the Company shall pay up to $7 million to or at the
direction of ALPA and up to $3 million to or at the direction of the IAM in
respect of Coalition Fees, which will represent payment for bona fide services
directly related to the transactions contemplated by the Plan of
Recapitalization since January 1, 1993 and will not exceed the aggregate time
or other customary charges together with disbursement costs of such firms since
such date for services of this type and (B) at the Effective Time the Company
will pay the balance of the Coalition Fees, subject to an overall limit of $45
million (including the amounts set forth in clause (A)), of which $31.5 million
is to be paid to or at the direction of ALPA and $13.5 million is to be paid to
or at the direction of the IAM and (iii) the fees of an executive search firm
and related executive expenses, in the event the Company and the Unions
determine to retain an executive search firm.
The Plan of Recapitalization provides that upon the occurrence of a
Triggering Event (as defined below), the Company will promptly pay to or at the
direction of the Unions any amounts the Company would otherwise have been
required to pay pursuant to the last sentence of the previous paragraph had the
Effective Time occurred at the time of the occurrence of such Triggering Event.
Such amounts would be exclusive of any amounts paid or payable pursuant to
indemnification or contribution arrangements. "Triggering Event" means the
occurrence of any of the following: (i)(A) following the public announcement of
a proposal for an Acquisition, either the stockholders of the Company do not
approve the Shareholder Vote Matters at the
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Meeting or (B) the Board withdraws or modifies in a manner materially adverse
to ALPA and the IAM its approval or recommendation of the Recapitalization or
the Shareholder Vote Matters or recommends, or fails to recommend against,
another Acquisition, (ii) subsequent to the stockholder or Board action
referred to in clause (i) above, the Plan of Recapitalization will be
terminated (1) by the Company or either Union because the stockholders of the
Company fail to approve the Shareholder Vote Matters, (2) by the Company
because the Board withdraws or modifies in a manner adverse to either Union its
approval or recommendation of the Recapitalization or recommends another
Acquisition or resolves to do any of the foregoing or (3) by either Union if
the Board withdraws or modifies in a manner materially adverse to such Union
its approval or recommendation of the Plan of Recapitalization or the
Shareholder Vote Matters, or recommends, or fails to recommend against, another
Acquisition and (iii) within 12 months of the termination of the Plan of
Recapitalization in accordance with clause (ii) above, an Acquisition is
consummated.
Pursuant to the Plan of Recapitalization, the Company agreed, subject to
certain exceptions, to indemnify the Unions, their controlling persons, and
their respective directors, trustees, officers, partners, affiliates, agents,
representatives, advisors and employees (a "Union Indemnified Person") against
and hold each Union Indemnified Person harmless from any and all liabilities,
losses, claims, damages, actions, proceedings, investigations or threats
thereof, including expenses (which will include reasonable attorneys' fees,
disbursements and other charges) incurred in connection with the defense
thereof, based upon, relating to or arising out of the execution, delivery or
performance of the Plan of Recapitalization or the transactions contemplated
thereby. All rights to indemnification existing in favor of the present or
former directors, officers, employees, fiduciaries and agents of the Company or
any of its subsidiaries (collectively, the "Company Indemnified Persons") as
provided in the Company's Restated Certificate of Incorporation or Bylaws or
other agreements or arrangements, or articles of incorporation or by-laws (or
similar documents) or other agreements or arrangements of any subsidiary as in
effect as of the date of the Plan of Recapitalization with respect to matters
occurring at or prior to the Effective Time will survive the Effective Time and
will continue in full force and effect. In addition, the Company will provide
for a period of not less than six years following the Effective Time, for
directors' and officers' liability insurance for the benefit of directors and
officers of the Company immediately prior to the Effective Time with respect to
matters occurring at or prior to the Effective Time by electing, in its sole
discretion, one of the two alternatives set forth below (which election will be
reported to the Unions prior to the Effective Time): (i) maintain for a period
of not less than six years following the Effective Time, the current policies
of directors' and officers' liability insurance with respect to matters
occurring at or prior to the Effective Time, provided that in satisfying its
obligation under this clause (i), the Company will not be obligated to pay
premiums in excess of 150% of the amount per annum the Company paid for the
policy year ending during calendar year 1994, which amount has been disclosed
to the Unions or (ii) purchase, prior to the Effective Time, run-off coverage
for the benefit of directors and officers of the Company immediately prior to
the Effective Time for matters occurring at or prior to the Effective Time,
which coverage will provide for a separate insurance pool for such directors
and officers of at least $75 million in coverage, provided that in satisfying
the obligations under this clause (ii), the Company will not pay in excess of
an amount set forth in a letter previously delivered by the Company to counsel
to the Unions. The Company will also maintain for a period of not less than six
years following the Effective Time, the current fiduciaries' liability
insurance with respect to matters occurring at or prior to the Effective Time.
In connection with execution of the Plan of Recapitalization, the Company
entered into a letter agreement (the "Indemnity Letter Agreement") with ALPA
and the IAM relating to a claim against the IAM by a former financial advisor
(the "Former Advisor") against the IAM (the "Claims") for compensation in the
event of the occurrence of the Effective Time. The Claims include the
following: (i) the Former Advisor's claim for compensation based on an
engagement letter between a corporation on behalf of the Former Advisor, on the
one hand, and the IAM and United Employee Acquisition Corp. ("UEAC"), on the
other hand, dated as of January 1, 1990, as amended by letter dated June 21,
1990 (collectively, the "Engagement Letter"), (ii) claims relating to services
performed by the Former Advisor pursuant to the Engagement Letter, and (iii)
claims based on any theory of compensation liability relating to facts alleged
to have existed at the time the Engagement Letter was entered into (or
subsequent performance of services originating from or based on such alleged
facts) and relating to services of the same nature and type as contemplated by
the Engagement Letter. The Engagement Letter provided for the payment to the
Former
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Advisor of a fee in the amount of $11 million, contingent upon the occurrence
of specified circumstances related to the Agreement and Plan of Merger, between
the Company and UEAC, dated as of April 9, 1990 ("1990 Merger Agreement"),
which $11 million fee was not paid as a result of a failure of the transactions
set forth in the 1990 Merger Agreement to occur.
Pursuant to the Indemnity Letter Agreement, the Company has agreed to
indemnify the IAM against the Claims in accordance with the indemnification
provisions set forth in the Plan of Recapitalization described above, subject
to the terms and conditions set forth in the Indemnity Letter Agreement. The
Company's obligation to indemnify the IAM with respect to the Claims is limited
to $5.5 million prior to the Effective Time, subject to increase to a maximum
of $11 million (including the payment or reimbursement of IAM attorney's fees
and disbursements) if the Effective Time occurs. The Company's obligations
under the Indemnity Letter Agreement will be reduced by the amount recoverable
under any insurance policy, fidelity or indemnity bond issued to or for the
benefit of the IAM that may provide insurance or indemnity coverage against any
threatened or asserted claim by the Former Advisor against the IAM.
Parties in Interest
The Plan of Recapitalization will be binding upon and, other than the
provisions relating to fees, expenses and indemnification, inure solely to the
benefit of the parties thereto, and, except for the Express Agreements, nothing
in the Plan of Recapitalization, express or implied, is intended to confer upon
any other person any rights, benefits or remedies. With respect to the Express
Agreements, the agreements set forth below are for the benefit of, and may be
enforced by, the following parties: (i) the right to receive the
Recapitalization Consideration, the prohibition against nomination of Public
Directors by ALPA and the IAM and their obligation to use their best efforts to
fill Independent Directors vacancies: the holders of New Shares; (ii) treatment
of Options: holders of Options; (iii) treatment of Convertible Company
Securities: holders of Company Convertible Securities; (iv) resignation of
existing officers and directors prior to the Effective Time and the Company's
and United's obligations under their employee and director benefit plans,
agreements, policies and arrangements: officers and directors of the Company
prior to the Effective Time; (v) establishment by the Company of appropriate
employment terms for the Salaried and Management Employees: the ESOP Trustee;
(vi) the Greenwald Agreement: Mr. Greenwald; (vii) payment of fees and expenses
and indemnification of the Union Indemnified Persons: the Union Indemnified
Persons; and (viii) indemnification of Company Indemnified Persons: Company
Indemnified Persons.
Specific Performance
Prior to the Effective Time or the termination of the Plan of
Recapitalization, the Company and each of the Unions agreed that in the event a
Willful Breach is established by a court of competent jurisdiction, the other
parties thereto will be entitled to specific performance of the terms thereof
that were the subject of such Willful Breach. However, in no event will such
remedy of specific performance in any way extend or modify the Outside
Termination Time. No other remedy will be available prior to the Effective Time
or the termination of the Plan of Recapitalization except that the remedy of
damages will be available if such remedy (including the amount of damages)
would be available after termination as described above under "--Termination."
ESTABLISHMENT OF ESOPS
General
As described under "--Terms and Conditions," preferred stock representing
approximately 55% of the voting and equity interests in the Company will be
delivered to employees through the ESOPs. As explained below, the ESOPs will be
comprised of three components, and the voting and equity interests to be
delivered pursuant to the ESOPs will be represented by five separate classes of
stock.
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The three components which will comprise the ESOPs are (i) the "Leveraged
ESOP," which is a component of a tax-qualified employee stock ownership plan,
(ii) the "Non-Leveraged Qualified ESOP," which is also a component of a tax-
qualified employee stock ownership plan, and (iii) the "Supplemental ESOP,"
which is not a tax-qualified plan. The three components are needed in order to
deliver the agreed-upon shares to employees in a manner which utilizes the tax
incentives available to tax-qualified employee stock ownership plans to the
greatest degree reasonably possible, but without violating certain limitations
imposed by the Internal Revenue Code. Accordingly, to the extent reasonably
possible, shares are to be delivered to employees through the Leveraged ESOP.
To the extent that shares cannot be delivered through the Leveraged ESOP, they
will be delivered through the Non-Leveraged Qualified ESOP, and to the extent
they cannot be delivered through the Non-Leveraged Qualified ESOP, they will
be delivered through the Supplemental ESOP. Accordingly, the only employees
participating in the Supplemental ESOP are those employees who are unable to
receive, by virtue of the Internal Revenue Code limitations described above,
their full entitlement to shares under the Leveraged ESOP. Although the final
determination of which employees will participate in the Supplemental ESOP can
be made only when various factors, such as individual compensation, become
known, the Company expects that substantially all the employees participating
in the Supplemental ESOP will be Salaried and Management Employees with
compensation in excess of $150,000, and a significant percentage of ALPA
members.
The five classes of stock which will represent the voting and equity
interests of employees are (1) the Class 1 ESOP Convertible Preferred Stock
("Class 1 ESOP Preferred Stock"), which will be issued in seven separate sales
(the "ESOP Tranches") to the ESOP Trustee under the Leveraged ESOP, (ii) the
Class 2 ESOP Convertible Preferred Stock ("Class 2 ESOP Preferred Stock" and,
together with the Class 1 ESOP Preferred Stock, the "ESOP Preferred Stock"),
some of which will be issued to the ESOP Trustee under the Non-Leveraged
Qualified ESOP and some of which will be represented by "Book-Entry Shares"
(as defined below) credited to employees under the Supplemental ESOP, and
(iii) three classes of voting preferred stock, the Class P ESOP Voting Junior
Preferred Stock ("Class P Voting Preferred Stock"), the Class M ESOP Voting
Junior Preferred Stock ("Class M Voting Preferred Stock") and the Class S ESOP
Voting Junior Preferred Stock ("Class S Voting Preferred Stock" and, together
with the Class P Voting Preferred Stock and the Class M Voting Preferred
Stock, the "Voting Preferred Stock").
The equity interests of employees will be primarily represented by the Class
1 and Class 2 ESOP Preferred Stock. Each share of ESOP Preferred Stock is
initially convertible into one New Share. The primary difference between the
Class 1 and the Class 2 ESOP Preferred Stock is that only the Class 1 ESOP
Preferred Stock carries a fixed dividend. The fixed dividend exists in order
to allow the delivery through the Leveraged ESOP of the greatest number of
shares reasonably possible, consistent with the limitations of the Internal
Revenue Code. An advantage provided for dividends by the Internal Revenue Code
exists only for the Leveraged ESOP, and for that reason the Class 1 ESOP
Preferred Stock will be sold only to the Leveraged ESOP.
The voting interests of employees will be represented by the three classes
of Voting Preferred Stock. Each such share is convertible into one ten-
thousandth of a New Share. The ESOP Preferred Stock is non-voting.
The voting and equity interests of employees will be delivered through the
five separate classes of shares described above in order to satisfy two
purposes; (i) preservation of the agreed-upon distribution of voting power
among the ALPA, IAM and salaried and management employees, and (ii) ensuring
that the loans which will be used to purchase the Class 1 ESOP Preferred Stock
will satisfy a limitation of the Internal Revenue Code which requires that
shares purchased with a loan be consistently allocated among employees. Sales
of the Class 1 ESOP Preferred Stock to the Leveraged ESOP will be made in
seven ESOP Tranches. The first ESOP Tranche will be sold to the ESOP Trustee
at the Effective Time. The next five tranches will be sold approximately
thirteen months following the Effective Time, and on the four following
anniversaries of such date. The final ESOP Tranche will be sold on the first
business day of the year 2000. Each ESOP
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Tranche will be purchased by the ESOP Trustee using the proceeds of a loan
entered into specifically for the purchase of such ESOP Tranche. The shares to
be purchased in each of the first six ESOP Tranches shall generally equal the
sum of (i) the shares of Class 1 ESOP Preferred Stock scheduled to be allocated
to the accounts of participants in the Leveraged ESOP for the year in which
such ESOP Tranche is sold, plus (ii) the number of shares of Class 1 ESOP
Preferred Stock equal in value to the aggregate dividends payable on the shares
purchased with the ESOP Tranche after the end of the year the ESOP Tranche is
purchased. The final ESOP Tranche will not include the shares described in
(ii), above, however. The purpose of selling shares to the ESOP Trustee in
tranches is to attempt to take advantage of increases in the price at which it
is projected that the ESOP Preferred Stock can be sold to the ESOP Trustee in
the years following the Effective Time. The projected price increases are based
upon projected increases in the value of the New Shares in the years following
the Effective Time. THERE CAN BE NO ASSURANCE THAT THE PROJECTED INCREASES IN
THE PRICE OF THE NEW SHARES WILL OCCUR. Therefore, there can be no assurance
that the projected increases in the price at which the Class 1 ESOP Convertible
Preferred Stock can be sold to the ESOP Trustee will occur.
A trust established pursuant to the Leveraged ESOP will, as of the Effective
Time and over the following 69 months, through the seven ESOP Tranches, acquire
shares of Class 1 ESOP Preferred Stock, and the Company will be obligated to
issue (either through issuance to the Non-Leveraged Qualified ESOP or through
the crediting of Book-Entry Shares) shares of Class 2 ESOP Preferred Stock,
which are convertible, in the aggregate, into New Shares representing
(initially) approximately 55% of the Company, on a fully-diluted basis. (The
shares of Class 2 ESOP Preferred Stock represented by Book-Entry Shares will
not actually be issued until termination of employment, however.) ALPA has the
right to elect at any time that the Supplemental ESOP be maintained by the
actual issuance of Class 2 ESOP Preferred Stock to a non qualified trust
established under the Supplemental ESOP. As of the Effective Time, there will
also be issued to the ESOP Trustee shares of the three classes of Voting
Preferred Stock the outstanding shares of which will represent (initially)
approximately 55% of the voting power of all of the voting stock of the
Company. The ESOP Preferred Stock and Voting Preferred Stock held by the ESOP
will be allocated to the accounts of employees over the 69-month (72-month for
IAM members) period following the Effective Time. Under certain circumstances
described below under "--Additional Shares," the equity and voting interests
represented by the ESOP Preferred Stock and the Voting Preferred Stock can be
increased to up to a maximum of 63%.
Generally speaking, New Shares will be distributed to an employee pursuant to
the ESOPs after termination of employment; the New Shares so distributed will
be issued upon conversion of the ESOP Preferred Stock and Voting Preferred
Stock allocated to accounts of such employee in the ESOPs. Prior to the Sunset,
the percentage of the vote controlled by the shares of Voting Preferred Stock
held by the ESOP is unaffected by distributions to employees. See "--Revised
Governance Structure--Sunset" and "DESCRIPTION OF SECURITIES--The Voting
Preferred Stock--Voting Rights." Because of certain limitations imposed by the
Internal Revenue Code, there are several component plans included in the ESOP
program.
State Street, with the consent of the participating unions, has been retained
to act as the ESOP Trustee. The ESOP Trustee retained Houlihan Lokey as an
independent financial adviser. The ESOP Trustee has entered into an agreement
to purchase the ESOP Preferred Stock at the Effective Time on the terms
described below under "--Sales of ESOP Preferred Stock." The obligations of the
ESOP Trustee are subject to a number of conditions, including the receipt of an
opinion from Houlihan Lokey that, as of the Effective Time (and, with respect
to each ESOP Tranche after the Effective Time, at the time of each such
purchase), the applicable transaction is fair from a financial point of view to
the ESOP participants, the amount to be paid by the ESOP Trustee for the ESOP
Preferred Stock does not exceed the fair market value thereof and the
conversion premium of the ESOP Preferred Stock is reasonable. In addition, the
obligations of the ESOP Trustee are subject to the determination by the ESOP
Trustee that, as of the Effective Time (and, with respect to each ESOP Tranche
after the Effective Time, at the time of each such purchase), the purchase of
the ESOP Preferred Stock is prudent and in the best interests of ESOP
participants.
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Sales of ESOP Preferred Stock
At the Effective Time and over the subsequent 69 months, the Company will
sell, in the seven ESOP Tranches, an aggregate of approximately 14,000,000
(subject to increase as described below, see "--Additional Shares") shares of
Class 1 ESOP Preferred Stock to a trust established pursuant to the ESOPs.
Leveraged ESOP. Approximately 1,899,059 shares (subject to adjustment if
agreed to by the Company and the Unions and subject to adjustment if the
Effective Time occurs before or after July 1, 1994) of Class 1 ESOP Preferred
Stock shall be sold as of the Effective Time in the first ESOP Tranche to a
trust (the "Qualified Trust") established under a tax-qualified employee stock
ownership plan (the "Qualified ESOP"), and additional shares of Class 1 ESOP
Preferred Stock will be sold to the Qualified Trust in subsequent ESOP
Tranches. Such shares will be sold to the Leveraged ESOP which constitutes a
component of the Qualified ESOP. The Qualified Trust will purchase the Class 1
ESOP Preferred Stock with a combination of cash and a promissory note issued at
the time of sale of each ESOP Tranche. The cash will be equal to the aggregate
par value of the Class 1 ESOP Preferred Stock ($.01 per share) sold to the
Qualified Trust. (The Company will contribute such cash as a tax-deductible
contribution to the Leveraged ESOP at the time of the sale of each ESOP
Tranche.) The balance of the purchase price for each ESOP Tranche will be paid
by a promissory note issued to the Company by the ESOP Trustee in its capacity
as trustee of the Qualified Trust.
Subject to certain terms and conditions set forth in the ESOP Stock Purchase
Agreement, including a condition that the Trustee will have made a good faith
determination that the purchase of Class 1 ESOP Preferred Stock is prudent and
in the best interests of the ESOP participants, the ESOP Trustee is obligated
to purchase the ESOP Preferred Stock for the first ESOP Tranche at a price per
share equal to the product of 1.38 and the closing price (the "Closing Price")
of the New Shares, except that if the Closing Price is less than 98% of the
average of the Adjusted Old Share Price for the five trading days immediately
preceding the Effective Date, then the Closing Price shall equal the product of
1.38 and such average price. The Closing Price of the New Shares is (i) the
closing price of the New Shares on the New York Stock Exchange on the date on
which the Effective Time occurs (the "Effective Date") or, if the New Shares
are not traded on the New York Stock Exchange on the Effective Date, on the
next trading day thereafter or (ii) if New Shares are not traded on either such
trading day, the Adjusted Old Share Price on the Effective Date (or if the Old
Shares do not trade on the New York Stock Exchange on the Effective Date, the
next preceding date on which they are so traded). The "Adjusted Old Share
Price" is equal to two times the difference between (a) the closing price of an
Old Share on the New York Stock Exchange on the relevant date and (b) the value
of the Adjusted Recapitalization Consideration. The "Value of the Adjusted
Recapitalization Consideration" (i.e., the Recapitalization Consideration,
excluding the New Shares) is equal to (I) $25.80; plus (II) the cash
distributed to the holder of one Old Share on account of the underwriting of
the Depository Preferred Shares or, if there is no such underwriting, then the
Value of the Depositary Shares distributed to the holder of one Old Share; plus
(III) the cash distributed to the holder of one Old Share on account of the
underwriting of the Series A Debentures or, if there is no such underwriting,
then the Value of the Series A Debentures distributed to the holder of one Old
Share; plus (IV) the cash distributed to the holder of one Old Share on account
of the underwriting of the Series B Debentures or, if there is no such
underwriting, then the Value of the Series B Debentures distributed to the
holder of one Old Share.
If it is necessary to determine the Value of any or all of the Depositary
Preferred Shares, the Series A Debentures, or the Series B Debentures
(collectively, the "Non-Underwritten Recapitalization Securities"), then the
Value of any relevant Non-Underwritten Recapitalization Security will be
determined as follows: (x) if the relevant Non-Underwritten Recapitalization
Security is traded on the New York Stock Exchange on either the Effective Date
or the first trading date after the Effective Date, the closing price of the
relevant Non-Underwritten Recapitalization Security on the New York Stock
Exchange on the earlier of the relevant trading dates, or (y) if the relevant
Non-Underwritten Recapitalization Security is not traded on the New York Stock
Exchange on the Effective Date or the first trading date after the Effective
Date, the value of the relevant Non-Underwritten Recapitalization Security on
the Effective Date established based upon an opinion of an investment banking
firm reasonably acceptable to each of the Company and the ESOP Trustee subject
to the limitations described below.
The price for the subsequent ESOP Tranches will be as agreed upon between the
Company and the ESOP Trustee.
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The price for the subsequent ESOP Tranches will be as agreed upon between the
Company and the ESOP Trustee.
Federal law requires that the price paid by the ESOP Trustee for the Class 1
ESOP Preferred Stock cannot exceed its fair market value, and that the
conversion premium (the amount by which the price paid for the Class 1 ESOP
Preferred Stock exceeds the price of the New Shares as of the Effective Time)
must be reasonable. There can be no assurance as to the method by which such an
appropriate price may be developed for the subsequent ESOP Tranches, including,
without limitation, the appropriate base value for the New Shares or the
appropriate conversion premium. See "--Terms and Conditions--Purchase of ESOP
Preferred Stock."
The shares of Class 1 ESOP Preferred Stock purchased by the Qualified Trust
under the Leveraged ESOP in each ESOP Tranche will initially be held in a
suspense account and not allocated to the accounts of employees. The Company
will retain a security interest in the shares held in the suspense account. The
promissory notes will be repaid by the ESOP Trustee using cash received from
dividends paid on the Class 1 ESOP Preferred Stock and contributions to the
Qualified Trust to be made by the Company; the ESOP Trustee will be obligated
to use the dividends and Company contributions to repay the promissory notes.
It is expected that the entire amount of the Company contributions and the
dividends used by the ESOP Trustee to repay the promissory notes will be
deductible by the Company for Federal income tax purposes, regardless of the
portion used to pay interest and the portion used to pay principal. The Company
will recognize income equal to the interest paid on the promissory notes.
Accordingly, the net result of the contributions, dividends and promissory note
payments is that the Company expects to receive net tax deductions for Federal
income tax purposes equal to the principal amount of the promissory notes.
It is anticipated that the principal of the note for the first ESOP Tranche
will be paid in seven annual payments. The first annual payment will be for the
period commencing on the Effective Time and ending December 31, 1994, the
second through sixth payments will be for the twelve-month periods ending on
each December 31 from 1995 through 1999, and the final payment will be for the
period from January 1, 2000 until the end of the 69th month after the Effective
Time. (The 69-month period corresponds to the period of system-wide wage
reductions for ALPA members, and roughly corresponds to the 72-month period of
base wage reductions for IAM Members.) The notes for subsequent ESOP Tranches
will be of shorter duration, so that the final payment on each note will be due
on approximately the 69th month after the Effective Time.
Each calendar year (corresponding to the principal payments), shares of Class
1 ESOP Preferred Stock will be released from the suspense account, and the
Company's security interest in the shares so released will terminate. The
shares released for any year will be a fraction of the shares originally
purchased. It is anticipated that after taking separate ESOP Tranches into
account, the total number of shares of Class 1 ESOP Preferred Stock will be
released from the suspense account on a level annual fashion over 69 months,
taking into account the partial periods in 1994 and 2000.
When the shares are released from the suspense account as a result of any
principal payment, they remain in the Qualified Trust but are allocated to
individual accounts of employees established under the Leveraged ESOP. The
Class 1 ESOP Preferred Stock will be allocated to the accounts of employees
such that the shares so allocated when added to the shares (and Book-Entry
Shares) allocated under the Non-Leveraged Qualified ESOP and the Supplemental
ESOP (see "--Non-Qualified ESOP" below), will equal 46.23% for the employees
who are members of ALPA, 37.13% for employees who are members of the IAM, and
16.64% for Salaried and Management Employees (the "Agreed Percentages"). For
the shares released from the suspense account in respect of 1994, allocations
within each of these employee groups will be proportional to the compensation
(subject to certain tax limits) of all of the participants within that group,
except that for the participants who are members of the IAM, the shares will be
allocated in proportion to the amount of each individual employee's wage
investment. However, for subsequent years, shares equal in value to the
dividends paid on shares previously allocated to the accounts of employees will
first be allocated from the released shares to the accounts of such employees.
The remaining shares released from the suspense account in respect of that year
will be allocated to individual employees based upon their relative
compensation (or, in the case of IAM members, their relative wage investment).
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Non-Qualified ESOP. Because of certain limitations imposed by the Internal
Revenue Code, the Qualified Trust will not purchase shares representing the
entire equity interest (initially 55%) represented by the ESOP Preferred Stock.
Accordingly, based on certain elections made by ALPA, the Company will allocate
"phantom" shares of Class 2 ESOP Preferred Stock (the "Book-Entry Shares")
under the Supplemental ESOP. Except as provided below, these Book-Entry Shares
allocated to a participant will not in fact be issued by the Company. Instead,
the participant will have the same rights as a general creditor of the Company
with respect to amounts allocated to such participant under the Supplemental
ESOP. The number of shares of Class 2 ESOP Preferred Stock will be equal to
17,675,345, less the number of shares of Class 1 ESOP Preferred Stock sold to
the Qualified ESOP. It is anticipated that all ESOP Stock reserved for
allocation to IAM members will be allocated under the Qualified ESOP. ALPA has
the right to elect at any time, before or after the Effective Time, that the
Supplemental ESOP be maintained by the actual issuance of Class 2 ESOP
Preferred Stock to a non-qualified trust (the "Non-Qualified Trust")
established under the Supplemental ESOP.
Each year, as a portion of the shares of Class 1 ESOP Preferred Stock are
released from the suspense account under the Leveraged ESOP, the same
proportion of the Book-Entry Shares of Class 2 ESOP Preferred Stock will be
allocated as described below. In other words, it is anticipated that the Class
2 ESOP Preferred Stock will be allocated over the same 69 months that the Class
1 ESOP Preferred is allocated. To the extent permissible under the Internal
Revenue Code, the shares of Class 2 ESOP Preferred Stock will be issued by the
Company and transferred to the Qualified Trust for allocation to employees'
accounts under the Non-Leveraged Qualified ESOP, which is a component of the
Qualified ESOP. The shares that cannot be transferred to the Qualified Trust
will be credited as Book-Entry Shares to the accounts of employees in the
Supplemental ESOP (and if ALPA elects that the Non-Qualified Trust will hold
Class 2 ESOP Preferred Stock, will be deposited therein). Unlike the Qualified
ESOP, the Company will be liable for the benefits of employees under the
Supplemental ESOP. Hypothetical dividends will be credited to such Book Entry
Shares as if they were actual shares of Class 2 ESOP Preferred Stock.
In the aggregate, the shares allocated under the Leveraged ESOP, the Non-
Leveraged Qualified ESOP, and the Supplemental ESOP will equal the Agreed
Percentages.
Allocation of Voting Preferred Stock. The ESOP Preferred Stock is nonvoting
(except as may be otherwise required by law). The Voting Preferred Stock was
established in order to allocate voting power to the respective employee groups
in proportion to the agreed upon allocation and in a manner which was
consistent with applicable law. When shares of Class 1 ESOP Preferred Stock are
released from the suspense account and allocated to accounts of employees, and
when shares (or Book-Entry Shares) of Class 2 ESOP Preferred Stock are
allocated under the Qualified ESOP or the Supplemental ESOP, the corresponding
number of shares of the appropriate class of Voting Preferred Stock will be
issued by the Company and contributed to the Non-Leveraged Qualified ESOP (or,
to the extent limitations of the Internal Revenue Code require, to the Non-
Qualified Trust established under the Supplemental ESOP). However, the
additional issuance of shares of Voting Preferred Stock will not affect the
percentage of voting power of the Company as a whole controlled in the
aggregate by the Voting Preferred Stock. The ESOP Trustee is obligated to vote
as instructed by the participants to whom the Voting Preferred Stock has been
allocated, and the shares which are allocated command the entire voting power
of each class of Voting Preferred Stock. Accordingly, the contribution of
Voting Preferred Stock to the ESOPs and the allocation of such stock to
participants subsequent to the Effective Time does not affect the aggregate
vote commanded by the Voting Preferred Stock, but it does affect the allocation
of voting power among the individual participants. ALPA has made an agreed-upon
election pursuant to which the shares of Class P Voting Preferred Stock
allocated to former employees who were ALPA members will be voted by the ESOP
Trustee.
Distributions. Employees will become entitled to distribution of shares upon
termination of employment but can elect to defer distribution until age 70 1/2.
Employees will become entitled to transfer shares from the Leveraged ESOP and
the Non-Leveraged Qualified ESOP to other Company plans prior to termination of
employment upon attainment of age 55 with at least 10 years of participation in
the ESOP. (Because of this requirement of 10 years of participation, the first
such distributions will not be made until at
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least 10 years after the Effective Time.) The ability to so transfer prior to
termination of employment is required under the Internal Revenue Code for the
purpose of allowing employees to diversify their investments. Up to 25% of an
employee's account may be diversified at age 55, and an additional 25% may be
diversified at age 60. The diversification distribution for an employee will be
made by transferring the appropriate amount to the tax-qualified 401(k) plan
sponsored by the Company in which the employee participates.
Prior to any distribution, the shares of ESOP Preferred Stock (and the
corresponding shares of Voting Preferred Stock) allocated to the employee
entitled to the distribution will be converted into New Shares. The employee
may choose to receive the distribution in the form of the New Shares issued
upon conversion or cash, and except for the diversification distributions
described above, the employee may elect to receive the distribution in a lump
sum or annual installments over five years. Employees who remain employed after
age 70 1/2 shall receive annually the minimum payments required by the Internal
Revenue Code. If the employee elects to receive cash, the ESOP Trustee will
sell the New Shares, and pay the net proceeds of the sale to the employee.
Book-Entry Shares allocated to the Participant under the Supplemental ESOP
will, at the employee's election, either be distributed in the form of New
Shares issued by the Company or cash equal to the net proceeds from the sale of
such New Shares.
Each share of the Voting Preferred Stock is convertible into one ten-
thousandth of a New Share. Accordingly, when an ESOP participant becomes
entitled to receive a distribution of the Voting Preferred Stock, such shares
will be converted to New Shares and distributed (either as cash or New Shares).
Notwithstanding the conversion of the Preferred Stock upon a distribution or
diversification transfer, however, the remaining shares of the Voting Preferred
Stock continue to command, in the aggregate, the same percentage vote. This
continues as long as the employee plans of the Company contain, in the
aggregate, shares representing the equivalent of at least 20% of the equity
interests in the Company. See "DESCRIPTION OF SECURITIES--The Voting Preferred
Stock--Voting Rights."
Additional Shares
If the Average Closing Price of the New Shares during the year following the
Effective Time exceeds $136 per share, additional shares of ESOP Preferred
Stock (the "Additional Shares") will be issued to the Qualified ESOP or will be
reserved for issuance or credited as Book-Entry Shares. The number of
Additional Shares will be calculated based in part upon the fully diluted
number of New Shares on the Measuring Date. On the Measuring Date, the fully
diluted number of New Shares (the "Fully Diluted New Shares") will be
determined as the sum of:
(i) the excess of (A) the aggregate number of New Shares outstanding
immediately prior to the close of business on the Measuring Date over (B)
the aggregate number of New Shares issued after the Effective Time other
than upon exercise, conversion or exchange of Options or Convertible
Company Securities,
(ii) the aggregate number of New Shares issuable (whether or not from New
Shares held in its treasury) upon the conversion of the Series A Preferred
Stock outstanding immediately prior to the close of business on the
Measuring Date,
(iii) the aggregate number of New Shares issuable (whether or not from
New Shares held in its treasury) upon the exercise, conversion or exchange
immediately prior to the close of business on the Measuring Date of any
other Convertible Company Securities with an exercise, conversion or
exchange price equal to or less than the average market price of the
Recapitalization Consideration issued in respect of one Old Share during
the year ending on the Measuring Date (the "Old Share Equivalent Price")
and
(iv) the aggregate number of New Shares that would be required to be
issued by the Company (whether or not from New Shares held in its treasury)
if all Options with an exercise price less than the Old Share Equivalent
Price were exercised in full immediately prior to the close of business on
the Measuring Date and the proceeds from such Option exercises are used by
the Company to repurchase
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Recapitalization Consideration (in the open market at the Old Share
Equivalent Price) to be delivered in connection with the Company's
obligation to issue Recapitalization Consideration upon exercise of such
Options.
The number of Additional Shares will be determined as the excess of (a) the
product of (w) a fraction, the numerator of which is the "Adjusted Percentage"
at the close of business on the Measuring Date, and the denominator of which is
the excess of one over such "Adjusted Percentage" (the first two columns of the
table set forth below are selected samples from the table attached to the Plan
of Recapitalization from which the Adjusted Percentage will be derived), (x)
the Fully Diluted New Shares at the close of business on the Measuring Date,
(y) a fraction, the numerator of which is one, and the denominator of which is
the conversion rate of the Class 1 ESOP Preferred Stock, and (z) .9999 (a
fraction that takes into account the Voting Preferred Stock) over (b)
17,675,345 (the number of New Shares issuable upon conversion of the ESOP
Preferred Stock outstanding at the Effective Time and the Available Unissued
ESOP Shares (other than the Voting Preferred Stock)). (The foregoing
calculation will not cause a reduction of the number of shares of ESOP
Preferred Stock then outstanding.) "Average Closing Price" means the average of
the product of the last sale market price of the New Shares on each trading day
during the year ending on the Measuring Date and the number of New Shares into
which one share of ESOP Preferred Stock could be converted on such trading day.
(Initially, each share of ESOP Preferred Stock will be convertible into one New
Share, subject to adjustment for various reasons).
The following table illustrates the possible effect of increasing the Average
Closing Price on the number of Additional Shares issuable upon conversion of
the ESOP Preferred Stock and the Voting Preferred Stock. The illustration
assumes that the number of Fully Diluted New Shares on the Measuring Date is
32,140,206 (before any issuance or reservation of Additional Shares),
consisting of (x) an aggregate of 14,463,093 New Shares (1) issued in respect
of Old Shares outstanding at the Effective Time, (2) issuable upon the exercise
of the Options and (3) issuable upon the exercise of the Convertible
Securities, (y) 17,675,345 New Shares issuable upon conversion of the
17,675,345 shares of ESOP Preferred Stock and (z) 1,768 New Shares issuable
upon conversion of the 17,675,345 shares of Voting Preferred Stock.
<TABLE>
<CAPTION>
TOTAL NEW
TOTAL NEW SHARES SHARES OUTSTANDING
ADDITIONAL NEW ISSUABLE UPON AND ISSUABLE UPON
SHARES ISSUABLE CONVERSION OF CONVERSION OF
UPON CONVERSION ESOP PREFERRED ESOP PREFERRED
AVERAGE CLOSING ADJUSTED OF ESOP PREFERRED STOCK AND VOTING STOCK AND VOTING
PRICE PERCENTAGE STOCK (1) PREFERRED STOCK PREFERRED STOCK
--------------- ----------- ----------------- ---------------- ------------------
<S> <C> <C> <C> <C>
$136.00................. 55.00000000% 0 17,677,113 32,140,206
$139.00................. 57.27009984 1,707,504 19,384,617 33,847,710
$142.00................. 59.23945044 3,342,860 21,019,973 35,483,065
$145.00................. 60.96410492 4,910,546 22,587,659 37,050,751
$148.00................. 62.48700173 6,414,677 24,091,790 38,554,883
$149.10................. 63.00000000 6,949,234 24,626,347 39,089,439
</TABLE>
- --------
(1) A small portion of the Additional Shares may be issuable upon conversion of
the Voting Preferred Stock, but the number of New Shares issuable in
respect of the ESOP Preferred Stock would be adjusted so that the aggregate
number of Additional Shares would not change as a result.
The number of New Shares that will become outstanding may be higher or lower
than the number of Fully Diluted New Shares determined on the Measuring Date,
as described above, for a number of different reasons, including that a larger
or smaller number of Options and Convertible Company Securities may be
exercised and that the holders of the Options may not use the "cashless
exercise" feature thereof. The terms of the Options will permit the holders to
surrender to the Company a portion of the Options in lieu of paying the
exercise price thereof in cash and/or in lieu of paying withholding tax in
respect of such exercise in cash. The amount of the Options surrendered as a
substitution for payment of cash will be determined based upon
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the market price of the Recapitalization Consideration on the date of exercise
(i.e., the higher the market price, the fewer number of shares surrendered in
substitution for cash). If such "cashless exercise" feature is used, the effect
on the number of New Shares that would be outstanding would be similar to the
deemed repurchase of New Shares (as part of the Recapitalization Consideration)
by the Company referred to in clause (iv) in the description of Fully Diluted
New Shares, above. Accordingly, the number of New Shares that become
outstanding will vary depending on the number of Options exercised, the extent
to which the "cashless exercise" feature is used and the market price on the
date the "cashless exercise" feature is used. However, if the holders of
Options do not use the "cashless exercise" feature, the cash received from the
exercise of options would be available to the Company, which would not be the
case if the "cashless exercise" feature were used. In addition, if the
"cashless exercise" feature is used, the market price of the Recapitalization
Consideration on the date of exercise will have an effect on the number of New
Shares outstanding, since a higher market price will cause fewer Options to be
withheld for payment and a lower market price will cause more Options to be
withheld for payment. Accordingly, there can be no assurance that the number of
New Shares outstanding after conversion of all the ESOP Preferred Stock
(including the Book-Entry Shares), will be as reflected in the table above.
The aggregate voting power commanded by the Voting Preferred Stock will be
increased automatically when the number of Additional Shares, if any, is
determined.
Additional Contributions
If the Company pays a dividend on New Shares while any portion of a
promissory note issued by the ESOP Trustee to purchase Class 1 ESOP Preferred
Stock remains outstanding, the Company will make an additional contribution in
cash to the ESOP. In general the additional contribution would equal the lesser
of (1) the dividend paid on each New Share times the number of New Shares into
which the shares of Class 1 ESOP Preferred Stock are convertible, or (2) the
fixed dividend payable on the Class 1 ESOP Preferred Stock. This calculation
will be made as if all Class 1 ESOP Preferred Stock had been issued at the
Effective Time. The additional contribution would be allocated to the accounts
of employees and not used to repay the promissory note.
The Supplemental ESOP contains provisions analogous to those in the preceding
paragraph with regard to Book-Entry Shares which have not yet been credited as
Class 2 ESOP Preferred Stock which has not yet been issued.
The fixed dividends on the Class 1 ESOP Preferred Stock will be used to repay
the promissory note, but any dividends received in excess of the fixed dividend
rate will be allocated to the accounts of employees and will not be used to
repay the promissory note.
Control Transactions
In a Control Transaction (as defined below), participants are entitled, as
named fiduciaries under ERISA, to instruct the ESOP Trustee as to whether to
tender, sell, convert or otherwise dispose of shares allocated to their
accounts under the Qualified ESOP. Furthermore, in a Control Transaction each
employee (but not a former employee) who is a participant in the Qualified ESOP
may direct the ESOP Trustee whether to tender, sell, convert or otherwise
dispose of shares held in the suspense account under the Qualified Trust and
shares for which no instructions are received; the ESOP Trustee will tender
such shares in the proportion directed by such employees (except when ERISA (as
defined below) requires the ESOP Trustee to disregard such directions). A
"Control Transaction" is a tender or exchange offer, or other opportunity to
dispose of or convert at least 3% of the shares of the Company (other than
conversions pursuant to distributions to be made under the ESOP), or any
transaction or series of related transactions whereby any person or group
acquires or seeks to acquire control of the Company or of all or substantially
all or the assets of the Company and its subsidiaries.
All shares of Class 1 and Class 2 ESOP Preferred Stock intended to be
transferred to the ESOPs in connection with future sales of the ESOP Tranches
will be transferred to the ESOPs prior to certain Control Transactions (unless
the Unions specify otherwise with respect to the Qualified ESOP and to the
extent specified by ALPA with respect to the Supplemental ESOP).
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Shares held by the Supplemental ESOP will be tendered as directed by the
administrative committee thereunder.
If a Control Transaction results in the sale or exchange of any shares held
by the ESOPs, and the proceeds of the sale are (or are used to acquire)
"appropriate securities," as defined below, then the ESOP and the promissory
notes under the Leveraged ESOP shall continue as if the Control Transaction had
not occurred. To the extent possible, the proceeds will be used to acquire
"appropriate securities." If "appropriate securities" cannot be obtained, then
the Company and the Unions will make appropriate arrangements reasonably
satisfactory to the Unions to protect the interests of the employees. It is not
the present intention of the Company and the Unions that such arrangements will
include the forgiveness of any portion of the promissory note. "Appropriate
securities" are shares of common stock (or preferred stock which converts into
common stock) that may be held as security for a loan to an employee stock
ownership plan under the applicable Internal Revenue Code requirements, and
that are issued by a public company having a Moody's senior long-term debt
rating at least as good as that of the Company and United.
Participation and Vesting
Members of the ALPA employee group become participants in the ESOPs
immediately upon commencement of employment. IAM and Salaried and Management
Employees who are employed at the Effective Time will immediately become
participants in the ESOPs. All other members of the IAM employee group become
participants upon completing a probationary period of six months. All other
Salaried and Management Employees become participants following a one-year
waiting period. All shares allocated to the accounts of employees under the
ESOP are fully vested.
Federal Income Tax Matters
The Qualified ESOP is intended to be qualified under Sections 401 and 501 of
the Internal Revenue Code, and the Leveraged ESOP is intended to be qualified
under Section 4975 of the Internal Revenue Code. The Company will apply to the
IRS for a determination letter to that effect. As a result of such
qualification, employer contributions to the Qualified ESOP (including
contributions or transfers of shares of Class 2 ESOP Preferred Stock to the
Non-Leveraged Qualified ESOP) are deductible for Federal income tax purposes,
but ESOP participants are not subject to Federal income tax on such
contributions or on income derived from such contributions until distributions
are made from the Qualified ESOP. At the time of distribution, certain
favorable income tax rules may apply to the determination of such participants'
Federal income tax liability with respect to such distribution.
The Supplemental ESOP and Non-Qualified Trust do not constitute a tax-
qualified plan. The Company will not be entitled to a tax deduction until
benefits are paid to participants. Any income earned by the Non-Qualified
Trust, excluding dividends paid on Company securities, will be taxed to the
Company.
It is expected that the dividends payable on the Class 1 ESOP Preferred Stock
will be deductible to the extent used to repay the promissory note issued by
the ESOP Trustee.
Plan Administration
The Qualified ESOP will be administered by a committee consisting of three
appointees of ALPA, two appointees of the IAM and one appointee of the Company;
the Supplemental ESOP will be administered by a committee consisting of three
members appointed by ALPA and one member appointed by the Company; provided
that if any IAM member is allocated shares under the Supplemental ESOP, then
two members appointed by the IAM shall, with respect to the IAM shares, join
the committee that administers the Supplemental ESOP. Deadlocks in votes of the
committee will be referred for decision to a neutral arbitrator. Except for
certain decisions concerning the management of the plan's assets, the member
appointed by the Company, the two members appointed by the IAM or a majority of
the members appointed by ALPA can require that any committee decision be
referred to a neutral arbitrator.
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ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS PUBLIC DIRECTORS
If the Recapitalization is approved, the new structure of the Board will be
established and four persons will be eligible for election as "Public
Directors". The fifth person to be a Public Director will be identified at or
prior to the Effective Time and will be appointed to the Board at the Effective
Time.
Except where authority has been withheld by a stockholder, the enclosed proxy
will be voted for the election of the nominees named below for a term of one
year and until the successors are duly elected and qualified.
Each nominee for Public Director (other than Mr. Greenwald) was previously
elected by the stockholders and has served continuously as a director for the
period succeeding the date of his or her election. In the event any one or more
of the named nominees shall become unable to serve before election, votes will
be cast pursuant to authority granted by the enclosed proxy for such person or
persons as may be designated in substitution for such nominees by the Board but
not for a greater number of persons than the nominees named herein. No person,
other than the directors of the Company acting solely in that capacity, is
responsible for the naming of the nominees.
PUBLIC DIRECTORS
JOHN F. MCGILLICUDDY, 63. Retired Chairman and Chief Executive Officer,
Chemical Banking Corporation (banking and finance). Director since 1984. Mr.
McGillicuddy served as Chairman and Chief Executive Officer of Chemical Banking
Corporation from 1992 until his retirement in December 1992, and of
Manufacturers Hanover Corporation and Manufacturers Hanover Trust Company from
1979 until the merger of Manufacturers Hanover Corporation and Chemical Banking
Corporation on January 1, 1992. Mr. McGillicuddy is also a director of Chemical
Banking Corporation, The Continental Corporation and USX Corporation.
JAMES J. O'CONNOR, 57. Chairman and Chief Executive Officer, Commonwealth
Edison Company (electric power utility). Director since 1984. Mr. O'Connor is
also a director of American National Can Company, Corning Incorporated, First
Chicago Corporation, the Chicago Stock Exchange, Scotsman Industries, Inc. and
The Tribune Company.
PAUL E. TIERNEY, JR., 51. Managing Director, Gollust, Tierney and Oliver,
Inc. (investment banking). Director since October 18, 1990. Mr. Tierney is also
Chairman of the Board of Directors of Technoserve, Inc., a director of the
Argentine Investment Fund, the Straits Corporation and the Overseas Development
Council and a Governor of the United Nations Association.
GERALD GREENWALD, 58. Chairman, Tatra Truck Company, Czech Republic. Mr.
Greenwald served as Vice Chairman of the Chrysler Corporation from 1989 to
1990. Prior thereto, Mr. Greenwald was employed by Chrysler for approximately
10 years in a number of senior executive positions. In 1990, Mr. Greenwald was
selected to serve as chief executive officer of United Employee Acquisition
Corp. in connection with the proposed 1990 employee acquisition of the Company.
Following the termination of that proposed transaction, Mr. Greenwald served as
a managing director of Dillon Read & Co. Inc. (investment banking) in 1991 and
as president of Olympia & York Developments Limited (a real estate development
company that was in the process of a bankruptcy restructuring prior to Mr.
Greenwald's agreeing to serve as president) from April 1992 until March 1993.
Mr. Greenwald currently serves as director of Aetna Life and Casualty Company,
Honeywell Inc., Reynolds Metals Company and is a trustee of Princeton
University. Mr. Greenwald also serves as chairman of the Tatra Truck Company
and has served in such capacity since March 1993. Mr. Greenwald previously
served for a number of years as a director of GPA Group PLC (international
aircraft financing and leasing). Mr. Greenwald has not previously served on the
Board.
The fifth Public Director has not yet been nominated. However, the Chief
Operating Officer is expected to be appointed to the Board following the
Effective Time. For information concerning the identification of the Chief
Operating Officer, see "THE PLAN OF RECAPITALIZATION--Revised Governance
Structure--Officers."
100
<PAGE>
INDEPENDENT AND EMPLOYEE DIRECTORS
Following is information concerning the other persons who have been chosen to
serve as directors of the Company if the Recapitalization is approved,
including their names, ages, the class pursuant to which they will serve,
principal occupations for the past five years and their directorships with
other corporations:
Independent Directors
DUANE D. FITZGERALD, 54. Chairman, President and Chief Executive Officer,
Bath Iron Works Corporation (Shipbuilding). Mr. Fitzgerald has not previously
served on the Board. Mr. Fitzgerald served as Bath Iron Works' President and
Chief Operating Officer from December 1988 until September 1991 when he was
appointed to his current positions. Mr. Fitzgerald is also a director of the
Shipbuilders Council of America and a trustee of the University of Maine System
and of Boston University.
RICHARD D. MCCORMICK, 53. Chairman of the Board, President and Chief
Executive Officer of US West, Inc. (telecommunications). Mr. McCormick has not
previously served on the Board. Mr. McCormick has been Chairman of US West
since May 1992 and President and Chief Executive Officer since 1991. He served
as President and Chief Operating Officer from 1986 to 1991. Mr. McCormick is
also a director of Norwest Corporation and Super Valu Stores, Inc.
JOHN K. VAN DE KAMP, 58. Partner, Dewey Ballantine (law firm). He has not
previously served on the Board. Mr. Van de Kamp served as Attorney General of
the State of California from 1983 until January 1991. He is also a member of
the advisory board of Falcon Classic Cable Companies, Ltd. and a director of
Lawry's Restaurants, Inc. In addition, Mr. Van de Kamp serves on the board of
directors of the following non-profit organizations: Day One, the Eisenhower
World Affairs Institute, the Los Angeles Conservation Corps, the Planning and
Conservation League and the Rockefeller Center for Social Sciences at Dartmouth
College. He is also President of the Board of Governors of the City Club of
Bunker Hill.
PAUL A. VOLCKER, 66. Chairman, James D. Wolfensohn Inc. (investment banking)
and Frederick H. Schultz Professor of International Economic Policy, Princeton
University. Mr. Volcker has not previously served on the Board. Mr. Volcker is
also a director of Nestle S.A., Municipal Bond Assurance Corp. (MBIA), the
American Stock Exchange and Prudential Insurance Co. of America. He is Chairman
of the North American Committee of the Trilateral Commission, the Group of 30,
the Advisory Boards of the Center for Strategic and International Studies and
the Arthritis Foundation; he is co-chairman of the Bretton Woods Committee and
the United States Hong Kong Economic Cooperation Committee. Mr. Volcker is also
associated as trustee or member of the Board of Directors with the Council on
Foreign Relations, the Aspen Institute, the Japan Society, the American Council
on Germany and the American Assembly.
ALPA Director
ROGER D. HALL, 55. Chairman, United Airlines Pilots Master Executive Council,
Air Line Pilots Association, International and Captain, B 737-200, United Air
Lines, Inc. Captain Hall has not previously served on the Board. Captain Hall
has been Chairman of the UAL-MEC since January, 1992. He served as ALPA First
Vice President from 1987 to 1990. He has been a B 737-200 Captain since 1983.
Captain Hall is also an Executive Board Member and Executive Council Member of
ALPA.
IAM Director
JOHN PETERPAUL, 58. Retired Vice President, International Association of
Machinists and Aerospace Workers. Mr. Peterpaul has not previously served on
the Board. Mr. Peterpaul retired from the IAM in May 1994. He is a member of
the Executive Board, General Council and Management Committee of the
International Transport Workers' Federation (ITF), headquartered in London,
England. He has served as Labor Chairman of the National Transportation
Apprenticeship and Training Conference, Chairman of the Railway Labor
Executives' Association and has served on numerous other labor and government
committees including the National Commission to Ensure a Strong Competitive
Airline Industry.
Salaried and Management Director
JOSEPH V. VITTORIA, 58. Chairman and Chief Executive Officer, Avis, Inc.
since September 1987 (automobile renting and leasing). Mr. Vittoria has not
previously served on the Board.
101
<PAGE>
MARKET PRICES OF THE OLD SHARES; DIVIDENDS
The Old Shares are traded principally on the NYSE, and are also listed on the
Chicago Stock Exchange and the Pacific Stock Exchange. As of June 9, 1994,
there were 24,572,182 Old Shares outstanding, held of record by 19,156 holders.
The following table sets forth for the periods indicated the high and low
closing sale prices per Old Share on the NYSE Composite Tape.
<TABLE>
<CAPTION>
HIGH LOW
---- -----
<S> <C> <C>
1992
First Quarter........................................ $159 $139 1/4
Second Quarter....................................... 143 3/4 111
Third Quarter........................................ 119 3/4 103
Fourth Quarter....................................... 128 1/8 106 1/4
1993
First Quarter........................................ 132 1/4 110 3/4
Second Quarter....................................... 149 3/4 118
Third Quarter........................................ 150 1/2 121 5/8
Fourth Quarter....................................... 155 1/2 135 7/8
1994
First Quarter........................................ 150 123 3/4
Second Quarter (through June 10, 1994)............... 130 1/2 --
</TABLE>
On December 22, 1993, the last trading day prior to the public announcement
of the Agreement in Principle, the closing sale price for the Old Shares as
reported on the NYSE Composite Tape was $148 1/2 per Old Share. On March 24,
1994, the last trading day prior to the public announcement of the Plan of
Recapitalization, the closing sale price for the Old Shares as reported on the
NYSE Composite Tape was $123 3/4 per Old Share. On June 10, 1994, the date of
this Proxy Statement/Prospectus, the closing sale price for Old Shares as
reported on the NYSE Composite Tape was $ . HOLDERS OF OLD SHARES SHOULD
OBTAIN CURRENT MARKET QUOTATIONS FOR THE OLD SHARES AS ONE OF THE FACTORS
RELEVANT TO ASSESSING THE VALUE OF THE NEW SHARES BEFORE VOTING ON THE PLAN OF
RECAPITALIZATION. The New Shares are expected to be listed on the NYSE.
The Company has not paid cash dividends on the Old Shares since 1987.
Following consummation of the Recapitalization, it is expected that cash
dividends will not be paid on the New Shares for the foreseeable future.
102
<PAGE>
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING
INFORMATION
UAL CORPORATION AND SUBSIDIARY COMPANIES
The following consolidated financial information has been derived from the
Company's consolidated financial statements, for each of the fiscal years in
the five year period ended December 31, 1993, which statements have been
audited by Arthur Andersen & Co., independent public accountants, as indicated
in their reports incorporated by reference herein. Reference is made to said
reports for the years 1993 and 1992 which include an explanatory paragraph with
respect to the changes in methods of accounting for income taxes and
postretirement benefits other than pensions as discussed in the notes to the
consolidated financial statements for such years. The consolidated financial
information for the three months ended March 31, 1994 and 1993 is unaudited but
in the opinion of management includes all adjustments necessary for a fair
presentation. The table also sets forth certain information on a pro forma
basis giving effect to the Recapitalization and the Offerings. The following
should be read in conjunction with the unaudited pro forma financial statements
and notes related thereto included elsewhere herein and the Consolidated
Financial Statements, the related notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1993, as
amended, and Quarterly Report on Form 10-Q for the quarter ended March 31,
1994, incorporated by reference herein and the Company's Current Report on Form
8-K dated May 3, 1994 which is incorporated by reference herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1993
PRO FORMA 1993 1992 1991 1990 1989
----------- -------- -------- -------- -------- -------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
CONSOLIDATED OPERATIONS
DATA:
Operating revenues(a).. $ 13,297 $ 13,325 $ 11,853 $ 10,706 $ 10,296 $ 9,288
Earnings (loss) from
operations............ 354(e) 263 (538) (494) (36) 465
Earnings (loss) before
extraordinary item and
cumulative effect of
accounting changes.... (38) (31) (417) (332) 94 324
Net earnings (loss).... N.A. (50) (957) (332) 94 324
STATEMENT OF
CONSOLIDATED FINANCIAL
POSITION DATA (at end
of period):
Total assets........... (b) $ 12,840 $ 12,257 $ 9,876 $ 7,983 $ 7,194
Total long-term debt
and capital lease
obligations, including
current portion....... (b) 3,735 3,783 2,531 1,327 1,405
Shareholders' equity... (b) 1,203 706 1,597 1,671 1,564
OTHER DATA:
Ratio of earnings to
fixed charges......... (c) (c) (c) (c) 1.16 1.95
Ratio of earnings to
fixed charges and
preferred stock
dividends............. (c) (c) (c) (c) 1.16 1.95
UNITED OPERATING DATA:
Revenue passengers
(millions)............ 70 70 67 62 58 55
Average length of a
passenger trip in
miles................. 1,450 1,450 1,390 1,327 1,322 1,269
Revenue passenger miles
(millions)............ 101,258 101,258 92,690 82,290 76,137 69,639
Available seat miles
(millions)............ 150,728 150,728 137,491 124,100 114,995 104,547
Passenger load factor.. 67.2% 67.2% 67.4% 66.3% 66.2% 66.6%
Break even passenger
load factor........... 65.0% 65.5% 70.6% 69.7% 66.5% 62.8%
Revenue per passenger
mile.................. 11.6c 11.6c 11.3c 11.5c 11.8c 11.6c
Cost per available seat
mile.................. 8.5c 8.5c 8.9c 9.0c 9.0c 8.4c
Average price per
gallon of jet fuel.... 63.6c 63.6c 66.4c 71.6c 80.4c 63.6c
</TABLE>
103
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED) THREE MONTHS
ENDED MARCH 31,
-----------------------------
1994
PRO FORMA 1994 1993
--------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
STATEMENT OF CONSOLIDATED OPERATIONS DATA:
Operating revenues(a).......................... $ 3,193 $ 3,195 $ 3,053
Loss from operations........................... (8)(e) (36) (121)
Loss before extraordinary item and cumulative
effect of accounting changes.................. (58) (71) (138)
Net Loss....................................... N.A. (97) (157)
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
DATA
(at end of period):
Total assets................................... $12,091 $12,889 $13,288
Total long-term debt and capital lease obliga-
tions, including current portion.............. 4,445 3,687 4,017
Shareholders' equity........................... (448) 1,097 1,137
OTHER DATA:
Ratio of earnings to fixed charges............. (d) (d) (d)
Ratio of earnings to fixed charges and pre-
ferred stock dividends........................ (d) (d) (d)
UNITED OPERATING DATA:
Revenue passengers (millions).................. 16 16 16
Average length of a passenger trip in miles.... 1,471 1,471 1,433
Revenue passenger miles (millions)............. 23,289 23,289 22,443
Available seat miles (millions)................ 35,598 35,598 35,220
Passenger load factor.......................... 65.4% 65.4% 63.7%
Break even passenger load factor............... 65.8% 66.5% 66.3%
Revenue per passenger mile..................... 11.9c 11.9c 12.0c
Cost per available seat mile................... 9.0c 9.0c 8.8c
Average price per gallon of jet fuel........... 58.6c 58.6c 65.9c
</TABLE>
- --------
(a) In the first quarter of 1994, United began recording certain air
transportation price adjustments, which were previously recorded as
commission expense, as adjustments to revenue. Operating revenues and
certain operating statistics for periods prior to 1994 have been adjusted
to conform with the current presentation. See the Company's Current Report
on Form 8-K dated May 3, 1994 which is incorporated by reference in this
Proxy Statement/Prospectus.
(b) The Pro Forma Statement of Consolidated Financial Position assumes the
transaction occurred at March 31, 1994. Therefore, pro forma information at
December 31, 1993 is not applicable.
(c) Earnings were inadequate to cover both fixed charges and fixed charges and
preferred stock dividends by $98 million in 1993, by $748 million in 1992
and by $599 million in 1991. On a pro forma basis, earnings were inadequate
to cover both fixed charges and fixed charges and preferred stock dividends
by $109 million in 1993.
(d) Earnings were inadequate to cover both fixed charges and fixed charges and
preferred stock dividends by $118 million and $224 million for the three
month periods ended March 31, 1994 and 1993, respectively. On a pro forma
basis, earnings were inadequate to cover both fixed charges and fixed
charges and preferred stock dividends by $97 million for the three months
ended March 31, 1994.
(e) The loss from operations includes an ESOP accounting charge which is
dependent on the fair market value of the ESOP Preferred Stock during the
period. The pro forma amount is based on an assumed fair value of $120 per
share. See note 4 to the Pro Forma Condensed Statement of Consolidated
Operations for both the year ended December 31, 1993 and the three months
ended March 31, 1994 for the effects of different fair value assumptions on
the ESOP accounting charge.
104
<PAGE>
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
The following consolidated financial information has been derived from
United's consolidated financial statements, for each of the fiscal years in the
five year period ended December 31, 1993, which statements have been audited by
Arthur Andersen & Co., independent public accountants, as indicated in their
reports incorporated by reference herein. Reference is made to said reports for
the years 1993 and 1992 which include an explanatory paragraph with respect to
the changes in methods of accounting for income taxes and postretirement
benefits other than pensions as discussed in the notes to the consolidated
financial statements for such years. The consolidated financial information for
the three months ended March 31, 1994 and 1993 is unaudited but in the opinion
of management includes all adjustments necessary for a fair presentation. The
table also sets forth certain information on a pro forma basis giving effect to
the Recapitalization and the Offerings. The following should be read in
conjunction with the unaudited pro forma financial statements and notes related
thereto included elsewhere herein and the Consolidated Financial Statements,
the related notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in United's Annual
Report on Form 10-K for the year ended December 31, 1993, and Quarterly Report
on Form 10-Q for the quarter ended March 31, 1994, as amended, incorporated by
reference herein and United's Current Report on Form 8-K dated May 3, 1994
which is incorporated by reference herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1993
PRO FORMA 1993 1992 1991 1990 1989
----------- ------- ------- ------- ------- -------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF CONSOLI-
DATED OPERATIONS DATA:
Operating revenues(a).. 13,140 $13,168 $11,688 $10,703 $10,282 $ 9,267
Earnings (loss) from
operations............ 386(e) 295 (496) (491) (41) 464
Earnings (loss) before
extraordinary item and
cumulative effect of
accounting changes.... (8) (17) (386) (335) 96 358
Net earnings (loss).... N.A. (36) (933) (335) 96 358
STATEMENT OF
CONSOLIDATED FINANCIAL
POSITION DATA (at end
of period):
Total assets........... (b) $12,153 $12,067 $ 9,907 $ 8,001 $ 7,217
Total long-term debt
and capital lease
obligations, including
current portion....... (b) 3,614 3,628 2,531 1,326 1,404
Shareholders' equity... (b) 674 738 1,613 1,769 1,665
OTHER DATA:
Ratio of earnings to
fixed charges......... (c) (c) (c) (c) 1.16 2.08
UNITED OPERATING DATA:
Revenue passengers
(millions)............ 70 70 67 62 58 55
Average length of a
passenger trip in
miles................. 1,450 1,450 1,390 1,327 1,322 1,269
Revenue passenger miles
(millions)............ 101,258 101,258 92,690 82,290 76,137 69,639
Available seat miles
(millions)............ 150,728 150,728 137,491 124,100 114,995 104,547
Passenger load factor.. 67.2% 67.2% 67.4% 66.3% 66.2% 66.6%
Break even passenger
load factor........... 65.0% 65.5% 70.6% 69.7% 66.5% 62.8%
Revenue per passenger
mile.................. 11.6c 11.6c 11.3c 11.5c 11.8c 11.6c
Cost per available seat
mile.................. 8.5c 8.5c 8.9c 9.0c 9.0c 8.4c
Average price per
gallon of jet fuel.... 63.6c 63.6c 66.4c 71.6c 80.4c 63.6c
</TABLE>
105
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
(UNAUDITED)
-----------------------------
1994
PRO FORMA 1994 1993
--------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
STATEMENT OF CONSOLIDATED OPERATIONS DATA:
Operating revenues(a)...................... $ 3,171 $ 3,173 $ 3,001
Loss from operations....................... (16)(e) (44) (107)
Loss before extraordinary item and
cumulative effect of accounting changes... (62) (79) (129)
Net Loss................................... N.A. (105) (148)
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
DATA
(at end of period):
Total assets............................... $12,101 $12,196 $12,515
Total long-term debt and capital lease
obligations, including current portion.... 4,325 3,567 3,864
Shareholders' equity....................... (272) 570 592
OTHER DATA:
Ratio of earnings to fixed charges......... (d) (d) (d)
UNITED OPERATING DATA:
Revenue passengers (millions).............. 16 16 16
Average length of a passenger trip in
miles..................................... 1,471 1,471 1,433
Revenue passenger miles (millions)......... 23,289 23,289 22,443
Available seat miles (millions)............ 35,598 35,598 35,220
Passenger load factor...................... 65.4% 65.4% 63.7%
Break even passenger load factor........... 65.8% 66.5% 66.3%
Revenue per passenger mile................. 11.9c 11.9c 12.0c
Cost per available seat mile............... 9.0c 9.0c 8.8c
Average price per gallon of jet fuel....... 58.6c 58.6c 65.9c
</TABLE>
- --------
(a) In the first quarter of 1994, United began recording certain air
transportation price adjustments, which were previously recorded as
commission expense, as adjustments to revenue. Operating revenues and certain
operating statistics for periods prior to 1994 have been adjusted to conform
with the current presentation. See United's Current Report on Form 8-K dated
May 3, 1994 which is incorporated by reference in this Proxy
Statement/Prospectus.
(b) The Pro Forma Statement of Consolidated Financial Position assumes the
transaction occurred at March 31, 1994. Therefore, pro forma information at
December 31, 1993 is not applicable.
(c) Earnings were inadequate to cover fixed charges by $77 million in 1993, by
$694 million in 1992 and by $604 million in 1991. On a pro forma basis,
earnings were inadequate to cover fixed charges by $63 million in 1993.
(d) Earnings were inadequate to cover fixed charges by $130 million and $211
million for the three month periods ended March 31, 1994 and 1993,
respectively. On a pro forma basis, earnings were inadequate to cover fixed
charges by $102 million for the three months ended March 31, 1994.
(e) The loss from operations includes an ESOP accounting charge which is
dependent on the fair market value of the ESOP Preferred Stock during the
period. The pro forma amount is based on an assumed fair value of $120 per
share. See note 4 to the Pro Forma Condensed Statement of Consolidated
Operations for both the year ended December 31, 1993 and the three months
ended March 31, 1994 for the effects of different fair value assumptions on
the ESOP accounting charge.
106
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following are the unaudited Pro Forma Financial Information for each of
the Company and United. These statements are based on an assumed purchase
price for the Class 1 ESOP Preferred Stock at the Effective Time of $120 per
share. The $120 per share assumed purchase price of Class 1 ESOP Preferred
Stock is based on an assumed market price of a New Share at the Effective Time
of $87. (The assumption is based upon (i) an assumed market price of an Old
Share at the Effective Time of approximately $131.5 per share, (ii) an assumed
value of the non-New Share portion of the Recapitalization Consideration of
$88 per Old Share, and (iii) a purchase price premium for the Class 1 ESOP
Preferred Stock over the assumed value of a New Share of 38%). The actual
purchase price for the Class 1 ESOP Preferred Stock at the Effective Time will
be determined pursuant to the terms of the purchase agreement with the ESOP
Trustee, which provides for a purchase price equal to 1.38 times the Closing
Price, except that if the Closing Price is less than 98% of the average of the
Adjusted Old Share Price for the five trading days immediately preceding the
Effective Date, the purchase price shall equal the product of 1.38 and such
average price. See "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs--Sale
of ESOP Preferred Stock--Leveraged ESOP." There can be no assurance as to the
actual purchase price of the Class 1 ESOP Preferred Stock, the Closing Price,
or the Adjusted Old Share Price. These statements do not purport to be
indicative of the financial position or results of operations that may be
obtained in the future or that would actually have been obtained had the
Recapitalization occurred on the dates indicated. See "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--Sales of ESOP Preferred Stock."
UAL CORPORATION AND SUBSIDIARY COMPANIES
The following unaudited Pro Forma Condensed Statements of Consolidated
Operations for the year ended December 31, 1993 and the three months ended
March 31, 1994, and the unaudited Pro Forma Condensed Statement of
Consolidated Financial Position as of March 31, 1994 for the Company and its
subsidiaries have been prepared to reflect the Recapitalization, including:
(i) the reclassification of Old Shares into New Shares and Series D Redeemable
Preferred Stock, (ii) the Offerings of interests in the Public Preferred Stock
(as represented by Depositary Preferred Shares) and Debentures, (iii) the
exchange of Series D Redeemable Preferred Stock for cash and proceeds from the
Offerings, (iv) the issuance of the first tranche of Class 1 ESOP Preferred
Stock to the ESOP Trustee in exchange for cash and a promissory note, (v) the
recognition of unearned ESOP Preferred Stock and the related additional
capital invested, (vi) the recognition of the employee stock ownership plan
accounting charge, (vii) the reduction of salaries and related costs for the
anticipated impact of the wage and benefit reduction and certain work rule
changes and (viii) the recognition of the anticipated benefits from the
agreement to sell the U.S. flight kitchens. The unaudited Pro Forma Condensed
Statements of Consolidated Operations were prepared as if the Recapitalization
had occurred on January 1, 1993. The unaudited Pro Forma Condensed Statement
of Consolidated Financial Position was prepared as if the Recapitalization
occurred on March 31, 1994.
The pro forma statements assume the Recapitalization is not accounted for as
an acquisition or merger and, accordingly, the Company's assets and
liabilities have not been revalued. The reclassification of Old Shares into
New Shares results in the elimination of the par value of the Old Shares and
recognition of the par value of the New Shares. The distribution of the cash
to holders of Old Shares is charged to additional capital invested and
retained earnings.
The ESOPs are being accounted for in accordance with the American Institute
of Certified Public Accountants Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans" ("SOP"). For the Leveraged
ESOP, the Company will issue Class 1 ESOP Preferred Stock through seven ESOP
Tranches, at the Effective Time, approximately thirteen months following the
Effective Time, annually thereafter for four years and on January 1, 2000. As
the shares are issued to the Leveraged ESOP, the Company will report the
issuance of shares as a credit to additional capital invested based on the
fair value of the stock when such issuance occurs and report a corresponding
charge to unearned ESOP Preferred Stock.
107
<PAGE>
As consideration for the shares, the Company will receive from the ESOP Trustee
a series of promissory notes and cash. The notes will not be recorded in the
Company's Statement of Consolidated Financial Position and the related interest
income will also not be recorded in the Company's Statement of Consolidated
Operations. As shares of Class 1 ESOP Preferred Stock are earned or committed
to be released, an employee stock ownership plan accounting charge will be
recognized equal to the average fair value of the shares committed to be
released with a corresponding credit to unearned ESOP Preferred Stock. Any
differences between the fair value of the shares committed to be released and
the cost of the shares to the ESOP will be charged or credited to additional
capital invested. For the Non-Leveraged Qualified ESOP, a credit for the shares
of Class 2 ESOP Preferred Stock will be recorded as the shares are committed to
be contributed to the ESOP, with the offsetting entry to compensation expense.
Compensation expense will be recorded based on the fair value of the shares
committed to be contributed to the ESOP, in accordance with the SOP. The pro
forma financial statements assume that the Supplemental ESOP is accounted for
the same as the Non-Leveraged Qualified ESOP (i.e. pursuant to the SOP). It is
possible that, because the Supplemental ESOP is a non-qualified plan, the
Company may account for it under Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees," instead. The Company would not
expect this to result in a material difference. The shares committed to be
contributed to the Supplemental ESOP will be reported outside of equity because
the employees can elect to receive their "book entry" shares from the Company
in cash upon termination of employment.
The ESOP Preferred Stock is considered to be a common stock equivalent for
accounting purposes since the shares cannot remain outstanding indefinitely and
participants cannot withdraw their shares from the plan. Under the SOP, when
computing primary and fully diluted earnings per share, only those shares
committed to be released in the case of Class 1 ESOP Preferred Stock and shares
committed to be contributed in the case of Class 2 ESOP Preferred Stock are
considered outstanding as common stock equivalents. Prospectively, as dividends
are paid by the Company to the ESOP, only dividends on allocated shares will be
recorded as a charge to equity. Since the Company controls the use of dividends
on unallocated ESOP Preferred Stock, such dividends will not be considered
dividends for financial reporting purposes. Any dividends on unallocated shares
added to participant accounts would be reported as compensation expense.
The unaudited Pro Forma Condensed Statements of Consolidated Operations
include the recurring charges and credits that are directly attributable to the
Recapitalization, such as the interest expense arising from the Debentures, the
effects of the wage and benefit reductions and certain work-rule changes
resulting from the employee investment, and the employee stock ownership plan
accounting charge. No adjustments have been made to the pro forma revenues and
expenses to reflect the results of structural changes in operations, such as
U2, that might have been made had the changes been consummated on the assumed
effective dates for presenting pro forma results.
The pro forma adjustments are based upon available information and upon
certain assumptions that the Company believes are reasonable. In addition, this
information should be read in conjunction with the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, as amended, and the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994, which are
incorporated by reference in this Proxy Statement/Prospectus and which include
the Company's Consolidated Financial Statements and the related notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Company's Current Report on Form 8-K dated May 3, 1994
which is incorporated by reference in this Proxy Statement/Prospectus.
108
<PAGE>
UAL CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Operating revenues............... $ 13,325 (11) $ (28)(1) $ 13,297
Operating expenses:
Salaries and related costs...... 4,760 (428)(2)(3)
(191)(1) 4,141
Employee stock ownership plan
accounting charge.............. 369 (4) 369
Other........................... 8,302 (11) 131 (1) 8,433
-------- ----- ---------
13,062 (119) 12,943
-------- ----- ---------
Earnings (loss) from operations.. 263 91 354
-------- ----- ---------
Other income (expense):
Interest, net................... (209) (72)(5)
(30)(6) (311)
Other, net...................... (101) (101)
-------- ----- ---------
(310) (102) (412)
-------- ----- ---------
Loss from continuing operations
before income taxes............. (47) (11) (58)
Provision (credit) for income
taxes........................... (16) (4)(7) (20)
-------- ----- ---------
Loss from continuing operations.. $ (31) $ (7)(8) $ (38)
======== ===== =========
Loss per share from continuing
operations...................... $ (2.64)(9) $ (11.95)(10)
======== =========
Shares used in per share
computations.................... 24.4 (9) 12.5 (10)
======== =========
</TABLE>
See accompanying notes to Pro Forma Condensed Statement of Consolidated
Operations.
109
<PAGE>
UAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO PRO FORMA CONDENSED
STATEMENT OF CONSOLIDATED OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(1) The Company entered into an agreement to sell its U.S. flight kitchens
over a period of months beginning in December 1993 through June 1994 and
an agreement to acquire catering services for a seven year period. This
adjustment eliminates $28 million of sales revenues and $191 million of
compensation costs recorded in 1993 relating to the U.S. flight kitchens
that were sold and adds estimated incremental catering costs of $131
million.
(2) To adjust compensation expense for the pro forma effect of the wage and
benefit reductions and certain work-rule changes resulting from the
employee investment that provide for wage and other compensation savings
during the approximately six year period beginning at the Effective Time.
The pro forma adjustment represents the estimated savings in the 12 months
assuming that such savings had commenced at the beginning of the period.
The pro forma adjustment does not include any savings related to U2.
(3) The following reconciles the labor cost savings included in the Pro Forma
Condensed Statement of Consolidated Operations to the value of the
employee investments included in the Company Analysis of employee
investments for 1994 (see "SPECIAL FACTORS--Certain Company Analyses"):
<TABLE>
<CAPTION>
(MILLIONS)
<S> <C>
Pro Forma adjustment based on 1993 salaries.................... $428
Estimated compensation savings based on 1994 salaries.......... 68
Estimated benefits of U2 during the first year................. 64
Estimated additional severance for flight kitchen employees
during the first year......................................... (36)
----
Estimated 1994 investments................................... $524
====
Estimated six months of investments included in 1994 analy-
sis......................................................... $262
====
</TABLE>
(4) To record non-cash compensation for shares of ESOP Preferred Stock
committed to be released to employees during the period based on the
average fair value of such ESOP Preferred Stock. The average fair value of
the ESOP Preferred Stock is based on two components: (1) the average fair
value of the New Shares into which the ESOP Preferred Stock is convertible
plus (2) a premium attributable to the dividend paying feature of the ESOP
Preferred Stock. For purposes of the pro forma adjustment, the average
fair value of the ESOP Preferred Stock was assumed to be the initial
assumed purchase price of $120. In future years, it is anticipated that
the ESOP Preferred Stock price, for purposes of computing the employees
stock ownership plan accounting charge, will be determined by an
independent appraiser who will value both components. Additionally, in
future years, the shares committed to be released that are used to satisfy
the dividends payable on previously allocated shares will be charged to
retained earnings rather than compensation expense.
The shares of the ESOP Preferred Stock committed to be released are a
fraction of the original ESOP Preferred Stock shares. It is anticipated
the shares will be released in a level fashion over the 69 months of the
ESOP taking into account the partial periods in 1994 and 2000. This would
result in approximately 3.07 million ESOP Preferred Stock shares committed
to be released in each full calendar year. Shares released in a partial
year would be pro rated.
Since future expense is dependent on the fair market value of the ESOP
Preferred Stock, such expense is difficult to forecast and may vary
significantly from the value in the pro forma adjustment. Changes in the
price of a New Share directly affect the determination of the value of a
share of ESOP Preferred Stock. In addition, if the average value of a New
Share exceeds $136 during the first 12 months after
110
<PAGE>
the Effective Time, additional shares of ESOP Preferred Stock will be
issued to the Qualified ESOP or reserved for issuance to the Supplemental
ESOP to increase the ESOP's ownership from approximately 55% up to a
maximum of approximately 63%. Future expense is also affected by the
premium associated with the dividend paying feature which shrinks over
time as the dividend paying period is reduced.
Following is a summary of the impact to the employee stock ownership plan
accounting charge of a range of fair market values:
<TABLE>
<CAPTION>
AVERAGE ESOP ESOP ACCOUNTING
PREFERRED STOCK CHARGE*
FAIR VALUE (MILLIONS)
--------------- ---------------
<S> <C>
$110 $338
120 369
130 400
140 430
</TABLE>
--------
* Assumes 3.07 million shares committed to be released in the pro forma
period and no shares used to satisfy dividends payable since shares are
not allocated to participants until December 31. In later years shares
will be used to satisfy dividends on allocated shares, which will
reduce the employee stock ownership plan accounting charge.
The following illustrates the impact to the employee stock ownership plan
accounting charge if the average value of the New Shares in the first 12
months exceeds $136 per share.
<TABLE>
<CAPTION>
SHARES TO BE INCREASE IN
AVERAGE AVERAGE ESOP ADDITIONAL RELEASED ESOP ACCOUNTING
NEW SHARE PREFERRED STOCK SHARES TO FOR FIRST CHARGE****
PRICE FAIR VALUE* BE ISSUED** YEAR*** (MILLIONS)
--------- --------------- ----------- ------------ ---------------
<S> <C> <C> <C> <C>
$136 $168 0 0 $ 0
140 172 2,260,410 393,115 68
150 182 6,949,234 1,208,562 220
</TABLE>
--------
* Assumes a dividend premium of $32 per share.
** To achieve the maximum increase in ownership, the price of a New Share
must average at least $149.10 during the first 12 months after the
Effective Time. If the average price of a New Share is less than or
equal to $136, no additional shares of ESOP Preferred Stock will be
issued.
*** The additional shares will be released in a level fashion over the 69
months of the ESOP.
**** Represents the first year increase; subsequent increases are
dependent on changes in the fair value of the ESOP Preferred Stock.
(5) To record the interest expense on the Series A Debentures at an annual
estimated interest rate of 9.0% and on the Series B Debentures at an
annual estimated interest rate of 9.7%, and to record amortization of the
underwriting discount. For purposes of the pro forma adjustment, the
interest rates are based on the Initial Pricing. The actual rates will be
reset prior to Closing and any upward reset is limited to an additional
112.5 basis points. If the reset results in the actual rate being at the
maximum interest rate, interest expense would increase by an additional $9
million for the year. Further, if the United Debt Offerings are not
consummated and the Unions request prior to the Announcement Date that the
Debentures contain a call provision, the actual rates may increase above
the maximum.
The underwriting agreements for the United Debt Offerings are expected to
provide that if either or both of the United Debt Offerings are
consummated, the interest rates may be adjusted to permit the applicable
Debentures to be sold at or closer to par, but if this is done, the
principal amount of the series of Debentures will be reduced so that the
interest payable will not exceed the stated maximum which was calculated
based upon the interest rate cap. If the United Debt Offerings are not
consummated, the interest rates are subject to the cap.
111
<PAGE>
(6) To record foregone interest income due to the reduction in the Company's
average investment balance resulting from the Recapitalization. The pro
forma adjustment is based on the Company's average earnings rate during
1993.
(7) To adjust the provision (credit) for income taxes to reflect the tax
effect of changes to pretax income at the statutory rate in effect during
1993. For purposes of the pro forma adjustments, the book and tax
employee stock ownership plan compensation charge are assumed to be the
same.
(8) If the Recapitalization is consummated, the Company expects to recognize
nonrecurring charges of approximately $44 million relating to additional
severance benefits for employees terminated as a result of the sale of
the flight kitchens, up to $49.15 million of transaction fees and
expenses incurred by ALPA, the IAM and certain advisors in connection
with the structuring and establishment of the ESOPs, $30 million for the
Company's transaction fees and expenses, $17 million of compensation
expense relating to vesting the unvested restricted stock as a result of
the change in control, $21 million of payments and benefits to Mr.
Greenwald and officers who are retiring at the Effective Time, and $13
million of compensation expense (based on an assumed Old Share price of
approximately $131.5 at the Effective Time) relating to the vesting of
unvested Options and the implementation of a feature that provides for
cashless exercise of Options in the event of the Recapitalization. (The
existing Option holders are only entitled to utilize the cashless
exercise feature if the Recapitalization occurs. The pro forma financial
information assumes all in-the-money Options are exercised at the
Effective Time and, since the cashless exercise results in variable plan
accounting, there is an initial nonrecurring charge for the cashless
exercise feature but no ongoing impact; however, if Option holders do not
exercise their Options at the Effective Time, there will be an ongoing
accounting impact for the changes in the fair market value of the
Recapitalization Consideration that is issuable upon exercise of such
Options.) The total after-tax effect of the nonrecurring charges is $122
million. Due to the nonrecurring nature of these charges, they have been
excluded from the Pro Forma Condensed Statement of Consolidated
Operations.
(9) Due to the nature of the Recapitalization, a comparison of historical and
pro forma loss per share is not meaningful.
(10) The pro forma loss per common share is based on an estimated 12,519,891
weighted average shares outstanding and is calculated after preferred
stock dividend requirements of $33.2 million on the Company's outstanding
Series A Preferred Stock and $78.4 million on the Public Preferred Stock
issued as a result of the Recapitalization. The number of weighted
average shares assumes the Series A Preferred Stock does not convert
during the first year of the transaction. The number of average shares of
ESOP Preferred Stock committed to be released during the year were not
included in the calculation as a common stock equivalent because the
effect is anti-dilutive. Since no shares of ESOP Preferred Stock are
allocated until December 31, the pro forma calculations assume no
dividends are paid on allocated shares of ESOP Preferred Stock during the
year ended December 31, 1993, and accordingly, dividends on ESOP
Preferred Stock are not included in the pro forma loss per share. In
addition, the pro forma calculations are based on the initial dividend
rate of 10.25% for the Public Preferred Stock; however, the actual rate
will be reset prior to Closing and the dividend rate could increase to a
maximum of 11.375%. If the reset rate results in the maximum rate being
11.375%, the loss per share would increase by $0.69 per share.
The underwriting agreement for the UAL Preferred Offering is expected to
reflect that if the UAL Preferred Offering is consummated, the dividend
rate on the Public Preferred Stock may be adjusted to permit the
Depositary Preferred Shares to be sold at or closer to par, but if this is
done, the number of Depositary Preferred Shares representing the Public
Preferred Stock will be reduced so that the annual dividends will not
exceed the stated maximum which was calculated based upon the dividend
rate cap. If the UAL Preferred Offering is not consummated, the dividend
rate is subject to the stated maximum.
112
<PAGE>
Following is a reconciliation of the historical and pro forma weighted
average shares:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Historical weighted average shares during the year......... 24.4
Adjustment for restricted stock issued during the year as-
sumed to be issued and vested on January 1, 1993.......... 0.1
Adjustment for the number of option shares assumed to be
issued at the Effective Time (see "THE PLAN OF RECAPITALI-
ZATION--Terms and Conditions--General")................... 0.5
-----
Adjusted weighted average shares........................... 25.0
Adjustment to give effect to the two for one exchange of
Old Shares for New Shares................................. (12.5)
-----
Pro forma weighted average shares.......................... 12.5
=====
</TABLE>
(11) In the first quarter of 1994, the Company began recording certain air
transportation price adjustments, which were previously recorded as
commission expense, as adjustments to revenue. Historical operating
revenue and expense amounts have been adjusted to conform with the current
presentation. See the Company's Current Report on Form 8-K dated May 3,
1994 which is incorporated by reference in this Proxy
Statement/Prospectus.
113
<PAGE>
UAL CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1994
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Operating revenues.................... $3,195 $ (2)(1) $3,193
Operating expenses:
Salaries and related costs........... 1,202 (111)(2)(3)
(27)(1) 1,064
Employee stock ownership plan
accounting charge................... 86 (4) 86
Other................................ 2,029 22 (1) 2,051
------ ---- ------
3,231 (30) 3,201
------ ---- ------
Earnings (loss) from operations....... (36) 28 (8)
------ ---- ------
Other income (expense):
Interest, net........................ (56) (18)(5)
(8)(6) (82)
Other, net........................... (16) 19 (7) 3
------ ---- ------
(72) (7) (79)
------ ---- ------
Loss from continuing operations
before income taxes.................. (108) 21 (87)
Provision (credit) for income taxes... (37) 8 (8) (29)
------ ---- ------
Loss from continuing operations....... $ (71) $ 13 $ (58)
====== ==== ======
Loss per share from continuing
operations........................... $(3.31)(9) $(7.45)(10)
====== ======
Shares used in per share computations. 24.5 (9) 12.5 (10)
====== ======
</TABLE>
See accompanying notes to Pro Forma Condensed Statement of Consolidated
Operations.
114
<PAGE>
UAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO PRO FORMA CONDENSED
STATEMENT OF CONSOLIDATED OPERATIONS
THREE MONTHS ENDED MARCH 31, 1994
(1) The Company entered into an agreement to sell its U.S. flight kitchens
over a period of months beginning in December 1993 through June 1994 and
an agreement to acquire catering services for a seven year period. This
adjustment eliminates $2 million of sales revenues and $27 million of
compensation costs recorded in the first quarter of 1994 relating to the
U.S. flight kitchens that were sold and adds estimated incremental
catering costs of $22 million.
(2) To adjust compensation expense for the pro forma effect of the wage and
benefit reductions and certain work-rule changes resulting from the
employee investment that provide for wage and other compensation savings
during the approximately six year period beginning at the Effective Time.
The pro forma adjustment represents the estimated savings in the first
quarter of 1994 assuming that such savings had commenced at the beginning
of the prior year. The pro forma adjustment does not include any savings
related to U2.
(3) The following reconciles the labor cost savings included in the Pro Forma
Condensed Statement of Consolidated Operations to the value of the
employee investments included in the Company Analysis of employee
investments for 1994 (see "SPECIAL FACTORS--Certain Company Analyses"):
<TABLE>
<CAPTION>
(MILLIONS)
<S> <C>
Pro Forma adjustment........................................... $111
Estimated compensation savings based on foregone 1994 raises... 13
Estimated benefits of U2 for three months...................... 16
Estimated additional severance for flight kitchen employees for
three months.................................................. (9)
----
Estimated three months of investments........................ $131
====
Estimated six months of investments included in 1994 analy-
sis......................................................... $262
====
</TABLE>
(4) To record non-cash compensation for shares of ESOP Preferred Stock
committed to be released to employees during the period based on the
average fair value of the ESOP Preferred Stock. For purposes of the pro
forma adjustment, the average fair value of the ESOP Preferred Stock was
assumed to be the initial assumed purchase price of $120. The pro forma
calculations assume that shares committed to be released in 1993 were
allocated to participant accounts at the end of 1993. Thus, the portion of
shares committed to be released in 1994 that will be used to satisfy
dividends payable on allocated shares is charged to retained earnings
rather than non-cash compensation expense. It is anticipated that in the
first quarter of 1994, approximately 768,000 shares of ESOP Preferred
Stock will be committed to be released, and that approximately 54,000 of
these shares will be used for dividends.
Since future expense is dependent on the fair market value of the ESOP
Preferred Stock, such expense is difficult to forecast and may vary
significantly from the value in the pro forma adjustment. Changes in the
price of a New Share directly affect the determination of the value of an
ESOP Preferred Stock share. In addition, if the average value of a New
Share exceeds $136 during the first 12 months after the Effective Time,
additional shares of ESOP Preferred Stock will be issued to the Qualified
ESOP or reserved for issuance to the Supplemental ESOP. Future expense is
also affected by the premium associated with the dividend paying feature
which shrinks over time as the dividend paying period is reduced.
115
<PAGE>
Following is a summary of the impact to the employee stock ownership plan
accounting charge of a range of fair market values:
<TABLE>
<CAPTION>
AVERAGE ESOP ESOP ACCOUNTING
PREFERRED STOCK CHARGE*
FAIR VALUE (MILLIONS)
--------------- ---------------
<S> <C>
$110 $ 79
120 86
130 93
140 100
</TABLE>
--------
* Assumes 768,000 shares committed to be released in the pro forma period
and approximately 54,000 shares used for dividends which are charged to
retained earnings. As additional shares are allocated in later years,
the employee stock ownership plan accounting charge will be reduced.
The following illustrates the impact to the employee stock ownership plan
accounting charge for the quarter if the average value of the New Shares
in the first 12 months exceeds $136 per share.
<TABLE>
<CAPTION>
AVERAGE ESOP SHARES TO INCREASE ON
AVERAGE PREFERRED ADDITIONAL BE RELEASED ESOP ACCOUNTING
NEW SHARE STOCK FAIR SHARES TO FOR THE CHARGE****
PRICE VALUE* BE ISSUED** QUARTER*** (MILLIONS)
--------- ------------ ----------- ----------- ---------------
<S> <C> <C> <C> <C>
$136 $168 0 0 $ 0
140 172 2,260,410 98,279 16
150 182 6,949,234 302,141 51
</TABLE>
* Assumes a dividend premium of $32.
** To achieve the maximum increase in additional Shares, the price of a
New Share must average at least $149.10 during the first 12 months
after the Effective Time. If the average price of a New Share is less
than or equal to $136, no additional shares of ESOP Preferred Stock
will be issued.
*** The additional shares will be released in a level fashion over the 69
months of the ESOP.
**** Represents the increase for the quarter; subsequent increases are
dependent on changes in the fair value of the ESOP Preferred Stock.
(5) To record the interest expense on the Series A Debentures at an annual
estimated interest rate of 9.0% and on the Series B Debentures at an
annual estimated interest rate of 9.7%, and to record amortization of the
underwriting discount. For purposes of the pro forma adjustment, the
interest rates are based on the Initial Pricing. The actual rates will be
reset prior to Closing and any upward reset is limited to an additional
112.5 basis points. If the reset results in the actual rate being at the
maximum interest rate, interest expense would increase by an additional $2
million for the quarter. Further, if the United Debt Offerings are not
consummated and the Unions request prior to the Announcement Date that the
Debentures contain a call provision, the actual rates may increase above
the maximum.
(6) To record foregone interest income due to the reduction in the Company's
average investment balance resulting from the Recapitalization. The pro
forma adjustment is based on the Company's average earnings rate during
the first quarter of 1994.
(7) To reverse $19 million of nonrecurring fees and expenses relating to the
Recapitalization which were recorded in the first quarter of 1994.
(8) To adjust the provision (credit) for income taxes to reflect the tax
effect of changes to pretax income at the statutory rate in effect during
the first quarter of 1994. For purposes of the pro forma adjustment the
book and tax employee stock ownership plan compensation charge are assumed
to be the same.
(9) Due to the nature of the Recapitalization, a comparison of historical and
pro forma loss per share is not meaningful.
116
<PAGE>
(10) The pro forma loss per common share is based on an estimated 12,547,163
weighted average shares outstanding and is calculated after preferred
stock dividend requirements of $9.4 million on the Company's outstanding
Series A Preferred Stock, $19.6 million on the Public Preferred Stock
issued as a result of the Recapitalization and $6.5 million on the ESOP
Preferred Stock issued as a result of the Recapitalization. The dividends
on the ESOP Preferred Stock relate to the estimated 3,073,974 shares
allocated at the end of 1993 (of the total 17,675,345 shares that will be
allocated) and a dividend rate of 7%. The number of weighted average
shares assumes the Series A Preferred Stock does not convert during the
first year of the transaction. The number of average shares of ESOP
Preferred Stock committed to be released during the period were not
included in the calculation as a common stock equivalent because the
effect is anti-dilutive. In addition, the pro forma calculations are based
on the initial dividend rate of 10.25% on the Public Preferred Stock;
however, the actual rate will be reset prior to closing and the dividend
rate could increase to a maximum of 11.375%. If the reset rate results in
the maximum rate being 11.375%, the loss per share for the quarter would
increase by $0.17 per share.
Following is a reconciliation of the historical and pro forma weighted
average shares:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Historical weighted average shares for the quarter.......... 24.5
Adjustment for restricted stock issued subsequent to January
1, 1993 assumed to be issued and vested on January 1, 1993. 0.1
Adjustment for the number of option shares assumed to be
issued at the Effective Time (see "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--General").......... 0.5
-----
Adjusted weighted average shares............................ 25.1
Adjustment to give effect to the two for one exchange of Old
Shares for New Shares...................................... (12.6)
-----
Pro forma weighted average shares........................... 12.5
=====
</TABLE>
117
<PAGE>
UAL CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
MARCH 31, 1994
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS HISTORICAL ADJUSTMENTS PRO FORMA
------ ---------- ----------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................. $ 1,046 $1,498 (1a) $
(2,208)(1b)
(140)(2)
8 (11) 204
Short-term investments.................... 1,020 1,020
Other..................................... 1,837 44 (3) 1,881
------- ------ -------
3,903 (798) 3,105
------- ------ -------
Operating property and equipment............ 12,226 12,226
Less: Accumulated depreciation and
amortization............................ (5,177) (5,177)
------- ------ -------
7,049 7,049
------- ------ -------
Other assets:
Other..................................... 1,937 1,937
------- ------ -------
$12,889 $ (798) $12,091
======= ====== =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Short-term borrowings, long-term debt
maturing within one year and current
obligations under capital leases......... $ 486 $ $ 486
Other..................................... 4,502 (11)(11) 4,491
------- ------ -------
4,988 (11) 4,977
------- ------ -------
Long-term debt.............................. 2,693 758 (1c) 3,451
------- ------ -------
Long-term obligations under capital leases.. 777 777
------- ------ -------
Other liabilities, deferred credits and
minority interest.......................... 3,334 3,334
------- ------ -------
Class 2 ESOP Preferred Stock, $.01 par, none
issued..................................... -- (13)
------- ------ -------
Shareholders' equity:
Series A Preferred Stock, $.01 stated
value, 6,000,000 shares issued,
$100 liquidation value................... -- -- --
Series B Preferred Stock, $.01 stated
value, 30,566 shares issued,
$25,000 liquidation value................ -- (1d) --
Class 1 ESOP Preferred Stock, $.01 par,
1,899,059 shares issued, $120 liquidation
value.................................... -- (4) --
Class 2 ESOP Preferred Stock, $.01 par,
none issued ............................. -- (4) --
Voting Preferred Stock, $.01 par, 3 shares
issued, $.01 liquidation value........... -- (5) --
Common stock, $5 par value, 25,500,662
shares issued and
outstanding--historical.................. 128 (128)(1e) --
Common stock, $.01 par value, 13,006,564
shares issued and outstanding--pro
forma(12)................................ -- (1e) --
Additional capital invested............... 963 (963)(1e)
740 (1d)
228 (4)
13 (6) 981
Retained earnings (deficit)............... 142 (1,117)(1e)
(108)(7) (1,083)
Pension liability adjustment.............. (53) (53)
Unearned compensation..................... (14) 14 (8) --
Unearned ESOP Preferred Stock............. (228)(4) (228)
Unrealized loss on investments............ (2) (2)
Common stock held in treasury, 929,631
shares--historical, 439,816 shares--pro
forma ................................... (67) 4 (9) (63)
------- ------ -------
1,097 (1,545)(10) (448)
------- ------ -------
$12,889 $ (798) $12,091
======= ====== =======
</TABLE>
See the accompanying notes to Pro Forma Condensed Statement of Consolidated
Financial Position.
118
<PAGE>
UAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
MARCH 31, 1994
(1) To record the Recapitalization (as described in "THE PLAN OF
RECAPITALIZATION--Terms and Conditions"). The entries assume that (i) the
Offerings of Debentures and Depositary Preferred Shares representing
interests in Public Preferred Stock are consummated, (ii) all in-the-money
Options are vested and exercised at the Effective Time using a cashless
exercise mechanism, (iii) treasury stock held by the Company immediately
prior to the Effective Time will convert into New Shares that remain
outstanding after the Recapitalization and (iv) Convertible Company
Securities that are outstanding immediately prior to the Effective Time
will not convert into the Recapitalization Consideration at the Effective
Time. The cashless exercise feature permits holders of Options to exercise
them by surrendering to the Company a portion of the proceeds of the
Option in lieu of paying the exercise price in cash. When the cashless
exercise feature is used, each element of the Recapitalization
Consideration that is issuable upon the exercise of such Options is
reduced proportionately, and the net Recapitalization Consideration
(including the New Shares) that is issued is equal in value to the spread
value of the Options exercised. See footnote 8 to the Pro Forma Condensed
Statement of Consolidated Operations for the year ended December 31, 1993.
(a) To record the proceeds from the Offerings of approximately $765
million of Debentures and approximately $765 million of Depositary
Preferred Shares representing interests in Public Preferred Stock, net
of underwriting discount of $7 million for the Debentures and $25
million for the Public Preferred Stock. (If the Offerings are not
consummated, the Debentures and the Depositary Preferred Shares
included in entry 1(c) and 1(d) will be issued to the holders of Old
Shares upon redemption of the Series D Redeemable Preferred Stock.)
(b) To record the cash payment to holders of Old Shares upon the
redemption of the Redeemable Preferred Stock. The cash payment
includes $25.80 per share plus proceeds from the sales of $31.10 face
amount of Debentures and Depositary Preferred Shares representing
interests in $31.10 liquidation preference of Public Preferred Stock
(before deducting underwriting discounts), and assumes that the
proceeds of the sales equals the face amount of the securities. The
pro forma adjustment also includes the cash payment of $88 per share
upon exercise of Options. (If the amount to be sold in the Offerings
is reduced as discussed in entry 1(c) and 1(d), the amount paid to
holders of Old Shares will be reduced.)
(c) To record the issuance of $382.5 million of principal amount of Series
A Debentures and $382.5 million of principal amount of Series B
Debentures. The Debentures are being recorded at their face amount on
the assumption that they will be priced to trade at par, less the
underwriting discount of $7 million. The actual rates on the
Debentures will be reset prior to the Effective Time and the
Debentures are subject to a maximum interest rate of 112.5 basis
points above the Initial Pricing. The underwriting agreements for the
United Debt Offerings are expected to provide that if either or both
of the United Debt Offerings are consummated, the interest rates on
the Debentures being offered may be adjusted in order for the
Debentures to be sold at or closer to par, in which case the principal
amount of the Debentures will be reduced so that the annual interest
expense will not exceed the stated maximum which was calculated based
upon the rate cap. If either or both of the United Debt Offerings are
not consummated and the interest rate exceeds the applicable stated
maximum, the Debentures will be recorded at a discount.
(d) To record the issuance of Depositary Preferred Shares representing
interests in $765 million liquidation preference of Public Preferred
Stock, net of underwriting discount of $25 million. The Public
Preferred Stock is recorded at its stated value of $.01 per share,
with the excess of liquidation value over stated value and net of
underwriting discount recorded as additional capital invested. The
dividend rate on the Public Preferred Stock will be reset prior to
Closing and is subject to a maximum of 11.375%. The underwriting
agreement for the UAL Preferred Offering
119
<PAGE>
is expected to provide that if the UAL Preferred Offering is
consummated, the dividend rate may be adjusted in which case the number
of Depositary Preferred Shares will be reduced so that the annual
dividends will not exceed the stated maximum which was calculated based
upon the rate cap.
(e) To record the reclassification of Old Shares into New Shares and
Series D Redeemable Preferred Stock. The Series D Redeemable Preferred
Stock is assumed to immediately convert to cash, including proceeds
from the sale of Debentures and Depositary Preferred Shares
representing interests in the Public Preferred Stock. (The pro forma
adjustments do not reflect the Series D Redeemable Preferred Stock
issued to the Company upon reclassification of the treasury stock
because such shares are surrendered for cancellation immediately after
issuance.)
The New Shares are recorded at their par value of $.01 per share.
Following is a summary of the entries to additional capital invested
and retained earnings (in millions):
<TABLE>
<CAPTION>
ADDITIONAL
CAPITAL RETAINED
INVESTED EARNINGS
---------- --------
<S> <C> <C>
Cancellation of Old Shares........................... $ 128 $ --
Distribution of cash................................. (1,091) (1,117)
------- -------
Pro forma adjustment................................. $ (963) $(1,117)
======= =======
</TABLE>
(2) To record the cash impact of the estimated fees and transaction expenses,
including expenses for the Company, ALPA and the IAM, severance payments
to terminated officers and flight kitchen employees and payments relating
to the employment agreement with Mr. Greenwald.
(3) To record the tax effects relating to nonrecurring charges recognized as a
result of the Recapitalization.
(4) To record the initial issuance of Class 1 ESOP Preferred Stock to the
Leveraged ESOP for an aggregate purchase price of $228 million. The $228
million was determined based on (i) 1,899,059 shares of Class 1 ESOP
Preferred Stock expected to be issued in the first ESOP Tranche as of the
Effective Time and (ii) an assumed purchase price of $120 per share. The
Company and the Unions may, prior to the Effective Time, agree to increase
or decrease the number of shares of Class 1 ESOP Preferred Stock sold at
the Effective Time. The agreement with the ESOP Trustee provides that the
number of shares of Class 1 ESOP Preferred Stock sold at the Effective
Time shall be no more than 2,088,965 and no fewer than 1,709,153 provided,
however, that the number of shares sold in the first ESOP Tranche will be
adjusted if the Effective Time is before or after July 1, 1994. The actual
price per share for the first ESOP Tranche will be calculated as provided
in the ESOP Stock Purchase Agreement (see "THE PLAN OF RECAPITALIZATION--
Establishment of ESOPs"). Thus, the ultimate amount recorded at the
Effective Time will differ from the pro forma adjustment in order to
reflect the actual number of shares issued and the purchase price
calculated under the ESOP Stock Purchase Agreement.
Six additional ESOP Tranches will be issued to the Leveraged ESOP during
the 69 months subsequent to the Effective Time, with the total shares of
Class 1 ESOP Preferred Stock issued in the seven ESOP Tranches aggregating
approximately 14,000,000 shares (subject to increase, see "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--Additional Shares"). The price
for the subsequent ESOP Tranches will be as agreed between the Company and
the ESOP Trustee at the time of each sale. As the subsequent ESOP Tranches
are issued, the shares will be reported as a credit to additional capital
invested based on the fair value of the stock when such issuances occur
with a corresponding charge to "Unearned ESOP Preferred Stock."
The unearned ESOP Preferred Stock recorded in the pro forma adjustment
together with the unearned ESOP Preferred Stock recorded from subsequent
ESOP Tranches will be recognized as compensation
120
<PAGE>
expense over the approximately six year investment period as the shares
are committed to be released. The difference between the compensation
expense recorded, which is based on the fair value of the stock during an
accounting period, and the recorded cost of the unearned ESOP Preferred
Stock will be recorded to additional capital invested.
The shares of Class 2 ESOP Preferred Stock will be recorded over the
approximately six year investment period as the shares are committed to be
contributed to the Non-Leveraged Qualified ESOP and credited to employees
pursuant to the Supplemental ESOP with the offsetting entry being to
compensation expense. The number of shares of Class 2 ESOP Preferred Stock
that will be issued will be equal to 17,675,345 less the number of Shares
of Class 1 ESOP Preferred Stock that will be sold to the Qualified ESOP.
The ESOP Preferred Stock is convertible into New Shares at any time at the
election of the ESOP Trustee at a rate of one New Share for each share of
ESOP Preferred Stock (subject to adjustment). Primarily because of
limitations imposed by the Internal Revenue Code, the ESOP consists of
three major portions: the Leveraged ESOP, the Non-Leveraged Qualified
ESOP, and the Supplemental ESOP. Shares of ESOP Preferred Stock issued
under the Leveraged ESOP and the Non-Leveraged Qualified ESOP will be held
by the ESOP Trustee under the Qualified Trust. Under the Supplemental
ESOP, shares will be credited as Book-Entry Shares when earned by
employees, and will be issued to employees as New Shares, generally upon
termination of employment. ALPA has the right to elect, at any time,
before or after the Effective Time, that the Supplemental ESOP be
maintained by the actual issuance of Class 2 ESOP Preferred Stock to a
non-qualified trust established under the Supplemental Plan. In general,
the Plan of Recapitalization is designed to maximize the number of shares
of ESOP Preferred Stock that may be sold to the Qualified Trust. However,
because of certain limitations imposed by the Internal Revenue Code, a
portion of the equity interest to be obtained by the ESOP Trustee may not
be sold to the Qualified Trust. The Class 1 ESOP Preferred Stock contains
a fixed dividend feature which is intended to maximize the number of
shares of Class 1 ESOP Preferred Stock that may be sold to the Qualified
Trust consistent with the applicable provisions of the Internal Revenue
Code. To the extent the Qualified Trust is unable to purchase the Class 1
ESOP Preferred Stock, Class 2 ESOP Preferred Stock will be issued, to the
extent permitted by the limitations of the Internal Revenue Code, to the
ESOP Trustee pursuant to the Non-Leveraged Qualified ESOP. Class 2 ESOP
Preferred Stock will not contain a fixed dividend. To the extent that
Class 2 ESOP Preferred Stock cannot be issued to the ESOP Trustee because
of the limitations of the Internal Revenue Code, the Company will credit
Book-Entry Shares to accounts established for the employees.
(5) To record the issuance at par of one share of Class P Voting Preferred
Stock, one share of Class M Voting Preferred Stock, and one share of
Class S Voting Preferred Stock to the ESOP Trusts. The remaining Voting
Preferred Stock will be issued when it is contributed to the Supplemental
ESOP Trust. The Class P Voting Preferred Stock, the Class M Voting
Preferred Stock and the Class S Voting Preferred Stock, which are
referred to collectively as the Voting Preferred Stock, represent and
permit, in connection with the establishment of the ESOPs, the exercise
of voting power representing 55% (which under certain circumstances may
be increased to up to 63%) of the voting power of the Company. See
"DESCRIPTION OF SECURITIES--The Voting Preferred Stock." The ESOPs
provide that upon the conversion of all the ESOP Preferred Stock into New
Shares, each share of Voting Preferred Stock will be converted into one
ten-thousandth of a New Share.
(6) To account for the cashless exercise of options in the event of the
Recapitalization. (Amount of the entry is based on an assumed Old Share
price at the Effective Time of approximately $131.5 per share.)
(7) Represents the offset to entries (2), (3), (6), (8), (9) and (11).
(8) To record the vesting of the unvested restricted stock as a result of the
Recapitalization.
(9) To record 25,000 restricted shares to Mr. Greenwald that will vest at the
Effective Time.
121
<PAGE>
(10) Does not reflect the issuance of four shares of Class I Preferred Stock,
one share of Class Pilot MEC Preferred Stock, one share of Class IAM
Preferred Stock, and three shares of Class SAM Preferred Stock. These
stocks have a $.01 par value and nominal economic value. The Class I
Preferred Stock will be issued to the Independent Directors and will have
the power to elect such directors to the Board. The Class Pilot MEC
Preferred Stock will be issued to the ALPA-MEC and will have the power to
elect the ALPA Director. The Class IAM Preferred Stock will be issued to
the IAM or its designee and will have the power to elect the IAM Director.
The Class SAM Preferred Stock will be issued to the Salaried and
Management Director and to the senior executive at United who has primary
responsibility for human resources and will have the power to elect the
Salaried and Management Director. Such classes of stock are referred to
collectively as the Director Preferred Stock. See "DESCRIPTION OF
SECURITIES--The Director Preferred Stock." Upon the occurrence of an
Uninstructed Trustee Action (as defined below), the Class Pilot MEC
Preferred Stock will succeed to the voting power previously held by the
Class P Voting Preferred Stock, the Class IAM Preferred Stock will succeed
to the voting power previously held by the Class M Voting Preferred Stock
and the Class SAM Preferred Stock will succeed to the voting power
previously held by the Class S Voting Preferred Stock. See "DESCRIPTION OF
SECURITIES--The Director Preferred Stock--Uninstructed Trustee Actions."
(11) To reverse $19 million of transaction fees and expenses recorded during
the first quarter of 1994 because these expenses are included in entry
(2).
(12) The number of New Shares issued on a pro forma basis is based on Fully
Diluted Old Shares assuming the Convertible Company Securities do not
convert. See "THE PLAN OF RECAPITALIZATION--Terms and Conditions--
General."
(13) The Class 2 ESOP Preferred Stock committed to be contributed to the
Supplemental ESOP will be reported outside of equity because the employees
can elect to receive their "book entry" shares from the Company in cash
upon termination of employment.
122
<PAGE>
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
The following unaudited Pro Forma Condensed Statements of Consolidated
Operations for the year ended December 31, 1993 and the three months ended
March 31, 1994, and the unaudited Pro Forma Condensed Statement of Consolidated
Financial Position as of March 31, 1994 for United and its subsidiaries have
been prepared to reflect the impact of the Recapitalization on United,
including: (i) the recognition of unearned ESOP Preferred Stock and related
ESOP capital as a result of the issuance of the first tranche of UAL Class 1
ESOP Preferred Stock, (ii) the offering of Debentures and distribution of
proceeds to UAL, (iii) the recognition of the employee stock ownership plan
accounting charge, (iv) the reduction in salaries and related cost for the
anticipated impact of the wage and benefit reductions and certain work rule
changes and (v) the recognition of the anticipated benefits of the agreement to
sell the U.S. flight kitchens. The unaudited Pro Forma Condensed Statements of
Consolidated Operations were prepared as if the Recapitalization had occurred
on January 1, 1993. The unaudited Pro Forma Condensed Statement of Consolidated
Financial Position was prepared as if the Recapitalization occurred on March
31, 1994.
The pro forma statements assume the Recapitalization is not accounted for as
an acquisition or merger and, accordingly, United's assets and liabilities have
not been revalued. The distribution to UAL of proceeds from the United Debt
Offerings of Debentures is charged to additional capital invested.
The ESOPs are being accounted for in accordance with the American Institute
of Certified Public Accountants Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans" ("SOP"). For the Leveraged ESOP,
the Company will issue Class 1 ESOP Preferred Stock through seven ESOP
Tranches, at the Effective Time, approximately thirteen months following the
Effective Time, annually thereafter for four years and on January 1, 2000. As
the Shares are issued to the Leveraged ESOP, United will report the issuance of
shares as a credit to ESOP capital based on the fair value of the stock when
such issuance occurs and report a corresponding charge to unearned ESOP
Preferred Stock. As shares of Class 1 ESOP Preferred Stock are earned or
committed to be released, compensation expense will be recognized equal to the
average fair value of the shares committed to be released with a corresponding
credit to unearned ESOP Preferred Stock. Any differences between the fair value
of the shares committed to be released and the cost of the shares to the ESOP
will be charged or credited to ESOP capital. For the Non-Leveraged Qualified
ESOP, the shares of Class 2 ESOP Preferred Stock will be recorded as the shares
are committed to be contributed to the ESOP, with the offsetting entry to
compensation expense. Compensation expense will be recorded based on the fair
value of the shares committed to be contributed to the ESOP, in accordance with
the SOP. The pro forma financial statements assume that the Supplemental ESOP
is accounted for the same as the Non-Leveraged Qualified ESOP (i.e., pursuant
to the SOP). It is possible that, because the Supplemental ESOP is a non-
qualified plan, the Company may account for it under Accounting Principles
Board Opinion 25, "Accounting for Stock Issued to Employees," instead. The
Company would not expect this to result in a material difference. The unearned
ESOP Preferred Stock, ESOP capital and employee stock ownership accounting
charge will be recorded on United's books since participants in the ESOP are
employees of United.
The unaudited Pro Forma Condensed Statements of Consolidated Operations
include the recurring charges and credits which are directly attributable to
the Recapitalization, such as the interest expense arising from the Debentures,
the effects of the wage and benefit reductions and certain work-rule changes
resulting from the employee investment, and the employee stock ownership plan
accounting charge. No adjustments have been made to the pro forma revenues and
expenses to reflect the results of structural changes in operations, such as
U2, that might have been made had the changes been consummated on the assumed
effective dates for presenting pro forma results.
The pro forma adjustments are based upon available information and upon
certain assumptions that United believes are reasonable. In addition, this
information should be read in conjunction with United's Annual Report on Form
10-K for the year ended December 31, 1993, and United's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1994, as amended, which are
incorporated in this Proxy Statement/Prospectus by reference, and which include
United's Consolidated Financial Statements, the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and United's Current Report on Form 8-K dated May 3, 1994, which is
incorporated by reference in this Proxy Statement/Prospectus.
123
<PAGE>
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Operating revenues........................ $13,168(8) $(28)(1) $13,140
Operating expenses:
Salaries and related costs............... 4,695 (428)(2)(3)
(191)(1) 4,076
Employee stock ownership plan accounting
charge.................................. 369 (4) 369
Other.................................... 8,178(8) 131 (1) 8,309
------- ---- -------
12,873 (119) 12,754
------- ---- -------
Earnings (loss) from operations........... 295 91 386
------- ---- -------
Other income (expense):
Interest, net............................ (221) (77)(5) (298)
Other, net............................... (100) (100)
------- ---- -------
(321) (77) (398)
------- ---- -------
Loss from continuing operations
before income taxes...................... (26) 14 (12)
Provision (credit) for income taxes....... (9) 5 (6) (4)
------- ---- -------
Loss from continuing operations........... $ (17) $ 9 (7) $ (8)
======= ==== =======
</TABLE>
See accompanying notes to Pro Forma Condensed Statement of Consolidated
Operations.
124
<PAGE>
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
NOTES TO PRO FORMA CONDENSED
STATEMENT OF CONSOLIDATED OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(1) United entered into an agreement to sell its U.S. flight kitchens over a
period of months beginning in December 1993 through June 1994, and an
agreement to acquire catering services for a seven year period. This
adjustment eliminates $28 million of sales revenues and $191 million of
compensation costs recorded in 1993 relating to the U.S. flight kitchens
that were sold, and adds estimated incremental catering costs of $131
million.
(2) To adjust compensation expense for the pro forma effect of wage and
benefit reductions and certain work-rule changes resulting from the
employee investment that provide for wage and other compensation savings
during the approximately six year period beginning at the Effective Time.
The pro forma adjustment represents the estimated savings in the 12 months
assuming that such savings had commenced at the beginning of the period.
The pro forma adjustment does not include any savings related to U2.
(3) The following reconciles the labor cost savings included in the Pro Forma
Condensed Statement of Consolidated Operations to the value of the
employee investments included in the Company Analysis of employee
investments for 1994 (see "SPECIAL FACTORS--Certain Company Analyses"):
<TABLE>
<CAPTION>
(MILLIONS)
<S> <C>
Pro Forma adjustment based on 1993 salaries.................... $428
Estimated compensation savings based on 1994 salaries.......... 68
Estimated benefits of U2 during the first year................. 64
Estimated additional severance for flight kitchen employees
during the first year......................................... (36)
----
Estimated 1994 investments................................... $524
====
Estimated six months of investments included in 1994 analy-
sis......................................................... $262
====
</TABLE>
(4) To record non-cash compensation for shares of ESOP Preferred Stock
committed to be released to employees during the period based on the
average fair value of such ESOP Preferred Stock. The average fair value of
the ESOP Preferred Stock is based on two components: (1) the average fair
value of the New Shares into which the ESOP Preferred Stock is convertible
plus (2) a premium attributable to the dividend paying feature of the ESOP
Preferred Stock. For purposes of the pro forma adjustment, the average
fair value of the ESOP Preferred Stock was assumed to be the initial
assumed purchase price of $120. In future years, it is anticipated that
the ESOP Preferred Stock price, for purposes of computing the employee
stock ownership plan accounting charge, will be determined by an
independent appraiser who will value both components. Additionally, in
future years, the shares committed to be released that are used to satisfy
the dividends payable on previously allocated shares will be charged to
retained earnings rather than compensation expense.
The shares of the ESOP Preferred Stock committed to be released are a
fraction of the original ESOP Preferred Stock shares. It is anticipated the
shares will be released in a level fashion over the 69 months of the ESOP
taking into account the partial period in 1994 and 2000. This would result
in approximately 3.07 million ESOP Preferred Stock shares committed to be
released in each full calendar year. Shares released in a partial year
would be pro rated.
Since future expense is dependent on the fair market value of the ESOP
Preferred Stock, such expense is difficult to forecast and may vary
significantly from the value in the pro forma adjustment. Changes in the
price of a New Share directly affect the determination of the value of an
ESOP Preferred Stock share. In addition, if the average value of a New
Share exceeds $136 during the first 12 months after the Effective Time,
additional shares of ESOP Preferred Stock will be issued to the Qualified
ESOP or reserved for
125
<PAGE>
issuance to the Supplemental ESOP to increase the ESOP's ownership from
approximately 55% up to a maximum of approximately 63%. Future expense is
also affected by the premium associated with the dividend paying feature
which shrinks over time as the dividend paying period is reduced.
Following is a summary of the impact to the employee stock ownership plan
accounting charge of a range of fair market values:
<TABLE>
<CAPTION>
AVERAGE ESOP ESOP ACCOUNTING
PREFERRED STOCK CHARGE*
FAIR VALUE (MILLIONS)
--------------- ---------------
<S> <C>
$110 $338
120 369
130 400
140 430
</TABLE>
- --------
*Assumes 3.07 million shares committed to be released in the pro forma
period and no shares used to satisfy dividends payable since shares are
not allocated to participants until December 31. In later years shares
will be used to satisfy dividends on allocated shares, which will
reduce the ESOP accounting charge.
The following illustrates the impact to the ESOP accounting charge if the
average value of the New Shares in the first 12 months exceeds $136 per
share.
<TABLE>
<CAPTION>
SHARES TO
BE INCREASE IN
AVERAGE AVERAGE ESOP ADDITIONAL RELEASED ESOP ACCOUNTING
NEW SHARE PREFERRED STOCK SHARES TO FOR FIRST CHARGE****
PRICE FAIR VALUE* BE ISSUED** YEAR*** (MILLIONS)
--------- --------------- ----------- --------- ---------------
<S> <C> <C> <C> <C>
$136 $168 0 0 $ 0
140 172 2,260,410 393,115 68
150 182 6,949,234 1,208,562 220
</TABLE>
- --------
*Assumes a dividend premium of $32 per share.
**To achieve the maximum increase in ownership, the price of a New Share
must average at least $149.10 during the first 12 months after the
Effective Time. If the average price of a New Share is less than or
equal to $136, no additional shares of ESOP Preferred Stock will be
issued.
***The additional shares will be released in a level fashion over the 69
months of the ESOP.
****Represents the first year increase; subsequent increases are dependent
on changes in the fair value of ESOP Preferred Stock.
(5) To record interest expense of $72 million on the Series A Debentures at an
annual estimated interest rate of 9.0% and on the Series B Debentures at
an annual estimated interest rate of 9.7%, and to record amortization of
the underwriting discount. The pro forma adjustment also includes foregone
interest income due to the reduction in United's average investment
balance resulting from the transaction. For purposes of the pro forma
adjustment, the interest rates on the Debentures are based on the Initial
Pricing. The actual rates will be reset prior to the Effective Time and
the reset is limited to an additional 112.5 basis points. If the reset
results in the actual rate being at the maximum interest rate, interest
expense would increase by an additional $9 million for the year. Further,
if the United Debt Offerings are not consummated and the Unions request
prior to the Announcement Date that the Debentures contain a call
provision, the actual rates could increase above the maximum.
The underwriting agreements for the United Debt Offerings are expected to
provide that if either or both of the United Debt Offerings are
consummated, the interest rates may be adjusted to permit the applicable
Debentures to be sold at or closer to par, but if this is done, the
principal amount of the series
126
<PAGE>
of Debentures will be reduced so that the interest payable will not exceed
the stated maximum which was calculated based upon the interest rate cap.
If the United Debt Offerings are not consummated, the interest rates are
subject to the cap.
(6) To adjust the provision (credit) for income taxes to reflect the tax
effect of changes to pretax income at the statutory rate in effect during
1993. For purposes of the pro forma adjustment, the book and tax employee
stock ownership plan compensation charge are assumed to be the same.
(7) If the Recapitalization is consummated, United expects to recognize
nonrecurring charges of approximately $44 million relating to additional
severance benefits for employees terminated as a result of the sale of the
flight kitchens, up to $49.15 million of transaction fees and expenses
incurred by ALPA, the IAM and certain advisors in connection with the
structuring and establishment of the ESOPs, $30 million for United's
transaction fees and expenses, $17 million of compensation expense
relating to vesting the unvested restricted stock as a result of the
change in control, $21 million of payments and benefits to Mr. Greenwald
and officers who are retiring at the Effective Time, and $13 million of
compensation expense (based on an assumed Old Share price of approximately
$131.5 at the Effective Time) relating to the vesting of unvested Options
and the implementation of a feature that provides for cashless exercise of
Options in the event of the Recapitalization. (The existing Option holders
are only entitled to utilize the cashless exercise feature if the
Recapitalization occurs. The pro forma financial information assumes all
in-the-money Options are exercised at the Effective Time and, since the
cashless exercise results in variable plan accounting, there is an initial
nonrecurring charge for the cashless exercise feature but no ongoing
impact; however, if Option holders do not exercise their Options at the
Effective Time, there will be an ongoing accounting impact for the changes
in the fair market value of the Recapitalization Consideration that is
issuable upon exercise of such Options.) The total after-tax effect of the
nonrecurring charges is $122 million. Due to the nonrecurring nature of
these charges, they have been excluded from the Pro Forma Condensed
Statement of Consolidated Operations.
(8) In the first quarter of 1994, United began recording certain air
transportation price adjustments, which were previously recorded as
commission expense, as adjustments to revenue. Historical operating
revenue and expense amounts have been adjusted to conform with the current
presentation. See United's Current Report on Form 8-K dated May 3, 1994
which is incorporated by reference in this Proxy Statement/Prospectus.
127
<PAGE>
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
FOR THE THREE MONTHS MARCH 31, 1994
(IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Operating revenues........................ $3,173 $ (2)(1) $3,171
Operating expenses:
Salaries and related costs............... 1,202 (111)(2)(3)
(27)(1) 1,064
Employee stock ownership plan accounting
charge.................................. 86 (4) 86
Other.................................... 2,015 22 (1) 2,037
------ ----- ------
3,217 (30) 3,187
------ ----- ------
Earnings (loss) from operations........... (44) 28 (16)
------ ----- ------
Other income (expense):
Interest, net............................ (60) (19)(5) (79)
Other, net............................... (16) 19 (6) 3
------ ----- ------
(76) -- (76)
------ ----- ------
Loss from continuing operations
before income taxes...................... (120) 28 (92)
Provision (credit) for income taxes....... (41) 11 (7) (30)
------ ----- ------
Loss from continuing operations........... $ (79) $ 17 $ (62)
====== ===== ======
</TABLE>
See accompanying notes to Pro Forma Condensed Statement of Consolidated
Operations.
128
<PAGE>
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
NOTES TO PRO FORMA CONDENSED
STATEMENT OF CONSOLIDATED OPERATIONS
THREE MONTHS ENDED MARCH 31, 1994
(1) United entered into an agreement to sell its U.S. flight kitchens over a
period of months beginning in December 1993 through June 1994, and an
agreement to acquire catering services for a seven year period. This
adjustment eliminates $2 million of sales revenues and $27 million of
compensation costs recorded in the first quarter of 1994 relating to the
U.S. flight kitchens that were sold, and adds estimated incremental
catering costs of $22 million.
(2) To adjust compensation expense for the pro forma effect of wage and benefit
reductions and certain work-rule changes resulting from the employee
investment that provide for wage and other compensation savings during the
approximately six year period beginning at the Effective Time. The pro
forma adjustment represents the estimated savings in the first quarter of
1994 assuming that such savings had commenced at the beginning of the prior
year. The pro forma adjustment does not include any savings related to U2.
(3) The following reconciles the labor cost savings included in the Pro Forma
Condensed Statement of Consolidated Operations to the value of the employee
investments included in the Company Analysis of employee investments for
1994 (see "SPECIAL FACTORS--Certain Company Analyses"):
<TABLE>
<CAPTION>
(MILLIONS)
<S> <C>
Pro Forma adjustment........................................... $111
Estimated compensation savings based on foregone 1994 raises... 13
Estimated benefits of U2 for three months...................... 16
Estimated additional severance for flight kitchen employees for
three months.................................................. (9)
----
Estimated three months of investments........................ $131
====
Estimated six months of investments included in 1994 analy-
sis......................................................... $262
====
</TABLE>
(4) To record non-cash compensation for shares of ESOP Preferred Stock
committed to be released to employees during the period based on the
average fair value of the ESOP Preferred Stock. For purposes of the pro
forma adjustment, the average fair value of the ESOP Preferred Stock was
assumed to be the initial assumed purchase price of $120. The pro forma
calculations assume that shares committed to be released in 1993 were
allocated to participant accounts at the end of 1993. Thus, the portion of
shares committed to be released in 1994 that will be used to satisfy
dividend payable on allocated shares is charged to retained earnings rather
than non-cash compensation expense. It is anticipated that in the first
quarter of 1994, approximately 768,000 shares of ESOP Preferred Stock will
be committed to be released, and that approximately 54,000 of these shares
will be used for dividends.
Since future expense is dependent on the fair market value of the ESOP
Preferred Stock, such expense is difficult to forecast and may vary
significantly from the value in the pro forma adjustment. Changes in the
price of a New Share directly affect the determination of the value of an
ESOP Preferred Stock share. In addition, if the average value of a New
Share exceeds $136 during the first 12 months after the Effective Time,
additional shares of ESOP Preferred Stock will be issued to the Qualified
ESOP or reserved for issuance to the Supplemental ESOP. Future expense is
also affected by the premium associated with the dividend paying feature
which shrinks over time as the dividend paying period is reduced.
129
<PAGE>
Following is a summary of the impact to the employee stock ownership plan
accounting charge of a range of fair market values:
<TABLE>
<CAPTION>
Average ESOP ESOP Accounting
Preferred Stock Charge*
Fair Value (millions)
--------------- ---------------
<S> <C>
$110 $ 79
120 86
130 93
140 100
</TABLE>
--------
* Assumes 768,000 shares committed to be released in the pro forma period
and approximately 54,000 shares used for dividends which are charged to
retained earnings. As additional shares are allocated in later years,
the employee stock ownership plan accounting charge will be reduced.
The following illustrates the impact to the employee stock ownership plan
accounting charge for the quarter if the average value of the New Shares in
the first 12 months exceeds $136 per share.
<TABLE>
<CAPTION>
Average ESOP Shares to be Increase in
Average Preferred Additional Released ESOP Accounting
New Share Stock Fair Shares to for the Charge****
Price Value* be Issued** Quarter*** (millions)
--------- ------------ ----------- ------------ ---------------
<S> <C> <C> <C> <C>
$136 $168 0 0 $ 0
140 172 2,260,410 98,279 16
150 182 6,949,239 302,141 51
</TABLE>
--------
*Assumes a dividend premium of $32.
**To achieve the maximum increase in additional shares, the price of a
New Share must average at least $149.10 during the first 12 months
after the Effective Time. If the average price of a New Share is less
than or equal to $136, no additional shares of ESOP Preferred Stock
will be issued.
***The additional shares will be released in a level fashion over the 69
months of the ESOP.
****Represents the increase for the quarter; subsequent increases are
dependent on changes in the fair value of the ESOP Preferred Stock.
(5) To record interest expense of $18 million on the Series A Debentures at an
annual estimated interest rate of 9.0% and on the Series B Debentures at an
annual estimated interest rate of 9.7%, and to record amortization of the
underwriting discount. The pro forma adjustment also includes foregone
interest income due to the reduction in United's average investment balance
resulting from the transaction. For purposes of the pro forma adjustment,
the interest rates on the Debentures are based on the Initial Pricing. The
actual rates will be reset prior to the Effective Time and any upward reset
is limited to an additional 112.5 basis points. If the reset results in the
actual rate being at the maximum interest rate, interest expense would
increase by an additional $2 million for the quarter. Further, if the
United Debt Offerings are not consummated and the Unions request prior to
the Announcement Date that the Debentures contain a call provision, the
actual rates may increase above the maximum.
(6) To reverse $19 million of nonrecurring fees and expenses relating to the
Recapitalization which were recorded in the first quarter of 1994.
(7) To adjust the provision (credit) for income taxes to reflect the tax effect
of changes to pretax income at the statutory rate in effect during the
first quarter of 1994. For purposes of the pro forma adjustment the book
and tax employee stock ownership plan compensation charge are assumed to be
the same.
130
<PAGE>
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
MARCH 31, 1994
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS HISTORICAL ADJUSTMENTS PRO FORMA
------ ---------- ----------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................. $ 666 $(140)(1) $
758 (3)
(765)(3)
8 (9) 527
Short-term investments..................... 542 542
Other...................................... 2,241 44 (2) 2,285
------- ----- -------
3,449 (95) 3,354
------- ----- -------
Operating property and equipment............. 12,211 12,211
Less: Accumulated depreciation
and amortization......................... (5,164) (5,164)
------- ----- -------
7,047 7,047
------- ----- -------
Other assets:
Other...................................... 1,700 1,700
------- ----- -------
$12,196 $ (95) $12,101
======= ===== =======
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Short-term borrowings, long-term debt
maturing within one year and current
obligations under capital leases.......... $ 466 $ $ 466
Other...................................... 4,473 (11)(9) 4,462
------- ----- -------
4,939 (11) 4,928
------- ----- -------
Long-term debt............................... 2,596 758 (3) 3,354
------- ----- -------
Long-term obligations under capital leases... 774 774
------- ----- -------
Other liabilities, deferred credits and
minority interest........................... 3,317 3,317
------- ----- -------
Shareholder's equity:
Common stock, $5 par value; 1,000 shares
authorized; 200 shares outstanding........ -- --
Additional capital invested................ 839 (765)(3)
13 (5)
4 (6) 91
Retained earnings (deficit)................ (200) (108)(7) (308)
ESOP capital............................... 228 (4) 228
Unearned ESOP Preferred Stock.............. (228)(4) (228)
Unearned compensation...................... (14) 14 (8) --
Pension liability adjustment .............. (53) (53)
Unrealized loss of investments............. (2) (2)
------- ----- -------
570 (842) (272)
------- ----- -------
$12,196 $ (95) $12,101
======= ===== =======
</TABLE>
See the accompanying notes to Pro Forma Condensed Statement of Consolidated
Financial Position.
131
<PAGE>
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
NOTES TO PRO FORMA CONDENSED
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
MARCH 31, 1994
(1) To record the cash impact of the estimated fees and transaction expenses,
including expenses for United, ALPA and the IAM, severance payments to
terminated officers and flight kitchen employees, and payments relating to
the employment agreement with Mr. Greenwald.
(2) To record the tax effects relating to nonrecurring charges recognized as a
result of the transaction.
(3) To record the Offerings of $382.5 million principal amount of Series A
Debentures and $382.5 million principal amount of Series B Debentures and
to record the distribution of proceeds to UAL. The Debentures are being
recorded at their face amount based on the assumption that they will be
priced to trade at par, less the underwriting discount of $7 million. The
actual rates on the Debentures will be reset prior to the Effective Time
and the Debentures are subject to a maximum interest rate of 112.5 basis
points above the Initial Pricing. The underwriting agreements for the
United Debt Offerings are expected to provide that if either or both of the
United Debt Offerings are consummated, the interest rates may be adjusted
in order for the Debentures to be sold at or closer to par, in which case
the principal amount of the Debentures will be reduced so that the annual
interest expense will not exceed the stated maximum which was calculated
based upon the rate cap. If either or both of the United Debt Offerings are
not consummated and the interest rate exceeds the cap, the Debentures will
be recorded at a discount.
(4) To record the ESOP capital as a result of the initial issuance of shares of
UAL's Class 1 ESOP Preferred Stock to the Leveraged ESOP for an aggregate
purchase price of $228 million and to record the related charge to unearned
ESOP Preferred Stock. The $228 million was determined based on (i)
1,899,059 shares of Class 1 ESOP Preferred Stock expected to be issued in
the first ESOP Tranche as of the Effective Time and (ii) an assumed
purchase price of $120 per share. The Company and the Unions may, prior to
the Effective Time, agree to increase or decrease the number of shares of
Class 1 ESOP Preferred Stock sold at the Effective Time. The agreement with
the ESOP Trustee provides that the number of shares of Class 1 ESOP
Preferred Stock sold at the Effective Time shall be no more than 2,088,965
and no fewer than 1,709,153 provided, however, that the number of shares
sold in the first ESOP Tranche will be adjusted if the Effective Time is
before or after July 1, 1994. The actual price per share for the first ESOP
Tranche will be calculated as provided in the ESOP Stock Purchase
Agreement. Thus, the ultimate amount recorded at the Effective Time will
differ from the pro forma adjustment in order to reflect the actual number
of shares issued and the purchase price calculated under the ESOP Stock
Purchase Agreement.
Six additional ESOP Tranches will be issued to the Leveraged ESOP during the
69 months subsequent to the Effective Time, with the total shares of Class 1
ESOP Preferred Stock issued in the seven ESOP Tranches aggregating
approximately 14,000,000 shares (subject to increase, see "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--Additional Shares"). The price for
the subsequent ESOP Tranches will be as agreed between the Company and the
ESOP Trustee at the time of each sale. As the subsequent ESOP Tranches are
issued, the shares will be reported as a credit to additional capital
invested based on the fair value of the stock when such issuances occur with
a corresponding charge to "Unearned ESOP Preferred Stock."
The unearned ESOP Preferred Stock recorded in the pro forma adjustment
together with the unearned ESOP Preferred Stock recorded from subsequent
ESOP Tranches will be recognized as compensation expense over the
approximately six year investment period as the shares are committed to be
released. The difference between the compensation expense recorded, which
is based on the fair value of the stock during an accounting period, and
the recorded cost of the unearned ESOP Preferred Stock will be recorded to
ESOP capital.
132
<PAGE>
ESOP capital will also be recorded over the approximately six year
investment period as the shares of UAL's Class 2 ESOP Preferred Stock are
committed to be contributed to the Non-Leveraged Qualified ESOP and
credited to employees pursuant to the Supplemental ESOP with the offsetting
entry being to compensation expense. The number of shares of Class 2 ESOP
Preferred Stock that will be issued will be equal to 17,675,345 less the
number of shares of Class 1 ESOP Preferred Stock that will be sold to the
Qualified ESOP.
(5) To account for the cashless exercise of options in the event of the
Recapitalization. (Amount of the entry is based on an assumed Old Share
price at the Effective Time of approximately $131.5 per share.)
(6) To record 25,000 restricted shares to Mr. Greenwald that will vest at the
Effective Time.
(7) Represents the offset to entries (1), (2), (5), (6), (8) and (9).
(8) To record the vesting of the unvested restricted stock as a result of the
Recapitalization.
(9) To reverse $19 million of transaction fees and expenses recorded during the
first quarter of 1994 because these expenses are included in entry (1).
133
<PAGE>
CAPITALIZATION
UAL CORPORATION AND SUBSIDIARY COMPANIES
The following table sets forth the unaudited consolidated capitalization of
the Company as of March 31, 1994, as adjusted to give effect to the
consummation of the Recapitalization and the Offerings, including (i)
reclassification of Old Shares into New Shares and Series D Redeemable
Preferred Stock, (ii) the Offerings of the Public Preferred Stock (as
represented by Depositary Preferred Shares) and Debentures, (iii) redemption of
the Series D Redeemable Preferred Stock for cash and proceeds from the
Offerings and (iv) the issuance of the first tranche of Class 1 ESOP Preferred
Stock, the Voting Preferred Stock and the Director Preferred Stock. The table
should be read in conjunction with the Pro Forma Condensed Statement of
Consolidated Financial Position included elsewhere in this document.
<TABLE>
<CAPTION>
MARCH 31, 1994
------------------
(IN MILLIONS)
PRO
HISTORICAL FORMA
---------- -------
(UNAUDITED)
<S> <C> <C>
Short-term borrowings, long-
term debt maturing within one
year and current obligations $ 486 $ 486
under capital leases......... ------- -------
Long-term debt, excluding por-
tion due within one year:
Secured notes............... 1,388 1,388
Deferred purchase certifi-
cates...................... 194 194
Debentures.................. 1,000 1,765
Convertible debentures...... 33 33
Promissory notes............ 93 93
Unamortized discount on (15) (22)
debt....................... ------- -------
2,693 3,451
Long-term obligations under 777 777
capital leases............... ------- -------
Total long-term debt and 3,470 4,228
capital lease obligations.. ------- -------
Class 2 ESOP Preferred Stock, -- (a)
$.01 par value............... ------- -------
Shareholders' equity:
Series A Preferred Stock,
$.01 stated value.......... -- --
Series B Preferred Stock,
$.01 stated value.......... --
Class 1 ESOP Preferred
Stock, $.01 par value...... --
Class 2 ESOP Preferred
Stock, $.01 par value...... --
Class P, M and S Voting Pre-
ferred Stock, $.01 par val-
ue......................... --
Class I, Pilot MEC, IAM, and
SAM Preferred Stock, $.01
par value.................. --
Common stock, $5 par value.. 128 --
Common stock, $.01 par val-
ue......................... --
Additional capital invested. 963 981
Retained earnings (deficit)... 142 (1,083)
Pension liability adjust-
ment....................... (53) (53)
Unearned compensation....... (14) --
Unearned ESOP Preferred
Stock...................... (228)
Unrealized loss on invest-
ments...................... (2) (2)
Common stock held in trea- (67) (63)
sury....................... ------- -------
Total shareholders' equi- 1,097 (448)
ty....................... ------- -------
Total capitalization.... $ 5,053 $ 4,266
======= =======
</TABLE>
- --------
(a) The Class 2 ESOP Preferred Stock committed to be contributed to the
Supplemental ESOP will be reported outside of equity because the employees
can elect to receive their "book entry" shares from the Company in cash
upon termination of employment.
134
<PAGE>
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
The following table sets forth the unaudited consolidated capitalization of
United as of March 31, 1994 and as adjusted to give effect to the consummation
of the Recapitalization and the Offerings, including (i) the issuance of
Debentures and (ii) the ESOP capital recorded as a result of the issuance of
the first tranche of UAL's Class 1 ESOP Preferred Stock to the ESOP Trustee for
the Qualified ESOP and the related charge for unearned ESOP Preferred Stock.
The table should be read in conjunction with the Pro Forma Condensed Statement
of Consolidated Financial Position included elsewhere in this document.
<TABLE>
<CAPTION>
MARCH 31, 1994
-----------------
(IN MILLIONS)
PRO
HISTORICAL FORMA
---------- ------
(UNAUDITED)
<S> <C> <C>
Short-term borrowings, long-
term debt maturing within one
year and current obligations $ 466 $ 466
under capital leases......... ------ ------
Long-term debt, excluding por-
tion due within one year:
Secured notes............... $1,388 $1,388
Deferred purchase certifi-
cates...................... 194 194
Debentures.................. 1,000 1,765
Promissory notes............ 29 29
Unamortized discount on (15) (22)
debt....................... ------ ------
2,596 3,354
Long-term obligations under 774 774
capital leases............... ------ ------
Total long-term debt and 3,370 4,128
capital lease obligations.. ------ ------
Shareholder's equity:
Common stock, $5 par value.. -- --
Additional capital invested. 839 91
Retained earnings (deficit)... (200) (308)
ESOP capital................ 228
Unearned ESOP shares........ (228)
Pension liability adjust-
ment....................... (53) (53)
Unearned compensation....... (14) --
Unrealized loss on invest-
ments...................... (2) (2)
------ ------
Total shareholder's equi- 570 (272)
ty....................... ------ ------
Total capitalization.... $4,406 $4,322
====== ======
</TABLE>
135
<PAGE>
BENEFICIAL OWNERSHIP OF SECURITIES
FIVE PERCENT BENEFICIAL OWNERS
The following table shows the number of shares of the Company's voting
securities beneficially owned by any person or group known to the Company as of
June 9, 1994 to be the beneficial owner of more than five percent of the
Company's voting securities. The number and percent of shares beneficially
owned may include Old Shares issuable upon conversion of Convertible Company
Securities, even if not so indicated. Convertible Company Securities not
converted prior to the Record Date may not be voted at the Meeting.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
TITLE OF BENEFICIAL PERCENT
CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
-------- ------------------------------------ ---------- --------
<C> <S> <C> <C>
Common Stock Sanford C. Bernstein & Co., Inc. 1,632,736(1) 6.7%
One State Street Plaza
New York, NY 10004
Common Stock Wellington Management Co. 2,719,750(2) 10.99%
75 State Street
Boston, MA 02109
Common Stock Vanguard/Windsor Funds, Inc. 2,359,200(3) 9.65%
P.O. Box 823
Valley Forge, PA 19482
Common Stock AXA Assurances I.A.R.D. Mutuelle 3,005,010(4) 12.2%
AXA Assurances Vie Mutuelle
La Grande Arche
Pardi Nord
92044 Paris La Defense France
Alpha Assurances I.A.R.D. Mutuelle
Alpha Assurances Vie Mutuelle
101-100 Terrasse Boieldieu
92042 Paris La Defense France
Uni Europe Assurance Mutuelle
24, Rue Drouot
75009 Paris France
AXA
23, Avenue Matignon
75008 Paris France
The Equitable Companies Incorporated
787 Seventh Avenue
New York, New York 10019
</TABLE>
136
<PAGE>
- --------
(1) Based on Schedule 13G dated February 14, 1994, in which the beneficial
owner reported that as of December 31, 1993, it had sole dispositive power
over 1,632,736 Old Shares and sole voting power over 882,770 of such Old
Shares.
(2) Based on Schedule 13G dated February 10, 1994, in which the beneficial
owner reported that as of December 31, 1993, it had shared dispositive
power over 2,719,750 Old Shares and shared voting power over 188,716 of
such Old Shares. Beneficial ownership of certain of these Old Shares was
also reported by another entity. See footnote (4) below.
(3) Based on Schedule 13G dated February 10, 1994, in which the beneficial
owner reported that as of December 31, 1993, it had sole voting power and
shared dispositive power over 2,359,200 Old Shares. Beneficial ownership of
some or all of these Old Shares was also reported by another entity. See
footnote (2) above.
(4) Based on Schedule 13G dated April 8, 1994 in which each of AXA Assurances
I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, Alpha Assurances I.A.R.D.
Mutuelle, Alpha Assurances Vie Mutuelle, Uni Europe Assurance Mutuelle, AXA
and The Equitable Companies Incorporated reported that as of March 31, 1994
it had sole voting power for 1,738,465 Old Shares and sole dispositive
power for 3,005,009 Old Shares. Such amounts include 11,182 Old Shares
issuable upon conversion of Series A Preferred Stock.
The foregoing information is based on a review, as of June 9, 1994, by the
Company of statements filed with the Commission under sections 13(d) and 13(g)
of the Exchange Act.
SECURITIES BENEFICIALLY OWNED BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the number of Old Shares beneficially owned as
of April 1, 1994, by each director and executive officer included in the
Summary Compensation Table, and by all directors and executive officers of the
Company, as a group. Unless indicated otherwise by footnote, the owner
exercises sole voting and investment power over the securities (other than
unissued securities, the ownership of which has been imputed to such owner).
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY PERCENT
NAME OF DIRECTOR OR EXECUTIVE OFFICER AND GROUP OWNED OF CLASS
----------------------------------------------- ------------ --------
<S> <C> <C>
Neil Armstrong..................................... 1,021(1) *
Andrew F. Brimmer.................................. 450(2) *
Richard P. Cooley.................................. 1,300 *
Carla A. Hills..................................... 300 *
Fujio Matsuda...................................... 422 *
John F. McGillicuddy............................... 1,300 *
Harry Mullikin..................................... 1,300 *
James J. O'Connor.................................. 700 *
Frank A. Olson..................................... 800 *
John C. Pope....................................... 189,348(3) *
Ralph Strangis..................................... 500 *
Paul E. Tierney, Jr................................ 168,559(4) *
Stephen M. Wolf.................................... 339,985(5) 1.4
Joseph R. O'Gorman................................. 50,690(6) *
James M. Guyette................................... 83,911(7) *
Lawrence M. Nagin.................................. 62,440(8) *
Directors and Executive Officers as a Group (17
persons).......................................... 959,133(9) 3.7%
</TABLE>
137
<PAGE>
- --------
* Less than 1%
(1) Includes 721 Old Shares held by Lorian, Inc. Pension Trust in which Mr.
Armstrong is beneficiary.
(2) Includes 30 Old Shares owned by Dr. Brimmer's wife.
(3) Includes 150,000 Old Shares which Mr. Pope has the right to acquire within
60 days of April 1, 1994 by the exercise of stock options.
(4) Includes 16,600 Old Shares held by a trust in which Mr. Tierney is
administrator, co-trustee and beneficiary; 34,109 Old Shares held by a
corporation of which he is a director and 50% shareholder and 12,500 Old
Shares held by a charitable foundation of which he is a director.
(5) Includes 250,000 Old Shares which Mr. Wolf has the right to acquire within
60 days of April 1, 1994 by the exercise of stock options.
(6) Includes 37,500 Old Shares which Mr. O'Gorman has the right to acquire
within 60 days of April 1, 1994 by the exercise of stock options.
(7) Includes 67,120 Old Shares which Mr. Guyette has the right to acquire
within 60 days of April 1, 1994 by the exercise of stock options.
(8) Includes 45,000 Old Shares which Mr. Nagin has the right to acquire within
60 days of April 1, 1994 by the exercise of stock options.
(9) Includes 572,970 Old Shares which persons in the group have the right to
acquire within 60 days of April 1, 1994, by the exercise of stock options
and the 30 Old Shares referred to in note (2) above.
138
<PAGE>
CERTAIN INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Board of Directors of the Company held a total of 24 meetings during
1993. During their periods of service all directors attended 75 percent or more
of the total of such meetings and meetings of Board committees of which they
were members, other than Mr. Cooley who attended approximately 74 percent of
such meetings.
The standing committees of the Board of Directors of the Company during 1993
consisted of the Executive, Audit, Compensation, Nominating and Pension and
Welfare Plans Oversight Committees.
Set forth below is a brief description of the functions performed, the names
of the committee members, and the number of meetings held by each committee
during 1993.
EXECUTIVE COMMITTEE
The Executive Committee is authorized by the Bylaws of the Company to
exercise the powers of the Board of Directors in the management of the business
and affairs of the Company, with certain exceptions. The Executive Committee
held four meetings in 1993.
The members of the Committee are:
Neil A. Armstrong Paul E. Tierney, Jr.
Frank A. Olson Stephen M. Wolf, Chairman
Ralph Strangis
AUDIT COMMITTEE
The Audit Committee is authorized by the Board to review with the Company's
independent public accountants the annual financial statements of the Company
prior to publication, to review the work of and approve non-audit services
performed by such independent accountants and to make annual recommendations to
the Board for the appointment of independent public accountants for the ensuing
year. The Committee reviews the effectiveness of the financial and accounting
functions, organization, operations and management of the Company and its
subsidiaries and affiliates and the investment policies of the Company. The
Audit Committee held two meetings in 1993.
The members of the Committee are:
James J. O'Connor, Chairman Fujio Matsuda
Neil A. Armstrong Paul E. Tierney, Jr.
Richard P. Cooley
COMPENSATION COMMITTEE
The Compensation Committee reviews and approves the compensation and benefits
of all officers of the Company and the senior officers of its subsidiaries and
reviews general policy matters relating to compensation and benefits of
employees of the Corporation and its subsidiaries. The Committee also
administers the 1981 Stock Program and the 1988 Restricted Stock Plan. The
Compensation Committee held seven meetings in 1993.
The members of the Committee are:
John F. McGillicuddy, Chairman Harry Mullikin
Fujio Matsuda
139
<PAGE>
NOMINATING COMMITTEE
The Nominating Committee considers possible candidates for election to the
Board and makes recommendations of nominees to the Board. The Nominating
Committee will consider nominees recommended by stockholders, who may submit
such recommendations by addressing a letter to the Chairman of the Nominating
Committee, UAL Corporation, P.O. Box 66919, Chicago, Illinois 60666. The
Nominating Committee held one meeting in 1993.
The members of the Committee are:
Richard P. Cooley, Chairman Carla A. Hills John F. McGillicuddy
Andrew F. Brimmer Ralph Strangis
PENSION AND WELFARE PLANS OVERSIGHT COMMITTEE
The Pension and Welfare Plans Oversight Committee exercises oversight with
respect to compliance by the Company and its subsidiaries with laws governing
employee benefit plans under the Employees' Retirement Income Security Act of
1974 ("ERISA"). Reports of the subsidiaries concerning ERISA employee benefit
plan matters are reviewed by the Committee and the Committee periodically
reports its actions, findings and recommendations to the Board. The Committee
held one meeting in 1993.
The members of the Committee are:
Harry Mullikin, Chairman Andrew F. Brimmer
Carla A. Hills James J. O'Connor
COMPENSATION OF DIRECTORS; EFFECT OF "CHANGE IN CONTROL"
The directors receive an annual retainer of $20,000 and are paid $1,000 for
each meeting attended. The Chairmen of the Audit, Compensation, Nominating and
Pension and Welfare Plans Oversight Committees receive an additional retainer
of $3,000 per year. Each member of a committee receives a fee of $1,000 for
each committee meeting attended. In support of a cost reduction effort
announced in January 1993, directors' compensation as reported above was
reduced 10%. Directors also receive 100 Old Shares annually. Directors who are
officers of the Company or of any subsidiary do not receive any retainer fee,
meeting fee or Old Shares for their service on the Board of Directors or any
committee.
Non-employee directors are eligible to participate in a retirement income
plan (the "Retirement Plan") if they have at least five years of service on the
date of retirement and are not otherwise eligible to receive pension benefits
from the Company or any of its subsidiaries. If a retiring director has at
least ten years of service and is age 70 or over at retirement, he or she is
entitled to a life annuity equal to the greater of $20,000 per year or the
annual retainer fee at retirement. Reduced benefits are available if the
director has less than ten years of service or if retirement occurs before age
70. For these purposes, a director who is a director at the time of a "change
in control" of the Company is credited with three additional years of service,
is deemed to have satisfied the five-year minimum service requirement and is
deemed to be three years older than his or her actual age. Surviving spouse
benefits are available in some cases. A trust (the "Trust") has been created to
serve as a source of payments of benefits under this retirement plan. The Trust
becomes irrevocable upon the occurrence of a "change in control."
Under the Company's travel policy for directors (the "Travel Policy"), each
director of the Company, his or her spouse and their eligible dependent
children are entitled to free transportation on United. The directors are
reimbursed by the Company for additional income taxes resulting from the
taxation of these benefits. The cost of supplying these benefits for each
director in 1993, including cash payments made in January, 1994 for income tax
liability, was as follows:
140
<PAGE>
<TABLE>
<CAPTION>
COST OF TRAVEL
NAME OF DIRECTOR BENEFITS ($)
---------------- --------------
<S> <C>
Neil A. Armstrong 6,819
Andrew F. Brimmer 41,449
Richard P. Cooley 32,444
Carla A. Hills 17,252
Fujio Matsuda 11,245
John F. McGillicuddy 17,617
Harry Mullikin 26,980
James J. O'Connor 35,014
Frank A. Olson 6,705
John C. Pope 17,869
Ralph Strangis 22,020
Paul E. Tierney, Jr. 52,805
Stephen M. Wolf 40,687
</TABLE>
The Company also has a policy pursuant to which each director is entitled to
free cargo shipment on United. A director (and his or her spouse and eligible
dependent children) serving as such at the time of a "change in control" is
entitled to continue such benefits thereafter for life.
The transactions contemplated by the Plan of Recapitalization will constitute
a "change in control" for purposes of the Travel Policy, the Retirement Plan
and the Trust.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Strangis is a member of the law firm of Kaplan, Strangis & Kaplan, P.A.,
which has represented, and may continue to represent, the Company and its
affiliates in connection with various legal matters.
EXECUTIVE COMPENSATION
UAL CORPORATION COMPENSATION COMMITTEE REPORT
PHILOSOPHY
The Company's officer compensation program is designed to attract, retain and
motivate top quality and experienced officers. The program provides industry
competitive compensation opportunities, supports a pay-for-performance culture
and emphasizes pay-at-risk. The program is heavily oriented toward incentive
compensation that is tied to the annual and longer-term financial performance
of the Company and to its longer-term return to stockholders.
COMPONENTS
There are two components to the executive compensation program:
. Cash compensation.
.Stock compensation.
The cash compensation program is comprised of base salary and annual cash
incentive compensation. Base salaries are competitive with other large domestic
air carriers, which include the three largest of the five carriers on the
Relative Market Performance Graph below. Base salaries are substantially less
than other corporations of comparable size.
Annual incentive compensation provides an opportunity for additional
earnings. An annual incentive pool is created based upon the Company's
earnings; each year the Compensation Committee approves a schedule of annual
incentive pool funding relative to specified earnings targets. The CEO
recommends to the
141
<PAGE>
Committee incentive awards for each officer based upon an assessment of each
such officer's contribution over the preceding year. The assessment is based
on, among other things, an appraisal prepared annually for each officer on his
or her managerial skills and the performance by him or her of assigned
responsibilities. Before making a recommendation, the CEO will discuss such
appraisals with other members of senior management and will consider these
discussions, along with an overall assessment of Company performance and
industry competitive data, in making a recommendation to the Compensation
Committee on incentive awards for each officer. The Compensation Committee
determines the award for the CEO based upon a comparable process and makes a
final determination on incentive awards for all other officers.
The stock compensation program is comprised of stock options and restricted
stock. Stock compensation gives each officer the opportunity to become a
stockholder of the Company. Stock grants are set in consideration of airline
industry practice using the same industry peer group for base salary and annual
incentive compensation. Stock grants are also set in consideration of
individual performance and contribution. The CEO recommends to the Compensation
Committee stock option and/or restricted stock grants for each officer; there
are no specific target award levels or weighting of factors considered in
determining stock grants. The Compensation Committee determines stock awards
for the CEO based upon a comparable process and makes a final determination on
stock awards for all other officers. Options and restricted shares typically
are granted in alternating years (options in one year, restricted stock in the
next year, etc.).
Stock options may not be granted at less than fair market value on the date
of grant. Stock options carry a ten-year term and have exercise vesting
restrictions that lapse ratably over a four-year period. Restricted shares have
vesting restrictions of up to 5 years.
The officer compensation program in total, although primarily focused on
promoting pay-for-performance and emphasizing pay-at-risk, is heavily oriented
toward stockholder interests through the use of long-term stock incentives that
create a direct linkage between executive rewards and increased stockholder
value. The long-term incentive component, which is comprised totally of stock-
based incentives, represents over half of the total income opportunity for the
officers.
CEO COMPENSATION
At Mr. Wolf's request, his salary, upon joining United in 1987, was set at
$575,000, which was $75,000 less than his predecessor was paid. During 1992,
Mr. Wolf's base salary was increased for the first time since joining the
Company in 1987 to $675,000. This increase was based primarily on a qualitative
review of performance factors and his contributions and leadership in among
other things, creating the most comprehensive route structure of any carrier in
the world. Further, additional factors considered were that his salary of
$575,000 approximated the bottom tenth percentile of other chief executive
officers at U.S. companies exceeding $10 billion in annual revenue and that his
salary had not been increased since joining the Company in 1987.
On February 14, 1993, in support of a cost reduction effort, Mr. Wolf
rescinded his raise of $100,000 and returned to his 1987 starting salary of
$575,000. On October 27, 1993, the Compensation Committee approved an increase
in Mr. Wolf's pre-reduction salary by $50,000, to $725,000. This increase was
based primarily on a qualitative review of performance factors and his
continuing contributions and leadership during an extremely difficult time in
the airline industry, and as an attempt to partially close the gap between his
salary and that of CEOs of other large corporations, especially in light of the
fact that he had foregone salary increases during most of his six year tenure
at the Company. On November 1, 1993, Mr. Wolf's salary was reinstated to its
1992 rate of $675,000 per annum, but Mr. Wolf asked the Compensation Committee
to defer his October 1993 increase, which was subsequently implemented on April
1, 1994.
Mr. Wolf received no cash incentive award for 1993 performance. No stock
options or restricted stock were granted to Mr. Wolf during 1993.
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<PAGE>
COMPENSATION FOR THE OTHER NAMED OFFICERS
Base salary rates for the other named executive officers were reduced 5% from
their 1992 levels in February 1993 in support of a cost reduction effort. Base
salaries remained at the reduced levels until September 1993 (November 1993 for
Mr. Pope), at which time they were restored to their 1992 levels. In keeping
with the Compensation Committee's philosophy of providing compensation to
attract, retain and motivate top quality and experienced officers, increases
averaging 6.3% were implemented in recognition of a negative competitive
differential in salary levels at the Company as compared to other large
corporations and because of cost of living increases. None of the other named
executive officers received a cash incentive award for 1993 performance. Each
received a restricted stock grant, subject to the normal restricted stock grant
terms described earlier pursuant to the Company's normal grant schedule, the
amount of which took into consideration the need for a retention mechanism due
to the fact that no payments had been made under the Incentive Plan for three
years.
COMMITTEE ACTIONS REGARDING CHANGES IN CONTROL
As described below under "--Employment Contracts and Change in Control
Arrangements," during 1993 the Compensation Committee, as part of an overall
review and after consultation with an independent compensation and benefits
consultant and with outside counsel, determined to authorize, and the Company
and United thereafter entered into, amendments to the Company's employment
contract with Mr. Wolf (originally entered into in 1987) and to an employment
contract and severance agreements with other named executive officers, new
severance agreements with additional executive officers and amendments to
agreements with Company officers to provide for the automatic vesting of
outstanding stock options, and the confirmation of such treatment for
restricted stock awards, upon a "change in control" of the Company.
These changes were made in connection with the first overall review of these
arrangements in over three years and were intended in part to achieve greater
uniformity in the treatment of the Company's executive officers. The
Compensation Committee believes it is important to take steps to maintain a
stable management team. Revising, amending and adding these various agreements
was an important step in this endeavor. These changes also achieved greater
uniformity in severance and change in control policy than had previously
existed.
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
The Compensation Committee reviewed and discussed the impact of Section
162(m) of the Internal Revenue Code on the Company's executive compensation
programs. As a result of this review, the Company, as an integral part of and
conditional upon approval of the Recapitalization, is proposing changes to its
incentive compensation program for named executive officers. These changes will
make the program totally formula-based and will bring the program fully into
compliance with the proposed regulations. The Company is also proposing a
change to its stock incentive compensation program to place a per person cap on
stock grants and to provide performance-based restricted stock awards to the
named executive officers. These changes will cause all future incentive
compensation awards thereunder to be in full compliance with the proposed
regulations.
COMPENSATION CONSULTANT AND COMPETITIVE DATA
The Committee consults with independent compensation advisors on executive
compensation matters. The Committee also has access to competitive data on
compensation levels for officer positions.
UAL CORPORATION COMPENSATION COMMITTEE
John F. McGillicuddy, Chairman Fujio Matsuda Harry Mullikin
143
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
---------------- --------------------
OTHER ANNUAL RESTRICTED STOCK ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION STOCK OPTIONS COMPENSATION
POSITION YEAR ($) ($) ($)(1) AWARDS($)(2) (#) ($)(3)
------------------ ---- ------ ----- ------------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stephen M. Wolf-- 1993 604,134 0 122,173(4) 0 0 29,821
Chairman and 1992 625,000 0 25,515 0 0 30,985
Chief Executive Offi-
cer 1991 575,000 0 -- 0 225,000(5) --
John C. Pope-- 1993 487,846 0 17,235 1,995,000 0 16,651
President and 1992 458,333 0 12,492 0 110,000(5) 14,599
Chief Operating Offi-
cer 1991 375,000 140,000 -- 1,848,438 0 --
Joseph R. O'Gorman-- 1993 314,348 0 7,548 855,000 0 4,024
Executive Vice Presi-
dent 1992 300,000 0 18,379 0 30,000 7,094
1991 233,385 30,000 -- 867,000 30,000 --
James M. Guyette-- 1993 310,749 0 5,183 855,000 0 10,708
Executive Vice Presi-
dent 1992 300,000 0 327 0 30,000 7,874
1991 275,000 90,000 -- 739,375 0 --
Lawrence M. Nagin-- 1993 306,439 0 8,482 855,000 0 10,645
Executive Vice
President-- 1992 290,000 0 21,596 0 30,000 8,187
Corporate Affairs and
General Counsel 1991 265,000 80,000 -- 1,035,125 0 --
</TABLE>
- --------
(1) Except as otherwise indicated, amounts specified represent tax gross-ups
during the fiscal year associated with travel privileges. None of the above
individuals received other compensation not reported elsewhere on this
statement in excess of the lesser of $50,000 or 10% of salary and bonus.
(2) The restricted stock granted in 1993 vests 20% per year, from the time of
grant, over a five year period. All restricted stock granted in 1991 vests
100% after five years, except that the grant to Mr. O'Gorman vests 25% per
year, from the time of grant, over a four year period. The number and
aggregate value, respectively, of restricted holdings at fiscal year-end
is: Mr. Wolf 15,000 Old Shares, $2,190,000; Mr. Pope 32,000 Old Shares,
$4,672,000; Mr. O'Gorman 10,500 Old Shares, $1,533,000; Mr. Guyette 13,500
Old Shares, $1,971,000; Mr. Nagin 15,300 Old Shares, $2,233,800. No
dividends have been paid on these Old Shares, but officers have a right to
retain any dividends paid on restricted shares.
(3) Amounts represent the total reportable compensation attributable to the
split-dollar insurance program.
(4) Includes $39,243 attributable to tax gross-ups during the fiscal year
associated with travel privileges, $16,180 attributable to financial
planning, travel, certain insurance and automobile benefits, and the
balance attributable to club membership costs and dues.
(5) The 225,000 Old Share option granted to Mr. Wolf in 1991 and the 110,000
Old Share option granted to Mr. Pope in 1992 were granted with exercise
prices in excess of the then current market price. In Mr. Wolf's case,
75,000 of the Options are exercisable at $147.875 on May 29, 1993, 50,000
at $170.056 on May 29, 1994, 50,000 at $195.565 on May 29, 1995, and 50,000
at $224.899 on May 29, 1996. In Mr. Pope's case, 50,000 Options are
exercisable at $124.00 on April 29, 1994, 20,000 at $142.60 on April 29,
1995, 20,000 at $163.99 on April 29, 1996, and 20,000 at $188.59 on April
29, 1997.
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<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-
SHARES OPTIONS/SARS AT THE-MONEY OPTIONS/SARS AT
ACQUIRED ON FY-END(#) FY-END ($)(1)
EXERCISE VALUE ------------------------- -------------------------
NAME (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen M. Wolf......... 0 N/A 181,250 168,750 6,034,766 966,797
John C. Pope............ 0 N/A 87,500 122,500 5,783,594 1,812,531
Joseph R. O'Gorman...... 0 N/A 22,500 37,500 187,500 517,500
James M. Guyette........ 0 N/A 52,120 30,000 2,764,936 881,719
Lawrence M. Nagin....... 0 N/A 31,250 28,750 1,450,000 838,750
</TABLE>
- --------
(1) Market value of the Company's common stock at December 31, 1993, minus
exercise price of options/SARs.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------------
REMUNERATION 15 20 25 30 35 40
- ------------ ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
375,000 $90,000 $120,000 $150,000 $180,000 $210,000 $240,000
425,000 102,000 136,000 170,000 204,000 238,000 272,000
475,000 114,000 152,000 190,000 228,000 266,000 304,000
525,000 126,000 168,000 210,000 252,000 294,000 336,000
575,000 138,000 184,000 230,000 276,000 322,000 368,000
625,000 150,000 200,000 250,000 300,000 350,000 400,000
675,000 162,000 216,000 270,000 324,000 378,000 432,000
725,000 174,000 232,000 290,000 348,000 406,000 464,000
775,000 186,000 248,000 310,000 372,000 434,000 496,000
825,000 198,000 264,000 330,000 396,000 462,000 528,000
</TABLE>
The above illustration is based on retirement at age 65 and selection of a
straight life annuity (other annuity options are available, which would reduce
the amounts shown above). The amount of the normal retirement benefit under the
plan is the product of 1.6% times years of credited participation in the plan
times final average compensation (highest five of last ten years of covered
compensation). The retirement benefit amount is not offset by the participant's
Social Security benefit. Compensation covered by the plan includes salary and
cash bonuses. Credited years of participation with the Company and United for
persons named in the cash compensation table are as follows: Mr. Wolf--5 years;
Mr. Pope--5 years; Mr. Guyette--25 years; Mr. O'Gorman--21 years; and Mr.
Nagin--4 years. The amounts shown do not reflect limitations imposed by
Internal Revenue Code on retirement benefits which may be paid under plans
qualified under the Internal Revenue Code. United has agreed to provide under
non-qualified plans the portion of the retirement benefits earned under the
pension plan which would otherwise be subject to Internal Revenue Code
limitations.
The Company has agreed to supplement Messrs. Wolf's and Pope's benefits under
the qualified pension plan and United has agreed to supplement Messrs. Nagin's
and O'Gorman's benefits under the qualified pension plan, in each case by
granting them credit for their prior airline service--22 years for Mr. Wolf, 10
years for Mr. Pope, 6 years for Mr. O'Gorman, and 8 years for Mr. Nagin. Mr.
Wolf's benefit will be offset by retirement benefits he is entitled to under
any of the plans of his prior employers except Tiger International, Inc.
Pursuant to the Officer Agreements, upon their retirements in accordance with
the Plan of Recapitalization, each of Messrs. Wolf, Pope and Nagin will be
entitled to receive a cash payment in an amount calculated to be sufficient to
provide additional annual retirement income commencing at age 56 (age 55 in the
case of Mr. Pope) of approximately $240,000, $12,000 and $32,000, respectively.
145
<PAGE>
UAL CORPORATION
RELATIVE MARKET PERFORMANCE
TOTAL RETURN 1989--1993
[chart to come]
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
UAL Corp. .......... 100 156 101 133 115 133
S&P 500............. 100 132 127 166 179 197
D-J Airline
Group(1)........... 100 116 93 125 127 156
</TABLE>
Source: Compustat Database
(1) Alaska Air, AMR, Delta, Southwest, USAir.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company and United originally entered into the Officer Agreements with
Mr. Wolf and Mr. Pope when they joined the Company in 1987 and 1988,
respectively, (as subsequently amended and restated, the "Employment
Agreements").
In the event of a change in control of the Company or United followed by the
termination of his employment, Mr. Wolf would be entitled to a payment equal to
from one to three times his salary and anticipated bonus deemed equal to his
salary, depending upon the circumstances of his termination, together with
certain other amounts. In the event of a change in control of the Company or
United followed by a termination of his employment, Mr. Pope would be entitled
to a payment equal to from one to three times his salary and anticipated bonus
of not less than $100,000, depending upon the circumstances of his termination,
together with certain other amounts.
The Employment Agreements also provide for the continuance of certain
specified employee benefits for a period of years equal to the number of years
of compensation included in the severance payment and, depending on the
circumstances applicable to an executive, possibly beyond that time.
146
<PAGE>
Each other executive officer of United is a party to a severance agreement
(the "Severance Agreements") with United that provides certain benefits if the
executive's employment with United is terminated (1) by the Company without
"cause" (as defined in the Severance Agreements) or (2) by the executive for
"good reason" (as defined in the Severance Agreements) in either case, within
three years following a "change in control" (as defined in the Severance
Agreements). Upon such a termination of employment, the executive officer will
be entitled to receive (1) a cash payment equal to 3 times the sum of (a) the
greater of the executive's base salary as in effect on the date of the change
in control or as in effect on the date his or her employment terminates plus
(b) the average of the greater of the bonuses paid to the executive with
respect to the three years preceding the change in control or the bonuses paid
to the executive with respect to the three years preceding his or her
termination of employment, (2) continuation of travel privileges (and partial
tax reimbursement) on United for the executive and his or her spouse and other
dependents for three years following termination of employment (and for life
thereafter if the executive would have qualified for retiree travel privileges
had his or her employment continued during such three-year period), (3)
coverage under United's medical and other welfare benefits for a period of
three years following the date of termination (and for life thereafter if the
executive would have qualified for retiree medical benefits had his or her
employment continued during such three-year period), (4) a lump sum payment
equal to the value of the pension benefits (including any early retirement
benefits) that the executive officer would have earned under United's pension
plans and arrangements had the executive officer continued to be employed for
an additional three years and (5) a lump sum payment equal to the amounts that
United would have paid on behalf of the executive officer with respect to split
dollar life insurance policies in effect for the executive. The concessions to
be implemented with respect to Salaried and Management Employees pursuant to
the Plan of Recapitalization could be a "good reason" event entitling such
other executive officers of United to terminate their employment and receive
the benefits described above. The Company has requested that such individuals
agree to waive the "good reason" event arising as a result of the
implementation of such concessions. All of such other executive officers have
provided such a waiver.
Pursuant to the Officer Agreements, upon their retirements, in accordance
with the Plan of Recapitalization, each of Messrs. Wolf, Pope, and Nagin will
be entitled to receive a cash payment in respect of certain split dollar life
insurance policies in effect for them of approximately $195,000, $160,000 and
$140,000 respectively.
During 1993 the Company amended stock option and restricted stock agreements
with each of the named executive officers to provide for the automatic vesting
of outstanding stock options, and for confirmation of such treatment for
restricted stock awards, upon a change in control.
RULE 405 DISCLOSURE
Form 5s for 1993, with respect to one exempt transaction each, were
inadvertently filed late for Messrs. O'Gorman and Wolf due to an error in the
Company's recordkeeping. The Company, and not the individuals, takes
responsibility for effecting these filings.
APPROVAL OF AMENDMENTS TO THE 1981 INCENTIVE STOCK PROGRAM
ON MARCH 25, 1994, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDED, IN
CONNECTION WITH THE APPROVAL OF THE RECAPITALIZATION, THAT THE STOCKHOLDERS
VOTE FOR APPROVAL OF AMENDMENTS (THE "1981 STOCK PROGRAM AMENDMENT") TO THE
1981 INCENTIVE STOCK PROGRAM (THE "1981 STOCK PROGRAM") TO ADD 1,200,000 NEW
SHARES (SUBJECT TO ADJUSTMENT AS HEREINAFTER DESCRIBED) TO THE MAXIMUM NUMBER
OF SHARES WITH RESPECT TO WHICH GRANTS MAY BE MADE UNDER THE 1981 STOCK
PROGRAM.
The full text of the 1981 Stock Program Amendment is included elsewhere in
this Proxy Statement/Prospectus. The following summary of the 1981 Stock
Program is qualified in its entirety by the full text of the 1981 Stock Program
and the 1981 Stock Program Amendment.
147
<PAGE>
ADMINISTRATION. The 1981 Stock Program is administered by the Compensation
Committee of the Board. Upon consummation of the Plan of Recapitalization, the
1981 Stock Program will be administered by the Compensation Administration
Committee of the Board.
SHARES SUBJECT TO PROGRAM. As initially approved by the stockholders on April
29, 1982, 1,300,000 shares of common stock were issuable under the 1981 Stock
Program. On April 24, 1986 and April 25, 1991, an additional 2,000,000 and
1,000,000 shares, respectively, were authorized for issuance under the 1981
Stock Program. The amendments recommended by the Board would make 1,200,000
(subject to adjustment if additional shares become issuable to the employee
groups in accordance with the Plan of Recapitalization, see "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--Additional Shares.") New Shares
available for issuance under the 1981 Stock Program. Stock issuable under the
1981 Stock Program may be newly issued or treasury shares. The Compensation
Committee may at any time and from time to time, in its sole discretion,
allocate any or all of such shares for issuance pursuant to grants of incentive
stock options ("ISOs"), under Section 422 of the Internal Revenue Code, stock
options not intended to qualify under Section 422 of the Internal Revenue Code
("NQSOs") and stock appreciation rights ("SARs").
PARTICIPATION. Options and SARs are granted by the Compensation Committee
only to officers and key employees (including officers who may also be
directors) of the Company or any of its subsidiaries. There is currently no
specific limitation on the number of New Shares that may be optioned to any
individual (or made subject to an SAR) under the 1981 Stock Program. The
amendments recommended by the Board would limit the number of New Shares with
respect to which options may be granted under the 1981 Stock Program to any
individual during any two-year period to 125,000 (250,000 with respect to
grants made to any new employee as a condition of employment), subject to
adjustment if additional shares become issuable to the employee groups in
accordance with the Plan of Recapitalization. See "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--Additional Shares."
STOCK OPTIONS. The option price for ISOs and NQSOs may not be less than 100%
of the fair market value of the common stock on the date of grant. The closing
price of the common stock on the New York Stock Exchange on June 10, 1994 was
$ . The duration of options granted under the 1981 Stock Program cannot
exceed ten years.
STOCK APPRECIATION RIGHTS. SARs may be granted exercisable in cash, or in
common stock, or in a combination of cash and common stock. SARs may be granted
to any participant in the 1981 Stock Program independent of or in tandem with
an NQSO. On exercise of an SAR, the holder will receive up to 100% of the
appreciation in fair market value of the shares subject to the SAR. In the case
of a tandem SAR, the appreciation shall be measured from the option price. All
of the SARs which have been issued under the 1981 Stock Program have been
tandem SARs. Exercise of an SAR reduces the number of shares reserved for
issuance under the 1981 Stock Program by the number of shares with respect to
which the SAR is exercised.
AMENDMENT AND TERMINATION OF PROGRAM. The Board may amend the 1981 Stock
Program from time to time or terminate the 1981 Stock Program at any time, but
may not reduce the then existing amount of any participant's options or SARs or
adversely change the terms and conditions thereof without the participant's
consent. No amendment may without stockholder approval, (i) materially increase
the benefits accruing to participants, (ii) materially increase the number of
shares which may be issued, or (iii) materially modify the requirements as to
eligibility for participation in the 1981 Stock Program. The Plan of
Recapitalization will automatically terminate on December 8, 2001.
FEDERAL INCOME TAX CONSEQUENCES. The Company has been advised by counsel that
the Federal income tax consequences to the participants in the 1981 Stock
Program and the affiliate of the Company employing them under the now
applicable provisions of the Internal Revenue Code and the regulations
thereunder are substantially as follows.
148
<PAGE>
With respect to NQSOs and SARs, an optionee is not deemed to receive any
income at the time an NQSO or SAR is granted nor is his employer entitled to a
deduction at that time. However, when any part of the NQSO or SAR is exercised
the optionee is deemed to have received ordinary income (i) in the case of an
NQSO, in an amount equal to the difference between the option price and the
fair market value of the shares acquired upon such exercise and (ii) in the
case of an SAR, in an amount equal to the sum of the fair market value of the
shares and any cash received. The optionee's employer is entitled to a tax
deduction in an amount equal to the amount of ordinary income realized by the
optionee.
With respect to ISOs, an optionee is not deemed to receive any income at the
time an ISO is granted or exercised, and his employer is not entitled to any
deduction. If the optionee disposes of the stock prior to the expiration of the
holding period required by Section 422 of the Internal Revenue Code, he will
have ordinary income in the year of disposition equal to the excess of the
amount received for the shares over the option price, and his employer is
entitled to a tax deduction at such time in an amount equal to the amount of
ordinary income realized by the optionee. If the optionee disposes of the stock
after expiration of the holding period required by Section 422 of the Internal
Revenue Code, the excess of the amount received for the shares over the option
price will be taxed as long term capital gain and no deduction will be
available to the employer.
Special rules apply in the case of individuals subject to Section 16(b) of
the Exchange Act. In particular, under current law any shares received pursuant
to the exercise of a stock option or SAR, absent an election by the optionee to
include in his income at the time of exercise the excess of the value of shares
received over the option price, are treated as restricted as to transferability
and subject to a substantial risk of forfeiture for a period of six months
after the date of grant of the option. Accordingly, the amount of ordinary
income recognized, and the amount of the employer's deduction, are determined
as of such later date.
The Board of Directors recommends a vote FOR the approval of the amendments
to the 1981 Stock Program.
APPROVAL OF AMENDMENTS TO THE 1988 RESTRICTED STOCK PLAN
ON MARCH 25, 1994, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDED IN
CONNECTION WITH THE APPROVAL OF THE RECAPITALIZATION THAT THE STOCKHOLDERS VOTE
FOR APPROVAL OF AMENDMENTS (THE "1988 RESTRICTED STOCK PLAN AMENDMENTS") TO THE
1988 RESTRICTED STOCK PLAN (THE "1988 RESTRICTED STOCK PLAN") TO PRESERVE, TO
THE MAXIMUM EXTENT POSSIBLE, THE DEDUCTIBILITY BY THE COMPANY OF AMOUNTS
AWARDED UNDER THE PLAN.
The full text of the 1988 Restricted Stock Plan Amendment is included
elsewhere in this Proxy Statement/Prospectus. The following summary of the 1988
Restricted Stock Plan is qualified in its entirety by the full text of the 1988
Restricted Stock Plan and the 1988 Restricted Stock Plan Amendment.
SHARES. A maximum of 500,000 Old Shares may be awarded under the 1988
Restricted Stock Plan. Upon consummation of the Plan of Recapitalization, the
Old Shares remaining to be issued under the 1988 Restricted Stock Plan will be
converted into New Shares. Shares awarded under the 1988 Restricted Stock Plan
(the "Restricted Stock") may only be treasury shares. Shares of Restricted
Stock that are forfeited under the 1988 Restricted Stock Plan may subsequently
be awarded to other participants under the 1988 Restricted Stock Plan.
The closing price of the common stock on the NYSE on June 10, 1994 was $^^.
PARTICIPATION. Restricted Stock may be awarded under the 1988 Restricted
Stock Plan to key employees, including officers, of the Corporation and its
subsidiaries. The 1988 Restricted Stock Plan currently imposes no limit on the
number of officers and other key employees to whom Restricted Stock may be
awarded or on the number of shares that may be granted to any individual. The
1988 Restricted Stock
149
<PAGE>
Plan Amendments would limit the number of New Shares that may be awarded under
the 1988 Restricted Stock Plan to any individual during any two-year period to
30,000 (60,000 with respect to grants made to any new employee as a condition
of employment), subject to adjustment if additional shares become issuable to
the employee groups in accordance with the Plan of Recapitalization. See "THE
PLAN OF RECAPITALIZATION--Establishment of ESOPs--Additional Shares."
ADMINISTRATION. The 1988 Restricted Stock Plan is administered by the
Compensation Committee of the Board. Upon consummation of the Plan of
Recapitalization, the Plan will be administered by the Compensation
Administration Committee of the Board.
RESTRICTIONS. Restricted Stock is awarded under the 1988 Restricted Stock
Plan in the discretion of the Compensation Committee. All shares of stock
awarded pursuant to the 1988 Restricted Stock Plan (including any shares
received by the holders thereof as a result of stock dividends, stock splits or
any other forms of recapitalization) shall be subject to the restrictions
specified in the 1988 Restricted Stock Plan. Restricted Stock certificates
shall remain in the custody of the Company and shall bear a legend that such
Restricted Stock may not be sold or encumbered until all restrictions are
terminated or expire. Restrictions expire ten years after award unless the
Compensation Committee determines in its discretion to accelerate or terminate
the period of restriction. Restrictions expire upon a Change in Control, as
defined in the 1988 Restricted Stock Plan. In addition, the restrictions expire
if the Company is dissolved, or is not the surviving corporation in a merger or
consolidation, unless the surviving corporation agrees to exchange the
Restricted Stock for its shares having an equivalent value. Participants, as
owners of the awarded shares, shall have all other stockholder rights,
including the right to vote shares of Restricted Stock and to receive dividends
and other distributions, if any, during the restriction period. The 1988
Restricted Stock Plan Amendments would permit the Committee to provide that the
"Restricted Period" with respect to any Restricted Shares shall lapse based
upon the attainment by the Company of one or more target levels of pre-tax
income (as determined under generally accepted accounting principles but
without regard to any items (whether gains or losses) otherwise included
therein relating to (1) the ESOPs or the ESOP Trusts, (2) any event or
occurrence that the Committee determines to be either not directly related to
the operations of the Company or not within the reasonable control of the
Company's management, (3) the 1988 Restricted Stock Plan and (4) the Company's
Incentive Compensation Plan (as defined below)). Such target level(s) shall be
determined by the Compensation Committee on or before the allocation of such
Restricted Shares, shall relate to such period or periods of time as the
Compensation Committee shall prescribe and may provide that any period in which
such pre-tax income is less than zero may be disregarded.
AMENDMENT. The 1988 Restricted Stock Plan may be amended, suspended or
terminated by the Board, provided that no such action shall increase the
maximum number of shares that may be awarded pursuant to the Plan of
Recapitalization, render any Compensation Committee member eligible to receive
Restricted Stock while a Compensation Committee member, or adversely affect
awards already made without the participant's consent.
ADJUSTMENTS. In case of a stock split, stock dividend, merger, consolidation,
reorganization, recapitalization or other change in corporate structure of the
Company, appropriate adjustments will be made by the Compensation Committee in
the number and kind of shares subject to the 1988 Restricted Stock Plan.
FEDERAL INCOME TAX CONSEQUENCES. No income will be recognized by a
participant upon receipt of any award of Restricted Stock, unless the
participant files an election with the IRS within 30 days of the award to
recognize such income. If the participant makes such an election, the Company
would be entitled to a deduction for payment of compensation, assuming
compliance with applicable withholding requirements, and the participant would
be required to report as ordinary income, the fair market value of the
Restricted Stock
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on the award date. In the absence of such an election, the participant's income
and the Company's corresponding deduction are deferred until the restrictions
cease to apply, at which time the amount of the income and deduction would be
based on the fair market value of the shares at the time the restrictions cease
to apply.
Unless the election referred to above is made, dividends received with
respect to Restricted Stock prior to the time the restrictions cease to apply
would be taxed as ordinary income to the participant and would be deductible by
the Company as payment of compensation, assuming compliance with applicable
withholding requirements. Dividends received with respect to shares after such
an election has been made or after the restrictions cease to apply would be
taxed as dividends to the participant and would not be deductible by the
Company.
APPROVAL OF AMENDMENTS TO THE INCENTIVE COMPENSATION PLAN
ON MARCH 25, 1994 THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDED IN
CONNECTION WITH THE APPROVAL OF THE RECLASSIFICATION THAT THE STOCKHOLDERS VOTE
FOR APPROVAL OF AMENDMENTS (THE "INCENTIVE PLAN AMENDMENT") TO THE COMPANY'S
INCENTIVE COMPENSATION PLAN (THE "INCENTIVE PLAN") TO PRESERVE, TO THE MAXIMUM
EXTENT POSSIBLE, THE DEDUCTIBILITY BY THE COMPANY OF AMOUNTS PAID THEREUNDER.
The full text of the Incentive Compensation Amendment is included elsewhere
in this Proxy Statement/Prospectus. The following summary of the Incentive
Compensation Plan is qualified in its entirety by the full text of the
Incentive Plan and the Incentive Plan Amendment.
Key employees and officers of the Company and its subsidiaries are eligible
to participate in the Incentive Plan. The grant of awards and the size thereof
depends upon the degree to which the Company's financial targets, as approved
by the Compensation Committee, are reached or exceeded and the extent to which
individual performance objectives set by management (or by the Compensation
Committee in the case of the Company's CEO) are attained or exceeded.
Performance is measured annually and awards are vested in the year awarded.
Awards are paid in the year awarded.
Pursuant to the Incentive Plan Amendment, awards under the Incentive Plan
with respect to any participant who is a "covered employee" (as defined in
Section 162(m)(3) of the Internal Revenue Code) with respect to the applicable
award year (i) may not exceed $900,000 and (ii) shall be determined by
reference to a formula which shall define the award by reference to the
attainment by the Company of one or more target levels of pre-tax income (as
determined under generally accepted accounting principles but without regard to
any items (whether gains or losses) otherwise included therein relating to (1)
the ESOPs or the ESOP Trusts, (2) any event or occurrence that the Compensation
Administration Committee determines to be either not directly related to the
operations of the Company or not within the reasonable control of the Company's
management, (3) the Incentive Plan and (4) the Company's 1988 Restricted Stock
Plan) for such award year. Such target level(s) and the formula referred to
above shall be determined by the Compensation Administration Committee prior to
the commencement of such award year (or at such later time as may be
permissible under Section 162(m) of the Internal Revenue Code). Notwithstanding
the foregoing, the Compensation Administration Committee may reduce the award
otherwise determined pursuant to such formula in its sole discretion.
The Incentive Plan Amendment further provides that payment of an award may be
deferred, pursuant to a prior election by a participant, to a period selected
by the participant. The Incentive Plan may be amended, modified or terminated
by the Board in its discretion.
Amounts paid under the Incentive Plan should be taxable as ordinary income to
the participant and deductible by the Company, in each case, in the year in
which the amounts are paid.
The Board of Directors recommends a vote FOR approval of the amendments to
the Incentive Plan.
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DESCRIPTION OF SECURITIES
THE DEBENTURES
The Series A Debentures and the Series B Debentures will be issued under an
Indenture dated as of July 1, 1991 between United, as issuer, and The Bank of
New York, as Trustee (the "Indenture Trustee") and an officers' certificate
that sets forth certain terms of the Debentures (collectively, the
"Indenture"). Copies of the Indenture and the related documentation have been
filed as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus is a part and is incorporated herein by reference. Where
the summaries do not make a distinction between the Series A Debentures and the
Series B Debentures, such summaries refer to either series. Whenever particular
Sections or defined terms of the Indenture are referred to herein, such
sections or defined terms are incorporated herein by reference.
General
The Debentures will be issued only in fully registered form without coupons
in denominations of $100 principal amount and integral multiples thereof,
provided that if either or both of the United Debt Offerings are consummated,
the applicable Debentures may be issued in denominations of $1,000 principal
amount and integral multiples thereof. The Debentures have been approved for
listing on the NYSE subject to official notice of issuance, although there can
be no assurance that at or following the Effective Time any trading market for
the Debentures will develop. If the Debentures are listed on the NYSE, the
Debentures will trade on such exchange only in denominations of $1,000 and
integral multiples thereof.
The Indenture pursuant to which the Debentures will be issued does not limit
the aggregate principal amount of Debentures that may be issued in either
series. United has registered $449,802,200 aggregate principal amount of each
series of Debentures for distribution to holders of Old Shares in connection
with the Recapitalization if the United Debt Offerings are not consummated,
based upon the number of Fully Diluted Old Shares. See "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--General." Of that amount, United
expects that approximately $382,071,900 aggregate principal amount of each
series of Debentures will be issued in respect of the Old Shares currently
outstanding (including the unvested restricted shares) and not more than
approximately $67,730,300 aggregate principal of each series of Debentures will
be issued in connection with the exercise of Options and Convertible Company
Securities. Many of the Options and Convertible Company Securities are out of
the money and are not currently expected to be exercised. If market conditions
change, Options and Convertible Company Securities that are currently out of
the money may be exercised. Similarly, the number of Fully Diluted Old Shares
presumes that the Company uses the proceeds from the exercise of Options and
Convertible Company Securities to purchase Recapitalization Consideration. This
assumption is meant to mimic the effect of the "cashless exercise" feature of
the Options. See "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs--
Additional Shares." The effect of the "cashless exercise" is to reduce the
amount of the Recapitalization Consideration required to be issued in
connection with the Recapitalization. Holders of Options and Convertible
Company Securities may elect not to use the "cashless exercise" feature.
Accordingly, the aggregate principal amount of each series of Debentures that
is required to be issued in connection with the exercise of Options and
Convertible Company Securities may exceed $67,730,300. As an alternative to
issuing additional Debentures, if conditions permit, the Company or United may
attempt to acquire previously issued Debentures in the market. At the present
time, the Company and United believe that the aggregate principal amount of
Debentures that it has registered will be sufficient for purposes of the
Recapitalization, including in connection with the exercise of Options and
Convertible Company Securities, although there can be no assurance that this
will be the case.
The Indenture does not contain any covenants or provisions that provide
protection to the holder of Debentures in the event of a highly leveraged
transaction or a change of control.
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The Series A Debentures will bear interest at a rate per annum that has been
fixed provisionally at 9.00%, and the Series B Debentures will bear interest at
a rate per annum that has been fixed provisionally at 9.70%. As provided in the
Plan of Recapitalization, the rates of interest proposed to be borne by the
Series A Debentures and the Series B Debentures may be adjusted in advance of
the Meeting to rates that would permit the Series A Debentures and the Series B
Debentures to trade at par, on a fully distributed basis, as of the date on
which such determination is made, although the interest rates to be borne by
the Debentures may not be adjusted above 10.125% in the case of the Series A
Debentures and 10.825% in the case of the Series B Debentures. The Company will
make a public announcement of the rates of interest to be borne by the Series A
Debentures and the Series B Debentures at least five business days but not more
than ten calendar days in advance of the Meeting. See "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--Pricing the Securities." The
underwriting agreements relating to the United Debt Offerings are expected to
provide that if either or both of the United Debt Offerings are consummated,
the interest rates on the Debentures may be adjusted to permit them to be sold
at or closer to par, but if that is done, the principal amount of the series of
Debentures affected will be reduced so that the interest payable annually by
United on such Debentures will not exceed the stated maximum which was
calculated based upon the interest rate caps. If the Offerings are not
consummated, the interest rates borne by the Debentures will be subject to the
caps. See "THE PLAN OF RECAPITALIZATION--Terms and Conditions--Pricing the
Securities.
The Plan of Recapitalization also provides that, at the request of the
Unions, if the United Debt Offerings are not consummated, either or both series
of Debentures may be made redeemable prior to their respective final stated
maturity at the option of United. See "--Redemption" below. Interest on the
Debentures will be paid semi-annually beginning in 1994 to holders of record on
the record date for such payment. The Series A Debentures will mature in 2004.
The Series B Debentures will mature in 2014. Prior to the Effective Time, the
Company will establish the semi-annual interest payment dates, the specific
final maturity dates and the maximum aggregate principal amount of each series
of Debenture. The Debentures will bear interest from the date of their original
issuance or the most recent interest payment date from which interest has been
paid.
The Debentures will be unsecured and unsubordinated obligations of United and
will rank on a parity with all other unsecured and unsubordinated indebtedness
of United. As of March 31, 1994 United had outstanding approximately $2.8
billion aggregate principal amount of indebtedness that will rank pari passu
with the Debentures offered hereby, of which approximately $1.8 billion was
secured and approximately $1.0 billion was unsecured. The Indenture does not
limit the right of United to incur additional senior indebtedness. As of March
31, 1994, senior indebtedness of United on a consolidated basis aggregated
approximately $3.7 billion.
Redemption
The Debentures will not be subject to any sinking fund or other obligation of
United to redeem or retire the Debentures. The Debentures may not be called for
redemption prior to their respective final stated maturities. The Plan of
Recapitalization provides that either or both series of Debentures may be made
redeemable at the option of United prior to their respective final stated
maturities if the Unions so request not less than seven days prior to the
Announcement Date; provided, however, if the Offering relating to such series
of Debentures is consummated, the Unions will not have the ability to cause the
Debentures to be redeemable prior to their maturity. See "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--Pricing the Securities."
Payment, Registration, Transfer and Exchange
Payments in respect of the Debentures will be made at the office or agency of
United maintained for that purpose as United may designate from time to time,
except that, at the option of United, interest payments, if any, on the
Debentures may be made by checks mailed by the Indenture Trustee to the holders
of Debentures entitled thereto at their registered addresses. (Sections 3.7(a)
and 9.2 of the Indenture.) Payment of any installment of interest on Debentures
will be made to the persons in whose names such Debentures are registered at
the close of business on the regular record date for such interest. (Sections
3.7(a) of the Indenture.)
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Debentures will be transferable or exchangeable at the office or agency of
United maintained for such purpose as designated by United from time to time.
(Sections 3.5 and 9.2 of the Indenture.) Debentures may be transferred or
exchanged without service charge, other than any tax or other governmental
charge imposed in connection therewith. (Section 3.5 of the Indenture.)
Consolidation, Merger or Sale by United
The Indenture provides that United may merge or consolidate with or into any
other corporation or sell, convey, transfer or otherwise dispose of all or
substantially all of its assets to any person, firm or corporation, if (i)(a)
in the case of a merger or consolidation, United is the surviving corporation
or (b) in the case of a merger or consolidation where United is not the
surviving corporation and in the case of such a sale, conveyance or other
disposition, the successor or acquiring corporation is a corporation organized
and existing under the laws of the United States of America or a State thereof
and such corporation expressly assumes by supplemental indenture all the
obligations of United under the Debentures and the Indenture, (ii) immediately
after giving effect to such merger or consolidation, or such sale, conveyance,
transfer or other disposition, no Default or Event of Default has occurred and
is continuing and (iii) certain other conditions are met. In the event a
successor corporation assumes the obligations of United, such successor
corporation will succeed to and be substituted for United under the Indenture
and under the Debentures and all obligations of United will terminate. (Section
7.1 of the Indenture.)
Events of Default, Notice and Certain Rights on Default
The Indenture provides that, if an Event of Default occurs with respect to
the Debentures of either series and is continuing, the Indenture Trustee for
such series or the holders of at least 25% in aggregate principal amount of all
of the outstanding Debentures of that series, by written notice to United (and
to the Indenture Trustee for such series, if notice is given by such holders of
Debentures), may declare the principal of all the Debentures of that series to
be due and payable. (Section 5.2 of the Indenture.)
Events of Default with respect to Debentures of either series are defined in
the Indenture as being: (i) default for 30 days in payment of interest on any
Debentures of that series when due, (ii) default for 10 days in payment of
principal, premium, if any, at its maturity or on redemption or otherwise, of
any Debentures of that series when due, (iii) default for 60 days after notice
to United by the Indenture Trustee for such series, or to United and the
Indenture Trustee by the holders of at least 25% in aggregate principal amount
of the Debentures of such series then outstanding, in the performance of any
other agreement in the Debentures of that series, in the Indenture or in any
supplemental indenture, (iv) default resulting in acceleration of other
indebtedness of United for borrowed money where the aggregate principal amount
so accelerated exceeds $100 million and such acceleration is not rescinded or
annulled within 10 days after the written notice thereof to United by the
Indenture Trustee or to United and the Indenture Trustee by the holders of at
least 25% in aggregate principal amount of the Debentures of such series then
outstanding, provided that such Event of Default will be cured or waived if the
default that resulted in the acceleration of such other indebtedness is cured
or waived, and (v) certain events of bankruptcy, insolvency or reorganization
of United. (Section 5.1 of the Indenture.)
The Indenture provides that the Indenture Trustee for either series of
Debentures will, within 90 days after the occurrence of a Default with respect
to Debentures of that series, give to the holder of the Debentures of that
series notice of all uncured Defaults known to it; provided that, except in the
case of default in payment on the Debentures of that series, the Indenture
Trustee may withhold the notice if and so long as a committee of its
responsible officers in good faith determines that withholding such notice is
in the interest of the holders of the Debentures of that series. (Section 6.6
of the Indenture.) "Default" means any event that is, or, after notice or
passage of time or both, would be, an Event of Default. (Section 1.1 of the
Indenture.)
The Indenture provides that the holders of a majority in aggregate principal
amount of the Debentures of each series affected (with each such series voting
as a class) may direct the time, method and place of
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conducting any proceeding for any remedy available to the Indenture Trustee for
such series or exercising any trust or power conferred on such Indenture
Trustee. (Section 5.8 of the Indenture.)
The Indenture includes a covenant that United will file annually with the
Indenture Trustee a certificate as to United's compliance with all conditions
and covenants of the Indenture. (Section 9.7 of the Indenture.)
The holders of a majority in aggregate principal amount of either series of
Debentures by notice to the Indenture Trustee for such series may waive, on
behalf of the holders of all Debentures of such series, any past Default or
Event of Default with respect to that series and its consequences except a
Default or Event of Default in the payment of the principal of, premium, if
any, or interest on any Debenture and certain other defaults. (Section 5.7 of
the Indenture.)
Modification of the Indenture
The Indenture contains provisions permitting United and the Indenture Trustee
to enter into one or more supplemental indentures without the consent of the
holders of any of the Debentures (i) to evidence the succession of another
corporation to United and the assumption of the covenants of United by a
successor to United, (ii) to add to the covenants of United for the benefit of
either series of Debentures or surrender any right or power of United, (iii) to
add additional Events of Default with respect to any series, (iv) to secure the
Debentures, (v) to evidence and provide for successor Indenture Trustees, (vi)
to correct or supplement any inconsistent provisions or to make any other
provisions with respect to matters or questions arising under the Indenture,
provided that such action does not adversely affect the interests of any holder
of Debentures of any series issued under the Indenture, or (vii) to cure any
ambiguity or correct any mistake. (Section 8.1 of the Indenture.)
The Indenture also contains provisions permitting United and the Indenture
Trustee, with the consent of the holders of a majority in aggregate principal
amount of the outstanding Debentures of each series affected by a supplemental
indenture, to execute such supplemental indenture to add any provisions to or
to change or to eliminate any of the provisions of the Indenture or any
supplemental indenture or to modify the rights of the holders of Debentures of
such series, except that no such supplemental indenture may, without the
consent of the holder of each Debenture so affected, (i) change the time for
payment of principal or interest on any Debenture, (ii) reduce the principal
of, or any installment of interest on, any Debenture, (iii) reduce the amount
of premium, if any, payable upon the redemption of any Debenture, (iv) change
the coin or currency in which any Debenture or any premium or interest thereon
is payable, (v) impair the right to institute suit for the enforcement of any
payment on or with respect to any Debenture, (vi) reduce the percentage in
principal amount of the outstanding Debentures of any series the consent of
whose holders is required for modification or amendment of the Indenture or for
waiver of compliance with certain provisions of the Indenture or for waiver of
certain defaults, (vii) change the obligation of United to maintain an office
or agency in the places and for the purposes specified in the Indenture or
(viii) modify the provisions relating to waiver of certain defaults or any of
the foregoing provisions. (Section 8.2 of the Indenture.)
Defeasance and Covenant Defeasance
United may elect either (i) to defease and be discharged from any and all
obligations with respect to the Debentures of any series (except as described
below) ("defeasance") or (ii) to be released from its obligations with respect
to certain covenants applicable to the Debentures of any series ("covenant
defeasance"), upon the deposit with the Indenture Trustee for such series (or
other qualifying trustee), in trust for such purpose, of money and/or
Government Obligations that through the payment of principal and interest in
accordance with their terms will provide money in the amount sufficient to pay
the principal of, premium, if any, and interest on such Debentures to their
respective final stated maturity or redemption, as the case may be. Upon the
occurrence of a defeasance, United will be deemed to have paid and discharged
the entire indebtedness represented by such Debentures and to have satisfied
all of its other obligations under such Debentures (except for (i) the rights
of holders of such Debentures to receive, solely from the trust funds deposited
to
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defease such Debentures, payments in respect of the principal of, premium, if
any, and interest on such Debentures when such payments are due and (ii)
certain other obligations as provided in the Indenture). Upon the occurrence of
a covenant defeasance, United will be released only from its obligations to
comply with certain covenants contained in the Indenture relating to such
Debentures, will continue to be obligated in all other respects under such
Debentures and will continue to be contingently liable with respect to the
payment of principal, premium, if any, and interest with respect to such
Debentures.
The conditions to both defeasance and covenant defeasance are as follows: (i)
such defeasance or covenant defeasance must not result in a breach or violation
of, or constitute a Default or Event of Default under, the Indenture, or result
in a breach or violation of, or constitute a default under, any other material
agreement or instrument of United, (ii) certain bankruptcy related Defaults or
Events of Default with respect to United must not have occurred and be
continuing during the period commencing on the date of the deposit of the trust
funds to defease such Debentures and ending on the 91st day after such date,
(iii) United must deliver to the Indenture Trustee an Opinion of Counsel to the
effect that the holders of such Debentures will not recognize income, gain or
loss for Federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to Federal income tax on the same amounts and in
the same manner and at all the same times as would have been the case if such
defeasance or covenant defeasance had not occurred (such Opinion of Counsel, in
the case of defeasance, must refer to and be based upon a ruling of the IRS or
a change in applicable Federal income tax law occurring after the date of the
Indenture) and (iv) United must deliver to the Indenture Trustee an Officers'
Certificate and an Opinion of Counsel with respect to compliance with the
conditions precedent to such defeasance or covenant defeasance and with respect
to certain registration requirements under the Investment Company Act of 1940,
as amended. (Article 4 of the Indenture.) The Indenture requires that a
nationally recognized firm of independent public accountants deliver to the
Indenture Trustee a written certification as to the sufficiency of the trust
funds deposited for the defeasance or covenant defeasance of such Debentures.
The Indenture does not provide the holders of such Debentures with recourse
against such firm. In the event that Government Obligations deposited with the
Indenture Trustee for the defeasance of such Debentures decrease in value or
default subsequent to their being deposited, United will have no further
obligation, and the holders of such Debentures will have no additional recourse
against United, as a result of such decrease in value or default. As described
above, in the event of a covenant defeasance, United remains contingently
liable with respect to the payment of principal, premium, if any, and interest
with respect to such Debentures.
United may exercise its defeasance option with respect to such Debentures
notwithstanding its prior exercise of its covenant defeasance option. If United
exercises its defeasance option, payment of such Debentures may not be
accelerated because of a Default or an Event of Default. If United exercises
its covenant defeasance option, payment of such Debentures may not be
accelerated by reason of a Default or an Event of Default with respect to the
covenants to which such covenant defeasance is applicable. However, if such
acceleration were to occur, the realizable value at the acceleration date of
the money and Government Obligations in the defeasance trust could be less than
the principal and interest then due on such Debentures, in that the required
deposit in the defeasance trust is based upon scheduled cash flow rather than
market value, which will vary depending upon interest rates and other factors.
The Indenture Trustee
The Bank of New York is the Indenture Trustee under the Indenture. United and
the Company also maintain banking and other commercial relationships with The
Bank of New York and its affiliates in the ordinary course of business and The
Bank of New York acts as trustee under several indentures for United and the
Company.
THE CAPITAL STOCK OF THE COMPANY
As of the date of this Proxy Statement/Prospectus, the Company's current
Amended and Restated Certificate of Incorporation authorizes the issuance of
125,000,000 Old Shares and 16,000,000 shares
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of preferred stock. As of May 11, 1994, there were outstanding (a) 24,571,077
Old Shares, (b) 6,000,000 shares of Series A Preferred Stock that were
convertible into 3,833,866 Old Shares, (c) Options to purchase an aggregate of
1,632,568 Old Shares, (d) $33,005,000 principal amount of Air Wis Convertible
Debentures that were convertible into 130,369 Old Shares and (e) rights to
purchase 245,710 shares of Junior Participating Preferred Stock. The Company
has designated 1,250,000 shares of a series of preferred stock as Junior
Participating Preferred Stock (as defined below), which are reserved for
issuance upon exercise of certain preferred share purchase rights associated
with each outstanding Old Share (the "Rights"), as described below.
Upon consummation of the Recapitalization, the authorized capital stock of
the Company will consist of (i) 100,000,000 New Shares, par value $0.01 per
share, (ii) 16,000,000 shares of serial preferred stock, without par value (the
"Serial Preferred Stock"), of which (a) 6,000,000 shares will be designated as
Series A Preferred Stock, (b) 50,000 shares will be designated Public Preferred
Stock, (c) 1,250,000 shares will be designated Junior Participating Preferred
Stock and (d) 50,000 will be designated as Series D Redeemable Preferred Stock,
(iii) an aggregate of 50,000,000 shares will be allocated between shares
designated as Class 1 ESOP Preferred Stock, par value $0.01 per share, and
shares designated as Class 2 ESOP Preferred Stock, par value $0.01 per share,
(iv) 11,600,000 shares of the Class P Voting Preferred Stock, par value $0.01
per share, (v) 9,300,000 shares of the Class M Voting Preferred Stock, par
value $0.01 per share, (vi) 4,200,000 shares of the Class S Voting Preferred
Stock, par value $0.01 per share, (ix) ten shares of the Class I Preferred
Stock, par value $0.01 per share, (x) one share of the Class Pilot MEC
Preferred Stock, par value $0.01 per share, (xi) one share of the Class IAM
Preferred Stock, par value $0.01 per share, and (xii) ten shares of the Class
SAM Preferred Stock, par value $0.01 per share. The serial preferred stock not
otherwise designated may be issued from time to time in one or more series,
without stockholder approval, with such powers, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations, or restrictions thereof as may be adopted by the Board of
Directors or a duly authorized committee thereof.
Upon consummation of the Recapitalization, assuming that (i) none of the
Options is exercised, (ii) none of the Convertible Company Securities is
converted and (iii) none of the ESOP Preferred Stock or the Voting Preferred
Stock is converted, the outstanding capital stock of the Company will consist
of (a) 12,285,530 New Shares, (b) 6,000,000 shares of Series A Preferred Stock,
(c) 30,566,419 Depositary Preferred Shares representing 30,566.5 shares of
Public Preferred Stock, (d) the number of shares of ESOP Preferred Stock
referred to below, (e) three shares of Voting Preferred Stock and (f) nine
shares of Director Preferred Stock. Upon consummation of the Recapitalization,
assuming that (I) all the Options are exercised, (II) all the Convertible
Company Securities are converted and (III) none of the ESOP Preferred Stock or
Voting Preferred Stock is converted, the outstanding capital stock of the
Company will consist of (A) 15,083,939 New Shares, (B) 37,528,842 Depositary
Preferred Shares representing interests in 37,528.8 shares of Public Preferred
Stock, (C) the number of shares of ESOP Preferred Stock referred to below, (D)
three shares of Voting Preferred Stock and (E) nine shares of Director
Preferred Stock. In either case, all the shares of Series D Redeemable
Preferred Stock that are issued will be redeemed for cash and, if one or more
of the Offerings is not consummated, Debentures and/or Depositary Preferred
Shares immediately upon issuance. The Plan of Recapitalization provides that at
least 17,675,345 shares of ESOP Preferred Stock will be transferred to the
ESOPs over the 69 months following the Effective Time, see "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--General," and that under certain
circumstances a greater number may be transferred. See "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--Additional Shares." Immediately after
the Effective Time, a smaller number of ESOP Preferred Stock, including both
Class 1 ESOP Preferred Stock and Class 2 ESOP Preferred Stock, will be
outstanding. Some additional shares of ESOP Preferred Stock will not be
outstanding but will be recorded on the books of the Company as Book-Entry
Shares. See "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs--Sales of
ESOP Preferred Stock."
Upon the consummation of the Recapitalization and prior to the Sunset, the
New Shares and the Voting Preferred Stock will vote together as a single class
with respect to all matters submitted to the vote of the
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holders of common stock pursuant to law or as provided in the Restated
Certificate except with respect to (a) such matters upon which the DGCL
requires a separate class vote and (b) the election of the Public Directors,
whom the New Shares will elect separately as a class, and on whose election the
Voting Preferred Stock will not vote. Initially, the Voting Preferred Stock
will represent the right to cast 55% of the votes that may be cast by the New
Shares and the Voting Preferred Stock voting together as a single class (less a
number of votes that is equal to the number of New Shares that have been issued
upon conversion of the ESOP Preferred Stock and the Voting Preferred Stock that
are held in the ESOPs). Under certain circumstances, the voting power of the
Voting Preferred Stock may be increased so that it represents up to 63% of the
votes that may be cast by the New Shares and the Voting Preferred Stock voting
together as a single class (less a number of votes that is equal to the number
of New Shares that have been issued upon conversion of the ESOP Preferred Stock
and the Voting Preferred Stock and that are held in the ESOPs). See "THE PLAN
OF RECAPITALIZATION--Establishment of ESOPs--Additional Shares."
After the Sunset, the New Shares and the Voting Preferred Stock will continue
to vote together as a single class with respect to all matters submitted to the
vote of the holders of common stock pursuant to law or as provided in the
Restated Certificate except with respect to such matters upon which the DGCL
requires a separate class vote. After the Sunset, the Voting Preferred Stock
will represent the right to cast a number of votes that is equal to the number
of New Shares into which the ESOP Preferred Stock can be converted.
Upon the consummation of the Recapitalization, (i) the Class Pilot MEC
Preferred Stock will elect the ALPA Director until the later of the Sunset or
the date that all ALPA members cease to be employees of the Company, (ii) the
Class IAM Preferred Stock will elect the IAM Director until the later of the
Sunset or the date that all IAM members cease to be employees of the Company,
(iii) the Class SAM Preferred Stock will elect the Salaried and Management
Director until the later of (x) the Sunset or (y) the earlier of the time when
all ALPA members or all IAM members cease to be employees of the Company, and
(iv) the Class I Preferred Stock will elect the Independent Directors until the
Sunset.
THE PUBLIC PREFERRED STOCK
The summary of terms of the Public Preferred Stock contained in this Proxy
Statement/Prospectus does not purport to be complete and is subject to, and is
qualified in its entirety by, the provisions of the Restated Certificate that
will become effective in connection with the consummation of the
Recapitalization. A copy of the Restated Certificate is included elsewhere in
this Proxy Statement/Prospectus.
General
As part of the Recapitalization, each outstanding Old Share will, without
further action on the part of the holder thereof, be reclassified and converted
into cash and Series D Redeemable Preferred Stock, which Preferred Stock, if
the UAL Preferred Offering is not consummated, will be immediately redeemed
for, among other things, Depositary Preferred Shares representing interests in
$31.10 liquidation preference of Public Preferred Stock. See "--The Depositary
Preferred Shares." As contemplated by the Plan of Recapitalization, the Company
has elected to issue Depositary Preferred Shares, each representing interests
in one one-thousandth of a share of Public Preferred Stock having a liquidation
preference of $25. When issued, the Public Preferred Stock will be validly
issued, fully paid and nonassessable. The holders of the Public Preferred Stock
will not have any preemptive rights with respect to any shares of capital stock
of the Company or any other securities of the Company convertible into or
carrying rights or options to purchase any such shares. The Public Preferred
Stock will not be subject to any sinking fund or other obligation of the
Company to redeem or retire the Public Preferred Stock. Unless redeemed by the
Company, the Public Preferred Stock will have perpetual maturity.
The Company has registered under the Securities Act 35,984,175 Depositary
Preferred Shares representing interests in $899,604,375 aggregate liquidation
preference of the Public Preferred Stock for distribution to holders of Old
Shares in connection with this Recapitalization if the UAL Preferred Offering
is not consummated, based upon the number of Fully Diluted Old Shares. See "THE
PLAN OF RECAPITALIZATION--Terms and Conditions--General." Of that amount, the
Company expects that
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approximately 30,565,751 Depositary Preferred Shares representing interests in
$764,143,775 aggregate liquidation preference of the Public Preferred Stock
will be issued in respect of the Old Shares currently outstanding (including
the unvested restricted shares) and approximately 5,418,424 Depositary
Preferred Shares representing interests in $135,460,600 aggregate liquidation
preference of the Public Preferred Stock are expected to be issued in
connection with the exercise of Options and Convertible Company Securities.
Many of the Options and Convertible Company Securities are out of the money and
are not currently expected to be exercised. If market conditions change,
Options and Convertible Company Securities that are currently out of the money
may be exercised. Similarly, the number of Fully Diluted Old Shares presumes
that the Company uses the proceeds from the exercise of Options and Convertible
Company Securities to purchase Recapitalization Consideration. This assumption
is meant to mimic the effect of the "cashless exercise" feature of the Options.
See "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs--Additional Shares."
The effect of the "cashless exercise" is to reduce the amount of the
Recapitalization Consideration required to be issued in connection with the
Recapitalization. Holders of Options and Convertible Company Securities may
elect not to use the "cashless exercise" feature. Accordingly, the number of
Depositary Preferred Shares and the aggregate liquidation value of the Public
Preferred Stock that are required to be issued in connection with the exercise
of Options and Convertible Company Securities may exceed 5,418,424 Depositary
Preferred Shares and $135,460,600 aggregate liquidation value. As an
alternative to issuing additional Depositary Preferred Shares or shares of
Public Preferred Stock, if conditions permit, the Company may attempt to
acquire previously issued Depositary Preferred Shares in the market. The terms
of the Restated Certificate and the Deposit Agreement (as defined below) would
not prevent issuance of Depositary Preferred Shares or shares of Public
Preferred Stock in excess of the number already registered. At the present
time, although there can be no assurance, the Company believes that the number
of Depositary Preferred Shares and the aggregate liquidation value of the
Public Preferred Stock that it has registered will be sufficient for purposes
of the Recapitalization, including in connection with the exercise of Options
and Convertible Company Securities.
Ranking
The Public Preferred Stock will rank on a parity with the Series A Preferred
Stock and the Series D Redeemable Preferred Stock and will rank senior to the
New Shares, the ESOP Preferred Stock, the Voting Preferred Stock, the Director
Preferred Stock and any shares of Junior Participating Preferred Stock issued
pursuant to the Rights with respect to payment of dividends and amounts payable
upon liquidation, dissolution or winding up.
While any shares of Public Preferred Stock are outstanding, the Company may
not authorize the creation or issue of any class or series of stock that ranks
senior to the Public Preferred Stock as to dividends or upon liquidation,
dissolution or winding up without the consent of the holders of 66 2/3% of the
outstanding shares of Public Preferred Stock. The Company may create additional
classes or series of preferred stock or authorize, or increase the authorized
amount of, any shares of any class or series of preferred stock ranking on a
parity with or junior to the Public Preferred Stock without the consent of any
holder of Public Preferred Stock. See "--Voting Rights" below.
Dividends
Holders of shares of Public Preferred Stock will be entitled to receive,
when, as and if declared by the Board of the Company out of assets of the
Company legally available therefor, cumulative cash dividends at a rate per
annum that has been fixed provisionally at 10.25% of the $25,000 liquidation
preference thereof (or $2,562.50 per share) per annum. As provided in the Plan
of Recapitalization, the dividend rate proposed to be borne by the Public
Preferred Stock may be adjusted in advance of the Meeting to a rate that would
permit the Public Preferred Stock to trade at par, on a fully distributed
basis, as of the date such
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determination is made, although the dividend rate to be borne by the Public
Preferred Stock may not be adjusted above 11.375%. The Company will make a
public announcement of the revised dividend rate at least five business days
but not more than ten calendar days in advance of the Meeting. See "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--Pricing the Securities." The
underwriting agreement is expected to provide that if the UAL Preferred
Offering is consummated, the dividend rate on the Public Preferred Stock may be
adjusted to permit the Depositary Preferred Shares to be sold at or closer to
par, but if that is done, the number of shares of Public Preferred Stock must
be reduced so that the aggregate amount of dividends payable annually by the
Company on the Public Preferred Stock will not exceed certain maximum limits.
If the UAL Preferred Offering is not consummated, the dividend rate borne by
the Public Preferred Stock will be subject to the cap. See "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--Pricing the Securities."
Dividends on the Public Preferred Stock will be payable quarterly in arrears
on February 1, May 1, August 1 and November 1 of each year, commencing on the
first dividend payment date that follows the Effective Time (and, in the case
of any accrued but unpaid dividends, at such additional times and for such
interim periods, if any, as determined by the Board of Directors), at such
annual rate, provided that if the UAL Preferred Offering is consummated, the
regular dividend payment dates may be as determined by the Company after
consultation with the underwriters. Each such dividend will be payable to
holders of record as they appear on the stock records of the Company at the
close of business on such record dates, which will not be more than 60 days or
less than 10 days preceding the payment dates corresponding thereto, as may be
fixed by the Board of Directors of the Company or a duly authorized committee
thereof. Dividends will accrue from the date of the original issuance of the
Public Preferred Stock (the "Issue Date"). Dividends will be cumulative from
such date, whether or not in any dividend period or periods there are assets of
the Company legally available for the payment of such dividends.
Each share of Public Preferred Stock issued after the Issue Date (whether
issued upon transfer of or in exchange for an outstanding share of Public
Preferred Stock or issued for any other reason) will be entitled to receive,
when, as and if declared by the Board, dividends with respect to each dividend
period, starting with the Issue Date, for which full dividends have not been
paid prior to the date upon which such share of Public Preferred Stock was
issued. Any share of Public Preferred Stock that is issued after the record
date with respect to any dividend payment and before such dividend is paid will
not be entitled to receive the dividend paid to holders of Public Preferred
Stock as of such record date.
The regular quarterly dividend payment dates with respect to Public Preferred
Stock coincide with the regular dividend payment dates on the Series A
Preferred Stock, and two of the dividend payment dates with respect to the
Public Preferred Stock will coincide with the regular semi-annual interest
payment dates on the Debentures unless the UAL Preferred Offering is
consummated, in which case such payments need not coincide. The Plan of
Recapitalization provides that, unless the UAL Preferred Offering is
consummated, the Company will use the same record date with respect to regular
quarterly dividend payments on the Public Preferred Stock and the Series A
Preferred Stock. It also provides that the Company will use the same record
date with respect to the Public Preferred Stock, the Series A Preferred Stock
and the Debentures when the regular dividend payment dates coincide with the
regular interest payment date.
Accumulations of dividends on shares of Public Preferred Stock will not bear
interest. Dividends payable on the Public Preferred Stock for any period
greater or less than a full dividend period will be computed on the basis of a
360-day year consisting of twelve 30-day months. Dividends payable on the
Public Preferred Stock for each full dividend period will be computed by
dividing the annual dividend rate by four.
Except as provided in the next sentence, no dividend will be declared or paid
on any Parity Stock (as defined below) unless full cumulative dividends have
been paid on the Public Preferred Stock for all prior dividend periods. If
accrued dividends on the Public Preferred Stock for all prior dividend periods
have not been paid in full, then any dividend declared on the Public Preferred
Stock for any dividend period and on
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any Parity Stock will be declared ratably in proportion to accrued and unpaid
dividends on the Public Preferred Stock and such Parity Stock.
The Company will not (i) declare, pay or set apart funds for the payment of
any dividend or other distribution with respect to any Junior Stock (as defined
below) or (ii) redeem, purchase or otherwise acquire for consideration any
Junior Stock or Parity Stock through a sinking fund or otherwise (except by
conversion into or exchange for shares of Junior Stock and other than a
redemption or purchase or other acquisition of New Shares made for purposes of
an employee incentive or benefit plan of the Company or any subsidiary), unless
all accrued and unpaid dividends with respect to the Public Preferred Stock and
any Parity Stock at the time such dividends or other distributions are payable
or such redemption, purchase or acquisition is to occur have been paid or funds
have been set apart for payment of such dividends.
For purposes of the description of the Public Preferred Stock, (i) the term
"dividend" does not include dividends payable solely in shares of Junior Stock
on Junior Stock, or in options, warrants or rights to holders of Junior Stock
to subscribe for or purchase any Junior Stock, (ii) the term "Parity Stock"
means any other class or series of preferred stock ranking on a parity with the
Public Preferred Stock as to the payment of dividends and amounts payable upon
liquidation, dissolution or winding up and (iii) the term "Junior Stock" means
the New Shares, the ESOP Preferred Stock, the Voting Preferred Stock, the
Director Preferred Stock, any shares of Junior Participating Preferred Stock
issued pursuant to the Rights and any other class or series of capital stock of
the Company now or hereafter issued and outstanding that ranks junior as to the
payment of dividends or amounts payable upon liquidation, dissolution or
winding up to the Public Preferred Stock.
The Company currently expects that it will have sufficient accumulated
earnings and profits as of the time of any anticipated distributions, within
the reasonably foreseeable future, on the Public Preferred Stock (as
represented by Depositary Preferred Shares) such that distributions within such
period should be treated as dividends within the meaning of Section 316(a) of
the Internal Revenue Code. However, there can be no assurance that such
expected amounts of accumulated earnings and profits will actually exist at the
time of any such distributions.
Redemption
The Public Preferred Stock is not redeemable prior to the fifth anniversary
of the Issue Date or, if the UAL Preferred Offering is consummated, prior to a
date which is a regular dividend payment date in the year 2004 which will be
identified prior to the Effective Time. On and after such date, the Public
Preferred Stock is redeemable at the option of the Company, in whole or in
part, at the redemption price of $25,000 per share, plus, in each case, all
dividends accrued and unpaid on the Public Preferred Stock up to the date fixed
for redemption, upon giving notice as provided below.
If fewer than all of the outstanding shares of Public Preferred Stock are to
be redeemed, the shares to be redeemed will be determined pro rata or by lot or
in such other manner as is prescribed by the Company's Board.
At least 30 days but not more than 60 days prior to the date fixed for the
redemption of the Public Preferred Stock, a written notice will be mailed to
each holder of record of Public Preferred Stock to be redeemed, notifying such
holder of the Company's election to redeem such shares, stating the date fixed
for redemption thereof and calling upon such holder to surrender to the Company
on the redemption date at the place designated in such notice the certificate
or certificates representing the number of shares specified therein. On or
after the redemption date, each holder of Public Preferred Stock to be redeemed
must present and surrender his certificate or certificates for such shares to
the Company at the place designated in such notice and thereupon the redemption
price of such shares will be paid to or on the order of the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate will be canceled. Should fewer than all the shares
represented by any such certificate be redeemed, a new certificate will be
issued representing the shares not redeemed.
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From and after the redemption date (unless the Company defaults in payment of
the redemption price), all dividends on the shares of Public Preferred Stock
designated for redemption in such notice will cease to accrue, and all rights
of the holders thereof as stockholders of the Company, except the right to
receive the redemption price thereof (including all accrued and unpaid
dividends up to the redemption date), will cease and terminate. Such shares may
not thereafter be transferred (except with the consent of the Company) on the
Company's books, and such shares may not be deemed to be outstanding for any
purpose whatsoever. On the redemption date, the Company must pay any accrued
and unpaid dividends in arrears for any dividend period ending on or prior to
the redemption date. In the case of a redemption date falling after a dividend
payment record date and prior to the related payment date, the holders of
Public Preferred Stock at the close of business on such record date will be
entitled to receive the dividend payable on such shares on the corresponding
dividend payment date, notwithstanding the redemption of such shares following
such dividend payment record date. Except as provided for in the preceding
sentences, no payment or allowance will be made for accrued dividends on any
shares of Public Preferred Stock called for redemption.
At its election, the Company, prior to the redemption date, may deposit the
redemption price of the shares of Public Preferred Stock so called for
redemption in trust for the holders thereof with a bank or trust company, in
which case such notice to holders of the shares of Public Preferred Stock to be
redeemed will (i) state the date of such deposit, (ii) specify the office of
such bank or trust company as the place of payment of the redemption price and
(iii) call upon such holders to surrender the certificates representing such
shares at such place on or after the date fixed in such redemption notice
(which may not be later than the redemption date), against payment of the
redemption price (including all accrued and unpaid dividends up to the
redemption date). Any moneys so deposited which remain unclaimed by the holders
of Public Preferred Stock at the end of two years after the redemption date
will be returned by such bank or trust company to the Company.
Liquidation Preference
The holders of shares of Public Preferred Stock will be entitled to receive,
in the event of any liquidation, dissolution or winding up of the Company,
$25,000 per share plus an amount per share equal to all dividends (whether or
not earned or declared) accrued and unpaid thereon to the date of final
distribution to such holders (for purposes of the description of the Public
Preferred Stock, the "Liquidation Preference"), and no more.
Until the holders of the Public Preferred Stock have been paid the
Liquidation Preference in full, no payment will be made to any holder of Junior
Stock upon the liquidation, dissolution or winding up of the Company. If, upon
any liquidation, dissolution or winding up of the Company, the assets of the
Company, or proceeds thereof, distributable among the holders of the shares of
Public Preferred Stock are insufficient to pay in full the Liquidation
Preference and the liquidation preference with respect to any other shares of
Parity Stock, then such assets, or the proceeds thereof, will be distributed
among the holders of shares of Public Preferred Stock and any such Parity Stock
ratably in accordance with the respective amounts that would be payable on such
shares of Public Preferred Stock and any such Parity Stock if all amounts
payable thereon were paid in full. Neither a consolidation or merger of the
Company with another corporation nor a sale, lease or transfer of all or
substantially all of the Company's assets will be considered a liquidation,
dissolution or winding up, voluntary or involuntary, of the Company.
Voting Rights
Except as indicated below, or except as otherwise from time to time required
by applicable law, the holders of shares of Public Preferred Stock will not
have any voting rights, and their consent will not be required for taking any
corporate action. When and if the holders of the Public Preferred Stock are
entitled to vote, each share will be entitled to 1,000 votes.
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If the equivalent of six quarterly dividends payable on the Public Preferred
Stock have not been declared and paid or set apart for payment, whether or not
consecutive, the number of directors of the Company will be increased by two
and the holders of all Public Preferred Stock and any other series of Serial
Preferred Stock in respect of which such a default exists, voting as a class
without regard to series, will be entitled to elect two additional directors at
the next annual meeting and each subsequent meeting, until all cumulative
dividends have been paid in full or set apart for payment.
The affirmative vote or consent of the holders of 66 2/3% of the outstanding
shares of the Public Preferred Stock will be required for any amendment of the
Restated Certificate that alters or changes the powers, preferences, privileges
or rights of the Public Preferred Stock so as to materially adversely affect
the holders thereof. The affirmative vote or consent of the holders of shares
representing 66 2/3% of the outstanding shares of the Public Preferred Stock
will be required to authorize the creation or issue of, or reclassify any
authorized stock of the Company into, or issue or authorize any obligation or
security convertible into or evidencing a right to purchase, any additional
class or series of stock ranking senior to the Public Preferred Stock.
Except as required by law, the holders of Public Preferred Stock will not be
entitled to vote on any merger or consolidation involving the Company or a sale
of all or substantially all of the assets of the Company.
DEPOSITARY PREFERRED SHARES
The Depositary Preferred Shares will be issued under a Deposit Agreement (the
"Deposit Agreement") between the Company and First Chicago Trust Company of New
York, as the Depositary (the "Depositary"). A copy of the Deposit Agreement has
been filed as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus is a part. The summary of terms of the Depositary
Preferred Shares, the Depositary Receipts (as defined below) and the Deposit
Agreement contained in this Proxy Statement/Prospectus does not purport to be
complete and is subject to, and is qualified in its entirety by, the provisions
of the Deposit Agreement and the form of Depositary Receipt attached thereto,
including the definitions therein of certain capitalized terms used in this
Proxy Statement/Prospectus.
General
The Company will issue receipts for fractional interests ("Depositary
Preferred Shares" or "Depositary Shares") in the shares of the Public Preferred
Stock rather than full shares of the Public Preferred Stock. Each Depositary
Preferred Share will represent an interest in one one-thousandth of a share of
the Public Preferred Stock (the equivalent of $25 liquidation preference of
Public Preferred Stock).
The shares of the Public Preferred Stock represented by Depositary Preferred
Shares will be deposited under the Deposit Agreement. Subject to the terms of
the Deposit Agreement, each owner of a Depositary Preferred Share will be
entitled, in proportion to the applicable interest in a share of the Public
Preferred Stock represented by such Depositary Preferred Share, to all the
rights and preferences of the interest in shares of the Public Preferred Stock
represented thereby (including dividend, voting, redemption and liquidation
rights).
The Depositary Preferred Shares have been approved for listing on the NYSE,
although there can be no assurance that at or following the Effective Time any
trading market for the Depositary Preferred Shares will develop.
Dividends and Other Distributions
The Depositary will distribute all cash dividends or other cash distributions
received in respect of the shares of the Public Preferred Stock to the record
holders of Depositary Preferred Shares relating to the Public Preferred Stock
in proportion to the numbers of such Depositary Preferred Shares owned by such
holders.
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In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary
Preferred Shares in an equitable manner, unless the Depositary determines that
it is not feasible to make such distribution, in which case the Depositary may
sell such property and distribute the net proceeds from such sale to such
holders.
Redemption of Depositary Preferred Shares
If the shares of the Public Preferred Stock represented by Depositary
Preferred Shares are subject to redemption, the Depositary Preferred Shares
will be redeemed from the proceeds received by the Depositary resulting from
the redemption, in whole or in part, of such shares of the Public Preferred
Stock held by the Depositary. The redemption price per Depositary Preferred
Share will be equal to the applicable fraction of the redemption price per
share payable with respect to such shares of the Public Preferred Stock.
Whenever the Company redeems shares of the Public Preferred Stock held by the
Depositary, the Depositary will redeem as of the same redemption date the
number of Depositary Preferred Shares representing shares of the Public
Preferred Stock so redeemed. If fewer than all the Depositary Preferred Shares
are to be redeemed, the Depositary Preferred Shares to be redeemed will be
selected by lot, pro rata or by any other equitable method as may be determined
by the Depositary.
Voting the Shares of the Public Preferred Stock
Upon receipt of notice of any meeting at which the holders of the Public
Preferred Stock are entitled to vote, the Depositary will mail the information
contained in such notice of meeting to the record holders of the Depositary
Preferred Shares relating to such shares of the Public Preferred Stock. Each
record holder of such Depositary Preferred Shares on the record date (which
will be the same date as the record date for the shares of the Public Preferred
Stock) will be entitled to instruct the Depositary as to the exercise of the
voting rights pertaining to the fraction of the shares of the Public Preferred
Stock represented by such holder's Depositary Shares. The Depositary will
endeavor, insofar as practicable, to vote the shares of the Public Preferred
Stock represented by such Depositary Preferred Shares in accordance with such
instructions, and the Company will agree to take all reasonable action that may
be deemed necessary by the Depositary in order to enable the Depositary to do
so. The Depositary will abstain from voting the shares of the Public Preferred
Stock to the extent it does not receive specific instructions from the holder
of Depositary Preferred Shares representing such shares of the Public Preferred
Stock.
Amendment and Termination of the Deposit Agreement
The form of Depositary Receipt evidencing the Depositary Preferred Shares and
any provision of the Deposit Agreement may at any time be amended by agreement
between the Company and the Depositary. However, any amendment that materially
and adversely alters the rights of the holders of Depositary Shares will not be
effective unless the holders of at least a majority of the Depositary Preferred
Shares then outstanding approve such amendment. The Deposit Agreement will only
terminate if (i) all outstanding Depositary Preferred Shares have been redeemed
or (ii) there has been a final distribution in respect of the shares of the
Public Preferred Stock in connection with any liquidation, dissolution or
winding up of the Company and such distribution has been distributed to the
holders of the Depositary Receipts.
Charges of Depositary
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. The Company
will pay charges of the Depositary in connection with the initial deposit of
the shares of the Public Preferred Stock and issuance of Depositary Receipts,
all withdrawals of shares of the Public Preferred Stock by owners of Depositary
Preferred Shares and any redemption of the shares of the Public Preferred
Stock. Holders of Depositary Receipts will pay other transfer and other taxes
and governmental charges and such other charges as are expressly provided in
the Deposit Agreement to be for their accounts.
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Resignation and Removal of Depositary
The Depositary may resign at any time by delivering to the Company notice of
its election to do so, and the Company may at any time remove the Depositary,
any such resignation or removal to take effect upon the appointment of a
successor Depositary and its acceptance of such appointment. Such successor
Depositary must be appointed within 60 days after delivery of the notice of
resignation or removal and must be a bank or trust company having its
principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
Miscellaneous
The Depositary will forward all reports and communications from the Company
that are delivered to the Depositary and that the Company is required or
otherwise determines to furnish to the holders of the Depositary Preferred
Shares.
Neither the Depositary nor the Company will be liable under the Deposit
Agreement to holders of Depositary Receipts other than for its gross
negligence, willful misconduct or bad faith. Neither the Company nor the
Depositary will be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Preferred Shares or Public Preferred Stock unless
satisfactory indemnity is furnished. The Company and the Depositary may rely
upon written advice of counsel or accountants, or upon information provided by
persons presenting shares of the Public Preferred Stock for deposit, holders
of Depositary Receipts or other persons believed to be competent and on
documents believed to be genuine.
THE SERIES D REDEEMABLE PREFERRED STOCK
The summary of terms of the Redeemable Preferred Stock contained in this
Proxy Statement/Prospectus Section does not purport to be complete and is
subject to, and is qualified in its entirety by, the provisions of the
Restated Certificate that will become effective in connection with the
consummation of the Recapitalization. A copy of the Restated Certificate is
included elsewhere in this Proxy Statement/Prospectus.
General
The Series D Redeemable Preferred Stock will be issued in units equal to one
one-thousandth of a share, and as part of the Recapitalization, each
outstanding Old Share will, without further action on the part of the holder
thereof, be reclassified and converted into, among other things, one one-
thousandth of a share of Series D Redeemable Preferred Stock. When issued, the
Series D Redeemable Preferred Stock will be validly issued, fully paid and
nonassessable.
Redemption
Each one one-thousandth of a share of Series D Redeemable Preferred Stock
will be redeemable, and immediately upon the issuance thereof the Company will
redeem each one one-thousandth of a share of Series D Redeemable Preferred
Stock that is issued, for (i) one half of a New Share, (ii) $25.80 in cash,
(iii) either (a) $15.55 principal amount of Series A Debentures or (b) if the
United Series A Offering is consummated, the cash proceeds (without deducting
any underwriting discount or other costs) from the sale thereof by United
pursuant to the United Series A Offering, (iv) either (a) $15.55 principal
amount of Series B Debentures or (b) if the United Series B Offering is
consummated, the cash proceeds (without deducting any underwriting discount or
other costs) from the sale thereof by United pursuant to the United Series B
Offering and (v) either (a) Depositary Preferred Shares representing interests
in $31.10 liquidation preference of Public Preferred Stock or (b) if the UAL
Preferred Offering is consummated, the cash proceeds (without deducting any
underwriting discount or other costs) from the sale thereof by the Company
pursuant to the UAL Preferred Offering (such half New Share, cash and, if
applicable, securities to be received upon redemption of the Series D
Redeemable Preferred Stock are referred to herein as the "Redemption
Consideration").
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Fractional shares of Series D Redeemable Preferred Stock will be issued, and
immediately redeemed, in the Recapitalization. If the applicable Offerings are
not consummated, (i) the Series A Debentures and Series B Debentures will be
issued to holders of Series D Redeemable Preferred Stock only in principal
amounts equal to integral multiples of $100, (ii) Depositary Preferred Shares
will be issued only to represent interests in $25 liquidation preference of the
Series B Preferred Stock or integral multiples thereof and (iii) in lieu of
issuing Series A Debentures and Series B Debentures other than in integral
multiples of $100, and Depositary Preferred Shares other than in multiples of
$25, the Company will pay to each holder of Series D Redeemable Preferred Stock
an amount of cash that is equal to the portion of the Series A Debentures,
Series B Debentures, and/or Depositary Preferred Shares to which such holder
would be entitled but for the immediately preceding sentence, that is not an
integral multiple of $100 or $25, as the case may be. See "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--Payment for Shares."
At the time of the redemption, the rights of all holders of Series D
Redeemable Preferred Stock will cease as stockholders of the Company with
respect to such shares (except the right to receive the Redemption
Consideration as provided above), and the person entitled to receive the
Redemption Consideration upon the redemption will be treated for all purposes
as the owner of such Redemption Consideration as of the date of such
redemption.
Ranking
The Series D Redeemable Preferred Stock will rank on a parity with the Series
A Preferred Stock and the Public Preferred Stock and will rank senior to the
New Shares, the ESOP Preferred Stock, the Voting Preferred Stock, the Director
Preferred Stock and any shares of Junior Participating Preferred Stock issued
pursuant to the Rights with respect to amounts payable upon liquidation,
dissolution or winding up.
Dividends
Holders of shares of Series D Redeemable Preferred Stock will not be entitled
to receive any dividends.
Liquidation Preference
The holder of a share of Series D Redeemable Preferred Stock, or any fraction
thereof, will be entitled to receive, in the event of any liquidation,
dissolution or winding up of the Company, for each one one-thousandth of a
share of Series D Redeemable Preferred Stock, (i) $25.80 in cash, (ii) either
(a) $15.55 principal amount of Series A Debentures or (b) if the United Series
A Offering is consummated, the cash proceeds (without deducting any
underwriting discount or other costs) from the sale thereof by United pursuant
to the United Series A Offering, (iii) either (a) $15.55 principal amount of
Series B Debentures or (b) if the United Series B Offering is consummated, the
cash proceeds (without deducting any underwriting discount or other costs) from
the sale thereof by United pursuant to the United Series B Offering and (iv)
either (a) Depositary Preferred Shares representing interests in $31.10
liquidation preference of Public Preferred Stock or (b) if the UAL Preferred
Offering is consummated, the cash proceeds (without deducting any underwriting
discount or other costs) from the sale thereof by the Company pursuant to the
UAL Preferred Offering (for purposes of the description of the Series D
Redeemable Preferred Stock, such cash and, if applicable, securities to be
received for a share of Series D Redeemable Preferred Stock upon liquidation,
dissolution or winding up are referred to herein as the "Liquidation
Preference") and no more.
Until the holders of the Series D Redeemable Preferred Stock have been paid
the Liquidation Preference in full, no payment will be made to any holder of
Junior Stock (as defined below) upon the liquidation, dissolution or winding up
of the Company. If, upon any liquidation, dissolution or winding up of the
Company, the assets of the Company, or proceeds thereof, distributable among
the holders of the shares of Series D Redeemable Preferred Stock are
insufficient to pay in full the Liquidation Preference and the liquidation
preference with respect to any other shares of Parity Stock (as defined below),
then such assets, or the proceeds thereof, will be distributed among the
holders of shares of Series D Redeemable Preferred
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Stock and any such Parity Stock ratably in accordance with the respective
amounts that would be payable on such shares of Series D Redeemable Preferred
Stock and any such Parity Stock if all amounts payable thereon were paid in
full. Neither a consolidation or merger of the Company with another corporation
nor a sale, lease or transfer of all or substantially all of the Company's
assets will be considered a liquidation, dissolution or winding up, voluntary
or involuntary, of the Company.
For purposes of the description of the Series D Redeemable Preferred Stock,
(i) the term "Parity Stock" means any other class or series of preferred stock
ranking on a parity with the Series D Redeemable Preferred Stock as to the
payment of dividends and amounts payable upon liquidation, dissolution or
winding up and (ii) the term "Junior Stock" means the New Shares, the ESOP
Preferred Stock, the Voting Preferred Stock, the Director Preferred Stock, any
shares of Junior Participating Preferred Stock issued pursuant to the Rights
and any other class or series of capital stock of the Company now or hereafter
issued and outstanding that ranks junior as to the payment of dividends and
amounts payable upon liquidation, dissolution or winding up to the Series D
Redeemable Preferred Stock.
Voting Rights
Except as otherwise from time to time required by applicable law, the holders
of shares of Series D Redeemable Preferred Stock will not have any voting
rights and their consent will not be required for taking any corporate action.
When and if the holders of the Series D Redeemable Preferred Stock are entitled
to vote, each share will be entitled to one vote.
THE ESOP PREFERRED STOCK
The summary of terms of the ESOP Preferred Stock contained in this Proxy
Statement/Prospectus does not purport to be complete and is subject to, and is
qualified in its entirety by, the provisions of the Restated Certificate that
will become effective in connection with the consummation of the
Recapitalization. A copy of the Restated Certificate is included elsewhere in
this Proxy Statement/Prospectus.
General
The ESOP Preferred Stock will consist of two similar classes of Preferred
Stock of the Company that will be designated as Class 1 ESOP Convertible
Preferred Stock (the "Class 1 ESOP Preferred Stock") and Class 2 ESOP
Convertible Preferred Stock (the "Class 2 ESOP Preferred Stock" and, together
with the Class 1 ESOP Preferred Stock, the "ESOP Preferred Stock"). Where the
summaries do not make a distinction between the Class 1 ESOP Preferred Stock
and the Class 2 ESOP Preferred Stock, such summaries refer to either class.
An aggregate of 17,675,345 shares of Class 1 ESOP Preferred Stock and Class 2
ESOP Preferred Stock will be issued to the ESOP Trustee in connection with the
Recapitalization. See "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs."
The shares of the ESOP Preferred Stock will be convertible into New Shares as
described below. If all the shares of ESOP Preferred Stock to be issued in
connection with the Recapitalization were to be converted into New Shares
immediately upon issuance, such New Shares would constitute approximately 55%
of the New Shares (including New Shares issuable upon exercise of the ESOP
Preferred Stock) that would be outstanding at that time, on a fully diluted
basis based on the treasury stock method. If the New Shares maintain an average
fair market value that exceeds $136 per share during the year following the
Issue Date that is established under the Plan of Recapitalization, a number of
additional shares of ESOP Preferred Stock will be issued or reserved for
issuance as Book-Entry Shares. With the issuance or reservation for issuance of
such additional shares, the ownership interest of the ESOPs could be increased
from approximately 55% to up to approximately 63% of the Company. See "THE PLAN
OF RECAPITALIZATION--Establishment of ESOPs--Additional Shares."
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Ranking
The ESOP Preferred Stock will rank junior to the Series A Preferred Stock,
the Public Preferred and the Series D Redeemable Preferred Stock and will rank
senior to the New Shares, the Voting Preferred Stock, the Director Preferred
Stock and any shares of Junior Participating Preferred Stock issued pursuant to
the Rights with respect to payment of dividends and amounts payable upon
liquidation, dissolution or winding up. The Class 1 ESOP Preferred Stock will
rank senior to the Class 2 ESOP Preferred Stock with respect to the payment of
Fixed Dividends (as defined below) and the Class 1 ESOP Preferred Stock will
rank on a parity with the Class 2 ESOP Preferred Stock as to the payment of
Participating Dividends (as defined below) and as to amounts payable upon
liquidation, dissolution or winding up.
Dividends
Holders of Class 1 ESOP Preferred Stock will be entitled to receive, when, as
and if declared by the Board of Directors of the Company out of assets of the
Company legally available therefor, cumulative cash dividends at a rate per
annum of a dollar amount per share of Class 1 ESOP Preferred Stock not to
exceed, without the consent of the Unions, seven percent of the price per share
paid by the ESOP Trustee for such shares at the Effective Time (See "THE PLAN
OF RECAPITALIZATION--Establishment of ESOPs--Sales of ESOP Preferred Stock")
(the "Fixed Dividend"). The Fixed Dividends on the Class 1 ESOP Preferred Stock
will cease to accrue on March 31, 2000. Under certain circumstances, any Fixed
Dividends that remain accrued and unpaid on April 1, 2000 will not prevent the
payment of dividends on any capital stock of the Company that ranks junior to
the Class 1 ESOP Preferred Stock with respect to the payment of dividends,
although such accrued and unpaid Fixed Dividends will remain a part of the
Liquidation Preference (as defined below) payable in respect of the Class 1
ESOP Preferred Stock upon any liquidation, dissolution or winding up of the
Company. In addition, if during any 12-month period ending on the annual
dividend payment date, holders of the New Shares receive any cash dividends or
cash distributions thereon, and the aggregate amount of such dividends and
distributions that would have been received, during such period, by the holder
of a share of Class 1 ESOP Preferred Stock had such share of Class 1 ESOP
Preferred Stock been converted into New Shares, exceeds the amount of the Fixed
Dividend paid on such share of Class 1 ESOP Preferred Stock, then the holders
of the Class 1 ESOP Preferred Stock will be entitled to receive an additional
cash dividend in an amount equal to such excess (the "Participating Dividend"),
although the aggregate amount of the Fixed Dividend and the Participating
Dividend paid on any share of Class 1 ESOP Preferred Stock with respect to any
annual dividend period may not exceed 12 1/2% of the fair market value of the
New Shares into which such share of Class 1 ESOP Preferred Stock is
convertible.
Holders of Class 2 ESOP Preferred Stock will not be entitled to receive any
Fixed Dividend. If during any 12-month period ending on the annual dividend
payment date, holders of the New Shares receive any cash dividends or cash
distributions thereon, then the holders of the Class 2 ESOP Preferred Stock
will be entitled to receive a cash dividend in an amount equal to the dividend
they would have received had their shares of Class 2 ESOP Preferred Stock been
converted into and were outstanding as New Shares at all relevant times,
although the aggregate amount of the dividend paid on any share of Class 2 ESOP
Preferred Stock with respect to any annual dividend period may not exceed 12
1/2% of the fair market value of the New Shares into which it is convertible.
If the holders of the New Shares receive cash dividends and cash
distributions that exceed 12 1/2% of the fair market value of such shares, such
excess will be applied to adjust the Conversion Rate (as defined below) on the
ESOP Preferred Stock.
Except as described above, the Company will not (i) declare, pay or set apart
funds for the payment of any dividend or other distribution with respect to any
Junior Stock (as defined below) or (ii) redeem, purchase or otherwise acquire
for consideration any Junior Stock or Parity Stock (as defined below) through a
sinking fund or otherwise (except by conversion into or exchange for shares of
Junior Stock and other than a redemption or purchase or other acquisition of
New Shares made for purposes of an employee incentive or
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benefit plan of the Company or any subsidiary), unless all accrued and unpaid
dividends with respect to the ESOP Preferred Stock and any Parity Stock at the
time such dividends are payable have been paid or funds have been set apart for
payment of such dividends.
For purposes of the description of the ESOP Preferred Stock, (i) the term
"dividend" does not include dividends payable solely in shares of Junior Stock
on Junior Stock, or in options, warrants or rights to holders of Junior Stock
to subscribe for or purchase any Junior Stock, (ii) the term "Parity Stock"
means any class or series of preferred stock ranking on a parity with the ESOP
Preferred Stock as to payment of dividends (with respect to such dividends) or
amounts payable upon liquidation, dissolution or winding up (with respect to
such amounts) and (iii) the term "Junior Stock" means the New Shares, the
Voting Preferred Stock, the Director Preferred Stock, any shares of Junior
Participating Preferred Stock issued pursuant to the Rights and any other class
or series of capital stock of the Company now or hereafter issued and
outstanding that ranks junior as to the payment of dividends (with respect to
such dividends) or amounts payable upon liquidation, dissolution or winding up
(with respect to such amounts) to the ESOP Preferred Stock.
Conversion
The ESOP Preferred Stock will be convertible, in whole or in part, at any
time and from time to time, into New Shares initially at the rate (for purposes
of the description of ESOP Preferred Stock, the "Conversion Rate") of one New
Share for each share of ESOP Preferred Stock converted. In addition, the
Conversion Rate on the ESOP Preferred Stock will be adjusted upon the
occurrence of a variety of events, including, without limitation, a
distribution of capital stock to holders of New Shares, a subdivision,
recombination or reclassification of the New Shares, the issuance to holders of
New Shares of rights to subscribe for equity securities at a price per New
Share that is less than the fair market value of a New Share, the issuance of
New Shares or securities representing a right to acquire New Shares at a price
per New Share that is less than the fair market value of a New Share, the
payment of cash dividends and cash distributions to holders of New Shares that
exceed in the aggregate 12 1/2% of the fair market value of the New Shares, the
payment of any non-cash dividend or distribution to holders of New Shares and
certain Pro Rata Repurchases of New Shares.
Redemption
The ESOP Preferred Stock will not be redeemable.
Liquidation Preference
The holders of shares of ESOP Preferred Stock will be entitled to receive, in
the event of any liquidation, dissolution or winding up of the Company, a
dollar amount per share equal to the price per share paid by the ESOP Trustee
for the Class 1 ESOP Preferred Stock at the Effective Time (see "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--Sales of ESOP Preferred Stock"), plus
an amount per share equal to all dividends (whether or not earned or declared)
accrued and unpaid thereon to the date of final distribution to such holders,
including, without limitation, Fixed Dividends in respect of the Class 1 ESOP
Preferred Stock that are accrued and unpaid as of April 1, 2000 (but that will
not prevent the payment of dividends on any capital stock of the Company that
ranks junior to the Class 1 ESOP Preferred Stock with respect to the payment of
dividends) (for purposes of the description of the ESOP Preferred Stock, the
"Liquidation Preference"), and no more.
Until the holders of the ESOP Preferred Stock have been paid the Liquidation
Preference in full, no payment will be made to any holder of Junior Stock upon
the liquidation, dissolution or winding up of the Company. If, upon any
liquidation, dissolution or winding up of the Company, the assets of the
Company, or proceeds thereof, distributable among the holders of the shares of
ESOP Preferred Stock are insufficient to
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pay in full the Liquidation Preference and the liquidation preference with
respect to any other shares of Parity Stock, then such assets, or the proceeds
thereof, will be distributed among the holders of shares of ESOP Preferred
Stock and any such Parity Stock ratably in accordance with the respective
amounts that would be payable on such shares of ESOP Preferred Stock and any
such Parity Stock if all amounts payable thereon were paid in full. Neither a
consolidation or merger of the Company with another corporation nor a sale,
lease or transfer of all or substantially all of the Company's assets will be
considered a liquidation, dissolution or winding up, voluntary or involuntary,
of the Company.
Voting Rights
Except as otherwise from time to time required by applicable law, the holders
of shares of ESOP Preferred Stock will not have any voting rights, and their
consent will not be required for taking any corporate action. When and if the
holders of ESOP Preferred Stock are entitled to vote, each share will be
entitled to one vote.
Consolidation, Merger, etc.
Upon the occurrence of certain mergers and other similar transactions, the
holders of the ESOP Preferred Stock will be entitled to receive, depending on
the circumstances, either (i) a preferred stock having the same powers,
preference and relative, participating, optional or other special rights as the
class of ESOP Preferred Stock they held prior to such merger or other
transaction or (ii) the consideration receivable by the holders of the number
of New Shares into which such shares of ESOP Preferred Stock could have been
converted immediately prior to such merger or other transaction.
THE VOTING PREFERRED STOCK
The summary of terms of the Voting Preferred Stock contained in this Proxy
Statement/Prospectus does not purport to be complete and is subject to, and is
qualified in its entirety by, the provisions of the Restated Certificate that
will become effective in connection with the consummation of the
Recapitalization. A copy of the Restated Certificate is included elsewhere in
this Proxy Statement/Prospectus.
General
The Voting Preferred Stock will consist of three similar classes of Preferred
Stock of the Company that will be designated as Class P ESOP Voting Junior
Preferred Stock, which will be allocated to ESOP accounts of employees
represented by ALPA (the "Class P Voting Preferred Stock"), Class M ESOP Voting
Junior Preferred Stock, which will be allocated to ESOP accounts of employees
represented by the IAM (the "Class M Voting Preferred Stock") and Class S ESOP
Voting Junior Preferred Stock, which will be allocated to Salaried and
Management Employees' accounts (the "Class S Voting Preferred Stock" and,
together with the Class P Voting Preferred Stock and the Class M Voting
Preferred Stock, the "Voting Preferred Stock"). Where the summaries do not make
a distinction among the Class M Voting Preferred Stock, the Class P Voting
Preferred Stock and the Class S Voting Preferred Stock, such summaries refer to
any such class.
One share of Class P Voting Preferred Stock, one share of Class M Voting
Preferred Stock and one share of Class S Voting Preferred Stock will be issued
to the ESOP Trustee in connection with the Recapitalization at the Effective
Time. See "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs."
Voting Rights
The Voting Preferred Stock will vote with the holders of the New Shares as a
single class on all matters (except as to such matters as to which a separate
class vote may be required by the DGCL), except that until the Sunset, holders
of the Voting Preferred Stock will not be entitled to vote to elect members of
the Board of Directors. Until the Sunset, the Voting Preferred Stock will
represent the right to cast in the aggregate
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approximately 55% of the votes of all classes of capital stock that will vote
together with the New Shares as a single class (other than for the election of
members to the Board of Directors), subject to reduction for the number of New
Shares that have been issued upon conversion of shares of the ESOP Preferred
Stock that continue to be held by the ESOP. If the fair market value of the New
Shares exceeds $136 per share during the year following the Effective Time, the
number of votes represented by the Voting Preferred Stock will be increased
above approximately 55% of the New Shares (including New Shares issuable upon
exercise of the ESOP Preferred Stock that would be outstanding reserved for
issuance as Book-Entry Shares or remaining to be transferred to the ESOPs) to
up to a maximum of approximately 63%. See "THE PLAN OF RECAPITALIZATION--
Establishment of ESOPs--Additional Shares."
The voting power of the Voting Preferred Stock will be held in the Agreed
Percentages. Accordingly, by way of example, assuming that the Voting Preferred
Stock in the aggregate has the right to cast approximately 55% of the voting
power of the Company on a fully diluted basis based on the treasury stock
method, the Class P Voting Preferred Stock will be entitled to cast
approximately 25.43%, the Class M Voting Preferred Stock will be entitled to
cast approximately 20.42%, and the Class S Voting Preferred Stock will be
entitled to cast approximately 9.15%, subject to reduction as noted above.
After the Sunset, each class of Voting Preferred Stock will represent the
right to cast in the aggregate the number of votes that is equal to the
relevant Agreed Percentage of the number of New Shares into which the ESOP
Preferred Stock can be converted plus the number of Book-Entry Shares remaining
to be issued plus the number of Shares of ESOP Preferred Stock, if any,
remaining to be transferred to the ESOP. See "THE PLAN OF RECAPITALIZATION--
Establishment of ESOPs--General."
Other
The Voting Preferred Stock will not be entitled to receive any dividends. The
Voting Preferred Stock will be convertible into New Shares at the rate of one
ten-thousandth of a New Share for each share of Voting Preferred Stock
converted. All the Voting Preferred Stock will be converted into New Shares
automatically upon the occurrence of an Uninstructed Trustee Action (as defined
below) or at such time when none of the ESOP Preferred Stock remains
outstanding. The Voting Preferred Stock will have a liquidation preference of
$0.01 per share.
Upon the occurrence of certain mergers and other similar transactions, the
holders of the Voting Preferred Stock will be entitled to receive a preferred
stock having the same powers, preference and relative, participating, optional
or other special rights as the class of Voting Preferred Stock they held prior
to such merger or other transaction except that such preferred stock will not
control 55% of the vote.
THE DIRECTOR PREFERRED STOCK
The summary of terms of the Director Preferred Stock contained in the Proxy
Statement/Prospectus does not purport to be complete and is subject to, and is
qualified in its entirety by, the provisions of the Restated Certificate that
will become effective in connection with the consummation of the
Recapitalization. A copy of the Restated Certificate is included elsewhere in
this Proxy Statement/Prospectus.
General
The Director Preferred Stock will consist of four classes of Preferred Stock
of the Company that will be designated as the Class I Junior Preferred Stock
(the "Class I Preferred Stock"), the Class Pilot MEC Junior Preferred Stock
(the "Class Pilot MEC Preferred Stock"), the Class IAM Junior Preferred Stock
(the "Class IAM Preferred Stock") and the Class SAM Junior Preferred Stock (the
"Class SAM Preferred Stock" and, together with the Class I Preferred Stock, the
Class Pilot MEC Preferred Stock and the Class IAM Preferred Stock, the
"Director Preferred Stock"). Where the summaries do not make a distinction
among the several classes of Director Preferred Stock, such summaries refer to
any of them.
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Each of the classes of Director Preferred Stock has the power to elect one or
more members of the Board. None of the classes of Director Preferred Stock will
bear dividends. Each class of Director Preferred Stock will have a liquidation
preference of $0.01 per share.
Each of the Class Pilot MEC Preferred Stock, the Class IAM Preferred Stock
and the Class SAM Preferred Stock provides that upon the consolidation, merger
or similar transaction involving the Company or United, pursuant to which the
outstanding New Shares are to be exchanged for or converted into securities of
a successor or resulting company or cash or other property, the Class Pilot MEC
Preferred Stock, the Class IAM Preferred Stock and the Class SAM Preferred
Stock, respectively, will be converted into, or exchanged for, preferred stock
of such successor or resulting company having, in respect of such company, the
same powers, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, that the
original Class Pilot MEC Preferred Stock, Class IAM Preferred Stock and Class
SAM Preferred Stock had, respectively.
Class I Preferred Stock
The Class I Preferred Stock will be issued initially to Duane D. Fitzgerald,
Richard D. McCormick, John K. Van de Kamp and Paul A. Volcker who will serve as
the Independent Directors of the Company immediately following consummation of
the Recapitalization. The Restated Certificate authorizes the issuance of 10
shares of Class I Preferred Stock, although the Company expects that no more
than four shares will be outstanding at any time. The shares of Class I
Preferred Stock will be issued to the initial holders thereof pursuant to a
subscription agreement for a purchase price that is equal to the $0.01
liquidation value thereof.
The initial holders of the Class I Preferred Stock will enter into a
Stockholders' Agreement among themselves, ALPA, the IAM and the Company (the
"Class I Preferred Stockholders' Agreement"), pursuant to which the holders
agree to vote their shares to elect the Independent Directors nominated
pursuant to the provisions described in "THE PLAN OF RECAPITALIZATION--Revised
Governance Structure-- Independent Directors," and to refrain from transferring
the shares of Class I Preferred Stock other than to a person who has been
elected to serve as one of the Independent Directors and who agrees to be
subject to the provisions of the Class I Preferred Stockholders' Agreement. The
Restated Certificate and the Class I Preferred Stockholders' Agreement provide
that the Company, subject to legally available funds, will redeem or purchase
the shares of Class I Preferred Stock held by any holder thereof who votes
contrary to the Class I Preferred Stockholder's Agreement or who purports to
transfer the share of Class I Preferred Stock to any person other than an
Independent Director. Any share of Class I Preferred Stock redeemed or
purchased as provided in the immediately prior sentence may be reissued as
provided in the Restated Certificate or the Class I Preferred Stockholders'
Agreement. All shares of the Class I Preferred Stock will be redeemed
automatically upon the occurrence of the Sunset, and following such redemption,
none of the shares of Class I Preferred Stock may be reissued thereafter.
Class Pilot MEC Preferred Stock and Class IAM Preferred Stock
The Restated Certificate authorizes the issuance of one share of each of the
Class Pilot MEC Preferred Stock and the Class IAM Preferred Stock. The share of
the Class Pilot MEC Preferred Stock will be issued to the ALPA MEC, and the
share of Class IAM Preferred Stock will be issued to the IAM or its designee,
each pursuant to a subscription agreement for a purchase price equal to the
$0.01 liquidation value thereof. Each of the Class Pilot MEC Preferred Stock
and the Class IAM Preferred Stock will have the right to elect one Employee
Director, and the shares of such stock will be redeemed automatically upon the
purported transfer thereof to any person other than the holder thereof
authorized under the Restated Certificate. The Class Pilot MEC Preferred Stock
will be redeemed automatically upon the later of the Sunset or the occurrence
of the ALPA Termination Date. The Class IAM Preferred Stock will be redeemed
automatically upon the later of the Sunset or the occurrence of the IAM
Termination Date.
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Class SAM Preferred Stock
The Class SAM Preferred Stock will be issued initially to the person
nominated to serve as the Salaried and Management Director of the Company
immediately following consummation of the Recapitalization and to an additional
holder (the "Designated Holder"). The Restated Certificate authorizes the
issuance of ten shares of Class SAM Preferred Stock, although the Company
expects that no more than three shares will be outstanding at any time. Two
shares of Class SAM Preferred Stock will be held by the Salaried and Management
Director, and one share will be issued to the Designated Holder, pursuant to a
subscription agreement for a purchase price that is equal to the $0.01
liquidation value thereof.
The initial holders of the Class SAM Preferred Stock will enter into a
Stockholders' Agreement among themselves and the Company (the "Class SAM
Preferred Stockholders' Agreement"), pursuant to which the holders agree to
vote their shares to elect the Salaried and Management Director nominated by
the System Roundtable, and to refrain from transferring the shares of Class SAM
Preferred Stock other than to a person who has been elected to serve as the
Salaried and Management Director or another person designated by the System
Roundtable to be the Designated Holder, each of whom must agree to be subject
to the provisions of the Class SAM Preferred Stockholders' Agreement. The Class
SAM Preferred Stockholders' Agreement provides that in most instances the
Designated Holder will be the senior executive of United who has primary
responsibility for human resources. The Restated Certificate and the Class SAM
Preferred Stockholders' Agreement provide that the Company, subject to legally
available funds, will redeem or purchase the shares of Class SAM Preferred
Stock of any holder who votes contrary to the instructions given by the System
Roundtable or who purports to transfer the share or shares of Class SAM
Preferred Stock to any person other than the Salaried and Management Director
or another person designated by the System Roundtable. The Restated Certificate
provides that no holder of shares of Class SAM Preferred Stock will have the
right to vote unless at such time such person is the Salaried and Management
Director or the Designated Holder. Any share of Class SAM Preferred Stock that
is redeemed or purchased as provided in the immediately prior sentence may be
reissued as provided in the Restated Certificate and the Class SAM Preferred
Stockholders' Agreement. All shares of the Class SAM Preferred Stock will be
redeemed automatically on or after the Sunset upon the earlier to occur of the
ALPA Termination Date and the IAM Termination Date, and following such
redemption, none of the shares of Class SAM Preferred Stock may be reissued
thereafter.
Uninstructed Trustee Actions
Under certain circumstances prior to the Sunset, described below, (i) the
Voting Preferred Stock will cease to vote and (ii) the right to cast the votes
that the holder of the Voting Preferred Stock would otherwise have been
entitled to cast will be transferred generally in the following percentages:
46.23% to the holder of the Class Pilot MEC Preferred Stock, 37.13% to the
holder of the Class IAM Preferred Stock and 16.64% to the holders of the Class
SAM Preferred Stock.
In connection with (i) a stockholder vote on a transaction involving a merger
of the Company or United or a change of control of the Company or United, or
(ii) if the trustee under either ESOP enters into a binding commitment with
respect to any such transaction or (iii) if the trustee disposes of 10% or more
of the common equity initially represented by the ESOP Preferred Stock, (x) if
the trustee either (1) fails to solicit timely instructions from the Plan
participants or the Committees or (2) fails to act in accordance with the
instructions received, (y) if the merger or change of control transaction would
have been approved or if the trustee disposes of 10% or more of the common
equity initially represented by the ESOP Preferred Stock and (z) (I) the
trustee solicited instructions, failed to follow them and such transaction
would not have been approved if the trustee had followed the instructions, (II)
the trustee failed to follow instructions and the transaction would not have
been approved had the trustee cast all the votes represented by securities in
the Plan against the transaction or (III) the trustee failed to follow
instructions or to solicit instructions with respect to a matter upon which no
vote is required (the occurrence of the conditions set forth in clauses (x),
(y) and (z) being referred to as an "Uninstructed Trustee Action"), the voting
rights of the Voting Preferred Stock will be transferred from the Voting
Preferred Stock to the Class Pilot MEC Preferred Stock, the Class
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IAM Preferred Stock and the Class SAM Preferred Stock in the proportions
referred to above. In addition, if the trustee fails to solicit instructions or
disregards instructions received in respect of a vote on a transaction which,
if consummated, would constitute an Uninstructed Trustee Action, then the
voting power of the Voting Preferred Stock will shift to the Class Pilot MEC
Preferred Stock, the Class IAM Preferred Stock and the Class SAM Preferred
Stock and the transaction must be approved by the vote of the Class Pilot MEC
Preferred Stock, the Class IAM Preferred Stock and the Class SAM Preferred
Stock voting together as a class with the New Shares, in addition to any other
vote required by the Restated Certificate, stock exchange requirements or
applicable law.
In addition, if the Sunset occurs directly or indirectly as a result of an
Uninstructed Trustee Action (or for any reason within one year after an
Uninstructed Trustee Action), the voting power to which the Class Pilot MEC
Preferred Stock, the Class IAM Preferred Stock and the Class SAM Preferred
Stock succeed as a result of an Uninstructed Trustee Action will survive until
the anniversary of the Issue Date that occurs in the year 2010.
THE COMMON STOCK, THE SERIES A PREFERRED STOCK AND THE JUNIOR PARTICIPATING
PREFERRED STOCK
The following descriptions do not purport to be complete and are subject to,
and qualified in their entirety by reference to, the more complete descriptions
thereof set forth in the following documents, all of which have been filed as
exhibits to the Registration Statement of which this Proxy Statement/Prospectus
is a part: (i) the Company's current Amended and Restated Certificate of
Incorporation, (ii) its current Bylaws, (iii) the Restated Certificate that
will become effective upon the consummation of the Recapitalization, (iv) the
Bylaws that will become effective upon the consummation of the Recapitalization
and (v) the Rights Agreement, as amended, between the Company and First Chicago
Trust Company of New York, as Rights Agent, pursuant to which shares of Series
C Junior Participating Preferred Stock ("Junior Participating Preferred Stock")
are issuable. Copies of the Restated Certificate and Restated Bylaws are
included elsewhere in this Proxy Statement/Prospectus. Where the descriptions
do not make a distinction between the Old Shares and the New Shares, such
descriptions are applicable to both.
Common Stock
Dividend Rights. Holders of Old Shares are entitled to, and holders of New
Shares will be entitled to, receive dividends when, as and if declared by the
Board out of funds legally available therefor, provided that, so long as any
shares of preferred stock are outstanding, no dividends (other than dividends
payable in common stock) or other distributions may be made with respect to the
Old Shares (or, after the Effective Time, New Shares) unless full cumulative
dividends on the shares of preferred stock have been paid. The Company has not
paid cash dividends on the Old Shares since the third quarter of 1987.
As a holding company, the Company relies on distributions from United to pay
dividends on its capital stock. There are currently no contractual restrictions
on United's ability to pay dividends to the Company.
Voting Rights. Holders of Old Shares are entitled to one vote per share in
the election of directors and on any question arising at any stockholders'
meeting, voting as a single class. The New Shares will be entitled to cast one
vote per share. Upon the consummation of the Recapitalization and prior to the
Sunset, the New Shares and the Voting Preferred Stock will vote together as a
single class with respect to all matters submitted to the vote of the holders
of common stock pursuant to law or as provided in the Restated Certificate
except with respect to (a) such matters upon which the DGCL requires a separate
class vote and (b) the election of the Public Directors, whom the New Shares
will elect separately as a class. Until the Sunset, the New Shares will not
vote to elect any directors other than the Public Directors. After the Sunset,
the New Shares and the Voting Preferred Stock will continue to vote together as
a single class with respect to all matters submitted to the vote of the holders
of common stock pursuant to law or as provided in the Restated Certificate
except with respect to such matters upon which the DGCL requires a separate
class vote. See "--The Voting Preferred Stock--Voting Rights."
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Right of First Refusal. In connection with the Recapitalization, the Company
will enter into a First Refusal Agreement (the "First Refusal Agreement") with
ALPA, the IAM and the Salaried and Management Director (solely as the
representative of the Salaried and Management Employees) pursuant to which the
Company will agree that, if it proposes to issue any New Shares or other
securities that are exchangeable for or convertible into New Shares
(collectively, the "Equity Securities"), it must first offer such Equity
Securities to ALPA and the IAM on behalf of the employees represented thereby
and to the Salaried and Management Employees on the same terms and conditions
upon which the Company proposes to sell such Equity Securities to a third
party. Under the First Refusal Agreement, the members of ALPA will be entitled
to purchase 46.23% of the Equity Securities offered, the members of the IAM
will be entitled to purchase 37.13% of the Equity Securities offered and the
Salaried and Management Employees will be entitled to purchase 16.64% of the
Equity Securities offered. The First Refusal Agreement will terminate on the
Sunset.
Series A Preferred Stock
Dividends. Holders of shares of Series A Preferred Stock are entitled to
receive, when, as and if declared by the Board of the Company out of assets of
the Company legally available therefor, cumulative cash dividends at the rate
per annum of $6.25 per share of Series A Preferred Stock. Dividends on the
Series A Preferred Stock are payable quarterly in arrears. Dividends on the
Series A Preferred Stock are cumulative, and accumulations of dividends on
shares of Series A Preferred Stock do not bear interest.
Except as provided in the next sentence, no dividend will be declared or paid
on any Parity Stock (as defined below) unless full cumulative dividends have
been paid on the Series A Preferred Stock for all prior dividend periods. If
accrued dividends on the Series A Preferred Stock for all prior dividend
periods have not been paid in full then any dividend declared on the Series A
Preferred Stock for any dividend period and any dividend on any Parity Stock
will be declared ratably in proportion to accrued and unpaid dividends on the
Series A Preferred Stock and such Parity Stock.
The Company will not (i) declare, pay or set apart funds for the payment of
any dividend or other distribution with respect to any Junior Stock (as defined
below) or (ii) redeem, purchase or otherwise acquire for consideration any
Junior Stock or Parity Stock through a sinking fund or otherwise (except by
conversion into or exchange for shares of Junior Stock and other than a
redemption or purchase or other acquisition of shares of common stock of the
Company made for purposes of an employee incentive or benefit plan of the
Company or any subsidiary), unless all accrued and unpaid dividends with
respect to the Series A Preferred Stock and any Parity Stock at the time such
dividends are payable have been paid or funds have been set apart for payment
of such dividends.
For purposes of the description of the Series A Preferred Stock, (i) the term
"dividend" does not include dividends payable solely in shares of Junior Stock
on Junior Stock, or in options, warrants or rights to holders of Junior Stock
to subscribe for or purchase any Junior Stock, (ii) the term "Parity Stock"
means any class or series of preferred stock ranking on a parity with the
Series A Preferred Stock as to payment of dividends and amounts payable upon
liquidation, dissolution or winding up and (iii) the term "Junior Stock" means
the common stock (Old Shares or New Shares), the ESOP Preferred Stock, the
Voting Preferred Stock, the Director Preferred Stock, any shares of Junior
Participating Preferred Stock issued pursuant to the Rights, and any other
class or series of capital stock of the Company now or hereafter issued and
outstanding that ranks junior as to the payment of dividends or amounts payable
upon liquidation, dissolution or winding up to the Series A Preferred Stock.
Redemption. The Series A Preferred Stock is not redeemable prior to May 1,
1996. On and after such date, the Series A Preferred Stock is redeemable at the
option of the Company, in whole or in part, initially at $104.375 per share and
thereafter at prices declining ratably on each May 1 to $100.00 per share on
and after May 1, 2003, plus, in each case, all accrued and unpaid dividends.
Unless converted by the holders or redeemed by the Company, the Series A
Preferred Stock will have perpetual maturity.
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Liquidation Preference. The holders of shares of Series A Preferred Stock
will be entitled to receive, in the event of any liquidation, dissolution or
winding up of the Company, $100 per share plus an amount per share equal to all
dividends (whether or not earned or declared) accrued and unpaid thereon to the
date of final distribution to such holders (for purposes of the description of
the Series A Preferred Stock, the "Liquidation Preference"), and no more.
Until the holders of the Series A Preferred Stock have been paid the
Liquidation Preference in full, no payment will be made to any holder of Junior
Stock upon the liquidation, dissolution or winding up of the Company. If, upon
any liquidation, dissolution or winding up of the Company, the assets of the
Company, or proceeds thereof, distributable among the holders of the shares of
Series A Preferred Stock are insufficient to pay in full the Liquidation
Preference and the liquidation preference with respect to any other shares of
Parity Stock, then such assets, or the proceeds thereof, will be distributed
among the holders of shares of Series A Preferred Stock and any such Parity
Stock ratably in accordance with the respective amounts which would be payable
on such shares of Series A Preferred Stock and any such Parity Stock if all
amounts payable thereon were paid in full. Neither a consolidation or merger of
the Company with another corporation nor a sale or transfer of all or
substantially all of the Company's assets will be considered a liquidation,
dissolution or winding up, voluntary or involuntary, of the Company.
Voting Rights. Except as indicated below, or except as otherwise from time to
time required by applicable law, the holders of shares of Series A Preferred
Stock will not have any voting rights, and their consent will not be required
for taking any corporate action. When and if the holders of the Series A
Preferred Stock are entitled to vote, each share will be entitled to one vote.
If the equivalent of six quarterly dividends payable on the Series A
Preferred Stock or any other series of Serial Preferred Stock of the Company
have not been declared and paid or set apart for payment, whether or not
consecutive, the number of directors of the Company will be increased by two
and the holders of all such series in respect of which such a default exists,
voting as a class without regard to series, will be entitled to elect two
additional directors at the next annual meeting and each subsequent meeting,
until all cumulative dividends have been paid in full.
The affirmative vote or consent of the holders of 66 2/3% of the outstanding
shares of the Series A Preferred Stock, voting separately as a class with all
other affected series of Serial Preferred Stock that is also a Parity Stock,
will be required for any amendment of the Restated Certificate which alters or
changes the powers, preferences, privileges or rights of the Series A Preferred
Stock so as to materially adversely affect the holders thereof. The affirmative
vote or consent of the holders of shares representing 66 2/3% of the
outstanding shares of the Series A Preferred Stock and any other series of
Parity Stock, voting as a single class without regard to series, will be
required to authorize the creation or issue of, or reclassify any authorized
stock of the Company into, or issue or authorize any obligation or security
convertible into or evidencing a right to purchase, any additional class or
series of stock ranking senior to all such series of Parity Stock.
Except as required by law, the holders of Series A Preferred Stock will not
be entitled to vote on any merger or consolidation involving the Company or a
sale of all or substantially all of the assets of the Company.
Conversion Rights. Shares of Series A Preferred Stock are convertible, in
whole or in part, at any time at the option of the holders thereof, into Old
Shares. As of the date of this Proxy Statement/Prospectus, the conversion price
is $156.50 per Old Share (equivalent to a rate of approximately 0.639 Old
Shares for each share of Series A Preferred Stock), subject to adjustment as
set forth in the Restated Certificate ("Conversion Price"). Upon consummation
of the Recapitalization, each share of Series A Preferred Stock will receive,
upon conversion thereof, in respect of each Old Share into which such share of
Series A Preferred Stock was convertible immediately prior to the Effective
Time of the Recapitalization, the Recapitalization
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Consideration. The right to convert shares of Series A Preferred Stock called
for redemption will terminate at the close of business on the day preceding a
redemption date.
Junior Participating Preferred Stock
General. The Company has designated 1,250,000 shares of a series of Serial
Preferred Stock as Junior Participating Preferred Stock and such shares are
reserved for issuance upon exercise of the Rights associated with each share of
Common Stock. See "--Preferred Share Purchase Rights" below. As of the date of
this Proxy Statement/Prospectus, there are no shares of Junior Participating
Preferred Stock outstanding.
Ranking. The Junior Participating Preferred Stock ranks junior to all other
series of preferred stock as to dividends and amounts payable upon any
voluntary or involuntary liquidation, dissolution or winding up of the Company
unless the terms of any such other series shall provide otherwise.
Dividends. Holders of shares of Junior Participating Preferred Stock will be
entitled to receive, when, as and if declared by the Board of Directors of the
Company out of funds legally available therefor, cumulative cash dividends
payable quarterly on the fifteenth day of January, April, July and October in
each year (each such date being a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Junior Participating Preferred
Stock, in an amount per share equal to the greater of (a) $10.00 or (b) subject
to certain provisions for adjustment set forth in the Restated Certificate, 100
times the aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of common stock or a
subdivision of the outstanding shares of common stock since the immediately
preceding Quarterly Dividend Payment Date or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Junior Participating Preferred Stock.
The Company must declare a dividend or distribution on the Junior
Participating Preferred Stock immediately after it declares a dividend or
distribution on common stock (other than a dividend payable in shares of common
stock), provided that in the event no dividend or distribution has been
declared on common stock during the period between any Quarterly Dividend
Payment Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $10.00 per share on the Junior Participating Preferred Stock will
nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
The Restated Certificate sets forth certain restrictions imposed upon the
Company whenever quarterly dividends or other distributions payable on Junior
Participating Preferred Stock are in arrears, including, but not limited to,
restrictions on the Company's ability to declare or pay dividends on, make any
other distributions on, redeem or purchase or otherwise acquire for
consideration shares ranking junior to or on a parity with the Junior
Participating Preferred Stock either as to dividends or amounts payable upon
liquidation, dissolution or winding up of the Company.
Redemption. When issued and outstanding, the shares of Junior Participating
Preferred Stock will not be redeemable.
Liquidation Preference. Subject to (a) the rights of holders of preferred
stock of the Company ranking senior to Junior Participating Preferred Stock as
to dividends and amounts payable upon any voluntary or involuntary liquidation,
dissolution or winding up and (b) any other provision of the Restated
Certificate, upon any voluntary or involuntary liquidation, dissolution or
winding up of the Company, no distribution shall be made (1) to the holders of
shares of stock ranking junior (either as to dividends or amounts payable upon
any voluntary or involuntary liquidation, dissolution or winding up) to the
Junior Participating Preferred Stock unless, prior thereto, the holders of
shares of Junior Participating Preferred Stock will have received $100.00 per
share, plus accrued and unpaid dividends to the date of such payment, provided
that the holders of shares of Junior Participating Preferred Stock will be
entitled to receive an aggregate amount
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per share, subject to certain provisions for adjustment set forth in the
Restated Certificate, equal to 100 times the aggregate amount to be
distributed per share to holders of common stock, or (2) to the holders of
stock ranking on a parity (either as to dividends or amounts payable upon any
voluntary or involuntary liquidation, dissolution or winding up) with the
Junior Participating Preferred Stock, except distributions made ratably on
Junior Participating Preferred Stock and all other such parity stock in
proportion to the total amounts to which the holders of all such shares are
entitled upon such voluntary or involuntary liquidation, dissolution or
winding up.
Voting Rights. Except as indicated below or as expressly required by
applicable law, the holders of Junior Participating Preferred Stock will not
have voting rights.
Subject to certain provisions for adjustment set forth in the Restated
Certificate, each share of Junior Participating Preferred Stock will entitle
the holder thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Company. Except as indicated below or expressly required
by applicable law, the holders of Junior Participating Preferred Stock and the
holders of shares of common stock will vote together as one class on all
matters submitted to a vote of stockholders of the Company.
If the equivalent of six quarterly dividends payable on the Junior
Participating Preferred Stock or any other series of Serial Preferred Stock of
the Company have not been declared and paid or set aside for payment, whether
or not consecutive, the number of directors of the Company will be increased
by two and the holders of all such series in respect of which such a default
exists, voting as a class without regard to series, will be entitled to elect
two additional directors at the next annual meeting and each subsequent
meeting, until all cumulative dividends have been paid in full or until
noncumulative dividends have been paid regularly for at least a year.
Consolidation, Merger, Etc. In the event of any consolidation, merger,
combination or other transaction in which shares of common stock are exchanged
for or changed into other stock, securities, cash or other property, each
share of Junior Participating Preferred Stock shall be similarly exchanged or
changed in an amount per share equal to 100 times the aggregate amount of
stock, securities, cash or other property, as the case may be, for or into
which each share of common stock is exchanged or changed.
Preferred Share Purchase Rights
A Right is associated with, and trades with, each Old Share outstanding.
Similarly, a Right will be associated with, and trade with, each New Share
outstanding. As long as the Rights are associated with the New Share, each
newly issued New Share issued by the Company, including New Shares into which
the ESOP Preferred Stock and the Series A Preferred Stock are convertible,
will include one Right. Moreover, the Rights Agreement will be amended such
that a Right will be associated with each share of ESOP Preferred Stock
outstanding and each Authorized Unissued ESOP Share. Each Right will entitle
its holder to purchase one one-hundredth of a share of Junior Participating
Preferred Stock for $185 (subject to adjustment). Subject to amendment, the
Rights are not exercisable until 10 business days after any person or group
announces its beneficial ownership of 15% or more of the Common Stock. The
Rights Agreement will be amended to provide that the transactions contemplated
by the Recapitalization, including without limitation, the issuance of the
ESOP Preferred Stock and the Voting Preferred Stock to the ESOP and the Class
Pilot MEC Preferred Stock, the Class IAM Preferred Stock and the Class SAM
Preferred Stock to the respective holders thereof, will not cause the Rights
to become exercisable as a result thereof. See "THE PLAN OF RECAPITALIZATION--
Revised Governance Structure--Rights Plan."
If any person or group acquires 15% or more of the New Shares outstanding,
each Right holder (except the acquiring party) has the right to receive, upon
exercise, New Shares (or, under certain circumstances, cash, property or other
Company securities) having a market value of three times the exercise price of
the Right. If, after the Rights become exercisable, the Company is involved in
a merger where it does not survive or survives with a change or exchange of
its New Shares or the Company sells or transfers more than 50% of
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its assets or earning power, each Right will be exercisable for common stock
of the other party to such transaction having a market value of three times
the exercise price of the Right. The Company has the right to redeem the
Rights for $.05 per Right prior to the time that they become exercisable. The
Rights will expire on December 31, 1996.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Company's Board of Directors, except pursuant to
an offer conditioned on a substantial number of Rights being acquired. The
Rights should not interfere with any merger or other business combination
approved by the Company's Board of Directors since the Rights may be redeemed
or their terms amended by the Company as described above.
STOCKHOLDER PROPOSALS
PROPOSAL CONCERNING CUMULATIVE VOTING
Ms. Evelyn Y. Davis, Watergate Office Building, 2600 Virginia Avenue, N.W.,
Suite 215, Washington, D.C. 20037, owner of 53 Old Shares, has given notice
that she will introduce the following resolution at the Meeting:
RESOLVED: "That the stockholders of UAL Corp., assembled in Annual
Meeting in person and by proxy, hereby request the Board of Directors to
take the necessary steps to provide for cumulative voting in the election
of directors, which means each stockholder shall be entitled to as many
votes as shall equal the number of shares he or she owns multiplied by the
number of directors to be elected, and he or she may cast all of such votes
for a single candidate, or any two or more of them as he or she may see
fit."
REASONS: "Many states have mandatory cumulative voting, so do National
Banks."
"In addition, many corporations have adopted cumulative voting."
"Last year the owners of . . . shares, representing approximately 23.3%
of shares voting, voted FOR this proposal."
"If you AGREE, please mark your proxy FOR this resolution."
THE BOARD OF DIRECTORS OPPOSES THE ABOVE PROPOSAL
The Board structure included in the Recapitalization reflects a careful and
thoughtful balancing of interests between the employees of the Company, who as
of the Closing will beneficially own a majority of the economic and voting
power represented by the fully diluted common equity of the Company, and the
holders of the publicly traded New Shares, who at the time of Closing, will,
in effect, be minority stockholders in the Company. In particular, as the
Recapitalization is structured, the five Public Directors/1/ are elected by
the holders of the New Shares as a single cohesive group without any
structural bias in favor of any particular holder of New Shares or group of
such holders. The Board structure in the Recapitalization was heavily
negotiated and is complex, and the Board believes any additional complexity
that would be introduced through cumulative voting is both unwarranted and
inappropriate.
Cumulative voting also is undesirable because, among other things, it
introduces an opportunity for an individual holder of New Shares or group of
such holders to weight their votes and influence the Public Director election
process in a manner that may be contrary to the wishes of the holders of a
majority of the publicly-held New Shares. The Board believes that each Public
Director should serve on the Board only if he or she has been endorsed by the
holders of the New Shares as a whole. In addition, in the absence of the
Recapitalization transaction, the Board believes that the interests of the
stockholders as a whole are best served if the Board is elected by the
stockholders as a whole without cumulative voting.
- --------
/1/The Board assumes that for purposes of the Recapitalization, the proposal
would apply only to the election of Public Directors, and not to the election
of any class of directors on which the holders of New Shares would not vote.
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THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE AGAINST THE PROPOSAL.
PROPOSAL CONCERNING CONTINGENT EXECUTIVE COMPENSATION AGREEMENTS
The Board of Trustees of the National Electrical Benefit Fund, 1125 15th
Street, N.W., Washington, D.C. 20005, owner of 14,000 Old Shares, has given
notice that it will introduce the following resolution at the Meeting:
BE IT RESOLVED: That the shareholders of UAL Corporation ("United" or
"Company") request that the Board of Directors in the future refrain from
entering into agreements providing executive compensation contingent on a
change in control of the Company unless such agreements or arrangements are
specifically submitted to the shareholders for approval.
SUPPORTING STATEMENT
The Company has contingency employment arrangements with certain senior
executives, including Messrs. Wolf, Pope, and Nagin, which provide
compensation contingent upon a change in control of the Company. The
agreements provide that if an executive's employment is involuntarily
terminated after a change of control of the Company that executive will be
entitled to payment of lucrative severance compensation. In the case of Mr.
Wolf, such payments may amount to several million dollars (approximately
$3,400,000). Both Mr. Wolf's and Mr. Pope's agreements also provide for
vesting of unvested stock options, vesting of supplemental retirement
credits, and certain other benefits of an unspecified nature. Mr. Nagin's
agreement would provide payment of three times his base salary, as well as
payment for and the vesting of certain other unspecified benefits. As
described on pages 19, 23 & 24 of the Company's 1993 Proxy Statement, these
so-called "golden parachutes" may amount to millions of dollars in
guaranteed compensation for the affected executives. These employment
agreements with the "golden parachute" provisions were adopted without
consideration by the Company's shareholders. Golden parachutes, as defined
in this proposal, are payments contingent on change in control.
Lucrative severance pay to corporate executives triggered by a change in
control of the corporation, commonly referred to as "golden parachutes," is
a controversial matter. Golden parachutes introduce an inappropriate
element of personal consideration for managers that potentially conflicts
with their fiduciary responsibility to shareholders. We believe this may
cause managers to operate in a manner which fails to maximize value for
shareholders in the event of a potential takeover. Such a situation, we
believe, is fundamentally unfair to shareholders, the ultimate owners of
the Company. Moreover, it is our opinion that special compensation
arrangements for a favored few executives undoubtedly has a corrosive
impact on the morale and attitude of the remainder of employees who do not
share such privileged status. Shareholders, as owners concerned with the
long-term productive and financial performance of the Company, should be
concerned with this type of disparity.
A study by the United Shareholders Association also provides
justification for the submission of golden parachute arrangements to
shareholders for consideration. The study of 1,000 major U.S. corporations
found that the average annualized two-year return was 20 percent higher for
the 559 companies without such plans for management.
We believe that the issue of whether the Company should, in the future,
provide management with golden parachutes is of such critical importance
that shareholders should make this decision. We believe shareholder
approval is one of the best ways available to address potential conflicts
of interest that may arise between the Board and top executives on one
hand, and shareholders on the other hand, when a change of control is
threatened.
Accordingly, we urge your approval of this Proposal.
THE BOARD OF DIRECTORS OPPOSES THE ABOVE PROPOSAL
The Board of Directors believes that the best interests of the Company and
its stockholders are promoted by creating a unity of interest between Company
executives and stockholders. The Company's various benefit
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plans, described elsewhere in this Proxy Statement/Prospectus, promote this
unity of interest by encouraging management to own stock in the Company and to
seek other incentive awards based upon performance of the Company, as well as
individual performance. Each of the Company's current executive officers has a
significant ownership interest in the Company's common equity, and it is
expected that these policies and practices will continue following the
Recapitalization.
The Board believes that severance arrangements contingent upon a change in
control do not create a conflict as suggested by the proponents. Rather, these
arrangements encourage management to assess takeover bids, tender offers and
other potential change in control transactions objectively and with fewer
distractions. The arrangements provide management with a level of financial
security in the event of the loss of their jobs following a change of control
so management can remain attentive and dedicated to their duties to the Company
and less inclined to feel threatened or to seek positions outside the Company
in the face of a change in control.
The Compensation Committee of the Board, consisting exclusively of directors
who are not employees of the Company, as well as the non-employee directors of
the full Board, have approved the various change in control severance
arrangements for the Company's existing management, which the Board believes to
be in the best interests of the Company and its stockholders. The Board of
Directors believes that adoption of this resolution would inappropriately limit
the Board's flexibility in designing competitive compensation plans and would
adversely affect the ability of the Company to recruit and retain experienced,
effective management and to respond to changing economic and business
situations. Further, the Board believes the delays occasioned by such an
approval process are not in the best interest of the Company or its
stockholders.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE AGAINST THE PROPOSAL.
PROPOSAL CONCERNING CONFIDENTIAL VOTING
The Central Pension Fund of the International Union of Operating Engineers
and Participating Employers, 4115 Chesapeake Street, N.W., Washington, D.C.
20016, owner of 4,722 Old Shares, has given notice that it will introduce the
following resolution at the Meeting:
BE IT RESOLVED: That the stockholders of United Air Lines Corporation (or
"Company") recommend that the Board of Directors take the necessary steps
to adopt and implement a policy of confidential voting at all meetings of
its stockholders which includes the following provisions:
1. that the voting of all proxies, consents and authorizations be secret,
and that no such document shall be available for examination nor shall
the vote or identity of any shareholder be disclosed except to the
extent necessary to meet the legal requirements, if any, of the
Company's state of incorporation;
2. that the receipt, certification and tabulation of such votes shall be
performed by independent election inspectors; and
3. that confidential voting shall be suspended in the case of a proxy
contest, where non-management groups have access to voting results.
SUPPORTING STATEMENT
It is the proponents' belief that it is vitally important that a system
of confidential proxy voting be established at the Company. Confidential
balloting is a basic tenet of our political electoral process ensuring its
integrity. The integrity of corporate board elections should also be
protected against potential abuses given the importance of corporate
policies and practices to corporate owners and our national economy.
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The implementation of a confidential voting system would enhance
shareholder rights in several ways. First, in protecting the
confidentiality of the corporate ballot, shareholders would feel free to
oppose management nominees and issue positions without fear of retribution.
This is especially important for professional money managers whose business
relationships can be jeopardized by their voting positions.
The second important benefit of confidential voting would be to
invigorate the corporate governance process at the Company. We believe that
shareholder activism would be promoted within the Company. It is our belief
that shareholders empowered with a free and protected vote would be more
active in the proposing of corporate policy resolutions and alternate board
candidates.
Finally, it is our belief that the enhancement of the proxy voting
process would change the system where too often shareholders vote "with
their feet" not with their ballots. This change would help to develop a
long-term investment perspective where corporate assets could be deployed
and used in a more effective and efficient manner.
Confidential voting is gaining popularity. By 1993, 94 major U.S.
publicly-traded companies had adopted confidential proxy voting procedures
for corporate elections, up from 74 in 1992. The list of Fortune 500
companies with confidential voting includes: AT&T, U.S. West, American
Express, American Brands, Coca Cola, CitiCorp., Gillette, Exxon, Sara Lee,
J.P. Morgan, Bear Stearns, General Electric, General Mills, General Motors,
Colgate-Palmolive, American Home Products, Honeywell, Avon Products, 3M,
DuPont, Boeing, Lockheed, Rockwell International, Amoco, Mobil, Eastman
Kodak, IBM, Xerox and many others. It's time for the Company to do the
same.
For the reasons outlined above, we urge you to VOTE FOR THIS PROPOSAL.
THE BOARD OF DIRECTORS OPPOSES THE ABOVE PROPOSAL
The Board of Directors believes that the Company's existing procedures for
submitting proxies and conducting balloting are appropriate, have worked well
and should not be changed. The proposal suggests that there is a problem when
the Board of Directors in fact believes that none exists.
The Company conducts its stockholder votes in accordance with all applicable
legal requirements, including the use of an independent inspector of election
for tabulating ballots and reporting on election results. Thus, the second part
of the proposal would add nothing to the Company's existing practice.
The Board of Directors believes that a requirement of confidential voting
would undermine a valuable means of communication between the Company and its
stockholders. Over the years, a number of stockholders have expressed comments
and opinions by writing notes on their proxy cards. These comments are reviewed
and taken into consideration like any other communications from our
stockholders.
The Board of Directors believes that from time to time circumstances may
arise in which it would be appropriate and desirable to know how stockholders
are voting and sees no reason to restrict its discretion in this regard. For
example, an occasion could arise in which the Board believes that stockholders
have been confused on a particular issue and that it would be appropriate to
engage in discussions or other communications with such stockholders in order
to address any misunderstandings. Such a dialogue would help ensure that all
stockholders are adequately informed on important matters that they have been
asked to consider.
The Board of Directors believes that the proposal is unnecessary because any
stockholder who wishes to cast a confidential vote may do so under the current
voting system simply by registering his or her shares in the name of a bank,
broker or other nominee. Nominee holders do not disclose the names of
beneficial owners without the owner's permission.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE AGAINST THE PROPOSAL.
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FEES AND EXPENSES
All expenses of the Company and certain expenses of the Coalition (see "THE
PLAN OF RECAPITALIZATION--Terms and Conditions--Fees and Expenses;
Indemnification") incurred in connection with the Recapitalization will be paid
by the Company. The estimated fees and expenses to be incurred in connection
with the Recapitalization are as follows (in millions):
<TABLE>
<S> <C>
Coalition expense amounts ............................................ $45.00
Financial advisory fees and expenses.................................. 10.00
Accounting fees and expenses.......................................... 0.10
Legal fees and expenses............................................... 15.00
Commission filing fee................................................. 0.70
Printing and mailing expenses......................................... 1.20
Exchange agent fees and expenses...................................... 0.20
Employee stock ownership plan and related fees and expenses........... 4.15
Solvency and surplus opinion fees and expenses........................ 0.18
Miscellaneous expenses................................................ 2.62
------
Total............................................................... $79.15
======
</TABLE>
If the Offerings are consummated, the Company will also incur underwriting
discount and related fees and expenses of approximately $33 million.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board, at the recommendation of the Audit Committee, has appointed,
subject to approval by the stockholders, the firm of Arthur Andersen & Co., as
independent public accountants, to examine the financial statements of the
Company for the year 1994. It is anticipated that a representative of Arthur
Andersen & Co. will be present at the meeting and will have the opportunity to
make a statement, if he desires to do so, and will be available to respond to
appropriate questions at that time.
The affirmative vote of a majority of Old Shares present at the meeting is
necessary for approval of this proposal. If the stockholders do not approve the
appointment of Arthur Andersen & Co., the selection of independent public
accountants will be reconsidered by the Board.
THE BOARD RECOMMENDS A VOTE FOR THE APPROVAL OF THE APPOINTMENT OF ARTHUR
ANDERSEN & CO. AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE COMPANY FOR 1994.
DISCRETIONARY AUTHORITY OF PROXIES
The Board of Directors of the Company does not know of any matters, other
than as described in the Notice of Meeting attached to this Proxy
Statement/Prospectus, that are to come before the Meeting. If a proxy is given
to vote in favor of the Plan of Recapitalization, the persons named in such
proxy will have authority to vote in accordance with their best judgment on any
other matter that is properly presented at the Meeting for action, including,
without limitation, any proposal to adjourn the Meeting or otherwise concerning
the conduct of the Meeting.
In the event that a quorum is not present at the time the Meeting is
convened, or if for any other reason the Company believes that additional time
should be allowed for the solicitation of proxies, the Company may adjourn the
Meeting with a vote of the stockholders. The persons named in the accompanying
form of
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proxy will vote any Shares for which they have voting authority in favor of
such adjournment. The Company has made no determination whether it would
adjourn the Meeting to allow additional time for the solicitation of proxies
should an insufficient number of favorable votes be received to approve and
adopt the Plan of Recapitalization.
EXPERTS
The consolidated financial statements and related schedules of the Company
and United as of December 31, 1993 and 1992 and for each of the three years in
the period ended December 31, 1993, incorporated by reference in this Proxy
Statement/Prospectus and elsewhere in the Registration Statement have been
audited by Arthur Andersen & Co., independent public accountants, as indicated
in their report with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in giving said report. Reference is made
to said report which includes an explanatory paragraph with respect to the
changes in methods of accounting for income taxes and postretirement benefits
other than pensions as discussed in the notes to the consolidated financial
statements.
LEGAL OPINION
The validity of the New Shares, Debentures, the Depositary Preferred Shares
and Public Preferred Stock issuable pursuant to the Recapitalization will be
passed upon by Skadden, Arps, Slate, Meagher & Flom. Such counsel have assumed
that the Company will not be rendered insolvent as a result of the
Recapitalization.
PROXY SOLICITATION
Proxies are being solicited by and on behalf of the Board. All expenses of
this solicitation including the cost of preparing and mailing this Proxy
Statement/Prospectus will be borne by the Company. In addition to solicitation
by use of the mails, proxies may be solicited by directors, officers and
employees of the Company in person or by telephone, telegram or other means of
communication. Such directors, officers and employees will not be additionally
compensated, but may be reimbursed for out-of-pocket expenses, in connection
with such solicitation. Arrangements will also be made with custodians,
nominees and fiduciaries for forwarding of proxy solicitation material to
beneficial owners of Old Shares held of record by such persons, and the Company
may reimburse such custodians, nominees and fiduciaries for reasonable expenses
incurred in connection therewith. To assure the presence in person or by proxy
of the largest number of stockholders possible, the Company has engaged
Georgeson & Co. to solicit proxies on behalf of the Company. The Company has
agreed to pay such firm a proxy solicitation fee of $25,000 and to reimburse
such firm for its reasonable out-of-pocket expenses.
PROPOSALS FOR 1995 ANNUAL MEETING
The Company expects to hold its 1995 Annual Meeting, in accordance with
historic practices, on the fourth Thursday in April, April 27, 1995.
Accordingly, any stockholder proposals intended to be presented at the 1995
Annual Meeting must be received by November 25, 1994, by the Secretary of the
Company (Francesca M. Maher, Secretary, UAL Corporation, P.O. Box 66919,
Chicago, Illinois 60666), in writing in accordance with rules promulgated by
the Commission.
OTHER MATTERS
The Board does not know of any other business which may be presented for
consideration at the meeting. If any business not described herein should come
before the meeting, the persons named in the enclosed proxy will vote on those
matters in accordance with their best judgment.
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Annex I
May 20, 1994
Board of Directors
UAL Corporation
1200 East Algonquin Road
Elk Grove Township, IL 60007
Gentlemen and Madam:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders (the "Common Stockholders") of shares of common stock, par
value $5.00 per share ("Old Shares"), of UAL Corporation, a Delaware corporation
("UAL"), of the consideration to be received by such Common Stockholders in
connection with the proposed recapitalization of UAL (the "Transaction"), as set
forth in, and pursuant to the terms of, the Agreement and Plan of
Recapitalization dated as of March 25, 1994, as proposed to be amended and
restated (the "Recapitalization Agreement"), among UAL and the Airline Pilots
Association, International, and the International Association of Machinists and
Aerospace Workers (together with other participating employees, the
"Participating Employees").
We understand that the Transaction, as more specifically set forth in the
Recapitalization Agreement, provides that, in exchange for certain labor
concessions by the Participating Employees, UAL will issue common stock to
certain employee trusts/ESOPs equal to a minimum of 55% and a maximum of 63% of
the common stock of UAL. We also understand that in the Transaction the current
Common Stockholders of UAL will receive, for each Old Share held, one-half of a
new share of common stock, par value $.01 per share, of UAL (representing an
equity interest immediately after the Transaction is completed of approximately
45% of one Old Share's current percentage equity interest in UAL, subject to
possible reduction) and one-thousandth of a share of redeemable preferred stock
of UAL, which will be redeemed immediately after issuance for $25.80 in cash,
$15.55 face amount of Series A Debentures due 2004 ("Series A Debentures") of
United Air Lines, Inc. ("United") and $15.55 face amount of Series B Debentures
due 2014 ("Series B Debentures"; together with the Series A Debentures, the
"Debentures") of United and Depositary Preferred Shares ("Depositary Preferred
Shares") representing $31.10 liquidation preference of Series B Preferred Stock,
without par value, of UAL ("Series B Preferred Stock"). The Depositary
Preferred Shares, the Series A Debentures and the Series B Debentures are
referred to herein as the "Securities".
We also understand that United intends to offer for sale in a public offering $
principal amount of the Series A Debentures and $ principal amount of the
Series B Debentures (the "United Debt Offering") and that UAL intends to offer
for sale in a public offering Depositary Preferred Shares (the "UAL
Preferred Offering" and, together with the United
<PAGE>
2
Debt Offering, the "Offerings"). If the Offerings are consummated, the current
Common Stockholders of UAL will receive, for each Old Share held, in lieu of the
Securities described in the preceding paragraph, (a) the gross proceeds from the
sale by United of $15.55 principal amount of the Series A Debentures and $15.55
principal amount of the Series B Debentures pursuant to the United Debt Offering
and (b) the gross proceeds from the sale by UAL of Depositary Preferred Shares
representing $31.10 liquidation preference of its Series B Preferred Stock. As
described below, the principal amounts of the Debentures and the liquidation
preference of the Series B Preferred Stock could be reduced if the Offerings are
consummated and the interest rates or dividend rate, as the case may be, on such
Securities were to exceed certain limitations contained in the Recapitalization
Agreement.
In arriving at our opinion, we have reviewed and analyzed the Recapitalization
Agreement, as well as certain publicly available business and financial
information relating to UAL. We have also reviewed certain other information,
including financial forecasts provided to us by UAL. We have met with UAL's
management to discuss the past and current operations and financial condition
and prospects of UAL. We have also considered certain financial and stock
market data for UAL and we have compared that data with similar data for other
publicly held companies in businesses similar to those of UAL, and we have
considered the financial terms of certain other business combinations that have
recently been effected. We also considered such other information, financial
studies, analyses and investigations and financial, economic and market criteria
that we deemed relevant. In addition, we have reviewed the alternative of not
effecting a reorganization or similar transaction and UAL implementing various
operating strategies considered by it which, if fully implemented, might result
in a greater value to Common Stockholders than the Transaction; however, we
understand and have assumed for purposes of this opinion that the Board of
Directors of UAL has determined, in light of various factors relating to the
implementation of such operating strategies and the availability of the
Transaction, not to pursue such implementation.
In connection with our review, we have not independently verified any of the
foregoing information and have relied on its being complete and accurate in all
material respects. With respect to the financial forecasts, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of UAL's management as to the future financial
performance of UAL. We express no view as to such forecasts or the assumptions
on which they are based. We have not made an independent evaluation or
appraisal of the assets or liabilities of UAL, nor have we been furnished with
any such appraisals. We were not requested to, and did not, solicit third party
offers to acquire all or any part of UAL, nor, to our knowledge, has any
interest in making such an offer been presented by any third party, including in
response to the public disclosure regarding discussions between UAL and the
Participating Employees. We have assumed that the results expected by UAL's
management to be obtained from the Transaction, including those arising from the
Participating Employees' labor concessions, will be realized. Our opinion is
necessarily based solely upon information available to us and business, market,
economic and other conditions as they exist on, and can be evaluated as of, the
date hereof. Our opinion does not address UAL's underlying business decision to
effect the Transaction.
<PAGE>
3
Pursuant to the Recapitalization Agreement, the interest and dividend rates for
the Securities were initially set upon the execution of the Recapitalization
Agreement. The interest or dividend rate on each such Security will be reset,
as of a date to be determined that is not fewer than five calendar days and not
greater than ten calendar days prior to the meeting of the Common Stockholders
of UAL at which the Transaction will be voted upon, to the rate required to
cause each such security to trade at 100% of its aggregate principal amount (in
the case of the Debentures) or at 100% of its aggregate liquidation preference
(in the case of the Series B Preferred Stock) (collectively, "par"), on a fully
distributed basis, as of such date, subject to a limitation specified in the
Recapitalization Agreement on the amount that such rates can increase. If the
Offerings are not consummated, our opinion is based on such final rates being
set so that the Securities would trade, as of such date, on a fully distributed
basis, at par. It should be noted that our opinion does not purport to
represent any view as to what the trading value of the Securities actually will
be when the Securities are issued to the Common Stockholders following
consummation of the Transaction. The actual trading value of such Securities
could be higher or lower depending upon changes in interest rates, dividend
rates, market conditions, general economic conditions and other factors that
generally influence the price of securities. Because of the large aggregate
amount of Securities that would be issued to Common Stockholders of UAL if the
Offerings are not consummated and other factors, such Securities may trade
initially, and for an extended period thereafter, at prices below those at which
they would trade on a fully distributed basis. Furthermore, any valuation of
securities is only an approximation, subject to uncertainties and contingencies
all of which are difficult to predict and beyond our control.
If the Offerings are consummated, the interest rates on the Debentures and the
dividend rate on the Series B Preferred Stock may be set at rates that are in
excess of the limitation contained in the Recapitalization Agreement, in which
event the principal amount of the series of Debentures affected or the number of
Depositary Preferred Shares, as the case may be, will be reduced so that the
aggregate amount of interest payable by United or dividends payable by UAL, as
the case may be, with respect to such Security will not exceed amounts specified
in the Recapitalization Agreement, and the amount of the proceeds from the sale
of such Securities to be received by the current Common Stockholders of UAL in
respect of each Old Share will be reduced accordingly. In addition, in certain
other circumstances, such proceeds could be less than the stated face amount or
liquidation preference of the Securities. Our opinion is based on the
assumption that, if the Offerings are consummated, the proceeds of the
Debentures and the Depositary Preferred Shares to be received by the current
Common Stockholders of UAL in respect of each Old Share will not be less than
the principal amounts of the Debentures and the number of Depositary Preferred
Shares that would have been distributed to such Common Stockholders of UAL had
the Offerings not been consummated.
We have acted as financial advisor to UAL in connection with the Transaction and
will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Transaction. We will also receive a fee
for rendering this opinion and other additional services currently being
rendered to UAL. In the ordinary course of our business, we actively trade the
debt and equity securities of UAL for our own account and for
<PAGE>
4
the accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
It is understood that this opinion is only for the information of the Board of
Directors of UAL. However, this opinion may be included in its entirety in any
proxy statement from UAL to its Common Stockholders. This opinion may not,
however, be summarized, excerpted from or otherwise publicly referred to without
our prior written consent, which will not unreasonably be withheld. In
addition, we may not be otherwise publicly referred to without our prior
consent, which will not unreasonably be withheld.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the consideration to be received by the Common Stockholders of UAL in
the Transaction, taken as a whole, is fair to such Common Stockholders from a
financial point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION
By:
-------------------------------
<PAGE>
Annex II
May 20, 1994
Board of Directors
UAL Corporation
1200 East Algonquin Road
Elk Grove Township, IL 60007
Gentlemen and Madam:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders (the "Common Stockholders") of shares of common stock, par
value $5.00 per share ("Old Shares"), of UAL Corporation, a Delaware corporation
("UAL"), of the consideration to be received by such Common Stockholders in
connection with the proposed recapitalization of UAL (the "Transaction"), as set
forth in, and pursuant to the terms of, the Agreement and Plan of
Recapitalization dated as of March 25, 1994, as proposed to be amended and
restated (the "Recapitalization Agreement"), among UAL and the Airline Pilots
Association, International, and the International Association of Machinists and
Aerospace Workers (together with other participating employees, the
"Participating Employees").
We understand that the Transaction, as more specifically set forth in the
Recapitalization Agreement, provides that, in exchange for certain labor
concessions by the Participating Employees, UAL will issue common stock to
certain employee trusts/ESOPs equal to a minimum of 55% and a maximum of 63% of
the common stock of UAL. We also understand that in the Transaction the current
Common Stockholders of UAL will receive, for each Old Share held, one-half of a
new share of common stock, par value $.01 per share, of UAL (representing an
equity interest immediately after the Transaction is completed of approximately
45% of one Old Share's current percentage equity interest in UAL, subject to
possible reduction) and one-thousandth of a share of redeemable preferred stock
of UAL, which will be redeemed immediately after issuance for $25.80 in cash,
$15.55 face amount of Series A Debentures due 2004 ("Series A Debentures") of
United Air Lines, Inc. ("United") and $15.55 face amount of Series B Debentures
due 2014 ("Series B Debentures"; together with the Series A Debentures, the
"Debentures") of United and Depositary Preferred Shares ("Depositary Preferred
Shares") representing $31.10 liquidation preference of Series B Preferred Stock,
without par value, of UAL ("Series B Preferred Stock"). The Depositary
Preferred Shares, the Series A Debentures and the Series B Debentures are
referred to herein as the "Securities".
We also understand that United intends to offer for sale in a public offering $
principal amount of the Series A Debentures and $ principal amount of the
Series B Debentures (the "United Debt Offering") and that UAL intends to offer
for sale in a public offering Depositary Preferred Shares (the "UAL
Preferred Offering" and, together with the United Debt Offering, the
"Offerings"). If the Offerings are consummated, the current Common Stockholders
of UAL will receive, for each Old Share held, in lieu of the Securities
described in the preceding paragraph, (a) the gross proceeds from the sale by
United of $15.55 principal amount of the Series A Debentures and $15.55
principal amount of the Series B Debentures pursuant to the United Debt Offering
and (b) the gross proceeds from the sale by UAL of Depositary Preferred
<PAGE>
2
Shares representing $31.10 liquidation preference of its Series B Preferred
Stock. As described below, the principal amounts of the Debentures and the
liquidation preference of the Series B Preferred Stock could be reduced if the
Offerings are consummated and the interest rates or dividend rate, as the case
may be, on such Securities were to exceed certain limitations contained in the
Recapitalization Agreement.
In arriving at our opinion, we have reviewed and analyzed the Recapitalization
Agreement, as well as certain publicly available business and financial
information relating to UAL. We have also reviewed certain other information,
including financial forecasts provided to us by UAL. We have met with UAL's
management to discuss the past and current operations and financial condition
and prospects of UAL. We have also considered certain financial and stock
market data for UAL and we have compared that data with similar data for other
publicly held companies in businesses similar to those of UAL, and we have
considered the financial terms of certain other business combinations that have
recently been effected. We also considered such other information, financial
studies, analyses and investigations and financial, economic and market criteria
that we deemed relevant. In addition, we have reviewed the alternative of not
effecting a reorganization or similar transaction and UAL implementing various
operating strategies considered by it which, if fully implemented, might result
in a greater value to Common Stockholders than the Transaction; however, we
understand and have assumed for purposes of this opinion that the Board of
Directors of UAL has determined, in light of various factors relating to the
implementation of such operating strategies and the availability of the
Transaction, not to pursue such implementation.
In connection with our review, we have not independently verified any of the
foregoing information and have relied on its being complete and accurate in all
material respects. With respect to the financial forecasts, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of UAL's management as to the future financial
performance of UAL. We express no view as to such forecasts or the assumptions
on which they are based. We have not made an independent evaluation or
appraisal of the assets or liabilities of UAL, nor have we been furnished with
any such appraisals. We were not requested to, and did not, solicit third party
offers to acquire all or any part of UAL, nor, to our knowledge, has any
interest in making such an offer been presented by any third party, including in
response to the public disclosure regarding discussions between UAL and the
Participating Employees. We have assumed that the results expected by UAL's
management to be obtained from the Transaction, including those arising from the
Participating Employees' labor concessions, will be realized. Our opinion is
necessarily based solely upon information available to us and business, market,
economic and other conditions as they exist on, and can be evaluated as of, the
date hereof. Our opinion does not address UAL's underlying business decision to
effect the Transaction.
Pursuant to the Recapitalization Agreement, the interest and dividend rates for
the Securities were initially set upon the execution of the Recapitalization
Agreement. The interest or dividend rate on each such Security will be reset,
as of a date to be determined that is not fewer than five calendar days and not
greater than ten calendar days prior to the meeting of the Common Stockholders
of UAL at which the Transaction will be voted upon, to the rate required to
cause
<PAGE>
3
each such security to trade at 100% of its aggregate principal amount (in the
case of the Debentures) or at 100% of its aggregate liquidation preference (in
the case of the Series B Preferred Stock) (collectively, "par"), on a fully
distributed basis, as of such date, subject to a limitation specified in the
Recapitalization Agreement on the amount that such rates can increase. If the
Offerings are not consummated, our opinion is based on such final rates being
set so that the Securities would trade, as of such date, on a fully distributed
basis, at par. It should be noted that our opinion does not purport to
represent any view as to what the trading value of the Securities actually will
be when the Securities are issued to the Common Stockholders following
consummation of the Transaction. The actual trading value of such Securities
could be higher or lower depending upon changes in interest rates, dividend
rates, market conditions, general economic conditions and other factors that
generally influence the price of securities. Because of the large aggregate
amount of Securities that would be issued to Common Stockholders of UAL if the
Offerings are not consummated and other factors, such Securities may trade
initially, and for an extended period thereafter, at prices below those at which
they would trade on a fully distributed basis. Furthermore, any valuation of
securities is only an approximation, subject to uncertainties and contingencies
all of which are difficult to predict and beyond our control.
If the Offerings are consummated, the interest rates on the Debentures and the
dividend rate on the Series B Preferred Stock may be set at rates that are in
excess of the limitation contained in the Recapitalization Agreement, in which
event the principal amount of the series of Debentures affected or the number of
Depositary Preferred Shares, as the case may be, will be reduced so that the
aggregate amount of interest payable by United or dividends payable by UAL, as
the case may be, with respect to such Security will not exceed amounts specified
in the Recapitalization Agreement, and the amount of the proceeds from the sale
of such Securities to be received by the current Common Stockholders of UAL in
respect of each Old Share will be reduced accordingly. In addition, in certain
other circumstances, such proceeds could be less than the stated face amount or
liquidation preference of the Securities. Our opinion is based on the
assumption that, if the Offerings are consummated, the proceeds of the
Debentures and the Depositary Preferred Shares to be received by the current
Common Stockholders of UAL in respect of each Old Share will not be less than
the principal amounts of the Debentures and the number of Depositary Preferred
Shares that would have been distributed to such Common Stockholders of UAL had
the Offerings not been consummated.
We have acted as financial advisor to UAL in connection with the Transaction and
will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Transaction. A portion of this fee
relates to the rendering of this opinion.
It is understood that this opinion is only for the information of the Board of
Directors of UAL. However, this opinion may be included in its entirety in any
proxy statement from UAL to its Common Stockholders. This opinion may not,
however, be summarized, excerpted from or otherwise publicly referred to without
our prior written consent, which will not unreasonably be withheld. In
addition, we may not be otherwise publicly referred to without our prior
consent, which will not unreasonably be withheld.
<PAGE>
4
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the consideration to be received by the Common Stockholders of UAL in
the Transaction, taken as a whole, is fair to such Common Stockholders from a
financial point of view.
Very truly yours,
- -------------------------------
Lazard Freres & Co.
<PAGE>
ANNEX III
AMENDMENT TO THE
UAL, INC. 1981 INCENTIVE STOCK PROGRAM
UAL CORPORATION (the "Company"), having heretofore adopted the UAL, Inc. 1981
Incentive Stock Program, as amended effective February 28, 1991 (the "Plan"),
hereby furthers amends the Plan, effective as of the date of consummation of
the Recapitalization to be effected pursuant to the Agreement and Plan of
Recapitalization proposed to be entered into among the Company, Air Line Pilots
Association, International and International Association of Machinists and
Aerospace Workers, as follows:
1. Section 1 of the Plan is hereby amended by deleting the reference to
"Common Stock of the Company" therein and inserting, in lieu thereof, the
phrase "the Company's Common Stock, par value $.01 per share ("Common Stock")."
2. The name of the Plan is hereby amended to be the "UAL Corporation 1981
Incentive Stock Plan", each reference in the Plan to "UAL, Inc." is hereby
replaced with a reference to "UAL Corporation", and the word "Program" is
hereby replaced with the word "Plan" each place the former appears in the Plan.
3. The first sentence of Section 3 of the Plan is hereby amended in its
entirety to read as follows:
"The Plan shall be administered by the Compensation Administration
Committee of the Board of Directors of the Company."
4. The first sentence of Section 5 of the Plan is hereby amended in its
entirety to read as follows:
"There is hereby reserved for issuance under the Plan an aggregate of
1,200,000 shares of Common Stock, which may be newly issued or treasury
shares."
5. Section 5 of the Plan is hereby further amended by adding the following
two new sentences at the end thereof:
"Notwithstanding any other provision of the Plan to the contrary, in no
event may the aggregate number of shares of Common Stock with respect to
which options or Stock Appreciation Rights are granted to any individual
exceed 125,000 in any period of two calendar years, provided, however, that
grants made to any new employee as a condition of employment may not exceed
two times such biennial limit during the first two years of employment. If,
pursuant to Section 1.9 of the Agreement and Plan of Recapitalization among
the Company, Air Line Pilots Association, International and International
Association of Machinists and Aerospace Workers (the "Agreement"), the
Company becomes obligated to issue the Additional Shares (as defined in the
Agreement), the number of shares reserved for issuance hereunder as well as
the limitations set forth in the preceding sentence shall be increased by
the percentage determined by dividing the number of Additional Shares the
Company is so required to issue by the number of Fully Diluted Old Shares
(as defined in the Agreement)."
1
<PAGE>
ANNEX IV
AMENDMENT TO THE UAL CORPORATION
1988 RESTRICTED STOCK PLAN
UAL CORPORATION (the "Company"), having heretofore adopted the UAL
Corporation 1988 Restricted Stock Plan, as amended effective February 22, 1990
and as further amended effective July 1, 1993 (the "Plan"), hereby further
amends the Plan, effective as of the date of consummation of the
Recapitalization to be effected pursuant to the Agreement and Plan of
Recapitalization proposed to be entered into among the Company, Air Line Pilots
Association, International and International Association of Machinists and
Aerospace Workers (the "Effective Time"), as follows:
1. Section 2(d) of the Plan is hereby amended in its entirety to read as
follows:
"(d) "Committee' shall mean the Compensation Administration Committee of
the Board."
2. Section 2(f) of the Plan is hereby amended in its entirety to read as
follows:
"(f) "Restricted Share' shall mean a share of Common Stock of the
Company, par value $.01 per share ("Common Stock"), allocated to a
Recipient pursuant to the Plan."
3. Section 4(b) of the Plan is hereby amended by adding the following two new
sentences at the end thereof:
"Notwithstanding any other provision of the Plan to the contrary, in no
event may the aggregate number of Restricted Shares allocated to any
individual exceed 30,000 in any period of two calendar years, provided,
however, that allocations made to any new employee as a condition of
employment may not exceed two times such biennial limit during the first
two years of employment. If, pursuant to Section 1.9 of the Agreement and
Plan of Recapitalization among the Company, Air Line Pilots Association,
International and International Association of Machinists and Aerospace
Workers (the "Agreement"), the Company becomes obligated to issue the
Additional Shares (as defined in the Agreement), the limitations set forth
in the preceding sentence shall be increased by the percentage determined
by dividing the number of Additional Shares the Company is so required to
issue by the number of Fully Diluted Old Shares (as defined in the
Agreement)."
4. Section 7(c) of the Plan is hereby amended by adding the following at the
end thereof:
"Notwithstanding the foregoing provisions of this Section 7(c), the
Committee may provide with respect to any allocation of Restricted Shares
that the "Restricted Period" with respect to such Restricted Shares shall
lapse based upon the attainment by the Company of one or more target levels
of pre-tax income (as determined under generally accepted accounting
principles but without regard to any items (whether gains or losses)
otherwise included therein relating to (1) the UAL Corporation Employee
Stock Ownership Plan, the UAL Corporation Supplemental ESOP, or the trusts
relating thereto, (2) any event or occurrence that the Committee determines
to be either not directly related to the operations of the Company or not
within the reasonable control of the Company's management, (3) the Plan and
(4) the Company's Incentive Compensation Plan). Such target level(s) shall
be determined by the Committee on or before the allocation of such
Restricted Shares, shall relate to such period or periods of time as the
Committee shall prescribe and may provide that any period in which such
pre-tax income is less than zero may be disregarded."
5. The Restricted Share reserve (established pursuant to Section 3(a) of the
Plan) immediately prior to the Effective Time shall continue to constitute such
Restricted Share reserve as of the Effective Time.
1
<PAGE>
ANNEX V
UAL CORPORATION
INCENTIVE COMPENSATION PLAN
(AS AMENDED JUNE 30, 1988)
<PAGE>
ANNEX VI
AMENDMENT TO THE UAL
CORPORATION INCENTIVE COMPENSATION PLAN
UAL CORPORATION (the "Company"), having heretofore adopted the UAL
Corporation Incentive Compensation Plan, as amended June 30, 1988 (the "Plan"),
hereby amends the Plan, effective as of the date of consummation of the
Recapitalization to be effected pursuant to the Agreement and Plan of
Recapitalization proposed to be entered into among the Company, Air Line Pilots
Association, International and International Association of Machinists and
Aerospace Workers, as follows:
1. The first sentence of Paragraph 1 of Section II of the plan is hereby
amended in its entirety to read as follows:
"The Company is responsible for the general administration of the Plan,
except as to matters reserved in this Plan to the Compensation
Administration Committee of the Board of Directors (the "Committee"),
provided however, that the Plan shall be administered by the Committee
to the extent necessary to cause the amounts payable hereunder to
satisfy the requirements of Section 162(m)(4)(C) of the Internal
Revenue Code of 1986, as amended (the "Code"). By way of example, the
Committee shall determine those key employees eligible to participate
hereunder."
2. Section VI of the Plan is hereby amended in its entirety to read as
follows:
"VI. PAYMENT OF AWARDS
A) Standard Procedures--Payment of Incentive Awards will be made in cash on
or about April 1, of the year following the Award Year; provided,
however, that an Incentive Award may be deferred at the election of a
Participant in the manner described below.
B) Deferred Awards--Participants may elect, on or before December 31 of the
year preceding an Award Year, to defer receipt of all or any portion of
an Incentive Award to a subsequent calendar year. A Participant will
receive payment of a deferred Incentive Award in a lump sum in January
of the earliest of: (1) the deferral calendar year selected by the
Participant; (2) the calendar year immediately after the Participant's
retirement under the United Air Lines, Inc. Non-Union Ground Employees'
Retirement Plan; (3) the calendar year after the Participant's
termination of employment with the Company for other reasons, provided
that a transfer of employment from the Company to any of the Company's
affiliates will not be considered a termination of employment with the
Company; (4) the occurrence of an "Unforeseeable Emergency", provided
that a distribution pursuant to this clause (4) shall not exceed the
amount reasonably needed to satisfy the emergency need, or (5) any other
time elected by the Participant, provided that upon making such an
election, the Participant shall be entitled to receive 90% of the
amounts then credited to him or her under the Plan and shall forfeit the
remaining 10% of such amount. The amounts deferred will be credited
annually with compound interest at the prime rate in effect during the
deferral period at the end of the calendar quarter, as reported by The
Wall Street Journal. All deferred Incentive Awards will be reflected in
the Company's books as general unsecured and unfunded obligations of the
Company. No trust in favor of any Participant will be implied. Deferral
elections will be irrevocable by a Participant or his or her
beneficiary. For purposes of this Section, "Unforeseeable Emergency"
shall mean a severe financial hardship to the Participant resulting from
a sudden and unexpected illness or accident of the Participant or of a
dependent (as defined in Section 152(a) of the Code) of the Participant,
loss of the Participant's property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant. The circumstances that
will constitute an Unforeseeable Emergency will depend upon the facts of
each case, but, in any case, payment under clause (4) above may not be
made to the extent that such hardship is or may be relieved (i) through
reimbursement or compensation by insurance or otherwise, (ii) by
liquidation of the Participant's assets, to the extent the liquidation
of
1
<PAGE>
such assets would not itself cause severe financial hardship, or (iii)
by cessation of deferrals under the Plan."
3. The Plan is hereby amended by adding a new Section VII at the end thereof
to read as follows:
"VII. SPECIAL RULES
Notwithstanding any other provision of this Plan to the contrary:
Incentive Awards with respect to an Award Year with respect to any
Participant who is a "covered employee" (as defined in Section 162(m)(3)
of the Code) with respect to such Award Year (i) may not exceed $900,000
and (ii) shall be determined by reference to a formula which shall
define the Incentive Award by reference to the attainment by the Company
of one or more target levels of pre-tax income (as determined under
generally accepted accounting principles but without regard to any items
(whether gains or losses) otherwise included therein relating to (1) the
UAL Corporation Employee Stock Ownership Plan, the UAL Corporation
Supplemental ESOP, or the trusts relating thereto, (2) any event or
occurrence that the Committee determines to be either not directly
related to the operations of the Company or not within the reasonable
control of the Company's management, (3) this Plan and (4) the Company's
1988 Restricted Stock Plan) for such Award Year. Such target level(s)
and the formula referred to above shall be determined by the Committee
prior to the commencement of such Award Year (or at such later time as
may be permissible under Section 162(m) of the Code); the Committee
shall determine and certify whether such target levels of pre-tax income
have been met. Notwithstanding the foregoing, the Committee may reduce
the Incentive Award otherwise determined pursuant to such formula in its
sole discretion."
2
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF RECAPITALIZATION
DATED AS OF
MARCH 25, 1994
AMONG
UAL CORPORATION
AND
AIR LINE PILOTS ASSOCIATION, INTERNATIONAL
AND
INTERNATIONAL ASSOCIATION OF MACHINISTS
AND AEROSPACE WORKERS
<PAGE>
TABLE OF CONTENTS
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ARTICLE I THE RECAPITALIZATION
Section 1.1 The Recapitalization..................................... 1
Section 1.2 Reclassification of Old Shares........................... 1
Section 1.3 Redemption............................................... 2
Section 1.4 Pricing of Specified Securities.......................... 2
Section 1.5 Surrender and Exchange................................... 4
Section 1.6 Other Issuances.......................................... 7
Section 1.7 Stock Options............................................ 12
Section 1.8 Convertible Company Securities........................... 13
Section 1.9 Form of Recapitalization Consideration................... 13
Section 1.10 Additional ESOP Shares................................... 14
Section 1.11 Underwriting Alternative................................. 15
ARTICLE II THE COMPANY AND UNITED
Section 2.1 Certificate of Incorporation............................. 16
Section 2.2 Bylaws................................................... 16
Section 2.3 Directors and Officers................................... 17
Section 2.4 United................................................... 17
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Corporate Existence and Power............................ 17
Section 3.2 Corporate Authorization.................................. 18
Section 3.3 Governmental Authorization............................... 18
Section 3.4 Non-Contravention........................................ 19
Section 3.5 Capitalization........................................... 19
Section 3.6 Subsidiaries............................................. 20
Section 3.7 Securities and Exchange Commission ("SEC") Filings....... 21
Section 3.8 Financial Statements..................................... 21
Section 3.9 Disclosure Documents..................................... 21
Section 3.10 Absence of Certain Changes............................... 22
Section 3.11 Finders' Fees............................................ 22
Section 3.12 Board Action............................................. 22
Section 3.13 Securities............................................... 22
Section 3.14 Opinion of Financial Advisers............................ 22
Section 3.15 Vote Required............................................ 23
Section 3.16 Limitations.............................................. 23
Section 3.17 Compliance with Status Quo............................... 23
Section 3.18 Rights Agreement......................................... 23
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE UNIONS
Section 4.1 Existence and Power...................................... 23
Section 4.2 Authorization............................................ 23
Section 4.3 Governmental Authorization............................... 23
Section 4.4 Non-Contravention........................................ 24
Section 4.5 Disclosure Documents..................................... 24
Section 4.6 Finders' Fees............................................ 24
Section 4.7 Limitations.............................................. 24
ARTICLE V COVENANTS OF THE COMPANY
Section 5.1 Conduct of the Company................................... 24
Section 5.2 Stockholder Meeting; Proxy Material...................... 26
</TABLE>
A(i)
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Section 5.3 Access.................................................. 26
Section 5.4 Other Potential Transactions............................ 27
Section 5.5 Notices of Certain Events............................... 27
Section 5.6 Amendment of Rights Agreement........................... 27
Section 5.7 Employee Benefit Plans.................................. 28
Section 5.8 Labor Agreements........................................ 28
Section 5.9 Solvency Letter......................................... 29
Section 5.10 Other Transaction Documents............................. 29
Section 5.11 Certain Agreements...................................... 29
ARTICLE VI COVENANTS OF EACH UNION
Section 6.1 Confidentiality......................................... 30
Section 6.2 Labor Agreements........................................ 31
Section 6.3 No Public Director Nominations.......................... 31
Section 6.4 Independent Director Vacancies.......................... 31
ARTICLE VII COVENANTS OF EACH OF THE UNIONS AND THE COMPANY
Section 7.1 Best Efforts............................................ 32
Section 7.2 Certain Filings......................................... 32
Section 7.3 Participation........................................... 32
ARTICLE VIII CONDITIONS TO THE RECAPITALIZATION
Section 8.1 Conditions to the Obligations of Each Party............. 33
Section 8.2 Conditions to the Obligations of each of the Unions..... 34
Section 8.3 Conditions to the Obligations of the Company............ 34
ARTICLE IX TERMINATION
Section 9.1 Termination............................................. 35
Section 9.2 Termination of Status Quo............................... 36
Section 9.3 Effect of Termination................................... 36
ARTICLE X MISCELLANEOUS
Section 10.1 Notices................................................. 37
Section 10.2 Survival................................................ 38
Section 10.3 Amendments; No Waivers.................................. 39
Section 10.4 Fees and Expenses; Indemnification...................... 39
Section 10.5 Successors and Assigns.................................. 42
Section 10.6 Governing Law........................................... 42
Section 10.7 Counterparts; Effectiveness............................. 42
Section 10.8 Parties in Interest..................................... 42
Section 10.9 Specific Performance.................................... 42
Section 10.10 Entire Agreement........................................ 43
</TABLE>
A(ii)
<PAGE>
SCHEDULES
SCHEDULE 1.1 --Restated Certificate of Incorporation of the
Company
SCHEDULE 1.3(a) --Deposit Agreement
SCHEDULE 1.3(b) --Officers' Certificate regarding Indenture for
the Debentures
SCHEDULE 1.6(a)(i) --Trust Agreement for the ESOP Trust
SCHEDULE 1.6(a)(ii) --ESOP
SCHEDULE 1.6(a)(iii) --Supplemental ESOP
SCHEDULE 1.6(a)(iv) --Trust Agreement for the Supplemental ESOP Trust
SCHEDULE 1.6(d) --ESOP Stock Purchase Agreement and Amendment
SCHEDULE 1.6(m) --Class I Preferred Stock Subscription Agreement
SCHEDULE 1.6(n) --Class Pilot MEC Preferred Stock Subscription
Agreement
SCHEDULE 1.6(o) --Class IAM Preferred Stock Subscription
Agreement
SCHEDULE 1.6(p)(i) --Class SAM Preferred Stock Subscription
Agreement
SCHEDULE 1.6(p)(ii) --SAM Director Selection Process
SCHEDULE 1.10 --Adjusted Percentage Table
SCHEDULE 2.2 --Restated Bylaws of the Company
SCHEDULE 2.3(i) --Directors of the Company Resigning at Effective
Time
SCHEDULE 2.3(ii) --New Directors of the Company
SCHEDULE 2.4 --Provision to be inserted in United Air Lines,
Inc. Certificate
SCHEDULE 3.2(i) --UAL 1981 Incentive Stock Program Amendment
SCHEDULE 3.2(ii) --UAL 1988 Restricted Stock Plan Amendment
SCHEDULE 3.2(iii) --UAL Incentive Compensation Plan Amendment
SCHEDULE 3.4 --Contraventions and Conflicts
SCHEDULE 3.6(c) --CRS Company Disclosure
SCHEDULE 3.17 --Status Quo Matters
SCHEDULE 3.18 --Rights Amendment
SCHEDULE 5.1(i) --Conduct of the Company
SCHEDULE 5.1(ii) --IAM Job Security Provisions
SCHEDULE 5.1(iii) --Existing Employee Stock Purchase Policies of
the Company
SCHEDULE 5.8(i) --ALPA Collective Bargaining Agreement
SCHEDULE 5.8(ii) --IAM Collective Bargaining Agreement
SCHEDULE 5.8(iii) --Employment Terms for Employees Performing the
Functions of the Company's Salaried and
Management Employees
SCHEDULE 5.9 --Solvency Letter
SCHEDULE 5.10(i) --Class I Preferred Stock Shareholders Agreement
SCHEDULE 5.10(ii) --Class SAM Director Shareholders Agreement
SCHEDULE 5.10(iii) --First Refusal Agreement
SCHEDULE 6.1 --Confidentiality Statement
A(iii)
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF RECAPITALIZATION
Agreement and Plan of Recapitalization, dated as of March 25, 1994, as
amended and restated (the "Agreement"), among UAL Corporation, a Delaware
corporation (the "Company"), Air Line Pilots Association, International
("ALPA"), pursuant to its authority as the collective bargaining representative
for the crafts or class of pilots employed by United Air Lines, Inc., a
Delaware corporation and a wholly owned subsidiary of the Company ("United"),
and International Association of Machinists and Aerospace Workers ("IAM" and,
together with ALPA, the "Unions"), pursuant to its authority as the collective
bargaining representative for the crafts or classes of mechanics and related
employees, ramp and stores employees, food service employees, dispatchers and
security officers employed by United.
In consideration of the mutual covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
The Recapitalization
Section 1.1 The Recapitalization. Pursuant to Section 242 of the General
Corporation Law of the State of Delaware ("Delaware Law"), as soon as
practicable after satisfaction or, to the extent permitted hereunder, waiver of
all conditions set forth in Article VIII, the Company will file an amended and
restated certificate of incorporation in form and substance as set forth on
Schedule 1.1 (the "Restated Certificate") with the Secretary of State of the
State of Delaware. Except as otherwise provided herein, the transactions
contemplated by this Agreement (collectively, the "Recapitalization") shall
become effective at such time as the Restated Certificate is duly filed with
the Secretary of State of the State of Delaware or at such later time as may be
mutually agreed upon by the Company and each of the Unions and as is specified
in the Restated Certificate (the "Effective Time").
Section 1.2 Reclassification of Old Shares.
(a) At the Effective Time, subject to Section 1.5(f), each share of common
stock, par value $5.00 per share, of the Company ("Common Stock") outstanding
immediately prior to the Effective Time, including each share of vested and
unvested restricted stock issued pursuant to the UAL 1988 Restricted Stock
Plan, together with each share of Common Stock held by the Company as treasury
stock or owned by any wholly-owned subsidiary of the Company which is not
cancelled immediately prior to the Effective Time pursuant to Section 1.2(b)
(each of the foregoing being referred to herein as an "Old Share"), shall,
without any further action on the part of the holder thereof, be reclassified
(the "Reclassification") as, and converted into:
(i) 0.5 of a share of common stock, par value $0.01 per share, of the
Company (the "New Shares") having the rights, powers and privileges
described in the Restated Certificate; and
(ii) one one-thousandth of a share of Series D Redeemable Preferred Stock
of the Company, without par value (the "Redeemable Preferred Stock"),
having the rights, powers and privileges described in the Restated
Certificate.
If the Underwriting Alternative (as defined in Section 1.11 hereof) has been
elected and consummated with respect to the Depositary Shares (as defined), the
Series A Debentures (as defined) and/or the Series B Debentures (as defined),
the terms of the Redeemable Preferred Stock will be modified as provided in the
Restated Certificate.
(b) Each Old Share held by the Company as treasury stock or owned by any
wholly-owned subsidiary of the Company immediately prior to the Effective Time
(the "Treasury Shares"), up to a maximum of 1,000,000 Treasury Shares (the
"Retained Treasury Shares"), shall be reclassified and converted in accordance
with Section 1.2(a), with all Treasury Shares in excess of 1,000,000 being
surrendered for
<PAGE>
cancellation immediately prior to the Effective Time and no payment shall be
made with respect thereto. Immediately following the Effective Time, the
Company and each of its wholly owned Subsidiaries (as defined in Section 3.6)
shall surrender for cancellation the Redeemable Preferred Stock received upon
Reclassification of the Retained Treasury Shares and no payment shall be made
in respect thereof.
Section 1.3 Redemption. Following the Effective Time, all outstanding shares
of Redeemable Preferred Stock shall, to the extent of funds legally available
therefor and subject to the provisions of the Restated Certificate, be redeemed
immediately after issuance according to the terms thereof (the "Redemption").
Pursuant to the Redemption, the holders of Redeemable Preferred Stock, if any,
shall be entitled to receive, in respect of each one one-thousandth of a share
of Redeemable Preferred Stock, subject to the terms thereof and Section 1.5(f):
(i) $25.80 in cash;
(ii) either (a) depositary shares (the "Depositary Shares") representing
interests in $31.10 liquidation preference of Series B Preferred Stock of
the Company, without par value (the "Public Preferred Stock"), or (b) if
the Underwriting Alternative with respect to the Depositary Shares is
consummated, a cash payment equal to the Depositary Share Proceeds Amount
(as defined);
(iii) either (a) $15.55 principal amount of Series A Senior Unsecured
Debentures due 2004 of United issued as provided below (the "Series A
Debentures") or (b) if the Underwriting Alternative with respect to the
Series A Debentures is consummated, a cash payment equal to the Series A
Debenture Proceeds Amount (as defined); and
(iv) either (a) $15.55 principal amount of Series B Senior Unsecured
Debentures due 2014 of United issued as provided below (the "Series B
Debentures" and, together with the Series A Debentures, collectively, the
"Debentures") or (b) if the Underwriting Alternative with respect to the
Series B Debentures is consummated, a cash payment equal to the Series B
Debenture Proceeds Amount (as defined).
The Depositary Shares shall be issued pursuant to a Deposit Agreement
substantially in the form set forth on Schedule 1.3(a) (the "Deposit
Agreement"). The Depositary Shares shall be issued only in denominations of
$25.00 of liquidation preference and integral multiples thereof. The Public
Preferred Stock shall have the rights, powers and privileges described in the
Restated Certificate, which shall include a per share liquidation preference of
$25,000. The Debentures shall be issued pursuant to the Indenture, dated as of
July 1, 1991, between United and the Bank of New York, and the Officers'
Certificate (the "Officers' Certificate") in form and substance as set forth on
Schedule 1.3(b) (collectively, the "Indenture"). Such Indenture shall be
qualified under the Trust Indenture Act of 1939, and the rules and regulations
promulgated thereunder (the "TIA"). The Debentures shall be issued only in
denominations of $100 and integral multiples thereof or, if the Underwriting
Alternative with respect to either series of Debentures is consummated at or
prior to the Effective Time and the Company so elects, denominations of $1,000
and integral multiple thereof, in which case conforming changes shall be made
to this Agreement and the attachments hereto to take into account such greater
denominations with respect to such series.
Section 1.4 Pricing of Specified Securities.
(a) The parties have agreed that the respective interest and dividend rates
that would be required to be applied to the Debentures and the Public Preferred
Stock, respectively, in order for the Debentures and the Depositary Shares to
trade at 100% of aggregate principal amount (in the case of the Debentures) or
at 100% of aggregate liquidation preference (in the case of the Depositary
Shares) (collectively "par") as of the close of business, New York time, on the
Trading Day (as defined below) immediately preceding the date hereof (assuming
for such purpose that the Debentures and the Depositary Shares were fully
distributed on such date) would be as follows (the "Initial Pricing"): Series A
Debentures--9.00%, Series B Debentures--9.70% and Public Preferred Stock--
10.25%. Each of the Series A Debentures, the Series B Debentures and the Public
Preferred Stock is referred to herein as a "Specified Security" and,
collectively, as the "Specified Securities."
A2
<PAGE>
(b) On the Trading Day immediately preceding the Announcement Date, CS First
Boston Corporation ("First Boston") (in consultation with Lazard Freres & Co.
("Lazard")) on behalf of the Company and Keilin & Bloom (or such other
investment banking firm as may be reasonably selected by the Unions) on behalf
of the Unions (the "Primary Banking Firms") shall seek to mutually determine
the interest or dividend rates, as applicable (the "Applicable Rate"), that
each of the Specified Securities should bear in order for such Specified
Security (in the case of the Debentures) or the Depositary Shares (in the case
of the Public Preferred Stock) to trade at par as of the close of business, New
York time, on the Trading Day immediately preceding the Announcement Date,
assuming both that an Underwriting Alternative with respect thereto had and had
not been elected and further assuming in each such case that such Specified
Security or Depositary Shares, as the case may be, were fully distributed on
such Trading Day. If the Primary Banking Firms agree on the Applicable Rate
with respect to a Specified Security, such Specified Security shall bear such
rate and such rate shall be the Applicable Rate with respect to such Specified
Security. If the Primary Banking Firms are unable to agree on the Applicable
Rate with respect to a Specified Security, then (i) Salomon Brothers Inc, or
such other firm as agreed in writing by the Primary Banking Firms (the
"Deadlock Firm"), shall render its opinion, on the Trading Day immediately
preceding the Announcement Date, as to the Applicable Rate with respect to such
Specified Security or Securities, and (ii) the Applicable Rate with respect to
such Specified Security or Securities shall be the average of the two closest
rates specified in the opinions of the Primary Banking Firms and the Deadlock
Firm, rounded to the nearest one one-hundredth of a percent in the case of the
interest rate for the Debentures and to the nearest one one-hundredth of a
percent in the case of the dividend rate for the Public Preferred Stock;
provided, however, that, in no event shall the Applicable Rate with respect to
the Specified Securities exceed (x) in the case of the Series A Debentures,
10.125%; (y) in the case of the Series B Debentures, 10.825%; and (z) in the
case of the Public Preferred Stock, 11.375% (the "Maximum Pricing").
(c) On the Announcement Date, the Company shall issue a press release setting
forth the Applicable Rate for each of the Specified Securities, which press
release shall be distributed to major wire services and news agencies, and
shall confirm that the Company Stockholder Meeting (as defined in Section 5.2)
will be held as scheduled, and shall contain such other information as may be
mutually agreed upon by the Company and the Unions.
(d) "Announcement Date" shall mean a Trading Day which shall be not fewer
than five calendar days nor greater than ten calendar days preceding the date
of the Company Stockholder Meeting, such date to be disclosed to the Unions not
fewer than ten calendar days prior thereto. "Trading Day" shall mean a day on
which the New York Stock Exchange, Inc. ("NYSE") is open for the transaction of
business.
(e) The parties agree that the Initial Pricing of the Debentures (and the
Maximum Pricing for the Debentures) was based on, and the Applicable Rates will
be based on, the assumption that the Debentures will not be callable prior to
their respective stated maturities. The parties further agree that the Unions
may request, not less than seven days prior to the Announcement Date, that, in
the event that the Underwriting Alternative is not consummated with respect to
either or both series of Debentures, either or both of the series of Debentures
shall be callable prior to stated maturity. If so requested, immediately
following the establishment of the Applicable Rates and prior to the
Announcement Date, an additional procedure (based on the procedure set forth in
Section 1.4(b)) shall be implemented whereby the Primary Banking Firms shall
establish the incremental increase in pricing resulting from the addition of
the call feature on either or both of the series of Debentures, as the case may
be, above the Applicable Rate, with any disagreement to be resolved in
accordance with the procedures set forth in Section 1.4(b) involving the
Deadlock Firm; provided, however, that the Unions may withdraw the request for
a call feature at any time up to the issuance of the press release in
accordance with subsection 1.4(c).
(f) Notwithstanding any provision of this Agreement or the Schedules or
Exhibits hereto to the contrary, if the Underwriting Alternative with respect
to the Depositary Shares or either series of Debentures is consummated, (i)
with respect to the securities that are subject to the Underwriting
Alternative, the Company and United, in consultation with the underwriters, may
set the record dates and payment dates (quarterly and semiannually,
respectively) for the Public Preferred Stock (to which the Depositary Shares
relate) and
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the Debentures, may select a regular interest payment date in the year 2004 as
the maturity date for the Series A Debentures and may set a regular interest
payment date in the year 2014 as the maturity date for the Series B Debentures
and (ii) the following provisions of this subsection 1.4(f), with respect to
the securities that are subject to the Underwriting Alternative, shall be null
and void. If the Company causes a regular quarterly dividend to be paid on both
the Public Preferred Stock and the Prior Preferred Stock (as defined below) in
respect of any regular quarterly dividend payment date, then the Company shall
cause the quarterly record date (and corresponding dividend payment date) for
the payment of such dividend on the Public Preferred Stock to be the same as
the quarterly record date (and corresponding dividend payment date) for the
payment of such dividend on the Series A 6.25% Convertible Preferred Stock of
the Company (the "Prior Preferred Stock"). With respect to a regular quarterly
dividend payment date for the Public Preferred Stock and the Prior Preferred
Stock that coincides with a regular semi-annual interest payment date for the
Debentures, if the Company causes (i) a regular quarterly dividend to be paid
on the Public Preferred Stock or the Prior Preferred Stock, or both, in respect
of any such quarterly dividend payment date and (ii) a regular semi-annual
installment of interest to be paid on the Debentures in respect of such regular
semi-annual interest payment date, then the Company shall cause the semi-annual
record date (and corresponding interest payment date) for such payment of
interest on the Debentures to be the same as the quarterly record date (and
corresponding dividend payment date) for the payment of such dividend on the
Public Preferred Stock or the Prior Preferred Stock or both, as the case may
be.
Section 1.5 Surrender and Exchange.
(a) Prior to the Effective Time, the Company shall enter into an agreement
(the "Exchange Agent Agreement") with First Chicago Trust Company of New York,
as exchange agent (the "Exchange Agent"), for the purpose of exchanging
certificates representing Old Shares for the Recapitalization Consideration
(defined below). The Company will make available to the Exchange Agent, as
needed, in trust for the benefit of holders of Old Shares, the Recapitalization
Consideration (as defined herein) to be distributed in respect of the Old
Shares (without regard to Section 1.5(f)). The cash portion of the
Recapitalization Consideration shall be invested by the Exchange Agent as
directed by the Company (so long as such directions do not impair the rights of
holders of Old Shares), in direct obligations of the United States, obligations
for which the full faith and credit of the United States is pledged to provide
for the payment of principal and interest, commercial paper rated of the
highest quality by Moody's Investors Services, Inc. and Standard & Poor's
Corporation or certificates of deposit issued by a commercial bank having at
least $10,000,000,000 in assets (collectively, "Permitted Securities"), and any
net earnings with respect thereto shall be paid to the Company. The Exchange
Agent shall, pursuant to irrevocable instructions, make the distributions
referred to in Section 1.5(b) and the Recapitalization Consideration held by
the Exchange Agent shall not be used for any other purpose. As soon as
practicable after the Effective Time, the Company will send, or cause the
Exchange Agent to send and otherwise make available, to each holder of Old
Shares at the Effective Time a letter of transmittal, in form reasonably
satisfactory to the Unions and the Company, for use in such exchange. Such
letter of transmittal shall advise such holder of the effectiveness of the
Recapitalization, whether or not any portion of the Underwriting Alternative
has been consummated and, if consummated, the expected amount of the Proceeds
Amount, and the procedures for surrendering to the Exchange Agent certificates
representing Old Shares for exchange into Recapitalization Consideration and
shall specify that the delivery shall be effected, and the risk of loss and
title shall pass, only upon proper delivery of the certificates representing
Old Shares to the Exchange Agent.
(b) Each holder of Old Shares that have been converted into New Shares and
Redeemable Preferred Stock, upon surrender to the Exchange Agent of an Old
Certificate or Certificates, together with a properly completed letter of
transmittal covering such Old Shares, will be entitled to receive in respect of
such Old Shares, subject to Section 1.5(f):
(i) a certificate or certificates representing 0.5 of a New Share for
each Old Share formerly represented by such Old Certificate or Certificates
in accordance with Section 1.2;
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(ii) either (a) a depositary receipt or receipts representing Depositary
Shares representing interests in $31.10 liquidation preference of Public
Preferred Stock for each Old Share formerly represented by such Old
Certificate or Certificates in respect of the Redemption or (b) if the
Underwriting Alternative with respect to the Depositary Shares is
consummated, a cash payment equal to the Depositary Share Proceeds Amount
in respect of the Redemption;
(iii) either (a) $15.55 principal amount of Series A Debentures for each
Old Share formerly represented by such Old Certificate or Certificates in
respect of the Redemption or (b) if the Underwriting Alternative with
respect to the Series A Debentures is consummated, a cash payment equal to
the Series A Debenture Proceeds Amount in respect of the Redemption;
(iv) either (a) $15.55 principal amount of Series B Debentures for each
Old Share formerly represented by such Old Certificate or Certificates in
respect of the Redemption or (b) if the Underwriting Alternative with
respect to the Series B Debentures is consummated, a cash payment equal to
the Series B Debenture Proceeds Amount in respect of the Redemption; and
(v) a cash payment of $25.80 for each Old Share formerly represented by
such Old Certificate or Certificates in respect of the Redemption (the cash
and/or securities distributed pursuant to clauses (i) through (v),
collectively, the "Recapitalization Consideration").
Until so surrendered, each Old Certificate or Certificates formerly
representing Old Shares shall, after the Effective Time, represent for all
purposes only the right to receive such Recapitalization Consideration.
(c) If any portion of the Recapitalization Consideration is to be paid to a
person other than the registered holder of the Old Shares formerly represented
by the Old Certificate or Certificates so surrendered in exchange therefor, it
shall be a condition to such payment that the Old Certificate or Certificates
so surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the person requesting such payment shall pay to the Exchange
Agent any transfer or other taxes required as a result of such payment to a
person other than the registered holder of such Old Shares or establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(d) In the event any Old Certificate or Certificates shall have been lost,
stolen or destroyed, upon the making of an affidavit to that fact by the person
claiming such certificate to be lost, stolen or destroyed, the Company will
issue in exchange for such lost, stolen or destroyed Old Certificate or
Certificates the Recapitalization Consideration deliverable in respect thereof
in accordance with this Article I. When authorizing such issue of the
Recapitalization Consideration in exchange therefor, the Company may, in its
discretion and as a condition precedent to the issuance thereof, require the
person claiming ownership of such lost, stolen or destroyed Old Certificate or
Certificates to give the Company a bond in such sum as it may direct, or
otherwise indemnify the Company in a manner satisfactory to it, against any
claim that may be made against the Company with respect to the Old Certificate
or Certificates alleged to have been lost, stolen or destroyed.
(e) After the Effective Time, there shall be no further registration of
transfers of Old Shares. If, after the Effective Time, Old Certificate or
Certificates are presented to the Company or its transfer agent, such Old
Certificate or Certificates shall be canceled and exchanged for the
Recapitalization Consideration provided for, and in accordance with the
procedures set forth, in this Article I. All Recapitalization Consideration to
be distributed pursuant to this Section 1.5, if unclaimed on the first
anniversary of the Effective Time, shall be released and paid by the Exchange
Agent to the Company, after which time persons entitled thereto may look,
subject to applicable escheat and other similar laws, only to the Company for
payment thereof.
(f) Notwithstanding anything to the contrary contained in this Agreement:
(i) No certificates, debentures or scrip representing fractional New
Shares, depositary receipts representing fractional Depositary Shares
(based upon each whole Depositary Share representing interests in $25
liquidation preference of Public Preferred Stock) or fractional Debentures
shall be issued as part of the Recapitalization, and such fractional
interests will not entitle the beneficial or record owner thereof to any
rights of a stockholder or creditor of the Company.
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(ii) As promptly as practicable following the Effective Time, the
Exchange Agent shall determine the excess of (x) the number of whole New
Shares into which all of the Old Shares will be reclassified and converted
pursuant to Section 1.2 over (y) the aggregate number of whole New Shares
to be distributed to holders of Old Shares pursuant to Section 1.5 (such
excess being referred to herein as the "Excess New Shares"); and if the
Underwriting Alternative has not been elected with respect to the
Depositary Shares, the Series A Debentures and/or the Series B Debentures,
as the case may be, or, if elected has not been consummated for any reason
at or prior to the Effective Time, the Exchange Agent shall also determine,
as appropriate, (I) the excess of (a) the number of whole Depositary Shares
representing interests in shares of Public Preferred Stock issuable upon
Redemption in accordance with Article FOURTH, Part I.D, Section 6 of the
Restated Certificate with respect to the Redeemable Preferred Stock into
which the Old Shares will be reclassified and converted pursuant to Section
1.2(a) over (b) the aggregate number of whole Depositary Shares
representing interests in shares of Public Preferred Stock to be
distributed to holders of Old Shares pursuant to Section 1.5 (such excess
being referred to herein as the "Excess Depositary Shares"); (II) the
excess of (a) the number of whole Series A Debentures issuable upon
Redemption in accordance with Article FOURTH, Part I.D, Section 6 of the
Restated Certificate with respect to the Redeemable Preferred Stock into
which the Old Shares will be reclassified and converted pursuant to Section
1.2(a) over (b) the aggregate number of whole Series A Debentures to be
distributed to holders of Old Shares pursuant to Section 1.5 (such excess
being referred to herein as the "Excess Series A Debentures"); and/or (III)
the excess of (a) the number of whole Series B Debentures issuable upon
Redemption in accordance with Article FOURTH, Part I.D, Section 6 of the
Restated Certificate with respect to the Redeemable Preferred Stock into
which the Old Shares will be reclassified and converted pursuant to Section
1.2(a) over (b) the aggregate number of whole Series B Debentures to be
distributed to holders of Old Shares pursuant to Section 1.5 (such excess
being referred to herein as the "Excess Series B Debentures" and, together
with the Excess New Shares, the Excess Depositary Shares and/or the Excess
Series A Debentures, as applicable, collectively, the "Excess Securities").
As soon after the Effective Time as practicable taking into account market
conditions based on consultations with the Company, the Exchange Agent, as
agent for the holders of Old Shares, shall sell the Excess Securities at
then prevailing prices on the principal national securities exchange,
automated quotation system or other trading market (the "Applicable
Exchange") on which the relevant Excess Securities are listed or admitted
for trading (which shall be the NYSE in the case of the New Shares), all in
the manner provided in paragraph (iii) of this Section.
(iii) The sale of the Excess Securities by the Exchange Agent shall be
executed on an Applicable Exchange through one or more member firms of such
Applicable Exchange and shall be executed in round lots to the extent
practicable. Until the net proceeds of such sale or sales have been
distributed to the holders of Old Shares, the Exchange Agent will hold such
proceeds in trust for the holders of Old Shares (the "Excess Securities
Trust"). Until distributed as provided below, the Excess Securities Trust
shall be invested, as directed by the Company, in Permitted Securities and
any net earnings with respect thereto shall be paid to the Company. The
Company shall pay all commissions, transfer taxes and other out-of-pocket
transaction costs, including the expenses and compensation of the Exchange
Agent, incurred in connection with such sale of the Excess Securities. The
Exchange Agent shall determine the portion of the Excess Securities Trust
to which each holder of Old Shares shall be entitled, if any, by (w)
multiplying the amount of the aggregate net proceeds comprising the Excess
Securities Trust attributable to the sale of Excess New Shares by a
fraction, the numerator of which is the amount of the fractional New Share
interest to which such holder of Old Shares would be entitled but for the
application of Section 1.5(f)(i) and the denominator of which is the
aggregate amount of fractional New Share interests to which all holders of
Old Shares would be entitled but for the application of Section 1.5(f)(i);
and if the Underwriting Alternative has not been elected with respect to
the Depositary Shares, the Series A Debentures and/or the Series B
Debentures, as the case may be, or, if elected has not been consummated for
any reason at or prior to the Effective Time, as appropriate, by (x)
multiplying the amount of the aggregate net proceeds comprising the Excess
Securities Trust attributable to the sale of Excess Depositary Shares by a
fraction, the numerator of which is the amount of the fractional Depositary
Share
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interest to which such holder of Old Shares would be entitled but for the
application of Section 1.5(f)(i) and the denominator of which is the
aggregate amount of fractional Depositary Share interests to which all
holders of Old Shares would be entitled but for the application of Section
1.5(f)(i); (y) multiplying the amount of the aggregate net proceeds
comprising the Excess Securities Trust attributable to the sale of Excess
Series A Debentures by a fraction, the numerator of which is the amount of
the fractional Series A Debenture interest to which such holder of Old
Shares would be entitled but for the application of Section 1.5(f)(i) and
the denominator of which is the aggregate amount of fractional Series A
Debenture interests to which all holders of Old Shares would be entitled
but for the application of Section 1.5(f)(i); and (z) multiplying the
amount of the aggregate net proceeds comprising the Excess Securities Trust
attributable to the sale of Excess Series B Debentures by a fraction, the
numerator of which is the amount of the fractional Series B Debenture
interest to which such holder of Old Shares would be entitled but for the
application of Section 1.5(f)(i) and the denominator of which is the
aggregate amount of fractional Series B Debenture interests to which all
holders of Old Shares would be entitled but for the application of Section
1.5(f)(i).
(iv) As soon as practicable after the determination of the total amount
of cash, if any, to be paid to holders of Old Shares in lieu of any
fractional New Share and, if applicable, Depositary Share interests, Series
A Debenture interests and/or Series B Debenture interests, the Exchange
Agent shall make available such amounts to such holders of Old Shares;
provided, however, that such amounts shall be paid to each holder of Old
Shares only upon surrender of such holder's Old Certificate or Certificates
together with a properly completed and duly executed letter of transmittal
and any other required documents. All cash in lieu of fractional interests
to be paid pursuant to this Section 1.5(f), if unclaimed on the first
anniversary of the Effective Time, shall be released and paid by the
Exchange Agent to the Company, after which time persons entitled thereto
may look, subject to applicable escheat and other similar laws, only to the
Company for payment thereof.
(g) No interest shall be paid or accrued on any portion of the
Recapitalization Consideration or cash in lieu of fractional interests. No
dividends or other distributions declared or made after the Effective Time with
respect to New Shares with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Old Certificate or Certificates with respect
to the New Shares such holder is entitled to receive until the holder of such
Old Certificate or Certificates shall surrender the same in accordance with
this Section 1.5 and unless such holder is a record holder of such New Shares
on such record date.
Section 1.6 Other Issuances.
In conjunction with the consummation of the Recapitalization, the Company
shall issue the shares described in this Section 1.6.
(a) During the 69 months following the Effective Time, the "Final Number" (as
defined in subsection (b)) of shares of convertible preferred stock described
below (the "ESOP Convertible Preferred Stock") shall be (i) issued to State
Street Bank and Trust Company, a Massachusetts business trust, as trustee (the
"ESOP Trustee") under a trust to be created pursuant to the Employee Stock
Ownership Trust Agreement between the Company and the ESOP Trustee in form and
substance as set forth on Schedule 1.6(a) (i) (the "ESOP Trust") and to be
established for the benefit of certain employees of the Company and its
Subsidiaries participating in the UAL Corporation Employee Stock Ownership Plan
in form and substance as set forth on Schedule 1.6(a) (ii) (the "ESOP") and, to
the extent not so issued, (ii) credited as book entry credits to the accounts
of certain employees of the Company and its Subsidiaries participating in the
UAL Corporation Supplemental ESOP in form and substance as set forth on
Schedule 1.6(a) (iii) (the "Supplemental ESOP" and together with the ESOP,
collectively, the "ESOPs") and in certain circumstances issued to the ESOP
Trustee under a trust (the "Supplemental ESOP Trust" and together with the ESOP
Trust, collectively, the "ESOP Trusts") to be created pursuant to the
Supplemental ESOP Trust Agreement between the Company and the ESOP Trustee in
form and substance as set forth on Schedule 1.6(a)(iv).
(b) The number of shares of ESOP Convertible Preferred Stock to be so issued
and credited as contemplated by subsection (a) shall initially be 17,675,345,
which is equal to the product of (i) 0.5,
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(ii) 55/45ths, (iii) the "Fully Diluted Old Shares" immediately prior to the
Effective Time, and (iv) 0.9999. The "Fully Diluted Old Shares" immediately
prior to the Effective Time shall equal 28,926,185. The total number of shares
of ESOP Convertible Preferred Stock to be so issued and credited is subject to
increase (in accordance with Section 1.10) up to an amount equal to the sum of
(i) 17,675,345 plus (ii) the Additional Shares (as defined in Section 1.10).
Such total number of shares, including to the extent, if any, so increased, is
referred to as the "Final Number."
(c) The ESOP Convertible Preferred Stock shall consist of (i) Class 1 ESOP
Convertible Preferred Stock, par value $0.01 per share, of the Company, with a
fixed dollar dividend in a dollar amount (the "Dollar Amount") that is equal to
7.00%, or such lesser percentage that may be agreed to by the Company and the
ESOP Trustee prior to the Effective Time, of the per share price at which the
Class 1 ESOP Preferred Stock is issued to the ESOP Trustee at the Effective
Time (the "Initial Price"), and having the rights, powers and privileges set
forth in the Restated Certificate (the "ESOP Preferred"), and (ii) Class 2 ESOP
Convertible Preferred Stock, par value $0.01 per share, of the Company having
the rights, powers and privileges set forth in the Restated Certificate (the
"Supplemental ESOP Preferred").
(d) At the Effective Time, the Company shall issue to the ESOP Trustee in
accordance with a stock purchase agreement and amendment in form and substance
as set forth on Schedule 1.6(d) (as so amended, the "ESOP Stock Purchase
Agreement"), a number of shares of ESOP Preferred (the "Initial Shares") equal
to the Year 1 Release Shares (as defined), divided by the Year 1 Decimal (as
defined).
(i) The term "Year 1 Release Shares" shall mean the product of
(x) 17,675,345,
(y) a fraction (the "First Year Fraction") having a numerator equal
to the number of days from the Effective Time to December 31, 1994 and
a denominator equal to 2,099 (which approximates the number of days in
the 69 months after the Effective Time), and
(z) 0.7815 (the "Class 1 Decimal").
(ii) The term "Year 1 Decimal" shall mean one minus the product of
(xx) the Dollar Amount as a percentage (expressed as a decimal) of
the Initial Price and
(yy) 5.25.
The Year 1 Release Shares shall be released from the ESOP suspense account
and allocated to the accounts of ESOP participants as of December 31, 1994. The
balance of the Initial Shares (the "Year 1 Remaining Shares") shall be released
from the ESOP suspense account and allocated to the accounts of ESOP
participants in level installments for each full plan year (and prorated for
the quarter ending March 31, 2000) in the period from January 1, 1995 through
March 31, 2000.
As of December 31, 1994, there shall be credited to the accounts of
Supplemental ESOP participants a number of shares of Supplemental ESOP
Preferred equal to the product of
(aa) 17,675,345,
(bb) the First Year Fraction, and
(cc) one minus the Class 1 Decimal.
(e) At or about the 365th day following the Effective Time (the "Measuring
Date") and at or about the next four following anniversaries of the Measuring
Date (each a "Measuring Date Anniversary"), the Company shall negotiate in good
faith with the ESOP Trustee to reach an agreement under which the Company shall
issue to the ESOP Trustee shares of ESOP Preferred at an agreed-upon price per
share (for each applicable plan year, the "Purchase Price"). If such agreement
is reached within 30 days of the Measuring Date or within 30 days of any
Measuring Date Anniversary, then, within five days thereafter, the Company
shall sell to the ESOP Trustee, and the ESOP Trustee shall purchase from the
Company, pursuant
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to an agreement substantially in the form of Exhibit B to the ESOP Stock
Purchase Agreement, a number of shares of ESOP Preferred (with respect to each
such year, the "Subsequent Shares"), which number of shares shall equal, for
each such plan year, the Subsequent Year Release Shares (as defined) divided by
the Subsequent Year Decimal (as defined).
(i) The term "Subsequent Year Release Shares" shall mean, for each such
plan year, the excess of
(xx) the product of
(A) 12/69ths of the Final Number and
(B) the Class 1 Decimal, over
(yy) the number of Year 1 Remaining Shares and Subsequent Year
Remaining Shares (as defined below) (collectively, "Tail Shares")
scheduled to be released in such plan year.
(ii) The term "Subsequent Year Decimal" shall be calculated separately
for each such plan year and shall mean one minus the product of
(yy) a fraction (expressed as a decimal) having a numerator equal to
the Dollar Amount and a denominator equal to the Purchase Price for the
plan year in question, and
(zz) the number of years and fractional years from the end of the
plan year for which such shares are being issued to March 31, 2000.
The Subsequent Year Release Shares for each such plan year shall be released
from the ESOP suspense account and allocated to the accounts of ESOP
participants as of the end of such plan year. The balance of the Subsequent
Shares for such plan year (the "Subsequent Year Remaining Shares") shall be
released from the ESOP suspense account and allocated to the accounts of ESOP
participants in level installments for each full plan year (and prorated for
the quarter ending March 31, 2000) remaining in the period from the January 1
immediately following such plan year through March 31, 2000.
For each of the second through sixth plan years of the Supplemental ESOP,
there shall be credited to the accounts of Supplemental ESOP participants
shares of Supplemental ESOP Preferred equal to the product of (aa) 12/69ths of
the Final Number and (bb) the decimal equal to one minus the Class 1 Decimal.
(f) Commencing not later than December 1, 1999, the Company shall negotiate
in good faith with the ESOP Trustee to reach an agreement under which the
Company shall issue to the ESOP Trustee shares of ESOP Preferred at an agreed
upon price (the "Purchase Price" for such year). If such agreement is reached,
then on the first business day in the year 2000, the Company shall sell to the
ESOP Trustee, and the ESOP Trustee shall purchase from the Company, pursuant to
an agreement substantially in the form of Exhibit B to the ESOP Stock Purchase
Agreement, a number of shares of ESOP Preferred ("Final Year Shares"), which
number shall equal the excess of
(A) the product of
(xx) the Final Number,
(yy) a fraction (the "Final Fraction") equal to one minus the sum
of 20/23rds and the First Year Fraction, and
(zz) the Class 1 Decimal, over
(B) the number of Tail Shares scheduled to be released in such plan
year.
For the seventh plan year of the Supplemental ESOP, there shall be credited
to the accounts of Supplemental ESOP participants shares of Supplemental ESOP
Preferred equal to the product of (aa) the Final Number, (bb) the Final
Fraction and (cc) a decimal equal to one minus the Class 1 Decimal.
(g) The Company may, with the consent of the Unions, which shall not be
unreasonably withheld, make all or any part of the sales of ESOP Preferred to
the ESOP Trustee described above at any earlier date or
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dates, provided that the timing and amount of the release of such shares to the
accounts of employees in the ESOPs contemplated by subsections (d), (e) and (f)
above shall not be altered by the different date or dates of the sales. If any
sale of Subsequent Shares or Final Year Shares is not consummated in accordance
with subsection (e) or (f) above (if not earlier consummated pursuant to this
subsection (g)), a number of shares of Supplemental ESOP Preferred as is equal
to the number of shares of ESOP Preferred not so sold shall be contributed to
the ESOP (Part B) or credited to the accounts of participants in the
Supplemental ESOP, as applicable. Such contribution or crediting shall be at
such time or times such that the release (or crediting) of shares to the
accounts of employees contemplated by subsections (d), (e) and (f) above shall
not be altered. Notwithstanding anything to the contrary herein (other than the
provisions of this subsection (g) relating to "catch-up" dividends), the
aggregate number of shares of ESOP Convertible Preferred Stock issued,
credited, or contributed under this Section 1.6 and Section 1.10 shall not
exceed, or be less than, the Final Shares. In the event that fixed dividends on
the ESOP Preferred attributable to a particular acquisition loan are not paid
when initially due because the Company lacks sufficient earnings and profits,
and such earnings and profits later become available, it is possible that such
dividends (the "skipped dividends") may then be paid, on a catch-up basis, to
the ESOP Trustee at a time when such catch-up dividends (when added to other
fixed dividends payable on shares attributable to such loan) exceed the
principal and interest then payable on the loan to which such dividends relate.
In that event, compliance with the rules applicable to the ESOP may require a
portion of such catch-up dividends to be used to purchase New Shares rather
than pay principal or interest on such acquisition loan. If such purchase
causes the New Shares and ESOP Preferred allocated to participants in that year
to exceed the number of shares that would have been allocable absent payment of
the catch-up dividend, then, notwithstanding the provisions of Section 1.6, the
parties agree that they shall negotiate in good faith to determine whether
there is a manner in which the ESOP and the Supplemental ESOP can be amended so
that, in subsequent years, allocations to participants can be reduced in a
manner that results in participants achieving the same economic position that
would have resulted if no such skipped dividends had occurred; and if the
result described in the preceding clause of this sentence can be achieved
without material detriment to any participant (in relation to the economic
position such participant would have enjoyed had the skipped dividend not
occurred) and without interference with the general objectives of the ESOP
program, then the Company may, with the consent of the Unions as to the
satisfaction of the standards set forth in this sentence, which shall not be
unreasonably withheld, adopt appropriate amendments to this Agreement, the ESOP
and Supplemental ESOP to effectuate the intent of this sentence. Achievement of
the goal described in the preceding sentence may require issuance of fewer
shares of ESOP Convertible Preferred Stock in future periods than would have
otherwise been the case (because of the ESOP's unexpected early acquisition of
New Shares). All disputes concerning whether the Unions reasonably withheld a
consent in accordance with the provisions of this subsection (g) shall be
resolved in accordance with the arbitration procedures described in Section
11.2(b)(ii)(G)-(J) of the ESOP.
(h) In consideration of each issuance by the Company of the shares of ESOP
Preferred to the ESOP Trust, the ESOP Trustee, on behalf of the ESOP Trust,
shall (y) pay to the Company an amount of cash equal to the aggregate par value
of the shares of ESOP Preferred so issued and (z) execute and deliver a
promissory note, in the aggregate principal amount equal to the aggregate
purchase price for the ESOP Preferred so issued less the amount paid pursuant
to clause (y), in substantially the form set forth on Exhibit A to the ESOP
Stock Purchase Agreement (each, an "ESOP Note").
(i) In addition, the Company shall also issue and contribute to the ESOP
Trust at the Effective Time:
(x) One (1) share of Class P ESOP Voting Junior Preferred Stock, par
value $0.01 per share, of the Company having the rights, powers and
privileges set forth in the Restated Certificate (the "Class P Voting
Preferred");
(y) One (1) share of Class M ESOP Voting Junior Preferred Stock, par
value $0.01 per share, of the Company having the rights, powers and
privileges set forth in the Restated Certificate (the "Class M Voting
Preferred"); and
(z) One (1) share of Class S ESOP Voting Junior Preferred Stock, par
value $0.01 per share, of the Company having the rights, powers and
privileges set forth in the Restated Certificate (the "Class S
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Voting Preferred" and, together with the Class P Voting Preferred and the
Class M Voting Preferred, collectively, the "ESOP Voting Preferred
Stocks").
In consideration of the issuance by the Company of the ESOP Voting Preferred
Stocks to the ESOP Trust pursuant to this subsection (i) and (if and to the
extent so issued to the ESOP Trustee and if required by Delaware law) the
issuance by the Company of the Supplemental ESOP Preferred pursuant to
subsections (d), (e) and (f) or (g) above, the ESOP Trustee, on behalf of the
ESOP Trust, shall pay to the Company an amount of cash equal to the aggregate
par value of the shares of ESOP Voting Preferred Stocks and Supplemental ESOP
Preferred so issued.
(j) In addition, the Company shall also issue and contribute to the
Supplemental ESOP Trust (together with the ESOP Trust, the "ESOP Trusts"), at
the times provided for in the Supplemental ESOP, an aggregate (to give effect
to the 0.5 Common Stock exchange ratio) of:
(i) a number of shares of Class P Voting Preferred Stock equal to the
product of (aa) 55/45ths, (bb) .4623, (cc) one half of the Fully Diluted
Old Shares and (dd) .9999, minus one (1.0);
(ii) a number of shares of Class M Voting Preferred Stock equal to the
product of (aa) 55/45ths, (bb) .3713, (cc) one half of the Fully Diluted
Old Shares and (dd) .9999, minus one (1.0); and
(iii) a number of shares of Class S Voting Preferred Stock equal to the
product of (aa) 55/45ths, (bb) .1664, (cc) one half of the Fully Diluted
Old Shares and (dd) .9999, minus one (1.0).
If, pursuant to Section 1.10 and this Section 1.6, the Company is required to
sell, contribute and/or credit on a book entry basis Additional Shares (as
defined in Section 1.10(b)), then, ratably over the 69 months following the
Effective Time, the Company shall also contribute to the ESOP Trust or the
Supplemental ESOP Trust, as appropriate, an aggregate of:
(aa) a number of shares of Class P Voting Preferred Stock equal to the
product of .4623 and the number of such Additional Shares:
(bb) a number of shares of Class M Voting Preferred Stock equal to the
product of .3713 and the number of Additional Shares; and
(cc) a number of shares of Class S Voting Preferred Stock equal to the
product of .1664 and the number of Additional Shares.
(k) The Company shall not issue any shares of any class of ESOP Convertible
Preferred Stock or ESOP Voting Preferred Stock (collectively the "ESOP
Preferred Stocks" or "ESOP Preferred Stock") other than in accordance with the
terms of Sections 1.6 and 1.10 hereof and the ESOPs.
(l) The ESOP program is designed to deliver equity ownership and voting power
to the employee groups in pre-negotiated proportions and at a pre-negotiated
pace. If and to the extent that, despite the best and cooperative efforts of
the Unions and the Company, the tax qualified ESOP cannot be implemented in all
material respects or the non-qualified Supplemental ESOP cannot be implemented
in all material respects and without income tax (excluding the employee portion
of FICA, FUTA and Medicare taxes) to participants prior to actual distributions
being made, appropriate arrangements will be made to effectuate in all material
respects the delivery of equity ownership and voting power in the agreed-upon
proportions and at the agreed-upon pace and to accomplish the purposes
contemplated by the ESOP program described in Schedules 1.6(a)(i)-(iv) and (d).
As used herein, the phrase "appropriate arrangements" shall not (i) require the
expenditure of any material amount of funds by the Company or the issuance of
securities to the ESOP Trusts representing a greater proportion of the equity
value or voting power of the Company than that contemplated by this Agreement
or (ii) result in the diminution of the equity value or voting power of the New
Shares held by the stockholders of the Company other than the ESOP Trusts.
(m) In accordance with subscription agreements in form and substance as set
forth on Schedule 1.6(m) (the "Class I Preferred Stock Subscription
Agreement"), the Company shall issue one (1) share of Class I Junior Preferred
Stock, par value $0.01 per share, of the Company having the rights, powers and
privileges
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set forth in the Restated Certificate (the "Class I Preferred") to each of the
persons identified on Schedule 2.3(ii) as the initial "Independent Directors,"
provided that each initial Independent Director shall have paid to the Company
an amount of cash equal to the par value of the share of Class I Preferred to
be so issued.
(n) In accordance with a subscription agreement in form and substance as set
forth on Schedule 1.6(n) (the "Class Pilot MEC Preferred Stock Subscription
Agreement"), the Company shall issue one (1) share of Class Pilot MEC Junior
Preferred Stock, par value $0.01 per share, of the Company having the rights,
powers and privileges set forth in the Restated Certificate (the "Class Pilot
MEC Preferred") to the United Air Lines Master Executive Council of ALPA (the
"MEC"), provided that the MEC shall have paid to the Company an amount of cash
equal to the aggregate par value of the share of Class Pilot MEC Preferred to
be so issued.
(o) In accordance with a subscription agreement in form and substance as set
forth on Schedule 1.6(o) (the "Class IAM Preferred Stock Subscription
Agreement"), the Company shall issue one (1) share of Class IAM Junior
Preferred Stock, par value $0.01 per share, of the Company having the rights,
powers and privileges set forth in the Restated Certificate (the "Class IAM
Preferred") to the IAM or its designee, provided that the IAM or such designee
shall have paid to the Company an amount of cash equal to the aggregate par
value of the share of Class IAM Preferred to be so issued.
(p) In accordance with a subscription agreement in form and substance as set
forth on Schedule 1.6(p)(i) (the "Class SAM Preferred Stock Subscription
Agreement"), the Company shall issue three (3) shares of Class SAM Junior
Preferred Stock, par value $0.01 per share, of the Company having the rights,
powers and privileges set forth in the Restated Certificate (the "Class SAM
Preferred") as follows: (i) two (2) shares to the person identified as the
Salaried and Management Director on Schedule 2.3(ii) or a replacement director
identified in accordance with the nomination procedures in Schedule 1.6(p)(ii)
(the "SAM Director), and (ii) one (1) share to an additional Class SAM
stockholder, defined in Schedule 1.6(p)(i) as the Designated Stockholder,
provided that such persons shall have paid to the Company an amount of cash
equal to the aggregate par value of the shares of Class SAM Preferred to be so
issued.
(q) If, due to limitations of Section 415 of the Internal Revenue Code or due
to the issuance of Additional Shares, the respective Employee Groups (as
defined in the ESOP) are prevented from reasonably achieving the contemplated
allocations among and within their respective Employee Groups, the parties
agree to cooperate to modify the Class 1 Decimal with respect to sales
contemplated by Section 1.6(e) and Section 1.6(f) and to make appropriate
conforming modifications to the ESOP, Supplemental ESOP and all related
instruments if so requested by the Company, ALPA or the IAM. Such modifications
shall maximize the Class 1 Decimal consistent with achieving with a high degree
of certainty that the limits of the Internal Revenue Code Section 415(c)(6)
shall not be exceeded (which condition regarding Section 415(c)(6) may be
waived by ALPA).
Section 1.7 Stock Options. Each employee stock option to purchase Old Shares
granted under any employee stock option or compensation plan or arrangement of
the Company outstanding immediately prior to the Effective Time (an "Option")
shall remain outstanding upon and following consummation of the
Recapitalization, and each such Option, whether or not then vested or
exercisable immediately prior to the Effective Time, shall (i) if provided by
the terms thereof (or if accelerated in accordance with the relevant plan)
become fully vested and exercisable at the Effective Time and (ii) after the
Effective Time represent the right to receive, until the expiration thereof and
in accordance with its terms, in exchange for the aggregate exercise price for
such Option, without interest, the Recapitalization Consideration with respect
to each Old Share that such holder would have been entitled to receive had such
holder exercised such Option in full immediately prior to the Effective Time.
The Recapitalization Consideration issuable upon exercise of an Option shall be
issued in the same proportion as holders of Old Shares would be entitled to
receive their Recapitalization Consideration, but for fractional interests,
among cash and New Shares and, if applicable, principal amount of Series A and
Series B Debentures and Depositary Shares representing interests in the $25
liquidation preference of Public Preferred Stock, except that (i) if the
Underwriting Alternative has not been consummated for any reason at or prior to
the Effective Time with respect to the Depositary Shares, the Series A
Debentures or the Series B Debentures, as the case may be, the total amount of
each of Series A
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and Series B Debentures and Depositary Shares representing interests in the $25
liquidation preference of the Public Preferred Stock to be issued upon exercise
of each such Option shall be rounded upwards to the nearest integral multiple
of $100, $100 and $25, respectively (collectively, the "Option Adjustment"),
and the amount of cash payable shall be reduced by a corresponding amount so
that the holder does not receive fractional Depositary Shares, fractional
Series A Debentures or fractional Series B Debentures (provided, however, if
upon exercise of an Option the amount of cash to be received is less than the
Option Adjustment, the total amount of each of Series A and Series B Debentures
and Depositary Shares representing interests in the $25 liquidation preference
of Public Preferred Stock shall be rounded downwards to the nearest integral
multiple of $100, $100 and $25, respectively, and the amount of cash payable
shall be increased by a corresponding amount so that the holder does not
receive fractional Depositary Shares, fractional Series A Debentures or
fractional Series B Debentures) and (ii) whether or not the Underwriting
Alternative has been consummated at or prior to the Effective Time the total
amount of New Shares issuable to each Option holder in respect of all Options
held by such holder shall be rounded upwards to the nearest whole New Share.
Except as specifically provided in this Section 1.7, the Company shall not make
any other adjustments to the terms of the Options as a result of the issuance
of the ESOP Preferred Stocks or the terms of the ESOP Preferred Stocks
(including, without limitation, the dividend and conversion rights thereof).
Section 1.8 Convertible Company Securities. Each share of the Prior Preferred
Stock and each of the Air Wis Services, Inc. 7 3/4% Convertible Subordinated
Debentures, due 2010, and Air Wis Services, Inc. 8 1/2% Convertible
Subordinated Notes, due 1995 (collectively, the "Air Wis Convertible
Debentures"), outstanding immediately prior to the Effective Time (each, a
"Convertible Company Security") shall upon and following consummation of the
Recapitalization remain outstanding, and each holder of any such Convertible
Company Security shall thereafter have the right to receive, upon conversion,
without interest, the Recapitalization Consideration with respect to each Old
Share that such holder would have been entitled to receive had such holder
converted such Convertible Company Security in full immediately prior to the
Effective Time. The Recapitalization Consideration issuable upon conversion of
a Convertible Company Security shall be issued in the same proportion as
holders of Old Shares receive their Recapitalization Consideration, but for
fractional interests, among cash and New Shares and, if applicable, principal
amount of Series A and Series B Debentures and Depositary Shares representing
interests in the $25 liquidation preference of Public Preferred Stock, except
that (i) if the Underwriting Alternative has not been consummated for any
reason at or prior to the Effective Time with respect to the Depositary Shares,
the Series A Debentures or the Series B Debentures, as the case may be, the
total amount of each of Series A and Series B Debentures and Depositary Shares
to be issued upon conversion of the Convertible Company Security shall be
rounded upwards to the nearest integral multiple of $100, $100 and $25,
respectively, (collectively, the "Convertible Company Security Adjustment") and
the amount of cash payable shall be reduced by a corresponding amount so that
the holder does not receive fractional Depositary Shares representing interests
in the $25 liquidation preference of Public Preferred Stock, fractional Series
A Debentures or fractional Series B Debentures (provided, however, if upon
conversion of a Convertible Company Security the amount of cash to be received
is less than the Convertible Company Security Adjustment, the total amount of
each of Series A and Series B Debentures and Depositary Shares representing
interests in the $25 liquidation preference of Public Preferred Stock shall be
rounded downwards to the nearest integral multiple of $100, $100 and $25,
respectively, and the amount of cash payable shall be increased by a
corresponding amount so that the holder does not receive fractional Depositary
Shares, fractional Series A Debentures of fractional Series B Debentures) and
(ii) whether or not the Underwriting Alternative has been consummated at or
prior to the Effective Time the total amount of New Shares issuable to each
holder of Convertible Company Securities in respect of all Convertible Company
Securities held by such holder shall be rounded upwards to the nearest whole
New Share. Except as specifically provided in this Section 1.8, the Company
shall not make any other adjustments to the terms of the Convertible Company
Securities as a result of the issuance of the ESOP Preferred Stocks or the
terms of the ESOP Preferred Stocks (including, without limitation, the dividend
and conversion rights thereof).
Section 1.9 Form of Recapitalization Consideration. Notwithstanding anything
in Section 1.7 or 1.8 to the contrary, if the holder of an Option or a
Convertible Company Security exercises such Option or
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Convertible Company Security at any time after either series of Debentures or
the Public Preferred Stock has been redeemed, retired or repaid in full (the
securities redeemed, retired or repaid hereinafter referred to as the "Retired
Securities"), the holder of such Option or Convertible Company Security shall
not be entitled to receive any Retired Securities but shall receive in lieu
thereof an amount of cash equal to the principal amount (without premium
regardless of whether a premium is paid at the time of redemption, retirement
or repayment in full) or liquidation preference (without the amount of accrued
dividends regardless of whether accrued dividends were paid at the time of
redemption, retirement or repayment in full), as the case may be, of or
represented by the Retired Securities that such holder otherwise would have
received in respect of the exercise of such Option or Convertible Company
Security.
Section 1.10 Additional ESOP Shares. (a) As soon as practicable after the
Measuring Date, the Company shall (x) contribute shares of Supplemental ESOP
Preferred Stock to Part B of the ESOP and (y) provide an allocation of shares
of Supplemental ESOP Preferred Stock on a book entry basis in a manner
consistent with the allocation under the Supplemental ESOP, such that the
aggregate number of shares under (x) and (y) is equal to a fraction of the
Additional Shares (as defined in Section 1.10(b) below), which fraction shall
be the First Year Fraction. All such shares shall be Supplemental ESOP
Preferred. To the extent permissible under the limitations imposed by the
Internal Revenue Code, the shares determined under this subsection (a) shall be
contributed to Part B of the ESOP, and the remaining shares shall be allocated
under the Supplemental ESOP.
(b) "Additional Shares" shall mean the number of shares of ESOP Convertible
Preferred Stock determined as the excess of (A) the product of (w) a fraction,
the numerator of which is the Adjusted Percentage (as defined in Section
1.10(c) below) at the close of business on the Measuring Date, and the
denominator of which is the excess of one over such Adjusted Percentage
(expressed as a decimal), (x) the Fully-Diluted Shares (as defined in Section
1.10(d) below) at the close of business on the Measuring Date, (y) a fraction,
the numerator of which is one, and the denominator of which is the Conversion
Rate (as defined in Article FOURTH, Part II, Section 6.1 of the Restated
Certificate), and (z) .9999, over (B) 17,675,345 , provided that the number of
Additional Shares shall not be less than zero.
(c) "Adjusted Percentage" shall mean that percentage set forth under the
heading "Adjusted Percentage" on the table set forth on Schedule 1.10 that
corresponds to the Average Closing Price (as defined in Section 1.10(e) below)
set forth under the heading "Average Closing Price" on such table, provided
that if the Average Closing Price falls between two entries on the table, the
Adjusted Percentage shall be determined by a straight-line interpolation
between the two entries in the "Adjusted Percentage" column that correspond to
the next lowest and next highest entries in the "Average Closing Price" column,
rounded to the nearest 0.00000001%.
(d) "Fully-Diluted Shares" shall mean the sum of (i) the excess of (A) the
aggregate number of New Shares outstanding immediately prior to the close of
business on the Measuring Date over (B) the aggregate number of New Shares
issued after the Effective Time other than upon exercise, conversion or
exchange of Options or Convertible Company Securities, (ii) the aggregate
number of New Shares issuable (whether or not from New Shares held in its
treasury) upon the conversion of the Series A Preferred Stock outstanding
immediately prior to the close of business on the Measuring Date, (iii) the
aggregate number of New Shares issuable (whether or not from New Shares held in
its treasury) upon the exercise, conversion or exchange immediately prior to
the close of business on the Measuring Date of any other Convertible Company
Securities with an exercise, conversion or exchange price equal to or less than
the Old Share Equivalent Price (as defined in Section 1.10(f) below) and (iv)
the aggregate number of New Shares that would be required to be issued by the
Company (whether or not from New Shares held in its treasury) if all Options
with an exercise price less than the Old Share Equivalent Price were exercised
in full immediately prior to the close of business on the Measuring Date and
the proceeds from such Option exercises are used by the Company to repurchase
Recapitalization Consideration (in the open market at the Old Share Equivalent
Price) to be delivered in connection with the Company's obligation to issue
Recapitalization Consideration upon exercise of such Options.
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(e) "Average Closing Price" shall mean the average of the product of (i) the
Current Market Price (as defined in Section 1.10(g) below) of a New Share for
each Trading Day (as defined in Section 1.10(h) below) during the Measuring
Period (as defined in Section 1.10(i) below) (or in case the New Shares are
exchanged for or changed, reclassified or converted into stock, securities or
other property (including cash or any combination thereof), whether or not of
the Company, the Fair Market Value (as defined in Section 1.10(j) below) of
such stock, securities or other property into which a New Share has been
exchanged, changed, reclassified or converted) and (ii) the Conversion Rate in
effect on such Trading Day.
(f) "Old Share Equivalent Price" shall mean the sum of (i) the product of (x)
0.5 and (y) the Average Closing Price of a New Share, (ii) either (a) the
product of (x) 1.244 and (y) the average of the Current Market Price of a
Depositary Share for each Trading Day during the Measuring Period or (b) if the
Underwriting Alternative with respect to the Depositary Shares has been
consummated, the Depositary Share Proceeds Amount, (iii) either (a) the product
of (x) .1550 and (y) the average of the Current Market Price of a Series A
Debenture for each Trading Day during the Measuring Period or (b) if the
Underwriting Alternative with respect to the Series A Debentures has been
consummated, the Series A Debenture Proceeds Amount, (iv) either (a) the
product of (x) .1550 and (y) the average of the Current Market Price of a
Series B Debenture for each Trading Day during the Measuring Period or (b) if
the Underwriting Alternative with respect to the Series B Debentures has been
consummated, the Series B Debenture Proceeds Amount and (v) $25.80.
(g) "Current Market Price" of publicly traded New Shares or any other class
or series of capital stock or other security of the Company or any other issuer
for any day shall mean the last reported sales price, regular way on such day,
or, if no sale takes place on such day, the average of the reported closing bid
and asked prices on such day, regular way, in either case as reported on the
New York Stock Exchange Composite Tape or, if such security is not listed or
admitted for trading on the New York Stock Exchange, Inc. ("NYSE"), on the
principal national securities exchange on which such security is listed or
admitted for trading or quoted or, if not listed or admitted for trading or
quoted on any national securities exchange, on the Nasdaq National Market, or,
if such security is not quoted on such National Market, the average of the
closing bid and asked prices on such day in the over-the-counter market as
reported by the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") or, if bid and asked prices for such security on
such day shall not have been reported through NASDAQ, the average of the bid
and asked prices on such day as furnished by any NYSE member firm regularly
making a market in such security selected for such purpose by the Board of
Directors of the Company.
(h) "Trading Day" shall mean any day on which the securities in question are
traded on the NYSE, or if such securities are not listed or admitted for
trading or quoted on the NYSE, on the principal national securities exchange on
which such securities are listed or admitted, or if not listed or admitted for
trading or quoted on any national securities exchange, on the Nasdaq National
Market, or if such securities are not quoted on such National Market, in the
applicable securities market in which the securities are traded.
(i) "Measuring Period" shall mean the period commencing on the day of the
Effective Time and ending on the Measuring Date.
(j) "Fair Market Value" shall mean the average of the daily Current Market
Prices of the security in question during the five (5) consecutive Trading Days
before the earlier of the day in question and the "ex" date with respect to the
issuance or distribution requiring such computation. The term " "ex' date,"
when used with respect to any issuance or distribution, means the first day on
which the New Shares trade regular way, without the right to receive such
issuance or distribution, on the exchange or in the market, as the case may be,
used to determine that day's Current Market Price. With respect to any asset or
security for which there is no Current Market Price, the Fair Market Value of
such asset or security shall be determined in good faith by the Board of
Directors of the Company.
Section 1.11 Underwriting Alternative. Prior to the date that is ten days
after the date of the Company Proxy Statement, but at least seven days prior to
the Announcement Date, the Company may elect to pursue the underwriting of (a)
the Depositary Shares, (b) the Series A Debentures, (c) the Series B
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Debentures, or (d) any combination of the foregoing (referred to collectively
herein as the "Underwriting Alternative"), provided that consummating an
underwriting with respect to the Depositary Shares and/or either or both series
of Debentures, as the case may be, shall be in lieu of issuing Depositary
Shares or either or both such series of Debentures to holders of Old Shares
pursuant to Section 1.5 hereof, to holders of Options pursuant to Section 1.7
hereof and to holders of Convertible Company Securities pursuant to Section 1.8
hereof. If the Company elects the Underwriting Alternative, it may offer
pursuant thereto approximately the amounts of Depositary Shares and/or
Debentures which if the Underwriting Alternative were not elected would be
issuable upon the exchange of all outstanding Old Shares in the
Reclassification and upon exercise of Options and conversion of the Convertible
Company Securities reasonably expected to be exchanged or converted in
accordance with Sections 1.7 and 1.8 hereof (at the rate of $31.10 liquidation
preference of Public Preferred Stock as represented by Depositary Shares,
$15.55 principal amount of Series A Debentures and $15.55 principal amount of
Series B Debentures per Old Share), which amounts shall be rounded up to
produce aggregate amounts of Depositary Shares and Debentures of each series
that are consistent with customary aggregate underwriting denominations. If it
so elects to pursue the Underwriting Alternative, the Company shall use its
best efforts to accomplish such underwritings, including selecting a managing
underwriter or underwriters, filing registration statements with the SEC, and
entering into a firm commitment underwriting agreement or agreements, provided,
however, that the Company may elect to terminate the Underwriting Alternative
at any time prior to the Effective Time. The Unions will cooperate and use
their best efforts to facilitate the underwritings. The Underwriting
Alternative will be effected in accordance with customary underwriting
agreements which may reflect that, if the Company is advised by the managing
underwriter or managing underwriters that the Public Preferred Stock
(represented by Depositary Shares), Series A Debentures or Series B Debentures
would be priced in excess of the Maximum Price applicable to such security (so
that such security, if priced at the applicable Maximum Pricing, could only be
sold at less than par), and is further advised that consistent with industry
practice the Underwriting Alternative would be facilitated by the sale of such
securities at or closer to par, the Company may reduce the amount of such
securities to be sold and increase the dividend or interest rate above the
applicable Maximum Pricing so that such securities may be sold at or closer to
par, provided that the aggregate amount of dividends payable annually in
respect of the Public Preferred Stock (represented by the Depositary Shares) to
be sold, and the aggregate amount of interest payable annually in respect of
either series of Debentures to be sold, that are priced above the applicable
Maximum Pricing may not exceed the aggregate amount of dividends or interest
payable annually in respect of such security at the applicable Maximum Pricing
with respect to the amount of such securities as originally proposed to be
offered. If the Underwriting Alternative with respect to the Depositary Shares
and both series of Debentures is consummated, the amount of cash payable in
respect of each Old Share shall equal the sum of (i) $25.80 per share and (ii)
the gross proceeds (price to public without deducting any underwriting discount
or other costs) received by the Company for each $31.10 liquidation preference
of the Public Preferred Stock as represented by Depositary Shares in the
appropriate underwriting (the "Depositary Share Proceeds Amount"), (iii) the
gross proceeds (price to public without deducting any underwriting discount or
other costs) received by United for each $15.55 principal amount of Series A
Debentures in the appropriate underwriting (the "Series A Debenture Proceeds
Amount") and (iv) the gross proceeds (price to public without deducting any
underwriting discount or other costs) received by United for each $15.55
principal amount of Series B Debentures in the appropriate underwriting (the
"Series B Debenture Proceeds Amount").
ARTICLE II
The Company and United
Section 2.1 Certificate of Incorporation. As of the Effective Time, the
certificate of incorporation of the Company shall be the Restated Certificate.
Section 2.2 Bylaws. As of the Effective Time, the bylaws of the Company in
effect immediately prior to the Effective Time shall be amended and restated in
accordance with applicable law and the Restated Certificate, in form and
substance as set forth in Schedule 2.2 (the "Restated Bylaws").
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Section 2.3 Directors and Officers. Immediately prior to the Effective Time,
the Company shall cause the persons identified on Schedule 2.3(i) to resign, as
of the Effective Time, from the Board of Directors of the Company (which
resignations, for purposes of all rights and benefits of such directors under
all agreements, plans, policies and arrangements of the Company and United,
including those identified in the letter referred to in Section 5.11 hereof,
shall be deemed to have occurred immediately following the Effective Time).
From and after the Effective Time, until their successors are duly elected or
appointed and qualified in accordance with applicable law, the Restated
Certificate and the Restated Bylaws, or until their earlier death, resignation,
disqualification or removal, the persons identified or described on Schedule
2.3(ii) shall constitute the entire Board of Directors of the Company (the "New
Directors") and each shall serve in the classes and capacities identified in
such Schedule. Except as provided in the two preceding sentences, or as
otherwise provided in the Restated Certificate or in the Restated Bylaws, the
officers of the Company immediately prior to the Effective Time (other than the
Chairman and Chief Executive Officer, the President and Chief Operating Officer
and the Executive Vice-President--Corporate Affairs and General Counsel of the
Company (the "Retiring Executives")) shall be the officers of the Company from
and after the Effective Time until their successors are duly elected or
appointed and qualified or until their earlier death, resignation,
disqualification or removal. The Retiring Executives shall retire from all
positions with the Company and the Subsidiaries held by them effective at or
immediately prior to the Effective Time and such retirement shall be treated as
set forth in separate letter agreements to be entered into at or prior to the
Effective Time among each Retiring Executive, on the one hand, and the Company
and United, on the other hand, substantially in the form and substance provided
to the Unions prior to the date hereof. Other than the Retiring Executives, no
other officer of the Company or United may be terminated for a period of six
months following the Effective Time unless such termination shall be approved,
specifically as to such officer, by at least two of the New Directors
identified as "Outside Public Directors" in Schedule 2.3(ii) and the Chief
Executive Officer of the Company following the Effective Time. At the Effective
Time, Gerald Greenwald or such other person as shall be proposed by the Unions
prior to the Effective Time (and not found unacceptable by the Company) shall
be appointed by the Board of Directors, subject to his being ready, willing and
able to serve, as Chief Executive Officer of the Company and United. Such
person as shall be proposed by the Chief Executive Officer and the Unions
following the Effective Time (and approved in accordance with the provisions of
Article FIFTH, Section 3.6.2 of the Restated Certificate) shall be appointed by
the Board of Directors, subject to his/her being ready, willing and able to
serve, as Chief Operating Officer of the Company and United. From and after the
Effective Time, subject to the fiduciary duties of the Board of Directors,
until the Termination Date the Company shall cause (i) the Chief Executive
Officer of the Company to also be one of the Board's nominees to serve as a
Management Public Director (as defined in the Restated Certificate) and (ii)
the Chief Executive Officer of the Company to also serve as the Chief Executive
Officer of United.
Section 2.4 United. The Company shall take all appropriate actions such that,
as of the Effective Time, the certificate of incorporation of United shall be
amended to include the provision set forth in Schedule 2.4 hereto.
ARTICLE III
Representations and Warranties
of the Company
The Company represents and warrants to each of the Unions that:
Section 3.1 Corporate Existence and Power. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and has all corporate power and authority and all governmental
licenses, authorizations, consents and approvals required to own, operate and
lease its assets and to carry on its business as now conducted except for
licenses, authorizations, consents and approvals the absence of which would not
have a Material Adverse Effect (as defined below). The Company is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction
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where the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except for those jurisdictions
where the failure to be so qualified would not have a Material Adverse Effect.
For purposes of this Agreement, "Material Adverse Effect" means, individually
or in the aggregate, any change or effect the consequence of which is
materially adverse to (i) the condition (financial or otherwise), business,
assets or results of operations of the Company and the Subsidiaries (as defined
in Section 3.6), taken as a whole, from that in effect on the date of the
Company's Annual Report on Form 10-K, dated March 11, 1994, for the fiscal year
ended December 31, 1993, as amended by Form 10-K/A, dated March 15, 1994, as
filed with the Securities and Exchange Commission and previously furnished to
the Unions (the "1993 10-K") (except as otherwise specifically provided herein)
or (ii) the Company's ability to effect any of the transactions constituting
part of the Recapitalization, except for such changes or effects resulting
from, or in connection with, (i) labor relations between the Company or its
Subsidiaries, on the one hand, and employees represented by the Unions, on the
other hand (including a strike or other disruption in the operations of the
Company or its Subsidiaries, which shall not be regarded as a Material Adverse
Effect) or (ii) matters disclosed in this Agreement or any Schedule, Exhibit or
other attachment hereto. The Company has heretofore delivered to counsel to the
Unions true and complete copies of the Company's Restated Certificate of
Incorporation as currently in effect (the "Certificate of Incorporation"),
bylaws and Rights Agreement (as defined in Section 3.5), each as currently in
effect. There has been no change in or amendment of the Certificate of
Incorporation or bylaws of the Company or, except as set forth in Section 5.6,
the Rights Agreement since November 1, 1993. The Company is not in violation of
any of the provisions of the Certificate of Incorporation or its bylaws.
Section 3.2 Corporate Authorization. The execution, delivery and performance
by the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby are within the Company's corporate powers and,
except for (w) any required approval by the Company's stockholders in
connection with the consummation of the Shareholder Vote Matters (as defined in
Section 5.2), (x) the approval by the Company's stockholders of amendments to
each of the Company's 1981 Incentive Stock Program, 1988 Restricted Stock Plan
and Incentive Compensation Plan, in form and substance as set forth on Schedule
3.2(i), Schedule 3.2(ii) and Schedule 3.2(iii), respectively (the "Company Plan
Matters"), (y) the approval and ratification of the Company Plan Matters by the
New Directors following the Effective Time and (z) approval by the Board of
Directors of the Company of the filing of the Restated Certificate in
accordance with the applicable provisions of Delaware Law, have been duly
authorized by all necessary corporate action. Prior to the Effective Time, the
Board of Directors of the Company shall approve the filing of the Restated
Certificate in accordance with the applicable provisions of Delaware Law. This
Agreement has been duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by each of the Unions, constitutes a
legal, valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms. The Board of Directors of the Company has
taken all necessary and appropriate actions so that the restrictions on
"business combinations" contained in Section 203 of Delaware Law (i) will not
apply with respect to or as a result of the Recapitalization, including,
without limitation, the acquisition of the ESOP Preferred Stock by the ESOPs
and (ii) will not apply prior to the Termination Date (as defined in Article
FIFTH, Section 1.72 of the Restated Certificate) to "business combinations" (as
defined in Section 203 of Delaware Law) involving the Company or any of its
Subsidiaries, on the one hand, and the ESOP Trustee, the ESOPS or either of the
Unions, on the other hand, which otherwise would be subject to Article FIFTH,
Section 3.8 of the Restated Certificate. The Company has taken all appropriate
action to establish each of the ESOPS effective not later than the Effective
Time.
Section 3.3 Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby require no consent, approval,
authorization or other action by or in respect of, or filing with or
notification to, any governmental body, agency, official or authority other
than (i) the filing of the Restated Certificate in accordance with Delaware
Law; (ii) compliance with any applicable requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"); (iii)
compliance with any applicable requirements of the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder
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(the "1933 Act"), the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder (the "1934 Act") and the TIA; (iv)
any applicable filings with the United States Department of Transportation
("DOT"); and (v) actions or filings the absence of which would not have a
Material Adverse Effect.
Section 3.4 Non-Contravention. Except as set forth on Schedule 3.4, the
execution, delivery and performance by the Company of this Agreement and the
consummation by the Company of the transactions contemplated hereby do not and
will not (i) contravene or conflict with the Certificate of Incorporation or
bylaws of the Company, (ii) assuming compliance with the matters referred to in
Section 3.3, contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to the Company, any Subsidiary, or, to the knowledge of the
Company, any of the CRS Companies (as defined in Section 3.6), (iii) constitute
a default under or give rise to a right of termination, cancellation or
acceleration (other than with respect to the acceleration of the exercisability
of Options, the vesting of restricted stock of the Company or the payment of
severance benefits) of any right or obligation of the Company, any Subsidiary
or, to the knowledge of the Company, any of the CRS Companies, or to a loss of
any benefit to which the Company, any Subsidiary or, to the knowledge of the
Company, any of the CRS Companies, is entitled under any provision of any
agreement, contract or other instrument binding upon the Company, any
Subsidiary or, to the knowledge of the Company, any of the CRS Companies, or
any license, franchise, permit or other similar authorization held by the
Company, any Subsidiary, or, to the knowledge of the Company, any of the CRS
Companies, or (iv) result in the creation or imposition of any Lien (as defined
below) on any asset of the Company, any Subsidiary, or, to the knowledge of the
Company, any of the CRS Companies, which violations, defaults, rights of
termination or Liens could have a Material Adverse Effect. For purposes of this
Agreement, "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For purposes of the representations and warranties relating to the CRS
Companies that are qualified by the knowledge of the Company, "knowledge of the
Company" shall mean the knowledge of the executive officers of the Company,
United and Covia Corporation. There are no (i) consents from holders of Options
nor (ii) amendments to the terms of Options or compensation plans or
arrangements, that are necessary to give effect to the transactions
contemplated by Section 1.7.
Section 3.5 Capitalization. The authorized capital stock of the Company is
set forth in the Certificate of Incorporation of the Company and consists of
(i) 125,000,000 Old Shares and (ii) 16,000,000 shares of Preferred Stock,
without par value, of which 1,250,000 have been designated as Series C Junior
Participating Preferred Stock ("Junior Preferred Stock") and are reserved for
issuance upon exercise of the Rights (as defined in the Rights Agreement dated
as of December 11, 1986 between the Company and First Chicago Trust Company of
New York (formerly Morgan Shareholder Services Trust Company), as amended (the
"Rights Agreement")) and 6,000,000 have been designated as Prior Preferred
Stock. As of March 22, 1994, there were outstanding (a) 24,570,539 Old Shares
(including 119,643 unvested shares issued under the UAL 1988 Restricted Stock
Plan), (b) 6,000,000 shares of Prior Preferred Stock (convertible into
3,833,866 Old Shares), (c) Rights to purchase 245,710 shares of Junior
Preferred Stock, (d) Options to purchase an aggregate of 1,648,668 Old Shares
(of which 13,927 have tandem stock appreciation rights held by former employees
with an aggregate exercise price of $1,061,872.75 and of which Options 11,500
are held by ex-employees of the Company with vesting dates after the expiration
of such Options pursuant to such ex-employees' severance agreements), and (e)
$35,535,000 principal amount of Air Wis Convertible Debentures convertible into
140,134 Old Shares, of which $2,530,000 principal amount, convertible into
9,765 Old Shares, is held by Air Wis Services, Inc. All outstanding shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable. Except as set forth in this Section 3.5 and
except for changes since March 1, 1994 resulting from the exercise of Options
or the conversion of Convertible Company Securities, in each case outstanding
on such date, there are outstanding no (w) shares of capital stock or other
voting securities of the Company, (x) securities of the Company or any
Subsidiary convertible into or exchangeable for shares of capital stock or
voting securities of the Company, (y) options, subscriptions, warrants or other
rights, agreements, arrangements or commitments of any character to acquire
from the
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Company or any Subsidiary any capital stock, voting securities or securities
convertible into or exchangeable or exercisable for capital stock or voting
securities of the Company, or (z) obligations of the Company or any Subsidiary
to issue any capital stock, voting securities or securities convertible into or
exchangeable or exercisable for capital stock or voting securities of the
Company (the items in clauses (w), (x), (y) and (z) being referred to
collectively as the "Company Securities"). Except (i) as set forth above, (ii)
for tax withholding and cashless exercise features of the Options and
restricted stock, and (iii) for stock appreciation rights that do not become
exercisable until September 1, 1994 and expire at the Effective Time, there are
no obligations of the Company or any Subsidiary to repurchase, redeem or
otherwise acquire any Company Securities or make any payments based upon the
value of any Company Securities.
Section 3.6 Subsidiaries.
(a) Each Subsidiary is a corporation duly incorporated, validly existing and
in good standing under the laws of its jurisdiction of incorporation, has all
corporate power and authority and all governmental licenses, authorizations,
consents and approvals required to own, operate and lease its assets and to
carry on its business as now conducted (except for those the absence of which
would not have a Material Adverse Effect) and is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
make such qualification necessary, except for those jurisdictions where failure
to be so qualified would not have a Material Adverse Effect. For purposes of
this Agreement, "Subsidiary" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are directly
or indirectly owned by the Company, but shall in no event include the CRS
Companies. A list of Subsidiaries and their respective jurisdictions of
incorporation previously has been delivered to counsel to the Unions by the
Company. Nothing in this Section 3.6 or Section 5.1 shall be deemed to prohibit
the merger or other consolidation of immaterial wholly-owned Subsidiaries with
or into the Company or any of its wholly-owned Subsidiaries (Covia Corporation
being deemed material for the purpose of this sentence).
(b) Except for director qualifying shares and similar securities, all of the
outstanding capital stock of, or other ownership interests in, each Subsidiary
is owned by the Company, directly or indirectly, free and clear of any Lien and
free of any other limitation or restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). Except for director qualifying shares and similar
securities, there are outstanding no (i) securities of the Company or any
Subsidiary convertible into or exchangeable for shares of capital stock or
other voting securities or ownership interests in any Subsidiary or (ii)
options, subscriptions, warrants or other rights, agreements, arrangements or
commitments of any character to acquire from the Company or any Subsidiary, and
no other obligation of the Company or any Subsidiary to issue, any capital
stock, voting securities or other ownership interests in, or any securities
convertible into or exchangeable or exercisable for any capital stock, voting
securities or ownership interests in, any Subsidiary (the items in clauses (i)
and (ii) being referred to collectively as the "Subsidiary Securities"). There
are no outstanding obligations of the Company or any Subsidiary to repurchase,
redeem or otherwise acquire any outstanding Subsidiary Securities or make any
payments based upon the value of any Subsidiary Securities.
(c) Each of Apollo Travel Services Partnership, a Delaware general
partnership ("ATS"), Galileo Japan Partnership, a Delaware general partnership
("GJP"), and Galileo International Partnership, a Delaware general partnership
("GIP" and, together with ATS and GJP, collectively, the "CRS Companies") is a
general partnership formed under the laws of the State of Delaware, is validly
existing and in good standing under the laws of Delaware, and has all
partnership power and authority and all governmental licenses, authorizations,
consents and approvals required to own, operate and lease its assets and to
carry out its business as now conducted (except for those the absence of which
would not have a Material Adverse Effect). The partnership agreement
establishing each of the CRS Companies, together with all exhibits and
amendments thereto has been provided to the Unions, and no Subsidiary that is
party to either such partnership agreement is or has been in any manner in
breach of, or in default under, any provision thereof,
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nor is the Company, United or any officer or director of either of them aware
of any breach or default by any other party to either of such partnership
agreements that would or could be reasonably expected to result in a Material
Adverse Effect. Except as set forth on Schedule 3.6(c), all of the outstanding
ownership interests held by Covia Corporation, a Delaware corporation and
wholly owned Subsidiary, of the CRS Companies are free and clear of any Lien
other than as set forth in the partnership agreement with respect to such
entity.
Section 3.7 Securities and Exchange Commission ("SEC") Filings.
(a) The Company has delivered to counsel for each of the Unions (i) its
Annual Reports on Form 10-K for its fiscal years ended December 31, 1993, 1992
and 1991, without exhibits, (ii) all of its Quarterly Reports on Form 10-Q
filed with the SEC since December 31, 1992, without exhibits, (iii) its proxy
or information statements relating to meetings of, or actions taken without a
meeting by, the stockholders of the Company since December 31, 1992 and (iv)
all of its other reports, statements, schedules and registration statements
filed with the SEC since December 31, 1992, without exhibits. The reports,
statements and schedules referred to in the preceding sentence are all the
documents (other than preliminary material and supplemental filings, excluding
supplemental prospectuses) that the Company was required to file with the SEC
since December 31, 1992. As of its filing date, all of such reports, statements
and schedules complied in all material respects with the requirements of the
1933 Act or the 1934 Act, as the case may be.
(b) As of its filing date, no such report, statement or schedule filed
pursuant to the 1934 Act contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading.
(c) No such registration statement, as amended or supplemented, if
applicable, filed pursuant to the 1933 Act as of the date such statement or
amendment became effective contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary
to make the statements therein not misleading.
Section 3.8 Financial Statements. The audited consolidated financial
statements of the Company included in its Annual Reports on Form 10-K and the
unaudited consolidated interim financial statements included in its Quarterly
Reports on Form 10-Q referred to in Section 3.7 have been prepared in
accordance with generally accepted accounting principles consistently applied
and fairly present (except as may be indicated in the notes thereto) the
consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and their consolidated results of
operations and cash flows for the periods then ended (subject to normal,
immaterial year-end audit adjustments in the case of any unaudited interim
financial statements).
Section 3.9 Disclosure Documents.
(a) Each document required to be filed by the Company with the SEC in
connection with the transactions contemplated by this Agreement (the "Company
Disclosure Documents"), including, without limitation, the proxy statement of
the Company (the "Company Proxy Statement") (which also is the prospectus of
the Company and United with respect to the New Shares, Depositary Shares,
Public Preferred Stock, Redeemable Preferred Stock and Debentures to be issued
in connection with the Recapitalization (the "Recapitalization Securities") and
is to be included in the Registration Statement on Form S-4 (the "Registration
Statement") to be filed with the SEC by the Company under the 1933 Act and in
the Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3") to be filed
with the SEC by the Company under the 1934 Act), and the registration
statements to be filed with the SEC by the Company and United under the 1933
Act in connection with the underwriting described in Section 1.11 hereof (the
"Underwriting Registration Statements") and any amendments or supplements to
any of the foregoing documents will, when filed, when the Registration
Statement and the Underwriting Registration Statements are declared effective
by the SEC, at the time of the distribution thereof and at the time
stockholders vote on the Shareholder Vote Matters comply as to form in all
material respects with the applicable requirements of the 1933 Act and the 1934
Act.
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(b) At the time the Company Proxy Statement and Schedule 13E-3 or any
amendment or supplement thereto is first mailed to stockholders of the Company,
and at the time such stockholders of the Company vote on the Shareholder Vote
Matters, the Company Proxy Statement and Schedule 13E-3, as supplemented or
amended, if applicable, will not be false or misleading with respect to any
material fact, or omit to state any material fact required to be stated therein
or necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. At the time of the
filing of the Registration Statement and the Underwriting Registration
Statements and any amendment or supplement thereto, at the time the same are
declared effective by the SEC, at the time of any distribution under the
Registration Statement and the Underwriting Registration Statements, at the
time the stockholders of the Company vote on the Shareholder Vote Matters and
at the Effective Time, such Registration Statement and Underwriting
Registration Statements, as so amended or supplemented, will not be false or
misleading with respect to any material fact or omit to state any material fact
required to be stated therein or necessary to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
At the time of the filing of any Company Disclosure Document other than the
Company Proxy Statement, Schedule 13E-3, Registration Statement and the
Underwriting Registration Statements and at the time of any distribution
thereof, such Company Disclosure Document will not be false or misleading with
respect to any material fact or omit to state any material fact required to be
stated therein or necessary to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. The
representations and warranties contained in this Section 3.9(b) will not apply
to statements included in or omissions from the Company Disclosure Documents
based upon information furnished to the Company in writing by either Union
specifically for use therein.
Section 3.10 Absence of Certain Changes. Except as disclosed in SEC filings
referred to in Section 3.7 filed prior to the date hereof, since December 31,
1993, there has been no event, and no state of circumstances has existed, that
has had or will, or could reasonably be expected to, have a Material Adverse
Effect.
Section 3.11 Finders' Fees. Except for First Boston and Lazard, whose fees
will be paid by the Company, and as specifically contemplated herein, there is
no investment banker, broker or finder which has been retained by or is
authorized to act on behalf of the Company, any Subsidiary or, to the knowledge
of the Company, any CRS Company, who might be entitled to any fee or commission
from the Company, either Union or any affiliate of either of them upon
consummation of the transactions contemplated by this Agreement (other than in
connection with the Underwriting Alternative), based upon arrangements made by
or on behalf of the Company.
Section 3.12 Board Action. The Board of Directors (i) has determined that the
transactions contemplated hereby are fair to and in the best interest of the
Company's stockholders, (ii) has approved the Reclassification, the
Recapitalization and this Agreement, (iii) has approved the Company Plan
Matters, subject to ratification by the Company's stockholders and the New
Directors, and (iv) has resolved to recommend (subject to the provisions of
Section 5.4) the approval and adoption of the Shareholder Vote Matters to the
Company's stockholders at the Company Stockholder Meeting.
Section 3.13 Securities. The Recapitalization Securities and the ESOP
Preferred Stocks (and the New Shares into which the ESOP Preferred Stocks are
convertible) to be issued pursuant to Sections 1.2, 1.3, 1.4, 1.6 and 1.10,
when so issued in accordance with such Sections and the Registration Statement
and the Underwriting Registration Statements, if applicable, will be duly
authorized and validly issued and, in the case of such securities other than
the Debentures, will be fully paid and nonassessable.
Section 3.14 Opinion of Financial Advisers. The Company has received the
respective oral opinions of First Boston and Lazard to the effect that, as of
May 20, 1994, the consideration to be received in the Recapitalization by the
Company's stockholders is fair to the Company's stockholders from a financial
point of view, which opinions shall be confirmed in writing and delivered to
each of the Unions promptly following receipt (the "Company Fairness
Opinions").
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Section 3.15 Vote Required. The affirmative vote of a majority of the votes
that holders of the outstanding Old Shares are entitled to cast is the only
vote of the holders of any class or series of capital stock of the Company
necessary to approve the Shareholder Vote Matters. The Shareholder Vote Matters
are the only matters required to be approved by holders of capital stock of the
Company in connection with the Recapitalization.
Section 3.16 Limitations. As of the date of this Agreement, the Company has
no knowledge of any event or condition which would preclude it from taking any
action necessary to consummate the transactions contemplated hereby.
Section 3.17 Compliance with Status Quo. The Company has complied in all
material respects with its obligations contained in Sections 10 and 11 of that
certain letter setting forth the principal terms of the Recapitalization, dated
December 22, 1993, among the Company, the IAM and ALPA (the "Letter
Agreement"), which apply to transactions entered into after December 22, 1993
and on or prior to March 15, 1994 (the "Status Quo Provisions"). Except as set
forth on Schedule 3.17, neither the Company nor any of its Subsidiaries has
taken any action that would have violated the Status Quo Provisions in any
material respect had the Status Quo Provisions continued to remain in effect
through the date hereof. Except as set forth on Schedule 5.1, the Company has
not disclosed to the Unions any plans of the type referred to in Section 5.1(e)
since December 22, 1993.
Section 3.18 Rights Agreement. The Board of Directors has taken all necessary
action to amend the Rights Agreement, effective at or immediately prior to the
Effective Time, in form and substance as set forth in Schedule 3.18 (the
"Rights Amendment").
ARTICLE IV
Representations and Warranties
of the Unions
Each Union hereby severally, and not jointly, represents and warrants to the
Company that:
Section 4.1 Existence and Power. Such Union is, in the case of ALPA, an
unincorporated association organized and maintained for purposes of a labor
association and the duly authorized representative of pilots employed by United
under the Railway Labor Act, as amended (the "RLA"), and, in the case of the
IAM, is an incorporated association organized and maintained for purposes of a
labor organization and is the duly authorized representative of employees
employed by United as mechanics and related employees, ramp and stores
employees, food service employees, dispatchers, and security officers, and has
all organizational powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted.
Section 4.2 Authorization. The execution, delivery and performance by such
Union of this Agreement and the consummation by such Union of the transactions
contemplated hereby (including the applicable Labor Agreement) are within the
organizational powers of such Union and have been duly authorized by all
necessary organizational action of such Union. This Agreement has been duly
executed and delivered by such Union and, assuming due authorization, execution
and delivery by the Company and the other Union, constitutes a valid and
binding agreement of such Union, enforceable against such Union in accordance
with its terms.
Section 4.3 Governmental Authorization. The execution, delivery and
performance by such Union of this Agreement and the consummation by such Union
of the transactions contemplated by this Agreement require no consent,
approval, authorization or other action by or in respect of, or filing with or
notification to, any governmental body, agency, official or authority other
than (i) compliance with any applicable requirements of the HSR Act, (ii) any
applicable filings with DOT, and (iii) actions or filings the absence of
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which would not, in the aggregate, have a material adverse effect on such Union
or on the ability of such Union to perform its obligations under this
Agreement.
Section 4.4 Non-Contravention. The execution, delivery and performance by
such Union of this Agreement and the consummation by such Union of the
transactions contemplated hereby do not and will not (i) contravene or conflict
with the organizational documents of such Union, (ii) assuming compliance with
the matters referred to in Section 4.3, contravene or conflict with any
provision of law, regulation, judgment, order or decree binding upon such Union
or (iii) constitute a default under or give rise to any right of termination,
cancellation or acceleration of any right or obligation of such Union or to a
loss of any benefit to which such Union is entitled under any agreement,
contract or other instrument binding upon such Union, which defaults,
terminations, cancellations, accelerations or losses, could individually or in
the aggregate have a material adverse effect on such Union or on the ability of
such Union to perform its obligations under this Agreement.
Section 4.5 Disclosure Documents. The information with respect to such Union
that such Union furnishes to the Company in writing specifically for use in any
Company Disclosure Documents, taken as a whole, will not be false or misleading
with respect to any material fact or omit to state any material fact required
to be stated therein or necessary to make the statements made therein, in the
light of the circumstances under which they were made, not misleading (i) in
the case of the Company Proxy Statement and the Schedule 13E-3, at the time it
or any amendment or supplement thereto is first mailed to stockholders of the
Company, and at the time the stockholders vote on adoption of the Shareholder
Vote Matters, (ii) in the case of the Registration Statement and each of the
Underwriting Registration Statements, at the time it or any amendment is filed
and is declared effective by the SEC and is distributed and, in the case of the
Registration Statement, at the time the stockholders vote on the Shareholder
Vote Matters and at the Effective Time, and (iii) in the case of any other
Company Disclosure Document, at the time of the filing thereof and at the time
of any distribution thereof.
Section 4.6 Finders' Fees. Except as previously disclosed to the Company in
writing (and such other persons that such Union may have selected after the
date hereof whose fees will be paid by such Union or the Company, subject, in
the case of payment by the Company, to the terms of the Fee Letter (as defined
in Section 10.4)) or as otherwise contemplated hereby or by their engagement
letters, there is no investment banker, broker, finder or other intermediary
who might be entitled to any fee or commission from the Company, such Union or
any affiliate of either of them upon consummation of the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
such Union.
Section 4.7 Limitations. As of the date of this Agreement, such Union has no
knowledge of any event or conditions which would preclude it from taking any
action necessary to consummate the transactions contemplated hereby.
ARTICLE V
Covenants of the Company
The Company agrees that:
Section 5.1 Conduct of the Company. From the date hereof until the Effective
Time, without the consent of the Unions, the Company and its Subsidiaries
shall, except as specifically provided in Article I, Section 5.4 and Section
9.1(d)(ii) or on Schedule 5.1(i) or other Schedules, Exhibits or attachments
hereto, conduct their business in the ordinary course consistent with past
practice and shall use their best efforts to preserve intact their business
organizations and relationships with third parties and to keep available the
services of their present officers and employees. Without limiting the
generality of the foregoing, from the date hereof until the Effective Time,
neither the Company nor any Subsidiary shall, without the prior written consent
of the Unions, except as otherwise expressly provided in this Agreement:
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(a) issue, sell, dispose of, pledge or otherwise encumber, or authorize
or propose the issuance, sale, disposition, pledge or other encumbrance of,
any Company Securities or Subsidiary Securities other than pursuant to the
exercise of options outstanding as of December 22, 1993 (or issued in
accordance with the restrictions contained in Letter Agreement) under the
Company's 1981 Incentive Stock Program or the issuance of Rights in
connection with the issuance of Old Shares upon exercise of such options,
or, with respect to securities of Subsidiaries, to the Company;
(b) reclassify, combine, split, subdivide, redeem, purchase or otherwise
acquire, or propose to purchase or otherwise acquire, any Company
Securities or Subsidiary Securities, except repurchases of Company
securities, (x) pursuant to employee stock purchase, stock option, stock
grant or other employee arrangements or (y) pursuant to rules or
requirements under the Employee Retirement Income Security Act of 1974, as
amended;
(c) declare or pay any dividend or distribution on the Old Shares;
(d) (i) increase the compensation of any of its directors, officers or
key employees, except in the ordinary course of business and consistent
with past practice or pursuant to the terms of agreements or plans
currently in effect; (ii) pay or agree to pay any pension, retirement
allowance or other employee benefit that is either not required or
specifically permissible by any existing plan, agreement or arrangement to
any director, officer or key employee, other than in the ordinary course of
business and consistent with past practice; (iii) commit itself to any
additional pension, profit-sharing, bonus, extra compensation, incentive,
deferred compensation, stock purchase, stock option, stock appreciation
right, group insurance, severance pay, retirement or other employee benefit
plan, agreement or arrangement, or to any employment or consulting
agreement with or for the benefit of any director, officer or key employee
whether past or present, except in the ordinary course of business
consistent with past practice; or (iv) except as required by applicable
law, amend in any material respect any such plan, agreement or arrangement;
provided that the foregoing shall not be deemed to restrict necessary and
reasonable actions taken in connection with (aa) retention of personnel
other than executive officers or (bb) promotions and new hires in the
ordinary course of business consistent with past practice; provided,
further, that nothing herein shall preclude the Company or any of its
Subsidiaries from taking any action reasonably designed to permit any
employee to realize vested benefits under any existing plan, agreement or
arrangement referred to above;
(e) except in the ordinary course of business and consistent with past
practice and except for refinancings or pursuant to existing plans of the
Company disclosed to the Unions in writing prior to the date hereof (i)
incur any material amount of long-term indebtedness for borrowed money or
issue any material amount of debt securities (other than trade debt and
commercial paper) or assume, guarantee or endorse the obligations of any
other person except for obligations of wholly owned Subsidiaries; (ii) make
any material loans, advances or capital contributions to, or investments
in, any other person (other than to wholly owned Subsidiaries or customary
loans or advances to employees in amounts not material to the maker of such
loan or advance); or (iii) mortgage or pledge any of its material assets,
tangible or intangible, or create or suffer to exist any lien thereupon,
other than any purchase money mortgage or lien; or
(f) enter into any agreement or arrangement to do any of the foregoing.
In addition, except as specifically provided in Section 5.4 and Section
9.1(d)(ii), from the date hereof until the Effective Time, without the prior
written consent of the Unions, the Company and its Subsidiaries shall not take
any action (i) which would violate or be inconsistent with the job protection
provisions set forth in Section 1 and Letters 94-1 and 94-2 of the ALPA Labor
Agreement (as defined below) or the job protection provisions of the IAM Labor
Agreement (as defined below) set forth on Schedule 5.1(ii) as if all references
to the date of signing, the date of the ALPA and IAM Labor Agreements, the date
of ratification or the date of closing in such Labor Agreements (including all
references therein to July 1, 1994, when intended to be the date of closing of
such Labor Agreements) referred to the date of this Agreement or (ii) which,
either alone or together with any matters entered into from December 22, 1993
through the date hereof, would be subject
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to Article FIFTH, Sections 3.1 through 3.5 of the Restated Certificate or (iii)
except as provided in Section 5.7, to alter or amend the terms of any of the
Company's Board of Directors' resolutions or any of its policies, practices,
procedures or employee benefit plans (as described on Schedule 5.1(iii)) in any
manner which would adversely affect the right or ability of the employees of
the Company or United directly or indirectly to purchase equity securities of
the Company.
The Flight Kitchen severance package described in paragraph 26 of Exhibit E-2
to the Letter Agreement shall be restored and benefits described in that
paragraph shall be provided as if the condition described in paragraph 26,
section 5(a) of Exhibit E-2 had been fully complied with. Any Food Service
Agreement employee who can demonstrate that his or her job status at United was
adversely affected by his or her detrimental reliance on United's March 16,
1994 announcement cancelling the Flight Kitchen LPP's will be entitled to
receive a remedy from United for his or her actual contractual damages, if any.
Any disagreement regarding entitlement to or the nature of such remedy may be
submitted to the United-IAM System Board of Adjustment.
Section 5.2 Stockholder Meeting; Proxy Material. Subject to receipt by the
Company of updated Company Fairness Opinions from First Boston and Lazard to
the effect that, as of the date of the Company Proxy Statement, the
consideration to be received in the Recapitalization by the Company's
stockholders is fair to the Company's stockholders from a financial point of
view, the Company shall cause a meeting of its stockholders (the "Company
Stockholder Meeting") to be duly called and held as soon as reasonably
practicable after the date on which the Registration Statement is declared
effective by the SEC, for the purpose of voting on the approval and adoption of
each of the Reclassification, the Restated Certificate, the election of four of
the five initial Public Directors to the Board of Directors of the Company, the
Recapitalization and the issuance of the ESOP Preferred Stock as part of the
Recapitalization (such matters are collectively referred to as the "Shareholder
Vote Matters") and the Company Plan Matters. The Shareholder Vote Matters shall
be presented as a single proposal, or the effectiveness of each such matter
shall be conditioned on the approval of all of such matters. Consistent with
its obligations under Section 7.1, the Company shall be entitled to delay the
Company Stockholder Meeting if the Company does not receive, as of the
Announcement Date, updated Company Fairness Opinions from First Boston and
Lazard to the effect that, as of the Announcement Date, the consideration to be
received in the Recapitalization by the Company's stockholders is fair to the
Company's stockholders from a financial point of view. Subject to Section 5.4,
the directors of the Company shall recommend the approval and adoption of the
Shareholder Vote Matters by the Company's stockholders and shall use its best
efforts (as defined in Section 7.1) in soliciting such approval. Subject to
Section 5.4, in connection with such meeting, the Company (i) will promptly
prepare and file with the SEC, will use its best efforts to have cleared by the
SEC and will, subject to the effectiveness of the Registration Statement,
thereafter mail to its stockholders as promptly as practicable, the Company
Proxy Statement (including the information required by the Schedule 13E-3) and
all other proxy materials for such meeting, (ii) will use its best efforts to
obtain the necessary approvals by its stockholders of the Shareholder Vote
Matters and (iii) will otherwise comply with all legal requirements applicable
to such meeting. A reasonable period of time prior to the initial filing of (or
the filing of any amendment of supplement to) any of the Company Proxy
Statement, the Registration Statement, the Underwriting Registration
Statements, the Schedule 13E-3 or any other Company Disclosure Document, the
Company shall provide to each of the Unions, in accordance with the notice
provisions contained in Section 10.1, a copy of the same. The Company shall
provide the Unions with a reasonable opportunity to review and comment on each
of such documents prior to such filing with a view toward the production and
filing of mutually acceptable documents, subject to (1) the Company's
responsibilities under applicable securities laws and (2) other applicable
legal requirements.
Section 5.3 Access. Subject to the absence of a material breach of Section
6.1, from the date hereof until the Effective Time, the Company will give each
Union, its counsel, financial advisors, auditors and other designated
representatives reasonable access following reasonable notice during normal
business hours (which access shall be coordinated through a person designated
by the Company, which person (or another
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authorized person) shall be available during normal business hours) to the
offices, employees, properties, books and records of the Company and the
Subsidiaries, will furnish, if reasonably requested, to each Union, its
counsel, financial advisors, auditors and other authorized representatives such
financial and operating data and other information in connection with the
Agreement and the transactions contemplated hereby as such persons may
reasonably request and will instruct the Company's officers, employees, counsel
and financial advisors to cooperate reasonably with each Union and each Union's
counsel, financial advisors, auditors and other designated representatives in
their investigation of the business of the Company and the Subsidiaries and to
take such steps as may be reasonably requested by each Union and such counsel,
advisors, auditors and other representatives to assist them in connection with
the transactions contemplated by this Agreement; provided that no investigation
pursuant to this Section shall affect any representation, warranty, covenant or
agreement made by the Company to each Union under this Agreement. Each Union,
its counsel, financial advisors, auditors and other designated representatives
shall conduct themselves under this Section 5.3 so as not to interfere with the
day-to-day operations of the Company.
Section 5.4 Other Potential Transactions. The Company shall not, directly or
indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any corporation, partnership,
person or other entity or group (other than the Unions or their advisors or the
ESOP Trustee or its advisors) concerning any merger, sale of assets, sale of,
or tender or exchange offer for, shares of capital stock or similar
transaction, involving a change of control of the Company or all or
substantially all of the assets of the Company (an "Acquisition"), except as
set forth below. The Company may, directly or indirectly, furnish information
and access, in each case in response to an unsolicited request therefor, to the
same extent permitted by Section 5.3 hereof, to any corporation, partnership,
person or other entity or group pursuant to appropriate confidentiality
agreements, and may participate in discussions and negotiate with such entity
or group concerning any such transaction, if the entire Board of Directors of
the Company (the "Board") (and, to the extent a director is a participant in an
alternative Acquisition, the disinterested members of the Board) determine in
their good faith judgment, upon advice of independent legal and financial
advisors (who may be the Company's regularly engaged independent legal and
financial advisors), that such action is required by their fiduciary duties. In
addition, the Company's officers and other appropriate personnel may take such
steps as are necessary or appropriate to provide the Board with sufficient
information to make an informed decision concerning the matters described in
the previous sentence and, if the Board so determines that such actions are
required by their fiduciary duties, the Company may direct its officers and
other appropriate personnel to cooperate with and be reasonably available to
consult with any such entity or group which were the subject of such
determination. Nothing herein shall prevent the Board from taking, and
disclosing to the Company's shareholders, a position contemplated by Rules 14d-
9 and 14e-2 promulgated under the 1934 Act with respect to any tender offer or
from making such other disclosure to shareholders or taking such other action
which, in the judgment of the Board, upon advice of such counsel, is required
by law to discharge any fiduciary duty imposed thereby.
Section 5.5 Notices of Certain Events. The Company shall notify each Union
of, and provide to each Union all relevant details relating to, and
documentation submitted to or by the Company in respect of, (i) any notice or
other communication from any person alleging that the consent of such person is
or may be required in connection with the transactions contemplated by this
Agreement, (ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement and (iii) any proposal for, or contacts and expressions of
interest relating to, an Acquisition or other matter contemplated by Section
5.4 and action taken by the Company in respect thereof.
Section 5.6 Amendment of Rights Agreement. The Company shall amend the Rights
Agreement, effective immediately prior to the Effective Time, in accordance
with the Rights Amendment and to provide that each outstanding share of ESOP
Convertible Preferred Stock following the Effective Time, as well as each
Available Unissued ESOP Share (as defined in Article FIFTH, Section 1.5 of the
Restated Certificate), shall have associated with it and represent that number
of Rights (as defined in the Rights Agreement) as would be associated with the
number of New Shares into which the relevant share of ESOP Convertible
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Preferred Stock is then convertible and to cause such Rights to be exercisable
by, and to cause separate certificates representing such Rights to be
distributed to, and be separately transferable by, holders of shares of ESOP
Convertible Preferred Stock (and Available Unissued ESOP Shares) at the time
and upon terms substantially the same as those applicable to the holders of New
Shares.
Section 5.7 Employee Benefit Plans. The Company shall take such action to
amend, in form reasonably satisfactory to each Union, the directed account
plans and 401(k) plans maintained by the Company or United for the benefit of
employees, and shall take all other reasonable action, so as to permit
investment of the funds held thereunder at the individual direction of the
beneficiaries of such plans to purchase the Company's common stock, preferred
stock, Depositary Shares and/or debt securities in the open market, subject to
rules and regulations under the 1934 Act. The Company shall take such action to
amend the stock purchase plans maintained by the Company or United for the
benefit of employees so as to require the distribution of the consideration
received upon redemption of the Redeemable Preferred Stock in accordance with
Section 1.3 to be received by such plans in the Reclassification, or the cash
proceeds from the sale thereof, to participants, subject to applicable law.
Consistent with existing Company policy with respect to purchases of Old
Shares, the aforementioned plan amendments to the directed account plans and
the 401(k) plans, and the stock purchase plans, shall permit employees of the
Company and United following the Effective Time to acquire, in addition to
amounts held in the ESOPs, the following securities: (X) up to the lesser of
(i) 30% of the outstanding New Shares held by persons other than the ESOPs and
(ii) 20% of the aggregate number of outstanding New Shares and New Shares
issuable upon conversion of the ESOP Preferred Stock outstanding or issuable to
Sections 1.6 or 1.10 hereof (including Available Unissued ESOP Shares) and (Y)
except with respect to the stock purchase plan, up to (i) 20% of the
outstanding Depositary Shares, (ii) 20% of the outstanding principal amount of
Series A Debentures and (iii) 20% of the outstanding principal amount of Series
B Debentures; subject to the following additional limits: (A) no employee group
of the Company or its Subsidiaries (which, for this purpose, shall mean
employees represented by each of ALPA, the IAM, and the AFA (as defined in
Section 7.3) and the Salaried and Management Employees (as defined in Section
5.8(b)) (each, an "Employee Group") may individually acquire more than 10% of
the outstanding shares or amount of any class of securities referred to in
clause (X) and (Y) above through such plans; (B) in the case of the directed
account plans, no Employee Group may individually acquire more than 2% of the
outstanding shares or amount of any such class of securities in any monthly
subscription period through such plans; (C) no Employee Group may individually
acquire more than 2% of the outstanding New Shares held by persons other than
the ESOPs (in addition to New Shares received in the Reclassification) through
such plans during the six month period beginning at the Effective Time; and (D)
no New Shares may be acquired through such plans during the six month period
ending on the last day of the Measuring Period, as defined in Section 1.10.
The Company shall not be required to expand the scope of any third party
indemnity in a manner adverse to the Company in order to implement the
amendments referred to in clause (Y) above.
Section 5.8 Labor Agreements.
(a) The Company shall cause United, at the Effective Time, to execute and
deliver new collective bargaining agreements (or amendments to existing
collective bargaining agreements) with each of ALPA and the IAM, each in form
and substance as set forth on Schedules 5.8(i) and 5.8(ii), respectively. The
agreement set forth on Schedule 5.8(i) is referred to herein as the "ALPA Labor
Agreement," the agreements set forth on Schedule 5.8(ii) are collectively
referred to herein as the "IAM Labor Agreement" and the ALPA Labor Agreement
and the IAM Labor Agreement are collectively referred to herein as the "Labor
Agreements."
(b) The Company shall also establish and cause United to establish
appropriate employment terms for the employees of the Company and United who
perform the functions currently performed by the salaried and management
employees of the Company and United (including any functions which such group
of employees begin performing in the future) (the "Salaried and Management
Employees"), in form and substance as set forth on Schedule 5.8(iii), effective
at the Effective Time. From and after the date hereof,
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the Company shall provide the Unions and their respective counsel, financial
advisors, auditors and other representatives with the access and information
necessary to confirm the Company's continuing implementation of the provisions
of this Section 5.8(b).
Section 5.9 Solvency Letter. The Company has retained American Appraisal
Associates (the "Appraiser") to provide, at or prior to the Effective Time,
opinion in writing to the Company and the Board substantially similar to the
letter set forth on Schedule 5.9 (the "Solvency Letter"). If the Solvency
Letter is delivered to the effect that sufficient surplus is available to
permit the consummation of the Recapitalization consistent with Delaware Law,
the Board shall take all lawful and appropriate action, effective as at the
Effective Time, to revalue the Company's assets and liabilities to permit the
consummation of the Recapitalization in accordance with Delaware Law.
Section 5.10 Other Transaction Documents. The Company hereby agrees that at
the Effective Time it will execute the form of employment agreement (the
"Employment Agreement") between the Company and Gerald Greenwald in the form
attached to the agreement (the "Retention Agreement") between the Unions and
Gerald Greenwald providing for his employment by the Company from and after the
Effective Time on the terms set forth in the Employment Agreement. The Company
hereby agrees from and after execution by Gerald Greenwald of the Employment
Agreement at the Effective Time to perform all of its obligations, whether or
not due and owing, under the Employment Agreement. The Retention Agreement may
not be amended without the written consent of the Company. A true and correct
copy of the Retention Agreement (with the attached form of the Employment
Agreement) has been delivered by the Unions to the Company. In addition,
immediately prior to the Effective Time, the Company shall execute and deliver
(or shall have theretofore executed and delivered) the following documents and
agreements: the Officers' Certificate relating to the Indenture, the Deposit
Agreement, the initial ESOP Stock Purchase Agreement, the ESOP Trusts, the
Exchange Agent Agreement, the Rights Amendment, the Class I Preferred Stock
Subscription Agreement, the Class Pilot MEC Preferred Stock Subscription
Agreement, the Class IAM Preferred Stock Subscription Agreement, the Class SAM
Preferred Stock Subscription Agreement, a shareholders agreement with the
initial Independent Directors in form and substance as set forth on Schedule
5.10 (i) (the "Class I Preferred Stock Shareholders Agreement"), a shareholder
agreement with the holders of the Class SAM Preferred Stock in form and
substance as set forth on Schedule 5.10(ii), and a First Refusal Agreement
between the Company, the Unions and the SAM Director, in form and substance as
set forth on Schedule 5.10(iii) (collectively, the "Closing Agreements").
Section 5.11 Certain Agreements. Without limiting in any respect the
Company's and United's rights or obligations under any other agreement,
arrangement or understanding to which it is a party, the Company specifically
confirms, and shall cause United to confirm, their respective obligations under
the employee and director benefit plans, agreements, policies and arrangements
maintained by the Company and/or United or to which the Company and/or United
is a party, in each case as in effect on the date hereof (subject to revision
in accordance with Section 5.1), identified in a letter to the Unions dated the
date hereof (the "Officer and Director Arrangements"); provided, that the
provisions of this Section 5.11 (a) shall be subject to Section 5.1 prior to
the Effective Time and (b) shall not restrict the Company's or United's ability
to terminate, revise or replace any Officer and Directors Arrangements after
the Effective Time so long as such action does not reduce or otherwise
adversely affect rights of any beneficiary under any such Officers and
Directors Arrangements that the Company or United is obligated to provide
following the Effective Time without his or her consent.
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ARTICLE VI
Covenants of each Union
Each Union agrees that:
Section 6.1 Confidentiality.
(a) Prior to the Effective Time and after any termination of this Agreement,
each Union agrees that, except as provided herein, it will not at any time
after its receipt of any Confidential Information (as defined below), directly
or indirectly, divulge to any person or entity any of the Confidential
Information or any information, report, analysis, compilation, study,
interpretation, forecast, record or other material prepared by such Union or
its Representatives (as defined below) (including, if maintained in some
written or other form, in whatever form maintained, whether documentary,
computer storage or otherwise) containing, in whole or in part, any
Confidential Information. "Confidential Information" shall include all
confidential written or oral information concerning the Company and the
Subsidiaries furnished to such Union in connection with the transaction
contemplated by this Agreement, except to the extent that such information does
not include information which is or becomes (i) generally available to the
public other than as a result of disclosure by a Union or its Representatives
in violation of this Agreement, (ii) was available to a Union or one of its
Representatives on a non-confidential basis prior to its disclosure to them by
the Company or (iii) known or available to a Union or its Representatives on a
non-confidential basis from a source (other than the Company) who, insofar as
is known to such Union or its Representatives after due inquiry, is not
prohibited from transmitting the information to such Union or its
Representatives by a contractual, legal or fiduciary duty. The term "person"
shall be broadly interpreted to include, without limitation, any individual,
corporation, company, unincorporated association, partnership, group or other
entity.
(b) Each Union shall limit access to the Confidential Information to its
officials and Representatives who in the reasonable judgment of such Union need
to know the Confidential Information for purposes of participating in making
decisions concerning, or advising it with respect to, the Confidential
Information ("informed officials and Representatives"). Disclosure of
Confidential Information may be made only to officers, directors, employees,
accountants, counsel, consultants, advisors and agents of one of the Unions who
executes a Confidentiality Statement (a "Representative"), in the form attached
either to this Agreement as Schedule 6.1 or as an attachment to a
confidentiality agreement between the Company and such Union entered into prior
to the date hereof (a "Confidentiality Statement"). An executed original of
each such Confidentiality Statement shall be provided to the Company by the
Union obtaining it. Each Union and its Representatives may discuss with the
informed officials and Representatives of each other Union the Confidential
Information which such Union has been provided pursuant to this Agreement or
any prior confidentiality agreement between the Company and such Union relating
to the Confidential Information provided that such Confidential Information
shall continue to be subject to this Agreement and any other applicable
confidentiality agreement. In all events, each Union shall be responsible for
any actions by its Representatives which are not in accordance with the
provisions hereof and of any Confidentiality Statement executed by a
Representative but shall not be responsible for such actions of any informed
official or Representative of the other Union.
(c) In the event that a Union, its Representatives or anyone to whom a Union
or its Representatives supply Confidential Information are requested or
required through legal process (by oral questions, interrogatories, requests
for information or documents, subpoena, civil investigative demand, any
informal or formal investigation by any government or governmental agency or
authority or otherwise) to disclose any Confidential Information, the Union
will, upon learning of such request or requirement, (i) immediately notify the
Company of the existence, terms and circumstances surrounding such a request,
(ii) consult with the Company on the advisability of taking legally available
steps to resist or narrow such request and (iii) if disclosure of such
information is required, furnish only that portion of the Confidential
Information which, in the opinion of the Union's legal counsel, it is legally
compelled to disclose and cooperate with any action by the Company to obtain an
appropriate protective order or other reliable assurance that confidential
treatment will be accorded the Confidential Information.
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(d) Except in respect of any Confidential Information that is in this
Agreement (or may in the future be) the subject of an express representation by
the Company, (i) neither the Company nor its employees, agents, affiliates or
representatives (collectively hereinafter referred to as the "Company
Representatives") makes any express or implied representation as to the
accuracy or completeness of the Confidential Information and (ii) each Union
and its Representatives agree that neither the Company nor any Company
Representative shall have any liability to such Union or its Representatives
resulting from the use by such Union or its Representatives of Confidential
Information. So long as neither Union is in material breach of its obligations
under this Section 6.1, nothing in this Section 6.1(d) is intended to limit
Section 5.3.
(e) Each Union hereby acknowledges that it is aware, and that it will advise
its Representatives who are informed in accordance with the terms of this
Agreement, as to the matters which are the subject of this Agreement, that the
United States securities laws prohibit any person who has received from an
issuer material, non-public information concerning the matters which are the
subject of this Agreement from purchasing or selling securities of such issuer
due to the receipt of Confidential Information or from communicating such
information to any other person under circumstances in which it is reasonably
foreseeable that such person is likely to purchase or sell such securities due
to the receipt of Confidential Information.
(f) Each Union expressly acknowledges that (i) the preservation of the
confidentiality of the Confidential Information has highly important commercial
significance for the Company and (ii) its unauthorized disclosure could have
serious and irreparable adverse commercial, financial and legal consequences
for the Company. It accordingly agrees that the Company shall be entitled to
injunctive relief to prevent breaches of this Agreement and to specifically
enforce the terms and provisions of this Section, in addition to any other
remedy to which the Company may be entitled, at law or in equity or pursuant to
this Agreement.
(g) Each Union and its Representatives hereby acknowledge that the
Confidential Information is being furnished to them solely in connection with a
review in connection with the transactions contemplated by this Agreement and
analysis of the Company's business and financial condition and none of such
Unions or their Representatives shall use the Confidential Information other
than in connection with such review and analysis and potential responses
thereto made directly to the Company (which may be discussed among and be made
by the Unions). No right or license, express or implied, under any patent,
copyright, trademark, trade secret, or other proprietary right in the
Confidential Information is granted hereunder by United to a Union or its
Representatives.
(h) Each Union will keep a record of the location of the Confidential
Information. If the Agreement is terminated prior to the Effective Time, each
Union agrees for itself and for its Representatives who reviewed the
Confidential Information, to return to the Company or destroy all documents
reflecting the Confidential Information and to certify in writing to the
Company that such documents have been so returned or destroyed.
Section 6.2 Labor Agreements. Such Union shall execute and deliver, at the
Effective Time, the relevant Labor Agreement.
Section 6.3 No Public Director Nominations. Such Union shall not, directly or
indirectly, nominate or cause to be nominated any individual for election as an
Outside Public Director (as defined in Article FIFTH, Section 2.3 of the
Restated Certificate) of the Company; provided, however, that any such
nomination by an employee of the Company or United, acting in his or her
individual capacity as a shareholder of the Company, shall not be deemed to
violate this Section 6.3 so long as such nomination was not made with the
advice, support, or assistance of any officer of such Union.
Section 6.4 Independent Director Vacancies. The Unions agree to use their
best efforts to cause any Independent Director vacancy resulting after the
Effective Time promptly to be filled in accordance with Article FIFTH, Section
4.1.6 of the Restated Certificate.
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ARTICLE VII
Covenants of each of the Unions
and the Company
The parties hereto agree that:
Section 7.1 Best Efforts. Subject to the terms and conditions of this
Agreement, including Section 5.4, each party (a) will use its best efforts, and
will cause all of its directors, officers and advisors retained by such party
to use their best efforts, to take, or cause to be taken, all actions and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations that may be necessary or useful, to consummate
the transactions contemplated by this Agreement and (b) will, and will cause
its directors, officers and advisors retained by such party to, refrain from
taking any actions detrimental to or inconsistent with the foregoing. In the
event that any action, suit, proceeding or investigation relating hereto or to
the transactions contemplated hereby is commenced, whether before or after the
Effective Time, the parties hereto agree to cooperate and use their best
efforts to defend against the same and respond thereto. As used in this
Agreement, the term "best efforts" shall mean efforts of a type that a prudent
person desirous of achieving a result would use in similar circumstances in
seeking to achieve such result reasonably promptly in light of the Outside
Termination Date (as defined in Section 9.1); provided, however, that a party
required to use its best efforts under this Agreement will not be required to
take actions that would not normally be taken by the parties in similar
circumstances or that would result in a materially adverse change in the
benefits intended to be conferred upon such party pursuant to this Agreement
and the transactions contemplated hereby.
Section 7.2 Certain Filings. The Company and each of the Unions shall
cooperate with one another (a) in connection with any preparation of the
Company Disclosure Documents, the Company Proxy Statement, the Schedule 13E-3,
the Registration Statement and the Underwriting Registration Statements, (b) in
determining whether any action by or in respect of, or filing with, any
governmental body, agency, official or authority is required, or any actions,
consents, approvals or waivers are required to be obtained from parties to any
material contracts, permits, licenses and franchises, in connection with the
consummation of the transactions contemplated by this Agreement and (c) in
seeking any such actions, consents, approvals or waivers or making any such
filings, furnishing information required in connection therewith or with the
Company Disclosure Documents, the Company Proxy Statement, the Schedule 13E-3,
the Registration Statement or the Underwriting Registration Statements, and
seeking timely to obtain any such actions, consents, approvals or waivers. As
soon as practicable after the date hereof, the Company shall, in accordance
with Section 5.2, (a) file with the SEC the Company Proxy Statement, the
Schedule 13E-3 and the Registration Statement, (b) obtain and furnish the
information required to be included therein, (c) after consultation with each
Union, respond promptly to comments made by the SEC with respect to the Company
Proxy Statement, the Schedule 13E-3 and Registration Statement and any
preliminary version thereof and (d) cause the Registration Statement to become
effective and the Company Proxy Statement to be mailed to the Company's
stockholders at the earliest practicable date. Prior to the effective date of
the Registration Statement, the Company shall obtain all necessary state
securities laws or "blue sky" permits and approvals required to carry out the
Recapitalization and the transactions contemplated by this Agreement.
Section 7.3 Participation. If, prior to the Effective Time, the Association
of Flight Attendants ("AFA") agrees to provide, in the sole judgment of the
Company, an investment equal to $416 million (present value in January 1994
dollars for a five year AFA mainline investment and a twelve year AFA
Competitive Action Plan (as defined in Schedule 1.1) investment and assuming
semi-annual payments, first period not discounted, and annual discount rate of
10%) then, provided that the parties hereto agree upon all aspects of the AFA's
participation in the transactions contemplated hereby (e.g. governance
provisions set forth in Schedule 1.1, ESOP provisions set forth in Section 1.6
and related schedules) other than the matters described in clauses (i) and (ii)
below, the parties hereto shall revise all applicable documents such that (i)
the employee investment period with respect to ALPA, IAM and salaried and
management employees shall be reduced by nine months; and (ii) 12.62% of the
ESOP Preferred Stock otherwise to be allocated to
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ALPA-represented employees, IAM-represented employees and Salaried and
Management Employees (the "Allocated Shares") shall be made available for
allocation to the AFA-represented employees, such that after such allocation,
40.4% of the Allocated Shares shall be allocated to ALPA-represented employees,
32.44% of the Allocated Shares shall be allocated to the IAM-represented
employees, 14.54% of the Allocated Shares shall be allocated to the Salaried
and Management Employees and 12.62% of the Allocated Shares shall be allocated
to the AFA-represented employees.
ARTICLE VIII
Conditions to the Recapitalization
Section 8.1 Conditions to the Obligations of Each Party. The obligation of
the Company to file the Restated Certificate at the Effective Time pursuant to
Section 1.1 and the obligations of each of the Unions to enter into the Labor
Agreements at the Effective Time are subject to the satisfaction of the
following conditions:
(i) the Shareholder Vote Matters shall have been approved and adopted by
the stockholders of the Company in accordance with the Certificate of
Incorporation and Bylaws of the Company and in accordance with Delaware
Law;
(ii) any applicable waiting period under the HSR Act relating to the
Recapitalization shall have expired or been terminated;
(iii) the Registration Statement shall have become effective under the
1933 Act and shall not be the subject of any stop order or governmental
proceedings seeking a stop order;
(iv) all material actions by or in respect of or filings with any
governmental body, agency, official, or authority required to permit the
consummation of the Recapitalization shall have been obtained;
(v) the New Shares issuable as part of the Recapitalization (including
New Shares issuable upon conversion of the ESOP Preferred Stock and upon
conversion of the Convertible Company Securities) shall have been
authorized for listing on the NYSE subject to official notice of issuance;
(vi) there shall have been no change in Delaware Law enacted or any
applicable decision of a court of competent jurisdiction decided after the
date hereof and prior to the Effective Time that would cause the Restated
Certificate or Restated Bylaws to fail to comply in any material respect
with the applicable provisions of Delaware Law;
(vii) the ESOP Trustee shall have received the written opinion of
Houlihan, Lokey, Howard & Zukin to the effect that, as of the Effective
Time, the acquisition of the ESOP Preferred Stock pursuant to Section
1.6(d) hereof by the ESOPs is fair, from a financial point of view, to the
ESOP participants;
(viii) the Board of Directors of the Company shall have received the
Solvency Letter; and
(ix) (A) there shall not be instituted or pending any action, proceeding,
application, claim, or counterclaim by any United States federal, state or
local government or governmental authority or agency, including the DOT,
before any court or governmental regulatory or administrative agency,
authority or tribunal, which (x) restrains or prohibits or is reasonably
likely to restrain or prohibit the making or consummation of, or is
reasonably likely to recover material damages or other relief as a result
of, the Recapitalization, or the receipt by holders of the Old Shares of
the full amount of the Recapitalization Consideration, or restrains or
prohibits or is reasonably likely to restrain or prohibit the performance
of, or is reasonably likely to recover material damages or other relief as
a result of, this Agreement or any of the transactions contemplated hereby
or (y) prohibits or limits or seeks to prohibit or limit the ownership or
operation by either Union, the ESOP Trustee, any of the ESOPs or any
participant therein of all or any substantial portion of the capital stock,
business or assets of the Company or any of its Subsidiaries or compels or
seeks to compel either Union, the ESOP Trustee, any of the ESOPs or any
participant therein to dispose of or hold separate all or any substantial
portion of the capital stock, business or assets of the Company or any of
its Subsidiaries or imposes or seeks to impose any material limitation on
the ability of either Union, the ESOP Trustee, any of the ESOPs or any
participant therein, to conduct such business or own such assets, (B) there
shall not have been instituted or be pending any action, proceeding,
application, claim or counterclaim by any other person, before
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any such body, that is reasonably likely to result in any of the
consequences referred to in clauses (A)(x) or (A)(y) above, and (C) there
shall not be any United States federal, state or local statute, rule,
regulation, decree, order or injunction promulgated, enacted, entered, or
enforced by any United States federal, state or local government agency or
authority or court, that has any of the effects referred to in clauses
(A)(x) or (A)(y) above;
(x) all conditions to the obligations of the parties to the Closing
Agreements to consummate such transactions shall have been satisfied or are
capable of being satisfied concurrently upon the occurrence of the
Effective Time;
(xi) the Closing Agreements shall be legal, valid and binding agreements
of the Company and the other parties thereto from and after the Effective
Time, enforceable against the Company and such other parties in accordance
with their terms; and
(xii) Gerald Greenwald (or such other person as shall be proposed by the
Unions prior to the Effective Time and not found unacceptable by the
Company) shall be ready, willing and able to assume the office of Chief
Executive Officer of the Company and United.
Section 8.2 Conditions to the Obligations of each of the Unions. The
obligations of each of the Unions to enter into the Labor Agreements at the
Effective Time are subject to the satisfaction of the following further
conditions:
(i) the Company shall have performed, both individually and collectively,
in all material respects all of its covenants, agreements or other
obligations hereunder required to be performed by it at or prior to the
Effective Time; and
(ii) the representations and warranties of the Company set forth in this
Agreement shall be true and correct, both individually and collectively, in
all material respects at and as of the Effective Time as if made at and as
of such time; provided that the representations and warranties of the
Company set forth in Section 3.10 and each representation and warranty of
the Company set forth in this Agreement that is qualified by a
"materiality" or similar standard (including, Material Adverse Effect),
shall be true in all respects (taking into account all "materiality" and
similar qualifications (including, Material Adverse Effect) contained in
such representation or warranty) at and as of the Effective Time, as if
made at and as of such time.
Section 8.3 Conditions to the Obligations of the Company. The obligation of
the Company to file the Restated Certificate at the Effective Time pursuant to
Section 1.1 is subject to the satisfaction of the following further conditions:
(i) Each Union shall have performed, both individually and collectively,
in all material respects all of its covenants, agreements or other
obligations hereunder required to be performed by it at or prior to the
Effective Time;
(ii) the representations and warranties of the Unions set forth in this
Agreement shall be true and correct, both individually and collectively, in
all material respects at and as of the Effective Time as if made at and as
of such time; provided that each representation and warranty of the Unions
set forth in this Agreement that is qualified by a "materiality" or similar
standard shall be true in all respects (taking into account all
"materiality" and similar qualifications contained in such representation
or warranty) at and as of the Effective Time, as if made at and as of such
time;
(iii) the Board of Directors of the Company shall have received the
written opinions of each of First Boston and Lazard, each dated as of the
Announcement Date, confirming their earlier opinions, to the effect that
the Recapitalization is fair from a financial point of view to the holders
of Old Shares; and
(iv) the Labor Agreements shall have been executed and delivered by the
Unions and shall be in full force and effect as of the Effective Time.
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(v) the Board of Directors of the Company shall have received the written
opinions of Skadden, Arps, Slate, Meagher & Flom to the effect that (A)
when issued, all New Shares, all Depositary Shares and all shares of Public
Preferred Stock represented thereby will be duly authorized, validly
issued, fully paid and nonassessable, (B) the revaluation of the Company's
and United's assets contemplated by Section 5.9 hereof may be effected in
connection with the Recapitalization consistent with Delaware Law, (C) when
issued, the Debentures will be validly issued and enforceable obligations
of United, (D) the consummation of the transactions contemplated by Section
1.6(d) hereof will not result in a non-exempt prohibited transaction under
Section 4975(c)(1) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), or Section 406(a) of the Employee Retirement
Income Security Act of 1974, (E) the Recapitalization and Reclassification
will not result in the recognition of income, gain or loss to the Company
for United States federal income tax purposes and (F) the contributions
made by the Company to the ESOPs and, assuming the Company has sufficient
earnings and profits, the dividends paid on the ESOP Preferred Stock that,
in each case, are used to repay the debt evidenced by the ESOP Note issued
in connection with the transactions contemplated by Section 1.6(d) hereof
will be deductible under Section 404 of the Internal Revenue Code;
(vi) the Company shall have determined that it is reasonably likely to
have sufficient earnings and profits such that, based on the opinion of
counsel described in Section 8.3(v)(F) above, the dividends paid on the
ESOP Preferred Stock that are used to repay the debt evidenced by the ESOP
Note issued in connection with the transactions contemplated by Section
1.6(d) hereof are reasonably likely to be deductible under Section 404 of
the Internal Revenue Code; and
(vii) the Company shall have determined that the Company will be
reasonably likely to have sufficient surplus (whether revaluation surplus
or earned surplus) or net profits under Delaware Law to permit the legal
payment of dividends on the ESOP Preferred Stock and the Public Preferred
Stock when due.
ARTICLE IX
Termination
Section 9.1 Termination. This Agreement shall terminate and the
Recapitalization shall be abandoned (notwithstanding any approval of the
Shareholder Vote Matters by the stockholders of the Company, any legal action
or otherwise) if the Effective Time shall not have occurred by 11:59 p.m. on
August 31, 1994 (the "Outside Termination Time"). In addition, this Agreement
may be terminated and the Recapitalization may be abandoned at any time prior
to the Outside Termination Time and prior to the Effective Time
(notwithstanding any approval of the Shareholder Vote Matters by the
stockholders of the Company):
(a) by mutual written consent of each of the Unions and the Company;
(b) by either of the Unions or the Company if (i) the stockholders of the
Company shall not have approved the Shareholder Vote Matters at the Company
Stockholder Meeting; or (ii) any court of competent jurisdiction in the
United States or other United States federal, state or local governmental
body shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Recapitalization and
such order, decree, ruling or other action shall have become final and
nonappealable;
(c) by either Union if (i) the Board shall have withdrawn or modified in
a manner materially adverse to such Union its approval or recommendation of
the Recapitalization or the Shareholder Vote Matters or shall have
recommended, or shall have failed to recommend against, another
Acquisition, (ii) the Board shall have resolved to do any of the foregoing,
(iii) the Company shall have breached, either individually or collectively,
in any material respect any of its material representations, warranties,
covenants or other agreements contained in this Agreement, (iv) any person
shall have acquired "beneficial ownership" (as defined in the Rights
Agreement) or the right to acquire beneficial ownership
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of, or any "group" (as such term is defined in Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder) shall
have been formed which beneficially owns, or has the right to acquire
beneficial ownership of, more than 15% of the then outstanding Old Shares,
or shall have become an "Acquiring Person" under the Rights Agreement, or
(v) there shall have occurred a "Share Acquisition Date" or "Distribution
Date" under the Rights Agreement; or
(d) by the Company if (i) either Union shall have breached, either
individually or collectively, in any material respect any of its material
representations, warranties, covenants or other agreements contained in
this Agreement or (ii) the Board, in accordance with Section 5.4, shall
have withdrawn or modified in a manner adverse to either Union its approval
or recommendation of the Recapitalization or shall have recommended another
Acquisition, or shall have resolved to do any of the foregoing.
Section 9.2 Termination of Status Quo. If the Effective Time shall not have
occurred on or before the earlier of expiration of four months following the
date of the filing by the Company of the preliminary Company Proxy Statement
with the SEC and August 31, 1994, the Company may, by written notice to each of
the Unions, terminate its obligations under Section 5.1 of this Agreement;
provided that the Company's right to so terminate its obligations under Section
5.1 shall not be available in the event the Company's failure to fulfill any
obligation under this Agreement has been the cause of or resulted in the
failure of the Effective Time to occur on or before such date. In the event the
Company elects to terminate its obligations under Section 5.1 in accordance
with the preceding sentence, either of the Unions may terminate this Agreement.
Section 9.3 Effect of Termination. Except as provided in the next sentence,
if this Agreement is terminated pursuant to Section 9.1 or 9.2, this Agreement
shall become void and of no effect with no liability on the part of any party
hereto, except that the agreements contained in Sections 6.1, 9.3 and 10.4
shall survive the termination hereof. Notwithstanding the preceding sentence,
if the failure of the Effective Time to occur on or prior to the Outside
Termination Date results directly from either (i) a material breach of a
specific material representation or warranty contained in this Agreement by one
of the parties hereto under circumstances where the breaching party had actual
knowledge at the date of this Agreement that such representation or warranty
was materially false or misleading or (ii) a material breach of a specific
material covenant (a breach described in clause (i) or (ii), as modified by
proviso (A) hereto, being called a "Willful Breach"), and one of the other
parties hereto has established, as determined by a court of competent
jurisdiction, that such Willful Breach has occurred, the breaching party shall
be liable to the other parties hereto for proximate and provable damages
resulting from such Willful Breach (which shall include the reasonable fees and
expenses of such non-breaching parties, including reasonable attorney's fees
and expenses, incurred in connection with the transactions contemplated hereby
other than in connection with any litigation or other dispute between or among
parties hereto); provided (A) to the extent that the material breach of a
specific material covenant is not determinable solely by an objective fact
(e.g. any best efforts obligation or requirement of reasonableness) such breach
shall be actionable hereunder only if the breaching party knew (or demonstrated
reckless disregard for whether) its action or failure to act was in violation
of such covenant; and (B) such calculation of damages shall not include
consequential or punitive damages and shall be the sole and exclusive remedy of
the non-breaching parties in the event of a Willful Breach. With respect to a
Willful Breach, "knowledge" (or any corollary thereof) or "reckless disregard"
shall mean the knowledge or reckless disregard of the senior executives or
officials of the Company and United or the Unions, as the case may be, each of
whom shall conclusively be deemed to have read this Agreement.
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ARTICLE X
Miscellaneous
Section 10.1 Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including telex or similar writing) and
shall be given,
if to ALPA, to:
UAL-MEC/ALPA
6400 Shafer Court
Suite 700
Rosemont, IL 60018
Telephone: (708) 292-1700
Telecopy: (708) 292-1760
Attention: Captain Roger D. Hall
and copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019
Telephone: (212) 373-3000
Telecopy: (212) 757-3990
Attention: Stuart I. Oran, Esq.
and to:
Cohen, Weiss and Simon
330 West 42nd Street
New York, NY 10036
Telephone: (212) 563-4100
Telecopy: (212) 695-5436
Attention: Stephen Presser, Esq.
If to IAM, to:
International Association of Machinists
and Aerospace Workers
Machinists Building
1300 Connecticut Avenue
Washington, D.C. 20036
Telephone: (202) 857-5200
Telecopy: (202) 331-9076
Attention: William L. Scheri
IAM Local 1487
321 Allerton Avenue
San Francisco, CA 94080
Telephone: (415) 873-0662
Telecopy: (415) 873-1676
Attention: Ken Theide
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and copies to:
Taylor Roth Bush & Geffner
3500 W. Olive, Suite 1100
Burbank, CA 91505
Telephone: (818) 973-3200
Telecopy: (818) 973-3201
Attention: Robert A. Bush, Esq.
Lowenstein Sandler Kohl Fisher & Boylan
65 Livingston Avenue
Roseland, New Jersey 07068
Telephone: (201) 992-8700
Telecopy: (201) 992-5820
Attention: Peter H. Ehrenberg, Esq.
If to the Company to:
UAL Corporation
1200 E. Algonquin Road
Elk Grove Township, Illinois 60007
Telephone: (708) 956-2400
Telecopy: (708) 952-4683
Attention: Stephen M. Wolf and
Lawrence M. Nagin, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Telephone: (212) 735-3000
Telecopy: (212) 735-2000
Attention: Peter Allan Atkins, Esq.
or such other address or telecopy number as such party may hereafter specify
for the purpose by notice to the other parties hereto. Each such notice,
request or other communication shall be effective (i) if given by facsimile,
when received by the addressee using the facsimile number specified in this
Section, as evidenced by an automated confirmation receipt from the sending
facsimile machine or (ii) if given by any other means, when delivered at the
address specified in this Section.
Section 10.2 Survival. The representations and warranties contained herein
and in any certificate or other writing delivered pursuant hereto shall not
survive the Effective Time. The agreements of the parties contained herein and
in any certificate or other writing delivered pursuant hereto shall not survive
the Effective Time unless expressly provided in such agreement (it being
understood that, without limiting the survival of any other agreements
contained herein the survival of which is expressly provided for in such
agreement, the following agreements shall survive the Effective Time: Sections
1.2, 1.3, 1.5, 1.6, 1.7, 1.8, 1.9, 1.10, 2.3, 2.4, clause (iii) of the last
sentence of Section 5.1, 5.7, 5.8(b), 5.10, 5.11, 6.3, 6.4, 10.2 and 10.4) (all
such surviving agreements being referred to herein as the "Express
Agreements"). Except with respect to any Collective Bargaining Agreement (as
defined in the Restated Certificate) and the Express Agreements, from and after
the consummation of each of the transactions contemplated to take place at or
about the Effective Time, each of the parties hereto (in their capacities as
such) fully releases, discharges, waives, and renounces (collectively
"Releases") any and all claims, controversies, demands, rights, disputes and
causes of
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action it may have had at or prior to the Effective Time against, and agrees
not to initiate any suit, action or other proceeding involving, each of the
other parties hereto, its officials, officers, directors, employees,
accountants, counsel, consultants, advisors and agents and, if applicable,
security holders relating to or arising out of this Agreement or the
transactions contemplated hereby (including, but not limited to, matters
contemplated under Section 5.11 and matters involving claims, controversies,
demands, rights, disputes or cause of action based on securities laws, ERISA,
common law tort theory or any other similar bodies of law); provided that the
foregoing Releases shall not apply to any claims, controversies, demands,
rights, disputes and causes of action arising from and after the Effective Time
(and based on facts and circumstances arising from and after the Effective
Time) under any of the documents, instruments or transactions entered into,
filed or effected in connection with the Recapitalization (other than this
Agreement, to the extent provided in this Section 10.2).
Section 10.3 Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or waived prior to the
Effective Time (including, without limitation, an amendment to this Agreement
to extend the Outside Termination Time) if, and only if, such amendment or
waiver is in writing and signed, in the case of an amendment, by the Company
and each Union or in the case of a waiver, by the party against whom the waiver
is to be effective; provided that no amendment to or waiver of an Express
Agreement shall be effective against a person entitled to enforce such Express
Agreement pursuant to Section 10.8 unless agreed to in writing by such person;
and provided, further, that after the adoption of the Shareholder Vote Matters
by the stockholders of the Company, no such amendment or waiver shall, without
the further approval of such stockholders if and to the extent such approval is
required by Delaware Law, alter or change (i) the amount or kind of
consideration to be received in connection with the Recapitalization, (ii) any
term of the Restated Certificate or (iii) any of the terms or conditions of
this Agreement if such alteration or change would materially adversely affect
the holders of any shares of capital stock of the Company.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
Section 10.4 Fees and Expenses; Indemnification.
(a) Except as provided in the fee letter agreement, dated the date hereof,
among the Company and the Unions (the "Fee Letter"), or hereafter agreed by the
parties in writing or as set forth in this Section, all fees, costs and
expenses incurred in connection with this Agreement shall be paid by the party
incurring such fee, cost or expense. The parties agree that the fees, costs and
expenses of the Deadlock Firm and the Solvency Firm shall be paid by the
Company. The Company represents and agrees that the fees of its principal
financial and legal advisors to be incurred by the Company in connection with
the transactions contemplated by this Agreement other than fees in connection
with the underwriting described in Section 1.11 hereof shall not exceed $25
million.
(b) Upon the occurrence of a Triggering Event (as defined below), the Company
shall promptly pay to or at the direction of the Unions any amounts the Company
would otherwise have been required to pay pursuant to the Fee Letter had the
Effective Time occurred at the time of the occurrence of such Triggering Event.
Such amounts shall be exclusive of any amounts paid or payable pursuant to
indemnification or contribution arrangements. For purposes of this paragraph
(b), "Triggering Event" shall mean the occurrence of each of the following:
(i)(A) following the public announcement of a proposal for an Acquisition,
either the stockholders of the Company shall not have approved the Shareholder
Vote Matters at the Company Stockholder Meeting or (B) the Board shall have
withdrawn or modified in a manner materially adverse to the Unions its approval
or recommendation of the Recapitalization or the Shareholder Vote Matters or
shall have recommended, or failed to recommend against, another Acquisition;
(ii) subsequent to the stockholder or Board action referred to in clause (i)
above, this Agreement shall have been terminated by the Company
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pursuant to Sections 9.1(b)(i) or 9.1(d)(ii) or by either Union pursuant to
Sections 9.1(b)(i) or 9.1(c)(i); and (iii) within 12 months of the termination
of the Agreement in accordance with clause (ii) above, an Acquisition shall
have been consummated.
(c) All amounts payable by the Company to either Union under this Section
10.4 shall be paid directly to such Union or directly to persons designated in
writing by such Union as such Union may specify.
(d) To the extent that the Company shall make payments to, or on behalf of,
either Union under this Section 10.4 and such Union is reimbursed by another
source (or otherwise receives a refund of the amount paid), such Union shall
return such amounts to the Company to the extent of such reimbursement (or
refund).
(e) The Company (the "Indemnitor") shall indemnify the Unions, their
controlling persons, and their respective directors, trustees, officers,
partners, affiliates, agents, representatives, advisors and employees (a "Union
Indemnified Person") against and hold each Union Indemnified Person harmless
from any and all liabilities, losses, claims, damages, actions, proceedings,
investigations or threats thereof (all of the foregoing, and including expenses
(including reasonable attorneys' fees, disbursements and other charges)
incurred in connection with the defense thereof, except as set forth below,
being referred to as "Liabilities") based upon, relating to or arising out of
the execution, delivery or performance of this Agreement or the transactions
contemplated hereby (including, without limitation, the underwriting described
in Section 1.11 hereof); provided, however, that the Indemnitor shall not be
liable in any such case to the extent that any such Liability arises out of any
inaccurate information supplied by any such Union Indemnified Person
specifically for inclusion in the proxy materials related to such transactions
or any other filings made by the Company or any Union Indemnified Person with
any federal or state governmental agency in connection therewith (including
without limitation the prospectuses relating to the underwriting described in
Section 1.11 hereof) or if any such Liability is finally judicially determined,
not subject to further appeal, to have resulted from bad faith, willful
misconduct or negligence on such Union Indemnified Person's part.
Notwithstanding anything to the contrary contained herein, "Liabilities" shall
not include any losses, claims, damages or expenses (including attorneys' fees,
disbursements and other charges) based upon, relating to or arising out of any
action, claim, proceeding, investigation or threat thereof (i) brought by a
Union against the other Union, (ii) brought by any employee of the Company or a
subsidiary of the Company, as such, represented by a Union or any member of a
Union (whether or not an employee of the Company or a subsidiary of the
Company), in his or her capacity as such, if, and only if, the underlying
action, claim, proceeding or threat is made against (1) his or her Union or (2)
against the other Union, (iii) brought by any Union or any Union Indemnified
Person against the Company or any controlling persons, directors, officers,
partners, agents, representatives, advisors or employees of the Company (a
"Company Related Person") or by the Company or any Company Related Person
against any Union or Union Indemnified Person or (iv) which arise primarily as
a result of acts by a Union Indemnified Person following the Effective Time.
(f) In connection with the Indemnitor's obligation to indemnify for expenses
as set forth above in subsection (e) of this Section, the Indemnitor further
agrees to reimburse each Union Indemnified Person for all such expenses
(including reasonable attorneys' fees, disbursements and other charges) as they
are incurred by such Union Indemnified Person, provided, however, that if a
Union Indemnified Person is reimbursed hereunder for any such expenses, such
reimbursement of expenses shall be refunded to the extent it is finally
judicially determined, not subject to further appeal, that the Union
Indemnified Person is not entitled to indemnification by reason of the proviso
clause in the first sentence or the last sentence of subsection (e) of this
Section. The Company shall not be required to reimburse any Union Indemnified
Person for the reasonable attorney's fees, disbursements or other charges of
more than one counsel (plus local counsel, if appropriate), or of more than one
counsel (plus local counsel, if appropriate) for any one Union (together with
Union Indemnified Persons who are controlling persons, directors, officers,
partners, affiliates, agents, representatives, advisors and employees of such
Union) who can be represented by common counsel so long as no conflict of
interest or different or additional colorable defenses are reasonably believed
by such Indemnified Persons to exist between or among them relative to the
claims asserted.
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(g) Promptly after receipt by a Union Indemnified Person of notice of any
claim or the commencement of any action, proceeding or investigation in respect
of which indemnity or reimbursement may be sought as provided in this Section,
such Union Indemnified Person will notify the Indemnitor in writing of the
receipt or commencement thereof, but the failure to so notify shall not relieve
the Indemnitor from any obligation or liability which it may have pursuant to
this Section or otherwise except to the extent that the Indemnitor is
materially prejudiced thereby. In case any such action, proceeding or
investigation is brought or threatened against a Union Indemnified Person, the
Indemnitor will be entitled to participate therein and, to the extent that it
may wish, to assume the defense thereof, with counsel selected by the
Indemnitor and approved by the Union Indemnified Person (such approval not to
be unreasonably withheld). After notice from the Indemnitor to such Union
Indemnified Person of its election to assume the defense thereof, the
Indemnitor will not be liable to such Union Indemnified Person for any legal
expense subsequently incurred for services rendered by any other counsel
retained by such Union Indemnified Person in connection with the defense unless
such Union Indemnified Person, in the opinion of its counsel, has colorable
defenses which are different from or in addition to defenses available to the
Indemnitor or the Indemnitor has an interest which conflicts with the interests
of such Union Indemnified Person and which makes separate representation
advisable, in which event all legal expenses of such Union Indemnified Person
(subject to the last sentence of subsection (f) above) shall continue to be
paid by the Indemnitor. Notwithstanding Section 10.4(f), the indemnification
provided for in this Section 10.4 shall include reimbursement for all expenses
(including reasonable attorneys' fees, disbursements and other charges)
incurred by Union Indemnified Persons to enforce their rights under this
Section 10.4. The Indemnitor shall not settle any action, claim, proceeding or
investigation which is the subject of this Section 10.4 without the prior
written approval of the Union Indemnified Person (such approval not to be
unreasonably withheld), unless such settlement involves solely the payment of
money and the Indemnitor is not contesting any right of a Union Indemnified
Person to receive indemnification hereunder. References to Union Indemnified
Persons shall in all cases include the controlling persons, directors,
officers, affiliates, agents, representatives, advisors and employees of each
Union Indemnified Person.
(h) If the indemnification provided for in this Section 10.4 is finally
judicially determined, not subject to further appeal, to be unavailable to a
Union Indemnified Person, then the Indemnitor shall, in lieu of indemnifying
such Union Indemnified Person, contribute to the amount paid or payable in
respect of any Liability by such Union Indemnified Person in such proportion as
shall be fair and equitable after taking into account the relative benefits
received by the parties, the relative fault of the parties and such other
equitable considerations as any court of competent jurisdiction shall
determine. For purposes of the preceding sentence, the benefits received by a
Union Indemnified Person that is an advisor shall not be deemed to exceed the
amount of fees payable to such Union Indemnified Person. The rights accorded to
the Indemnified Persons under this Section 10.4 shall be in addition to any
rights that any Union Indemnified Person may have at common law, by separate
agreement or otherwise.
(i) All rights to indemnification existing in favor of the present or former
directors, officers, employees, fiduciaries and agents of the Company or any of
its Subsidiaries (collectively, the "Company Indemnified Persons") as provided
in the Company's Certificate of Incorporation or By-laws or other agreements or
arrangements, or articles of incorporation or by-laws (or similar documents) or
other agreements or arrangements of any Subsidiary as in effect as of the date
hereof with respect to matters occurring at or prior to the Effective Time
shall survive the Effective Time and shall continue in full force and effect.
In addition, the Company shall provide, for a period of not less than six years
following the Effective Time, for directors' and officers' liability insurance
for the benefit of directors and officers of the Company immediately prior to
the Effective Time with respect to matters occurring at or prior to the
Effective Time by electing, in its sole discretion, one of the two alternatives
set forth below (which election shall be reported to the Unions prior to the
Effective Time): (i) maintain for a period of not less than six years following
the Effective Time, the current policies of directors' and officers' liability
insurance with respect to matters occurring at or prior to the Effective Time,
provided that in satisfying its obligation under this clause (i), the Company
shall not be obligated to pay premiums in excess of 150% of the amount per
annum the Company paid for the policy
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year ending during calendar year 1994, which amount has been disclosed to the
Unions or (ii) purchase, prior to the Effective Time, run-off coverage for the
benefit of directors and officers of the Company immediately prior to the
Effective Time for matters occurring at or prior to the Effective Time, which
coverage shall provide for a separate insurance pool for such directors and
officers of at least $75 million in coverage, provided, that in satisfying the
obligations under this clause (ii), the Company shall not pay in excess of an
amount set forth in a letter previously delivered by the Company to counsel to
the Unions. The Company shall also maintain for a period of not less than six
years following the Effective Time, the current fiduciaries' liability
insurance with respect to matters occurring at or prior to the Effective Time.
Section 10.5 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the written consent of the other parties hereto. In the event the
Company or any of its successors, transferees or assigns (i) consolidates with
or merges with or into any other person and shall not be the continuing or
surviving entity of such consolidation or merger, (ii) transfers or conveys all
or substantially all of its properties or assets to any transferee or (iii)
engages in any similar transaction with any person, then, as a condition to the
consummation of such transaction, proper provision shall be made so the
successor, transferee or assignee of the Company pursuant to such transaction
assumes the obligations of the Company set forth in each of the Express
Agreements.
Section 10.6 Governing Law. This Agreement shall be construed in accordance
with and governed by the law of the State of Delaware, without regard to the
conflicts of laws principles thereof. The parties agree that this Agreement
(including the Schedules and other attachments hereto), other than Schedules
1.6(a)(i), 1.6(a)(ii), 1.6(a)(iii), 1.6(a)(iv), 5.8(i) and 5.8(ii) (to the
extent such Schedules relate to employees of the Company and its Subsidiaries
represented by the Unions), shall not be subject to the jurisdiction of any
System Board of Adjustment under the Railway Labor Act.
Section 10.7 Counterparts; Effectiveness. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have
received counterparts hereof signed by all of the other parties hereto.
Section 10.8 Parties in Interest. This Agreement shall be binding upon and
inure solely, other than the provisions of Section 10.4, to the benefit of the
parties hereto, and, except for the Express Agreements, nothing in the
Agreement, express or implied, is intended to confer upon any other person any
rights, benefits or remedies. With respect to the Express Agreements, the
agreements set forth in the following Sections are for the benefit of, and may
be enforced by, the following parties: Sections 1.2, 1.3, 1.5, 6.3 and 6.4: the
holders of New Shares; Section 1.7: holders of Options; Section 1.8: holders of
Company Convertible Securities; Sections 2.3 (other than the last sentence
thereof) and 5.11: officers and directors of the Company prior to the Effective
Time; the first sentence of Section 5.8(b): the ESOP Trustee; the first
sentence of Section 5.10: Gerald Greenwald; Section 10.4(c)-(h): Union
Indemnified Persons; and Section 10.4(i): Company Indemnified Persons.
Section 10.9 Specific Performance. Prior to the Effective Time or the
termination of this Agreement, the parties agree that in the event a Willful
Breach is established by a court of competent jurisdiction, the other parties
hereto shall be entitled to specific performance of the terms hereof which were
the subject of such Willful Breach; provided, however, in no event shall such
remedy of specific performance in any way extend or modify the Outside
Termination Date. The parties acknowledge that in the event of a Willful
Breach, irreparable damage would occur, no adequate remedy at law would exist
and damages would be difficult to determine. No other remedy shall be available
prior to the Effective Time or the termination of this Agreement except that
the remedy of damages shall be available if such remedy (including the amount
of damages) would be available after termination pursuant to the terms of
Section 9.3 hereof.
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RESTATED CERTIFICATE OF INCORPORATION
OF
UAL CORPORATION
The present name of the corporation is UAL Corporation (the "Corporation").
The Corporation was incorporated under the name of UAL, Inc., the original
Certificate of Incorporation having been filed with the Secretary of State of
the State of Delaware on December 30, 1968. This Restated Certificate of
Incorporation of the Corporation, which both restates and further amends the
provisions of the Corporation's Certificate of Incorporation as heretofore
amended, restated or supplemented, was duly adopted in accordance with the
provisions of Sections 242 and 245 of the General Corporation Law of the State
of Delaware.
FIRST. The name of the Corporation is UAL CORPORATION
SECOND. The registered office of the Corporation in the State of Delaware is
located at 32 Loockerman Square, Suite L-100, in the City of Dover, County of
Kent. The name and address of its registered agent is The Prentice-Hall
Corporation System, Inc., 32 Loockerman Square, Suite L-100, City of Dover,
County of Kent, Delaware 19901.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH. The total number of shares of capital stock of all classes of which
the Corporation shall have authority to issue is 191,100,022, divided into
eleven (11) classes, as follows: 16,000,000 shares of Preferred Stock, without
par value (hereinafter referred to as "Serial Preferred Stock"), 25,000,000
shares of Class 1 ESOP Convertible Preferred Stock, of the par value of $0.01
per share (hereinafter referred to as "Class 1 ESOP Convertible Preferred
Stock"), 25,000,000 shares of Class 2 ESOP Convertible Preferred Stock, of the
par value of $0.01 per share (hereinafter referred to as "Class 2 ESOP
Convertible Preferred Stock"), 11,600,000 shares of Class P ESOP Voting Junior
Preferred Stock, of the par value of $0.01 per share (hereinafter referred to
as "Class P Voting Preferred Stock"), 9,300,000 shares of Class M ESOP Voting
Junior Preferred Stock, of the par value of $0.01 per share (hereinafter
referred to as "Class M Voting Preferred Stock"), 4,200,000 shares of Class S
ESOP Voting Junior Preferred Stock, of the par value of $0.01 per share
(hereinafter referred to as "Class S Voting Preferred Stock"), one (1) share of
Class Pilot MEC Junior Preferred Stock, of the par value of $0.01 per share
(hereinafter referred to as "Class Pilot MEC Preferred Stock"), one (1) share
of Class IAM Junior Preferred Stock, of the par value of $0.01 per share
(hereinafter referred to as "Class IAM Preferred Stock"), ten (10) shares of
Class SAM Junior Preferred Stock, of the par value of $0.01 per share
(hereinafter referred to as "Class SAM Preferred Stock"), ten (10) shares of
Class I Junior Preferred Stock, of the par value of $0.01 per share
(hereinafter referred to as "Class I Preferred Stock" and, together with the
Serial Preferred Stock, the Class 1 ESOP Convertible Preferred Stock, the Class
2 ESOP Convertible Preferred Stock, the Class P Voting Preferred Stock, the
Class M Voting Preferred Stock, the Class S Voting Preferred Stock, the Class
Pilot MEC Preferred Stock, the Class IAM Preferred Stock, and the Class SAM
Preferred Stock, collectively, as "Preferred Stock") and 100,000,000 shares of
Common Stock, of the par value of $0.01 per share (hereinafter referred to as
"Common Stock").
<PAGE>
PART I
Serial Preferred Stock
The Board of Directors is expressly authorized to adopt, from time to time, a
resolution or resolutions providing for the issue of Serial Preferred Stock in
one or more series, to fix the number of shares in each such series and to fix
the designations and the powers, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations and
restrictions thereof, of each such series. The authority of the Board of
Directors with respect to each such series shall include a determination of the
following (which may vary as between the different series of Serial Preferred
Stock):
(a) The number of shares constituting the series and the distinctive
designation of the series;
(b) The dividend rate on the shares of the series, the conditions and
dates upon which dividends thereon shall be payable, the extent, if any, to
which dividends thereon shall be cumulative, and the relative rights of
preference, if any, of payment of dividends thereon;
(c) Whether or not the shares of the series are redeemable and, if
redeemable, the time or times during which they shall be redeemable and the
amount per share payable on redemption thereof, which amount may, but need
not, vary according to the time and circumstances of such redemption;
(d) The amount payable in respect of the shares of the series, in the
event of any liquidation, dissolution or winding up of the Corporation,
which amount may, but need not, vary according to the time or circumstances
of such action, and the relative rights of preference, if any, of payment
of such amount;
(e) Any requirement as to a sinking fund for the shares of the series, or
any requirement as to the redemption, purchase or other retirement by the
Corporation of the shares of the series;
(f) The right, if any, to exchange or convert shares of the series into
other securities or property, and the rate or basis, time, manner and
condition of exchange or conversion;
(g) The voting rights, if any, to which the holders of shares of the
series shall be entitled in addition to the voting rights provided by law;
and
(h) Any other term, condition or provision with respect to the series not
inconsistent with the provisions of this Article Fourth or any resolution
adopted by the Board of Directors pursuant thereto.
A. DESIGNATION, PREFERENCES AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK
Unless otherwise indicated, any reference in this Article FOURTH, Part I.A to
"Section", "Subsection", "paragraph", "subparagraph" or "clause" shall refer to
a Section, Subsection, paragraph, subparagraph or clause of this Article
FOURTH, Part I.A.
Section 1. Number of Shares and Designations. Six million (6,000,000) shares
of the Serial Preferred Stock, without par value, of the Corporation are
constituted as a series thereof designated as Series A Convertible Preferred
Stock (the "Series A Preferred Stock").
Section 2. Definitions. For purposes of the Series A Preferred Stock, the
following terms shall have the meanings indicated:
2.1 "Accrued Dividends" shall have the meaning set forth in Section 4.1
hereof.
2.2 "Aggregate Involuntary Liquidation Amount" shall mean the limitation on
the aggregate amount payable upon an involuntary liquidation, dissolution or
winding up in respect of all shares of Serial Preferred Stock outstanding at
any one time contained in Article FOURTH, Part I, paragraph (h) of the
Corporation's Restated Certificate of Incorporation, as the same may be
increased or eliminated from time to time.*
- --------
* Article FOURTH, Part I, paragraph (h) was amended, and the limitation on
amounts payable upon an involuntary liquidation was repealed, pursuant to a
Certificate of Amendment dated May 6, 1993.
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2.3 "Board of Directors" shall mean the board of directors of the Corporation
or any committee authorized by such board of directors to perform any of its
responsibilities with respect to the Series A Preferred Stock.
2.4 "Business Day" shall mean any day other than a Saturday, Sunday or a day
on which state or federally chartered banking institutions in New York, New
York are not required to be open.
2.5 "Common Stock" shall mean the common stock of the Corporation, par value
$5.00 per share.*
2.6 "Constituent Person" shall have the meaning set forth in Section 7.5
hereof.
2.7 "Conversion Price" shall mean the conversion price per share of Common
Stock for which the Series A Preferred Stock is convertible, as such Conversion
Price may be adjusted pursuant to Section 7. The initial conversion price will
be $156.50.
2.8 "Current Market Price" of publicly traded shares of Common Stock or any
other class of capital stock or other security of the Corporation or any other
issuer for any day shall mean the last reported sales price, regular way on
such day, or, if no sale takes place on such day, the average of the reported
closing bid and asked prices on such day, regular way, in either case as
reported on the New York Stock Exchange Composite Tape or, if such security is
not listed or admitted for trading on the New York Stock Exchange ("NYSE"), on
the principal national securities exchange on which such security is listed or
admitted for trading or, if not listed or admitted for trading on any national
securities exchange, on the National Market System of the National Association
of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or, if such
security is not quoted on such National Market System, the average of the
closing bid and asked prices on such day in the over-the-counter market as
reported by NASDAQ or, if bid and asked prices for such security on such day
shall not have been reported through NASDAQ, the average of the bid and asked
prices on such day as furnished by any NYSE member firm regularly making a
market in such security selected for such purpose by the Board of Directors.
2.9 "Dividend Payment Date" shall mean May 1, August 1, November 1 and
February 1 in each year, commencing on May 1, 1993; provided, however, that if
any Dividend Payment Date falls on any day other than a Business Day, the
dividend payment due on such Dividend Payment Date shall be paid on the
Business Day immediately following such Dividend Payment Date.
2.10 "Dividend Periods" shall mean quarterly dividend periods commencing on
May 1, August 1, November 1 and February 1 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend
Period (other than the initial Dividend Period, which shall commence on the
Issue Date and end on and include April 30, 1993).
2.11 "Fair Market Value" shall mean the average of the daily Current Market
Prices of a share of Common Stock during the five (5) consecutive Trading Days
selected by the Corporation commencing not more than 20 Trading Days before,
and ending not later than, the earlier of the day in question and the day
before the "ex" date with respect to the issuance or distribution requiring
such computation. The term " "ex' date," when used with respect to any issuance
or distribution, means the first day on which the Common Stock trades regular
way, without the right to receive such issuance or distribution, on the
exchange or in the market, as the case may be, used to determine that day's
Current Market Price.
- --------
* The Common Stock, par value $5.00 per share, was reclassified pursuant to the
Agreement and Plan of Recapitalization dated as of March 25, 1994, among the
Corporation, the Air Line Pilots Association, International and the
International Association of Machinists and Aerospace Workers, as amended from
time to time, a copy of which is on file in the office of the Secretary of the
Corporation, and this Restated Certificate.
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<PAGE>
2.12 "Involuntary Liquidation Preference" shall have the meaning set forth in
Section 4.1 hereof.
2.13 "Issue Date" shall mean the first date on which shares of Series A
Preferred Stock are issued and sold.
2.14 "Junior Stock" shall mean the Common Stock, the Series C Preferred Stock
and any other class or series of shares of the Corporation over which the
Series A Preferred Stock has preference or priority in the payment of dividends
or in the distribution of assets on any liquidation, dissolution or winding up
of the
Corporation. The Common Stock shall be deemed Junior Stock notwithstanding that
it may participate in distributions upon an involuntary liquidation,
dissolution or winding up without the Series A Preferred Stock receiving the
Voluntary Liquidation Preference.
2.15 "non-electing share" shall have the meaning set forth in Section 7.5
hereof.
2.16 "Person" shall mean any individual, firm, partnership, corporation or
other entity, and shall include any successor (by merger or otherwise) of such
entity.
2.17 "Redemption Date" shall have the meaning set forth in Section 5.3
hereof.
2.18 "Restated Certificate" or "Certificate of Incorporation" shall mean the
Restated Certificate of Incorporation of the Corporation, as amended from time
to time.
2.19 "Rights" shall mean the rights of the Corporation which are issuable
under the Corporation's Rights Agreement dated as of December 11, 1986, and as
amended from time to time, or rights to purchase any capital stock of the
Corporation under any successor shareholder rights plan or plans adopted in
replacement of the Corporation's Rights Agreement.
2.20 "Securities" shall have the meaning set forth in Section 7.4(c) hereof.
2.21 "Series A Preferred Stock" shall have the meaning set forth in Section 1
hereof.
2.22 "Series C Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series C Junior
Participating Preferred Stock in Article FOURTH, Part I.B of this Certificate.
2.23 "set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Corporation in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to a
declaration of dividends or other distribution by the Board of Directors, the
allocation of funds to be so paid on any series or class of capital stock of
the Corporation; provided, however, that if any funds for any class or series
of Junior Stock or any class or series of stock ranking on a parity with the
Series A Preferred Stock as to the payment of dividends are placed in a
separate account of the Corporation or delivered to a disbursing, paying or
other similar agent, then "set apart for payment" with respect to the Series A
Preferred Stock shall mean placing such funds in a separate account or
delivering such funds to a disbursing, paying or other similar agent.
2.24 "Stated Value" shall have the meaning set forth in Section 4.1 hereof.
2.25 "Trading Day" shall mean any day on which the securities in question are
traded on the NYSE, or if such securities are not listed or admitted for
trading on the NYSE, on the principal national securities exchange on which
such securities are listed or admitted, or if not listed or admitted for
trading on any national securities exchange, on the National Market System of
the NASDAQ, or if such securities are not quoted on such National Market
System, in the applicable securities market in which the securities are traded.
2.26 "Transaction" shall have the meaning set forth in Section 7.5 hereof.
2.27 "Transfer Agent" means First Chicago Trust Company of New York or such
other agent or agents of the Corporation as may be designated by the Board of
Directors as the transfer agent for the Series A Preferred Stock.
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<PAGE>
2.28 "Voluntary Liquidation Preference" shall have the meaning set forth in
Section 4.1 hereof.
Section 3. Dividends.
3.1 The holders of shares of the Series A Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors out of assets
legally available for that purpose, dividends payable in cash at the rate per
annum of $6.25 per share of Series A Preferred Stock. Such dividends shall be
cumulative from the Issue Date, whether or not in any Dividend Period or
Periods there shall be assets of the Corporation legally available for the
payment of such dividends, and shall be payable quarterly, when, as and if
declared by the Board of Directors, in arrears on Dividend Payment Dates,
commencing on May 1, 1993. Each such dividend shall be payable in arrears to
the holders of record of shares of the Series A Preferred Stock, as they appear
on the stock records of the Corporation at the close of business on such record
dates, which shall not be more than 60 days nor less than 10 days preceding the
payment dates thereof, as shall be fixed by the Board of Directors or a duly
authorized committee thereof. Accrued and unpaid dividends for any past
Dividend Periods may be declared and paid at any time, without reference to any
Dividend Payment Date, to holders of record on such date, not exceeding 45 days
preceding the payment date thereof, as may be fixed by the Board of Directors.
3.2 The amount of dividends payable for each full Dividend Period for the
Series A Preferred Stock shall be computed by dividing the annual dividend rate
by four. The amount of dividends payable for the initial Dividend Period, or
any other period shorter or longer than a full Dividend Period, on the Series A
Preferred Stock shall be computed on the basis of twelve 30-day months and a
360-day year. Holders of shares of Series A Preferred Stock shall not be
entitled to any dividends, whether payable in cash, property or stock, in
excess of cumulative dividends, as herein provided, on the Series A Preferred
Stock. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on the Series A Preferred Stock
that may be in arrears.
3.3 So long as any shares of the Series A Preferred Stock are outstanding, no
dividends, except as described in the next succeeding sentence, shall be
declared or paid or set apart for payment on any class or series of stock of
the Corporation ranking, as to dividends and amounts distributable upon
liquidation, dissolution or winding up, on a parity with the Series A Preferred
Stock, for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Series A Preferred Stock
for all Dividend Periods terminating on or prior to the date of payment of the
dividend on such class or series of parity stock. When dividends are not paid
in full or a sum sufficient for such payment is not set apart, as aforesaid,
all dividends declared upon shares of the Series A Preferred Stock and all
dividends declared upon any other class or series of stock ranking on a parity
as to dividends and amounts distributable upon liquidation, dissolution or
winding up shall be declared ratably in proportion to the respective amounts of
dividends accumulated and unpaid on the Series A Preferred Stock and
accumulated and unpaid on such parity stock.
3.4 So long as any shares of the Series A Preferred Stock are outstanding, no
dividends (other than (i) the Rights and (ii) dividends or distributions paid
in shares of, or options, warrants or rights to subscribe for or purchase
shares of, Junior Stock) shall be declared or paid or set apart for payment or
other distribution declared or made upon Junior Stock, nor shall any Junior
Stock or any series of stock of the Corporation ranking, as to dividends and
amounts distributable upon liquidation, dissolution or winding up, on a parity
with Series A Preferred Stock be redeemed, purchased or otherwise acquired
(other than a redemption, purchase or other acquisition of shares of Common
Stock made for purposes of an employee incentive or benefit plan of the
Corporation or any subsidiary) for any consideration (or any moneys be paid to
or made available for a sinking fund for the redemption of any shares of any
such stock) by the Corporation, directly or indirectly (except by conversion
into or exchange for Junior Stock), unless in each case the full cumulative
dividends on all outstanding shares of the Series A Preferred Stock and any
other stock of the Corporation ranking on a parity with the Series A Preferred
Stock, as to dividends and amounts distributable upon liquidation, dissolution
or winding up shall have been paid or set apart for payment for all past
Dividend
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<PAGE>
Periods with respect to the Series A Preferred Stock and all past dividend
periods with respect to such parity stock.
Section 4. Payments upon Liquidation.
4.1 In the event of any voluntary liquidation, dissolution or winding up of
the Corporation before any payment or distribution of the assets of the
Corporation (whether capital or surplus) shall be made to or set
apart for the holders of Junior Stock, the holders of the shares of Series A
Preferred Stock shall be entitled to receive One Hundred Dollars ($100) per
share of Series A Preferred Stock (the "Stated Value") plus an amount equal to
all dividends (whether or not earned or declared) accrued and unpaid thereon to
the date of final distribution to such holders (the "Voluntary Liquidation
Preference"); but such holders shall not be entitled to any further payment. In
the event of any involuntary liquidation, dissolution or winding up of the
Corporation, before any payment or distribution of the assets of the
Corporation (whether capital or surplus) shall be made to or set apart for the
holders of Junior Stock, the holders of the shares of Series A Preferred Stock
shall be entitled to receive an amount per share of Series A Preferred Stock
(the "Involuntary Liquidation Preference") equal to the Voluntary Liquidation
Preference or, in the event the Corporation's Restated Certificate of
Incorporation contains an Aggregate Involuntary Liquidation Amount, the lesser
of (i) the Voluntary Liquidation Preference or (ii) an amount equal to the
product of (a) the Voluntary Liquidation Preference and (b) a fraction, the
numerator of which is the Aggregate Involuntary Liquidation Amount less the
aggregate maximum amounts distributable upon liquidation of all classes or
series of stock of the Corporation ranking, as to dividends and amounts
distributable upon liquidation, dissolution or winding up, prior to the Series
A Preferred Stock and the denominator of which is the aggregate amount of the
voluntary liquidation preference (including accrued dividends) of all shares of
the Series A Preferred Stock and any other stock of the Corporation ranking, as
to dividends and amounts distributable upon liquidation, dissolution or winding
up, on a parity with the Series A Preferred Stock; but such holders shall not
be entitled to any further payment. If, upon any liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation, or proceeds
thereof, distributable among the holders of the shares of Series A Preferred
Stock shall be insufficient to pay in full the Voluntary Liquidation Preference
or the Involuntary Liquidation Preference, as the case may be, and the
liquidation preference on all other shares of any class or series of stock
ranking, as to dividends and amounts distributable upon liquidation,
dissolution or winding up, on a parity with the Series A Preferred Stock, then
such assets, or the proceeds thereof, shall be distributed among the holders of
shares of Series A Preferred Stock and any such other parity stock ratably in
accordance with the respective amounts that would be payable on such shares of
Series A Preferred Stock and any such other stock if all amounts payable
thereon were paid in full. For the purposes of this Section 4, (i) a
consolidation or merger of the Corporation with one or more corporations, or
(ii) a sale or transfer of all or substantially all of the Corporation's
assets, shall not be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary, of the Corporation.
4.2 Subject to the rights of the holders of shares of any series or class or
classes of stock ranking on a parity with or prior to the Series A Preferred
Stock as to dividends and amounts distributable upon liquidation, dissolution
or winding up of the Corporation, after payment shall have been made to the
holders of the Series A Preferred Stock, as and to the fullest extent provided
in this Section 4, any other series or class or classes of Junior Stock shall,
subject to the respective terms and provisions (if any) applying thereto, be
entitled to receive any and all assets remaining to be paid or distributed, and
the holders of the Series A Preferred Stock shall not be entitled to share
therein.
Section 5. Redemption at the Option of the Corporation.
5.1 The shares of Series A Preferred Stock will be redeemable at the option
of the Corporation by resolution of its Board of Directors, in whole, or, from
time to time, in part, at any time on or after May 1, 1996, at the following
redemption prices per share, if redeemed during the twelve-month period
beginning
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<PAGE>
May 1 of the year indicated below, plus, in each case, all dividends accrued
and unpaid on the shares of Series A Preferred Stock up to the date fixed for
the redemption, upon giving notice as provided hereinbelow:
<TABLE>
<CAPTION>
PRICE
--------
<S> <C>
1996................................................................ $104.375
1997................................................................ 103.750
1998................................................................ 103.125
1999................................................................ 102.500
2000................................................................ 101.875
2001................................................................ 101.250
2002................................................................ 100.625
2003 and thereafter................................................. 100.000
</TABLE>
5.2 If fewer than all of the outstanding shares of Series A Preferred Stock
are to be redeemed, the number of shares to be redeemed shall be determined by
the Board of Directors and the shares to be redeemed shall be determined pro
rata or by lot or in such other manner and subject to such regulations as the
Board of Directors in its sole discretion shall prescribe.
5.3 At least 30 days, but not more than 60 days, prior to the date fixed for
the redemption of shares of Series A Preferred Stock, a written notice shall be
mailed in a postage prepaid envelope to each holder of record of the shares of
Series A Preferred Stock to be redeemed, addressed to such holder at his post
office address as shown on the records of the Corporation, notifying such
holder of the election of the Corporation to redeem such shares, stating the
date fixed for redemption thereof (the "Redemption Date"), and calling upon
such holder to surrender to the Corporation, on the Redemption Date at the
place designated in such notice, his certificate or certificates representing
the number of shares specified in such notice of redemption.
On or after the Redemption Date, each holder of shares of Series A Preferred
Stock to be redeemed shall present and surrender his certificate or
certificates for such shares to the Corporation at the place designated in such
notice and thereupon the redemption price of such shares shall be paid to or on
the order of the person whose name appears on such certificate or certificates
as the owner thereof and each surrendered certificate shall be cancelled. In
case less than all the shares represented by any such certificate are redeemed,
a new certificate shall be issued representing the unredeemed shares.
From and after the Redemption Date (unless default shall be made by the
Corporation in payment of the redemption price), all dividends on the shares of
Series A Preferred Stock designated for redemption in such notice shall cease
to accrue, and all rights of the holders thereof as stockholders of the
Corporation, except the right to receive the redemption price of such shares
(including all accrued and unpaid dividends up to the Redemption Date) upon the
surrender of certificates representing the same, shall cease and terminate and
such shares shall not thereafter be transferred (except with the consent of the
Corporation) on the books of the Corporation, and such shares shall not be
deemed to be outstanding for any purpose whatsoever. At its election, the
Corporation, prior to the Redemption Date, may deposit the redemption price
(including all accrued and unpaid dividends up to the Redemption Date) of
shares of Series A Preferred Stock so called for redemption in trust for the
holders thereof with a bank or trust company (having a capital surplus and
undivided profits aggregating not less than $50,000,000) in the Borough of
Manhattan, City and State of New York, or in any other city in which the
Corporation at the time shall maintain a transfer agency with respect to such
shares, in which case the aforesaid notice to holders of shares of Series A
Preferred Stock to be redeemed shall state the date of such deposit, shall
specify the office of such bank or trust company as the place of payment of the
redemption price, and shall call upon such holders to surrender the
certificates representing such shares at such place on or after the date fixed
in such redemption notice (which shall not be later than the Redemption Date)
against payment of the redemption price (including all accrued and unpaid
dividends up to the Redemption Date). Any interest accrued on such funds shall
be paid to the Corporation from time to time. Any moneys so deposited which
shall remain unclaimed by the holders of
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<PAGE>
such shares of Series A Preferred Stock at the end of two years after the
Redemption Date shall be returned by such bank or trust company to the
Corporation.
If a notice of redemption has been given pursuant to this Section 5 and any
holder of shares of Series A Preferred Stock shall, prior to the close of
business on the day preceding the Redemption Date, give written notice to the
Corporation pursuant to Section 7 below of the conversion of any or all of the
shares to be redeemed held by such holder (accompanied by a certificate or
certificates for such shares, duly endorsed or assigned to the Corporation, and
any necessary transfer tax payment, as required by Section 7 below), then such
redemption shall not become effective as to such shares to be converted, such
conversion shall become effective as provided in Section 7 below, and any
moneys set aside by the Corporation for the redemption of such shares of
converted Series A Preferred Stock shall revert to the general funds of the
Corporation.
Section 6. Shares to be Retired. All shares of Series A Preferred Stock which
shall have been issued and reacquired in any manner by the Corporation
(excluding, until the Corporation elects to retire them, shares which are held
as treasury shares) shall be restored to the status of authorized but unissued
shares of Serial Preferred Stock, without designation as to series.
Section 7. Conversion. Holders of shares of Series A Preferred Stock shall
have the right to convert all or a portion of such shares into shares of Common
Stock, as follows:
7.1 Subject to and upon compliance with the provisions of this Section 7, a
holder of shares of Series A Preferred Stock shall have the right, at his or
her option, at any time after 40 days after the Issue Date, to convert such
shares into the number of fully paid and nonassessable shares of Common Stock
obtained by dividing the aggregate Stated Value of such shares by the
Conversion Price (as in effect on the date provided for in the last paragraph
of Section 7.2) by surrendering such shares to be converted, such surrender to
be made in the manner provided in Section 7.2; provided, however, that the
right to convert shares called for redemption pursuant to Section 5 shall
terminate at the close of business on the day preceding the Redemption Date,
unless the Corporation shall default in making payment of the cash payable upon
such redemption under Section 5 hereof. Certificates will be issued for the
remaining shares of Series A Preferred Stock in any case in which fewer than
all of the shares of Series A Preferred Stock represented by a certificate are
converted.
7.2 In order to exercise the conversion right, the holder of shares of Series
A Preferred Stock to be converted shall surrender the certificate or
certificates representing such shares, duly endorsed or assigned to the
Corporation or in blank, at the office of the Transfer Agent in the Borough of
Manhattan, City of New York, accompanied by written notice to the Corporation
that the holder thereof elects to convert Series A Preferred Stock. Unless the
shares issuable on conversion are to be issued in the same name as the name in
which such share of Series A Preferred Stock is registered, each share
surrendered for conversion shall be accompanied by instruments of transfer, in
form satisfactory to the Corporation, duly executed by the holder or such
holder's duly authorized attorney and an amount sufficient to pay any transfer
or similar tax (or evidence reasonably satisfactory to the Corporation
demonstrating that such taxes have been paid).
Holders of shares of Series A Preferred Stock at the close of business on a
dividend payment record date shall be entitled to receive the dividend payable
on such shares on the corresponding Dividend Payment Date notwithstanding the
conversion thereof following such dividend payment record date and prior to
such Dividend Payment Date. However, shares of Series A Preferred Stock
surrendered for conversion during the period between the close of business on
any dividend payment record date and the opening of business on the
corresponding Dividend Payment Date (except shares converted after the issuance
of a notice of redemption with respect to a Redemption Date during such period,
which shall be entitled to such dividend on the Dividend Payment Date) must be
accompanied by payment of an amount equal to the dividend payable on such
shares on such Dividend Payment Date. A holder of shares of Series A Preferred
Stock on a dividend payment record date who (or whose transferee) tenders any
such shares for conversion into shares of Common Stock on such Dividend Payment
Date will receive the dividend payable by the Corporation on such shares
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<PAGE>
of Series A Preferred Stock on such date, and the converting holder need not
include payment of the amount of such dividend upon surrender of shares of
Series A Preferred Stock for conversion. Except as provided above, the
Corporation shall make no payment or allowance for unpaid dividends, whether or
not in arrears, on converted shares or for dividends on the shares of Common
Stock issued upon such conversion.
As promptly as practicable after the surrender of certificates for shares of
Series A Preferred Stock as aforesaid, the Corporation shall issue and shall
deliver at such office to such holder, or on his or her written order, a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of such shares in accordance with provisions of
this Section 7, and any fractional interest in respect of a share of Common
Stock arising upon such conversion shall be settled as provided in Section 7.3.
Each conversion shall be deemed to have been effected immediately prior to
the close of business on the date on which the certificates for shares of
Series A Preferred Stock shall have been surrendered and such notice (and if
applicable, payment of an amount equal to the dividend payable on such shares)
received by the Corporation as aforesaid, and the person or persons in whose
name or names any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby at such time on such date
and such conversion shall be at the Conversion Price in effect at such time on
such date, unless the stock transfer books of the Corporation shall be closed
on that date, in which event such person or persons shall be deemed to have
become such holder or holders of record at the close of business on the next
succeeding day on which such stock transfer books are open, but such conversion
shall be at the Conversion Price in effect on the date upon which such shares
shall have been surrendered and such notice received by the Corporation.
7.3 No fractional shares or scrip representing fractions of shares of Common
Stock shall be issued upon conversion of the Series A Preferred Stock. Instead
of any fractional interest in a share of Common Stock that would otherwise be
deliverable upon the conversion of a share of Series A Preferred Stock, the
Corporation shall pay to the holder of such share an amount in cash based upon
the Current Market Price of Common Stock on the Trading Day immediately
preceding the date of conversion. If more than one share shall be surrendered
for conversion at one time by the same holder, the number of full shares of
Common Stock issuable upon conversion thereof shall be computed on the basis of
the aggregate number of shares of Series A Preferred Stock so surrendered.
7.4 The Conversion Price shall be adjusted from time to time as follows:
(a) If the Corporation shall after the Issue Date (A) pay a dividend or
make a distribution on its capital stock in shares of its Common Stock, (B)
subdivide its outstanding Common Stock into a greater number of shares, (C)
combine its outstanding Common Stock into a smaller number of shares or (D)
issue any shares of capital stock by reclassification of its Common Stock,
the Conversion Price in effect at the opening of business on the day next
following the date fixed for the determination of stockholders entitled to
receive such dividend or distribution or at the opening of business on the
day next following the day on which such subdivision, combination or
reclassification becomes effective, as the case may be, shall be adjusted
so that the holder of any share of Series A Preferred Stock thereafter
surrendered for conversion shall be entitled to receive the number of
shares of Common Stock that such holder would have owned or have been
entitled to receive after the happening of any of the events described
above had such share been converted immediately prior to the record date in
the case of a dividend or distribution or the effective date in the case of
a subdivision, combination or reclassification. An adjustment made pursuant
to this subparagraph (a) shall become effective immediately after the
opening of business on the day next following the record date (except as
provided in Section 7.8 below) in the case of a dividend or distribution
and shall become effective immediately after the opening of business on the
day next following the effective date in the case of a subdivision,
combination or reclassification.
(b) If the Corporation shall issue after the Issue Date rights or
warrants (in each case, other than the Rights) to all holders of Common
Stock entitling them (for a period expiring within 45 days after the record
date mentioned below) to subscribe for or purchase Common Stock at a price
per share less
B9
<PAGE>
than the Fair Market Value per share of Common Stock on the record date for
the determination of stockholders entitled to receive such rights or
warrants, then the Conversion Price in effect at the opening of business on
the day next following such record date shall be adjusted to equal the
price determined by multiplying (I) the Conversion Price in effect
immediately prior to the opening of business on the day next following the
date fixed for such determination by (II) a fraction, the numerator of
which shall be the sum of (A) the number of shares of Common Stock
outstanding on the close of business on the date fixed for such
determination and (B) the number of shares that the aggregate proceeds to
the Corporation from the exercise of such rights or warrants for Common
Stock would purchase at such Fair Market Value, and the denominator of
which shall be the sum of (A) the number of shares of Common Stock
outstanding on the close of business on the date fixed for such
determination and (B) the number of additional shares of Common Stock
offered for subscription or purchase pursuant to such rights or warrants.
Such adjustment shall become effective immediately after the opening of
business on the day next following such record date (except as provided in
Section 7.8 below). In determining whether any rights or warrants entitle
the holders of Common Stock to subscribe for or purchase shares of Common
Stock at less than such Fair Market Value, there shall be taken into
account any consideration received by the Corporation upon issuance and
upon exercise of such rights or warrants, the value of such consideration,
if other than cash, to be determined by the Board of Directors.
(c) If the Corporation shall distribute to all holders of its Common
Stock any shares of capital stock of the Corporation (other than Common
Stock) or evidence of its indebtedness or assets (excluding cash dividends
or distributions paid from profits or surplus of the Corporation) or rights
or warrants (in each case, other than the Rights) to subscribe for or
purchase any of its securities (excluding those rights and warrants issued
to all holders of Common Stock entitling them for a period expiring within
45 days after the record date referred to in subparagraph (b) above to
subscribe for or purchase Common Stock, which rights and warrants are
referred to in and treated under subparagraph (b) above (any of the
foregoing being hereinafter in this subparagraph (c) called the
"Securities"), then in each such case the Conversion Price shall be
adjusted so that it shall equal the price determined by multiplying (I) the
Conversion Price in effect immediately prior to the close of business on
the date fixed for the determination of stockholders entitled to receive
such distribution by (II) a fraction, the numerator of which shall be the
Fair Market Value per share of the Common Stock on the record date
mentioned below less the then fair market value (as determined by the Board
of Directors, whose determination shall be conclusive) of the portion of
the capital stock or assets or evidences of indebtedness so distributed or
of such rights or warrants applicable to one share of Common Stock, and the
denominator of which shall be the Fair Market Value per share of the Common
Stock on the record date mentioned below. Such adjustment shall become
effective immediately at the opening of business on the Business Day next
following (except as provided in Section 7.8 below) the record date for the
determination of shareholders entitled to receive such distribution. For
the purposes of this clause (c), the distribution of a Security, which is
distributed not only to the holders of the Common Stock on the date fixed
for the determination of stockholders entitled to such distribution of such
security, but also is distributed with each share of Common Stock delivered
to a person converting a share of Series A Preferred Stock after such
determination date, shall not require an adjustment of the Conversion Price
pursuant to this clause (c); provided that on the date, if any, on which a
Person converting a share of Series A Preferred Stock would no longer be
entitled to receive such Security with a share of Common Stock (other than
as a result of the termination of all such Securities), a distribution of
such Securities shall be deemed to have occurred and the Conversion Price
shall be adjusted as provided in this clause (c) (and such day shall be
deemed to be "the date fixed for the determination of the stockholders
entitled to receive such distribution" and "the record date" within the
meaning of the two preceding sentences).
(d) No adjustment in the Conversion Price shall be required unless such
adjustment would require a cumulative increase or decrease of at least 1%
in such price; provided, however, that any adjustments that by reason of
this subparagraph (d) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment until made; and
provided, further, that any adjustment shall be required and made in
accordance with the provisions of this Section 7 (other than this
subparagraph
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<PAGE>
(d)) not later than such time as may be required in order to preserve the
tax-free nature of a distribution to the holders of shares of Common Stock.
Notwithstanding any other provisions of this Section 7, the Corporation
shall not be required to make any adjustment of the Conversion Price for
the issuance of any shares of Common Stock pursuant to any plan providing
for the reinvestment of dividends on securities of the Corporation. All
calculations under this Section 7 shall be made to the nearest cent (with
$.005 being rounded upward) or to the nearest 1/10 of a share (with .05 of
a share being rounded upward), as the case may be. Anything in this Section
7.4 to the contrary notwithstanding, the Corporation shall be entitled, to
the extent permitted by law, to make such reductions in the Conversion
Price, in addition to those required by this Section 7.4, as it in its
discretion shall determine to be advisable in order that any stock
dividends, subdivision of shares, reclassification or combination of
shares, distribution of rights or warrants to purchase stock or securities,
or a distribution of other assets (other than cash dividends) hereafter
made by the Corporation to its stockholders shall not be taxable.
7.5 If the Corporation shall be a party to any transaction (including without
limitation a merger, consolidation, sale of all or substantially all of the
Corporation's assets or recapitalization of the Common Stock and excluding any
transaction as to which Section 7.4(a) applies) (each of the foregoing being
referred to herein as a "Transaction"), in each case as a result of which
shares of Common Stock shall be converted into the right to receive stock,
securities or other property (including cash or any combination thereof), each
share of Series A Preferred Stock which is not converted into the right to
receive stock, securities or other property in connection with such Transaction
shall thereafter be convertible into the kind and amount of shares of stock,
securities and other property (including cash or any combination thereof)
receivable upon the consummation of such Transaction by a holder of that number
of shares or fraction thereof of Common Stock into which one share of Series A
Preferred Stock was convertible immediately prior to such Transaction, assuming
such holder of Common Stock (i) is not a Person with which the Corporation
consolidated or into which the Corporation merged or which merged into the
Corporation or to which such sale or transfer was made, as the case may be
("Constituent Person"), or an affiliate of a Constituent Person and (ii) failed
to exercise his rights of election, if any, as to the kind or amount of stock,
securities and other property (including cash) receivable upon such Transaction
(provided that if the kind or amount of stock, securities and other property
(including cash) receivable upon such Transaction is not the same for each
share of Common Stock of the Corporation held immediately prior to such
Transaction by other than a Constituent Person or an affiliate thereof and in
respect of which such rights of election shall not have been exercised ("non-
electing share"), then for the purpose of this Section 7.5 the kind and amount
of stock, securities and other property (including cash) receivable upon such
Transaction by each non-electing share shall be deemed to be the kind and
amount so receivable per share by the plurality of the non-electing shares).
The Corporation shall not be a party to any Transaction unless the terms of
such Transaction are consistent with the provisions of this Section 7.5 and it
shall not consent or agree to the occurrence of any Transaction until the
Corporation has entered into an agreement with the successor or purchasing
entity, as the case may be, for the benefit of the holders of the Series A
Preferred Stock that will contain provisions enabling the holders of the Series
A Preferred Stock that remains outstanding after such Transaction to convert
into the consideration received by holders of Common Stock at the Conversion
Price in effect immediately prior to such Transaction. The provisions of this
Section 7.5 shall similarly apply to successive Transactions.
7.6 If:
(a) the Corporation shall declare a dividend (or any other distribution)
on the Common Stock (other than in cash out of profits or surplus and other
than the Rights); or
(b) the Corporation shall authorize the granting to the holders of the
Common Stock of rights or warrants (other than the Rights) to subscribe for
or purchase any shares of any class or any other rights or warrants (other
than the Rights); or
(c) there shall be any reclassification of the Common Stock (other than
an event to which Section 7.4(a) applies) or any consolidation or merger to
which the Corporation is a party and for which approval
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of any stockholders of the Corporation is required, or the sale or transfer
of all or substantially all of the assets of the Corporation as an
entirety; or
(d) there shall occur the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation,
then the Corporation shall cause to be filed with the Transfer Agent and shall
cause to be mailed to the holders of shares of the Series A Preferred Stock at
their addresses as shown on the stock records of the Corporation, as promptly
as possible, but at least 15 days prior to the applicable date hereinafter
specified, a notice stating (A) the date on which a record is to be taken for
the purpose of such dividend, distribution or rights or warrants, or, if a
record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution or rights or warrants are
to be determined or (B) the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution or winding up is expected to
become effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution or winding up. Failure to give or receive such notice or any defect
therein shall not affect the legality or validity of the proceedings described
in this Section 7.
7.7 Whenever the Conversion Price is adjusted as herein provided, the
Corporation shall promptly file with the Transfer Agent an officer's
certificate setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment which
certificate shall be prima facie evidence of the correctness of such
adjustment. Promptly after delivery of such certificate, the Corporation shall
prepare a notice of such adjustment of the Conversion Price setting forth the
adjusted Conversion Price and the effective date of such adjustment and shall
mail such notice of such adjustment of the Conversion Price to the holder of
each share of Series A Preferred Stock at such holder's last address as shown
on the stock records of the Corporation.
7.8 In any case in which Section 7.4 provides that an adjustment shall become
effective on the day next following a record date for an event, the Corporation
may defer until the occurrence of such event (A) issuing to the holder of any
share of Series A Preferred Stock converted after such record date and before
the occurrence of such event the additional shares of Common Stock issuable
upon such conversion by reason of the adjustment required by such event over
and above the Common Stock issuable upon such conversion before giving effect
to such adjustment and (B) paying to such holder any amount in cash in lieu of
any fraction pursuant to Section 7.3.
7.9 For purposes of this Section 7, the number of shares of Common Stock at
any time outstanding shall not include any shares of Common Stock then owned or
held by or for the account of the Corporation. The Corporation shall not pay a
dividend or make any distribution on shares of Common Stock held in the
treasury of the Corporation.
7.10 There shall be no adjustment of the Conversion Price in case of the
issuance of any stock of the Corporation in a reorganization, acquisition or
other similar transaction except as specifically set forth in this Section 7.
If any action or transaction would require adjustment of the Conversion Price
pursuant to more than one paragraph of this Section 7, only one adjustment
shall be made and such adjustment shall be the amount of adjustment that has
the highest absolute value.
7.11 If the Corporation shall take any action affecting the Common Stock,
other than action described in this Section 7, that in the opinion of the Board
of Directors would materially adversely affect the conversion rights of the
holders of the shares of Series A Preferred Stock, the Conversion Price for the
Series A Preferred Stock may be adjusted, to the extent permitted by law, in
such manner, if any, and at such time, as the Board of Directors may determine
to be equitable in the circumstances.
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7.12 The Corporation covenants that it will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its authorized
but unissued shares of Common Stock or its issued shares of Common Stock held
in its treasury, or both, for the purpose of effecting conversion of the Series
A Preferred Stock, the full number of shares of Common Stock deliverable upon
the conversion of all outstanding shares of Series A Preferred Stock not
theretofore converted. For purposes of this Section 7.12, the number of shares
of Common Stock that shall be deliverable upon the conversion of all
outstanding shares of Series A Preferred Stock shall be computed as if at the
time of computation all such outstanding shares were held by a single holder.
The Corporation covenants that any shares of Common Stock issued upon
conversion of the Series A Preferred Stock shall be validly issued, fully paid
and non-assessable. Before taking any action that would cause an adjustment
reducing the Conversion Price below the then-par value of the shares of Common
Stock deliverable upon conversion of the Series A Preferred Stock, the
Corporation will take any corporate action that, in the opinion of its counsel,
may be necessary in order that the Corporation may validly and legally issue
fully-paid and nonassessable shares of Common Stock at such adjusted Conversion
Price.
The Corporation shall endeavor to list the shares of Common Stock required to
be delivered upon conversion of the Series A Preferred Stock, prior to such
delivery, upon each national securities exchange, if any, upon which the
outstanding Common Stock is listed at the time of such delivery.
Prior to the delivery of any securities that the Corporation shall be
obligated to deliver upon conversion of the Series A Preferred Stock, the
Corporation shall endeavor to comply with all federal and state laws and
regulations thereunder requiring the registration of such securities with, or
any approval of or consent to the delivery thereof by, any governmental
authority.
7.13 The Corporation will pay any and all documentary stamp or similar issue
or transfer taxes payable in respect of the issue or delivery of shares of
Common Stock or other securities or property on conversion of the Series A
Preferred Stock pursuant hereto; provided, however, that the Corporation shall
not be required to pay any tax that may be payable in respect of any transfer
involved in the issue or delivery of shares of Common Stock or other securities
or property in a name other than that of the holder of the Series A Preferred
Stock to be converted and no such issue or delivery shall be made unless and
until the person requesting any issue or delivery has paid to the Corporation
the amount of any such tax or established, to the reasonable satisfaction of
the Corporation, that such tax has been paid.
Section 8. Ranking. Any class or series of stock of the Corporation shall be
deemed to rank:
(A) prior to the Series A Preferred Stock, as to the payment of dividends
and as to distributions of assets upon liquidation, dissolution or winding
up, if the holders of such class or series shall be entitled to the receipt
of dividends and of amounts distributable upon liquidation, dissolution or
winding up in preference or priority to the holders of Series A Preferred
Stock;
(B) on a parity with the Series A Preferred Stock, as to the payment of
dividends and as to distribution of assets upon liquidation, dissolution or
winding up, whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof be different from those
of the Series A Preferred Stock if the holders of such class of stock or
series and the Series A Preferred Stock shall be entitled to the receipt of
dividends and of amounts distributable upon liquidation, dissolution or
winding up in proportion to their respective amounts of accrued and unpaid
dividends per share or liquidation preferences, without preference or
priority one over the other; and
(C) junior to the Series A Preferred Stock, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution
or winding up, if such stock or series shall be Common Stock or Series C
Preferred Stock or if the holders of Series A Preferred Stock shall be
entitled to receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up in preference or priority to the
holders of shares of such stock or series. Common Stock shall be deemed
junior to the Series A Preferred Stock notwithstanding that it may
participate in distributions upon an involuntary
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liquidation, dissolution or winding up without the Series A Preferred Stock
receiving the Voluntary Liquidation Preference.
Section 9. Voting.
9.1 Unless the affirmative vote or consent of the holders of a greater number
of shares shall then be required by law, the consent of the holders of at least
66 2/3% of all of the outstanding shares of Series A Preferred Stock and all
other affected series of Serial Preferred Stock ranking on a parity with the
Series A Preferred Stock as to dividends and amounts distributable upon
liquidation, dissolution and winding up, given in person or by proxy, either in
writing or by a vote at a meeting called for the purpose, at which the holders
of shares of Series A Preferred Stock and such other series of Serial Preferred
Stock shall vote together as a single class without regard to series, shall be
necessary for authorizing, effecting or validating the amendment, alteration or
repeal of any of the provisions of this Restated Certificate or of any
certificate amendatory thereof or supplemental thereto (including any
Certificate of Designations, Preferences and Rights or any similar document
relating to any series of Serial Preferred Stock) which would materially
adversely affect the preferences, rights, powers or privileges of the Series A
Preferred Stock; provided, however, that the amendment of the provisions of
this Restated Certificate so as to authorize or create, or to increase the
authorized amount of, any Junior Stock or any shares of any class ranking on a
parity with the Series A Preferred Stock shall not be deemed to materially
adversely affect the preferences, rights, powers or privileges of Series A
Preferred Stock; and provided, further, that the amendment of the provisions of
the Restated Certificate of Incorporation so as to increase or eliminate the
Aggregate Involuntary Liquidation Amount shall not be deemed to materially
adversely affect the preferences, rights, powers or privileges of Series A
Preferred Stock.
9.2 Unless the affirmative vote or consent of the holders of a greater number
of shares shall then be required by law, the consent of the holders of at least
66 2/3% of all of the outstanding shares of Series A Preferred Stock and all
other series of Serial Preferred Stock ranking on a parity with the Series A
Preferred Stock as to dividends and amounts distributable upon liquidation,
dissolution or winding up, given in person or by proxy, either in writing or by
a vote at a meeting called for the purpose at which the holders of shares of
Series A Preferred Stock and such other series of Serial Preferred Stock shall
vote together as a single class without regard to series, shall be necessary
for authorizing, effecting or validating the creation, authorization or issue
of any shares of any class of stock of the Corporation ranking prior to the
Series A Preferred Stock as to dividends or upon liquidation, dissolution or
winding up, or the reclassification of any authorized stock of the Corporation
into any such prior shares, or the creation, authorization or issuance of any
obligation or security convertible into or evidencing the right to purchase any
such prior shares.
9.3 If at the time of any annual meeting of stockholders for the election of
directors a default in preference dividends (as defined below) on the Series A
Preferred Stock and any other series of Serial Preferred Stock with respect to
which such a default exists shall exist, the number of directors constituting
the Board of Directors of the Corporation shall be increased by two, and the
holders of the Series A Preferred Stock and such other series shall have the
right at such meeting, voting together as a single class without regard to
series, to the exclusion of the holders of common stock, to elect two directors
of the Corporation to fill such newly created directorships. Such right shall
continue until there are no dividends in arrears upon the Serial Preferred
Stock. Any Preferred Director may be removed by, and shall not be removed
except by, the vote of the holders of record of the outstanding shares of
Serial Preferred Stock, voting together as a single class without regard to
series, at a meeting of the stockholders, or of the holders of shares of Serial
Preferred Stock as to which a default exists, called for the purpose. So long
as a default in any preference dividends on the Serial Preferred Stock shall
exist, (a) any vacancy in the office of a Preferred Director may be filled
(except as provided in the following clause (b)) by an instrument in writing
signed by the remaining Preferred Director and filed with the Corporation and
(b) in the case of the removal of any Preferred Director, the vacancy may be
filled by the vote of the holders of the outstanding shares of Serial Preferred
Stock as to which a default exists, voting together as a single class without
regard to series, at the same meeting at which such removal shall be voted.
Each director appointed as aforesaid by the remaining Preferred Director shall
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be deemed, for all purposes hereof, to be a Preferred Director. Whenever a
default in preference dividends shall no longer exist, the term of office of
each Preferred Director shall terminate and the number of directors
constituting the Board of Directors of the Corporation shall be reduced by two.
For the purposes hereof, a "default in preference dividends" on any series of
Serial Preferred Stock shall be deemed to exist whenever the equivalent of six
quarterly dividends have not been declared and paid or set apart for payment,
whether or not consecutive, and, having so occurred, such default shall be
deemed to exist thereafter until, but only until, all accrued dividends on all
shares of Serial Preferred Stock of each and every series then outstanding
shall have been declared and paid or set apart for payment to the end of the
last preceding dividend period.
For purposes of the foregoing provisions of this Section 9, each share of
Series A Preferred Stock shall have one (1) vote per share. Except as otherwise
required by applicable law or as set forth herein, the shares of Series A
Preferred Stock shall not have any relative, participating, optional or other
special voting rights and powers and the consent of the holders thereof shall
not be required for the taking of any corporate action.
Section 10. Record Holders. The Corporation and the Transfer Agent may deem
and treat the record holder of any shares of Series A Preferred Stock as the
true and lawful owner thereof for all purposes, and neither the Corporation nor
the Transfer Agent shall be affected by any notice to the contrary.
B. DESIGNATION, PREFERENCES AND RIGHTS OF SERIES B PREFERRED STOCK
Unless otherwise indicated, any reference in this Article FOURTH, Part I.B to
"Section", "Subsection", "paragraph", "subparagraph" or "clause" shall refer to
a Section, Subsection, paragraph, subparagraph or clause of this Article
FOURTH, Part I.B.
Section 1. Number of Shares and Designations. Fifty thousand (50,000) shares
of the Serial Preferred Stock, without par value, of the Corporation are hereby
constituted as a series designated as Series B Preferred Stock (the "Series B
Preferred Stock").
Section 2. Definitions. For purposes of the Series B Preferred Stock, the
following terms shall have the meanings indicated:
2.1 "Board of Directors" shall mean the board of directors of the Corporation
or any committee of such board of directors authorized to perform any of its
responsibilities with respect to the Series B Preferred Stock.
2.2 "Business Day" shall mean any day other than a Saturday, Sunday or a day
on which state or federally chartered banking institutions in New York, New
York are not required to be open.
2.3 "Common Stock" shall mean the common stock of the Corporation, par value
$0.01 per share.
2.4 "default in preference dividends" shall have the meaning set forth in
Section 8.3 hereof.
2.5 "Dividend Payment Date" shall mean , , , *, in each year,
commencing on **, 1994; provided that if any Dividend Payment Date falls on any
day other than a Business Day, the dividend payment due on such Dividend
Payment Date shall be paid on the Business Day immediately following such
Dividend Payment Date.
2.6 "Dividend Periods" shall mean quarterly dividend periods commencing on
, , , * of each year and ending on and including the day preceding
the first day of the next succeeding Dividend Period (other than the initial
Dividend Period, which shall commence on the Issue Date and end on and include
***, 1994.)
2.7 "Issue Date" shall mean the first date on which shares of Series B
Preferred Stock are issued.
- --------
* To be determined in accordance with Section 1.4(f) of the Recapitalization
Agreement.
** To be the first Dividend Payment Date following the Effective Time.
*** To be the day before the first Dividend Payment Date.
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2.8 "Liquidation Preference" shall have the meaning set forth in Section 4.1
hereof.
2.9 "Preferred Director" shall mean any director of the Corporation elected
or appointed pursuant to Section 8.3 hereof.
2.10 "Redemption Date" shall have the meaning set forth in Section 5.3
hereof.
2.11 "Restated Certificate" shall mean this Restated Certificate of
Incorporation of the Corporation, as amended from time to time.
2.12 "Rights" shall mean the rights of the Corporation that are issuable
under the Corporation's Rights Agreement dated as of December 11, 1986, and as
amended from time to time, or rights to purchase any capital stock of the
Corporation under any successor shareholder rights plan or plans adopted in
replacement of the Corporation's Rights Agreement.
2.13 "set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Corporation in its accounting
ledgers of any accounting or bookkeeping entry that indicates, pursuant to a
declaration of dividends or other distribution by the Board of Directors, the
allocation of funds to be so paid on any series or class of capital stock of
the Corporation; provided that if any funds for any class or series of stock
ranking on a parity with or junior to the Series B Preferred Stock as to the
payment of dividends are placed in a separate account of the Corporation or
delivered to a disbursing, paying or other similar agent, then "set apart for
payment" with respect to the Series B Preferred Stock shall mean placing such
funds in a separate account or delivering such funds to a disbursing, paying or
other similar agent.
2.14 "Transfer Agent" means the Corporation or such agent or agents of the
Corporation as may be designated by the Board of Directors as the transfer
agent for the Series B Preferred Stock.
Section 3. Dividends.
3.1 The holders of shares of the Series B Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors out of assets
legally available for that purpose, dividends payable in cash at the rate per
annum of $ per share of Series B Preferred Stock. Such dividends shall be
cumulative from the Issue Date, whether or not in any Dividend Period or
Periods there shall be assets of the Corporation legally available for the
payment of such dividends, and shall be payable quarterly, when, as and if
declared by the Board of Directors, in arrears on Dividend Payment Dates,
commencing on *, 1994. Each such dividend shall be payable in arrears to the
holders of record of shares of the Series B Preferred Stock, as they appear on
the stock records of the Corporation at the close of business on such record
dates, which shall not be more than 60 days nor less than 10 days preceding the
payment dates thereof, as shall be fixed by the Board of Directors or a duly
authorized committee thereof. [The record dates for the payment of dividends
payable on the Dividend Payment Dates with respect to the Series B Preferred
Stock shall be the same as the record dates for the payment of dividends
payable on dividend payment dates with respect to the Series A Convertible
Preferred Stock as provided in Article FOURTH, Part I.A, Section 3.1 of this
Restated Certificate.]** Accrued and unpaid dividends for any past Dividend
Periods may be declared and paid at any time, without reference to any Dividend
Payment Date, to holders of record on such date, not exceeding 45 days
preceding the payment date thereof, as may be fixed by the Board of Directors.
[Each share of Series B Preferred Stock issued after the Issue Date (whether
issued upon transfer of or in exchange for an outstanding share of Series B
Preferred Stock or issued for any other reason) shall be entitled to receive,
when, as and if declared by the Board of Directors, dividends as provided by
the foregoing provisions of this Section 3.1 with respect to each Dividend
Period, starting with the Issue Date, for which full dividends have not been
paid prior to the date upon which such share of Series B Preferred Stock was
issued, provided that if any share of Series B Preferred Stock is issued after
the record date with respect to any dividend payment and before such dividend
is paid, then such newly issued share of Series B Preferred Stock shall not be
entitled to receive the dividend paid to holders of Series B Preferred Stock as
of such record date.]**
- --------
* To be the first Dividend Payment Date following the Effective Time.
** Bracketed material to be deleted if UAL Preferred Offering is consummated.
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3.2 The amount of dividends payable for each full Dividend Period for the
Series B Preferred Stock shall be computed by dividing the annual dividend rate
by four. The amount of dividends payable for the initial Dividend Period, or
any other period shorter or longer than a full Dividend Period, on the Series B
Preferred Stock shall be computed on the basis of twelve-30-day months and a
360-day year. Holders of shares of Series B Preferred Stock shall not be
entitled to any dividends, whether payable in cash, property or stock, in
excess of cumulative dividends, as herein provided, on the Series B Preferred
Stock. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on the Series B Preferred Stock
that may be in arrears.
3.3 So long as any shares of the Series B Preferred Stock are outstanding, no
dividends, except as described in the next succeeding sentence, shall be
declared or paid or set apart for payment on any class or series of stock of
the Corporation ranking, as to dividends and amounts distributable upon
liquidation, dissolution or winding up, on a parity with the Series B Preferred
Stock, for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Series B Preferred Stock
for all Dividend Periods terminating on or prior to the date of payment of the
dividend on such class or series of parity stock. When dividends are not paid
in full or a sum sufficient for such payment is not set apart, as aforesaid,
all dividends declared upon shares of the Series B Preferred Stock and all
dividends declared upon any other class or series of stock ranking on a parity
as to dividends and amounts distributable upon liquidation, dissolution or
winding up shall be declared ratably in proportion to the respective amounts of
dividends accumulated and unpaid on the Series B Preferred Stock and
accumulated and unpaid on such parity stock.
3.4 So long as any shares of the Series B Preferred Stock are outstanding, no
dividends (other than (i) the Rights and (ii) dividends or distributions paid
in shares of, or options, warrants or rights to subscribe for or purchase
shares of, any class or series of stock of the Corporation that is junior to
the Series B Preferred Stock as to the payment of dividends and as to
distributions upon liquidation, dissolution or winding up of the Corporation)
shall be declared or paid or set apart for payment or other distribution
declared or made upon any class or series of stock of the Corporation that is
junior to the Series B Preferred Stock as to the payment of dividends, nor
shall any class or series of stock of the Corporation ranking, as to dividends
and amounts distributable upon liquidation, dissolution or winding up, on a
parity with or junior to the Series B Preferred Stock be redeemed, purchased or
otherwise acquired (other than a redemption, purchase or other acquisition of
shares of Common Stock made for purposes of an employee incentive or benefit
plan of the Corporation or any subsidiary) for any consideration (or any moneys
be paid to or made available for a sinking fund for the redemption of any
shares of any such stock) by the Corporation, directly or indirectly (except by
conversion into or exchange for any class or series of stock of the Corporation
that is junior to the Series B Preferred Stock as to payment of dividends and
as to distributions upon liquidation, dissolution or winding-up of the
Corporation), unless in each case the full cumulative dividends on all
outstanding shares of the Series B Preferred Stock and any other stock of the
Corporation ranking on a parity with the Series B Preferred Stock, as to
dividends and amounts distributable upon liquidation, dissolution or winding up
shall have been paid or set apart for payment for all past Dividend Periods
with respect to the Series B Preferred Stock and all past dividend periods with
respect to such parity stock.
Section 4. Payments upon Liquidation.
4.1 In the event of any liquidation, dissolution or winding up of the
Corporation before any payment or distribution of the assets of the Corporation
(whether capital or surplus) shall be made to or set apart for the holders of
any class or series of stock of the Corporation that ranks junior to the Series
B Preferred Stock as to the receipt of amounts distributable upon liquidation,
dissolution or winding up of the Corporation, the holders of the shares of
Series B Preferred Stock shall be entitled to receive Twenty-Five Thousand
Dollars ($25,000) per share of Series B Preferred Stock plus an amount equal to
all dividends (whether or not earned or declared) accrued and unpaid thereon to
the date of final distribution to such holders (the "Liquidation Preference");
but such holders shall not be entitled to any further payment. If, upon any
liquidation, dissolution or winding up of the Corporation, the assets of the
Corporation, or proceeds thereof, distributable
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among the holders of the shares of Series B Preferred Stock shall be
insufficient to pay in full the Liquidation Preference and the liquidation
preference on all other shares of any class or series of stock ranking, as to
dividends and amounts distributable upon liquidation, dissolution or winding
up, on a parity with the Series B Preferred Stock, then such assets, or the
proceeds thereof, shall be distributed among the holders of shares of Series B
Preferred Stock and any such other parity stock ratably in accordance with the
respective amounts that would be payable on such shares of Series B Preferred
Stock and any such other parity stock if all amounts payable thereon were paid
in full. For the purposes of this Section 4, neither (i) a consolidation or
merger of the Corporation with or into one or more corporations nor (ii) a
sale, lease, exchange or transfer of all or substantially all of the
Corporation's assets shall be deemed to be a liquidation, dissolution or
winding up, voluntary or involuntary, of the Corporation.
4.2 Subject to the rights of the holders of shares of any series or class or
classes of stock ranking on a parity with or prior to the Series B Preferred
Stock as to dividends and amounts distributable upon liquidation, dissolution
or winding up of the Corporation, after payment shall have been made to the
holders of the Series B Preferred Stock, as and to the fullest extent provided
in this Section 4, any other class or series of stock of the Corporation that
ranks junior to the Series B Preferred Stock as to amounts distributable upon
dissolution, liquidation or winding up of the Corporation shall, subject to the
respective terms and provisions (if any) applying thereto, be entitled to
receive any and all assets remaining to be paid or distributed, and the holders
of the Series B Preferred Stock shall not be entitled to share therein.
Section 5. Redemption at the Option of the Corporation.
5.1 The shares of Series B Preferred Stock shall be redeemable at the option
of the Corporation by resolution of its Board of Directors, in whole, or, from
time to time, in part, at any time on or after [ , 2004,]* at the redemption
price of $25,000.00 per share plus all dividends accrued and unpaid on the
shares of Series B Preferred Stock up to the date fixed for the redemption,
upon giving notice as provided herein below.
5.2 If fewer than all of the outstanding shares of Series B Preferred Stock
are to be redeemed, the number of shares to be redeemed shall be determined by
the Board of Directors and the shares to be redeemed shall be determined pro
rata or by lot or in such other manner and subject to such regulations as the
Board of Directors in its sole discretion shall prescribe.
5.3 At least 30 days, but not more than 60 days, prior to the date fixed for
the redemption of shares of Series B Preferred Stock, a written notice shall be
mailed in a postage prepaid envelope to each holder of record of the shares of
Series B Preferred Stock to be redeemed, addressed to such holder at his post
office address as shown on the records of the Corporation, notifying such
holder of the election of the Corporation to redeem such shares, stating the
date fixed for redemption thereof (the "Redemption Date") and calling upon such
holder to surrender to the Corporation, on the Redemption Date at the place
designated in such notice, the certificate or certificates representing the
number of shares specified in such notice of redemption. On or after the
Redemption Date, each holder of shares of Series B Preferred Stock to be
redeemed shall present and surrender such certificate or certificates for such
shares to the Corporation at the place designated in such notice and thereupon
the redemption price of such shares shall be paid to or on the order of the
person whose name appears on such certificate or certificates as the owner
thereof and each surrendered certificate shall be cancelled. In case less than
all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the shares not redeemed.
From and after the Redemption Date (unless default shall be made by the
Corporation in payment of the redemption price), all dividends on the shares of
Series B Preferred Stock designated for redemption in such notice shall cease
to accrue, and all rights of the holders thereof as stockholders of the
Corporation, except the right to receive the redemption price of such shares
(including all accrued and unpaid dividends up to the Redemption Date) upon the
surrender of certificates representing the same, shall cease and terminate and
such shares shall not thereafter be transferred (except with the consent of the
Corporation) on the books of the Corporation, and such shares shall not be
deemed to be outstanding for any purpose
*If the Underwriting Alternative with respect to the Depositary Shares is not
consummated, change to "fifth anniversary of the Issue Date."
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<PAGE>
whatsoever. At its election, the Corporation, prior to the Redemption Date, may
deposit the redemption price (including all accrued and unpaid dividends up to
the Redemption Date) of shares of Series B Preferred Stock called for
redemption in trust for the holders thereof with a bank or trust company
(having a capital surplus and undivided profits aggregating not less than
$50,000,000) in the Borough of Manhattan, City and State of New York, or in any
other city in which the Corporation at the time shall maintain a transfer
agency with respect to such shares, in which case the aforesaid notice to
holders of shares of Series B Preferred Stock to be redeemed shall state the
date of such deposit, shall specify the office of such bank or trust company as
the place of payment of the redemption price, and shall call upon such holders
to surrender the certificates representing such shares at such place on or
after the date fixed in such redemption notice (which shall not be later than
the Redemption Date). Any interest accrued on such funds shall be paid to the
Corporation from time to time. Any moneys so deposited that shall remain
unclaimed by the holders of such shares of Series B Preferred Stock at the end
of two years after the Redemption Date shall be returned by such bank or trust
company to the Corporation.
Section 6. Shares to be Retired.
All shares of Series B Preferred Stock that have been issued and reacquired
in any manner by the Corporation (excluding, until the Corporation elects to
retire them, shares that are held as treasury shares) shall be restored to the
status of authorized but unissued shares of Serial Preferred Stock, without
designation as to series.
Section 7. Ranking.
7.1 Any class or series of stock of the Corporation shall be deemed to rank:
(a) prior to the Series B Preferred Stock, as to the payment of dividends
and as to distributions of assets upon liquidation, dissolution or winding
up, if the holders of such class or series shall be entitled to the receipt
of dividends and of amounts distributable upon liquidation, dissolution or
winding up in preference or priority to the holders of Series B Preferred
Stock;
(b) on a parity with the Series B Preferred Stock, as to the payment of
dividends and as to distribution of assets upon liquidation, dissolution or
winding up, whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof be different from those
of the Series B Preferred Stock, if the holders of such class of stock or
series and the Series B Preferred Stock shall be entitled to the receipt of
dividends and of amounts distributable upon liquidation, dissolution or
winding up in proportion to their respective amounts of accrued and unpaid
dividends per share or liquidation preferences, without preference or
priority one over the other; and
(c) junior to the Series B Preferred Stock, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution
or winding up, if the holders of Series B Preferred Stock shall be entitled
to the receipt of dividends or of amounts distributable upon liquidation,
dissolution or winding up in preference or priority to the holders of
shares of such class or series.
7.2 The Series A Convertible Preferred Stock and the Series D Redeemable
Preferred Stock shall each be deemed to rank on a parity with the Series B
Preferred Stock. The Class 1 ESOP Convertible Preferred Stock, the Class 2 ESOP
Convertible Preferred Stock, the Class M ESOP Voting Junior Preferred Stock,
the Class P ESOP Voting Junior Preferred Stock, the Class S ESOP Voting Junior
Preferred Stock, the Class I Junior Preferred Stock, the Class IAM Junior
Preferred Stock, the Class Pilot MEC Junior Preferred Stock, the Class SAM
Junior Preferred Stock, the Series C Junior Participating Preferred Stock and
the Common Stock shall each be deemed to rank junior to the Series B Preferred
Stock as to receipt of dividends and as to amounts distributable upon
liquidation, dissolution or winding up.
Section 8. Voting.
8.1 Unless the affirmative vote or consent of the holders of a greater number
of shares shall then be required by law, the consent of the holders of at least
66 2/3% of all of the outstanding shares of Series B Preferred Stock, given in
person or by proxy, either in writing or by a vote at a meeting called for the
purpose
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shall be necessary for authorizing, effecting or validating the amendment,
alteration or repeal of any of the provisions of this Restated Certificate or
of any certificate amendatory thereof or supplemental thereto (including any
Certificate of Designations, Preferences and Rights or any similar document
relating to any series of Serial Preferred Stock) that would materially
adversely affect the preferences, rights, powers or privileges of the Series B
Preferred Stock; provided that the amendment of the provisions of this Restated
Certificate so as to authorize or create, or to increase the authorized amount
of, any shares of any class or series ranking on a parity with or junior to the
Series B Preferred Stock shall not be deemed to materially adversely affect the
preferences, rights, powers or privileges of Series B Preferred Stock.
8.2 Unless the affirmative vote or consent of the holders of a greater number
of shares shall then be required by law, the consent of the holders of at least
66 2/3% of all of the outstanding shares of Series B Preferred Stock, given in
person or by proxy, either in writing or by a vote at a meeting called for the
purpose shall be necessary for authorizing, effecting or validating the
creation, authorization or issue of any shares of any class or series of stock
of the Corporation ranking prior to the Series B Preferred Stock as to
dividends or upon liquidation, dissolution or winding up, or the
reclassification of any authorized stock of the Corporation into any such prior
shares, or the creation, authorization or issuance of any obligation or
security convertible into or evidencing the right to purchase any such prior
shares.
8.3 If at the time of any annual meeting of stockholders for the election of
directors a default in preference dividends (as defined below) on the Series B
Preferred Stock and any other series of Serial Preferred Stock with respect to
which such a default exists shall exist, then (without duplication of the
provisions of Article FOURTH, Part 1.A, Section 9.3 of this Restated
Certificate) the number of directors constituting the Board of Directors of the
Corporation shall be increased by two, and the holders of the Series B
Preferred Stock and such other series shall have the right at such meeting,
voting together as a single class without regard to series, to the exclusion of
the holders of common stock, to elect two directors of the Corporation to fill
such newly created directorships. Such right shall continue until there are no
dividends in arrears upon the Serial Preferred Stock. Any Preferred Director
may be removed by, and shall not be removed except by, the vote of the holders
of record of the outstanding shares of Serial Preferred Stock, voting together
as a single class without regard to series, at a meeting of the stockholders,
or of the holders of shares of Serial Preferred Stock as to which a default
exists, called for the purpose. So long as a default in any preference
dividends on the Serial Preferred Stock shall exist, (a) any vacancy in the
office of a Preferred Director may be filled (except as provided in the
following clause (b)) by an instrument in writing signed by the remaining
Preferred Director and filed with the Corporation and (b) in the case of the
removal of any Preferred Director, the vacancy may be filled by the vote of the
holders of the outstanding shares of Serial Preferred Stock as to which a
default exist, voting together as a single class without regard to series, at
the same meeting at which such removal shall be voted. Each director appointed
as aforesaid by the remaining Preferred Director shall be deemed, for all
purposes hereof, to be a Preferred Director. Whenever a default in preference
dividends shall no longer exist, the term of office of each Preferred Director
shall terminate and the number of directors constituting the Board of Directors
of the Corporation shall be reduced by two. For the purposes hereof, a "default
in preference dividends" on any series of Serial Preferred Stock shall be
deemed to exist whenever the equivalent of six quarterly dividends have not
been declared and paid or set apart for payment, whether or not consecutive,
and, having so occurred, such default shall be deemed to exist thereafter
until, but only until, all accrued dividends on all shares of Serial Preferred
Stock of each and every series then outstanding shall have been declared and
paid or set apart for payment to the end of the last preceding dividend period.
8.4 For purposes of the foregoing provisions of this Section 8, each share of
Series B Preferred Stock shall have one thousand (1,000) votes per share.
Except as otherwise required by applicable law or as set forth herein, the
shares of Series B Preferred Stock shall not have any relative, participating,
optional or other special voting rights and powers and the consent of the
holders thereof shall not be required for the taking of any corporate action.
Section 9. Record Holders. The Corporation and the Transfer Agent may deem
and treat the record holder of any shares of Series B Preferred Stock as the
true and lawful owner thereof for all purposes, and neither the Corporation nor
the Transfer Agent shall be affected by any notice to the contrary.
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C. DESIGNATION, PREFERENCES AND RIGHTS OF SERIES C JUNIOR PARTICIPATING
PREFERRED STOCK
Unless otherwise indicated, any reference in this Article FOURTH, Part I.C to
"Section", "Subsection", "paragraph", "subparagraph" or "clause" shall refer to
a Section, Subsection, paragraph, subparagraph or clause of this Article
FOURTH, Part I.C.
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series C Junior Participating Preferred Stock" (the "Series C
Preferred Stock") and the number of shares constituting such series shall be
1,250,000.
Section 2. Dividends and Distributions. The holders of shares of Series C
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the fifteenth day of January, April, July and
October in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment
Date after the first issuance of a share or fraction of a share of Series C
Preferred Stock, in an amount per share (rounded to the nearest cent) equal to
the greater of (a) $10 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock, par
value $0.01 per share, of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series C Preferred Stock. In the event the Corporation
shall at any time declare or pay any dividend on Common Stock payable in shares
of Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount to which
holders of shares of Series C Preferred Stock then outstanding were entitled
immediately prior to such event under clause (b) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
The Corporation shall declare a dividend or distribution on the Series C
Preferred Stock as provided in this Section 2 immediately after it declares a
dividend or distribution on the Common Stock (other than a dividend payable in
shares of Common Stock); provided that, in the event no dividend or
distribution shall have been declared on the Common Stock during the period
between any Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $10.00 per share on the Series C Preferred
Stock shall nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
Dividends shall begin to accrue and be cumulative on outstanding shares of
Series C Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series C Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series C Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series C
Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board
of Directors may fix a record date for the determination of holders of shares
of Series C Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than 60 days
prior to the date fixed for the payment thereof.
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Section 3. Voting Rights. The holders of shares of Series C Preferred Stock
shall have the following voting rights:
3.1 Subject to the provision for adjustment hereinafter set forth, each share
of Series C Preferred Stock shall entitle the holder thereof to 100 votes on
all matters submitted to a vote of the stockholders of the Corporation. In the
event the Corporation shall at any time declare or pay any dividend on Common
Stock payable in shares of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Series C Preferred
Stock then outstanding were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
3.2 Except as otherwise provided herein or by law, the holders of shares of
Series C Preferred Stock and the holders of shares of Common Stock shall vote
together as one class on all matters submitted to a vote of stockholders of the
Corporation.
3.3 If the equivalent of six quarterly dividends payable on the Series C
Preferred Stock or any other series of Serial Preferred Stock of the
Corporation are in default, the number of directors of the Corporation shall be
increased by two and the holders of all such series in respect of which such a
default exists, voting as a class without regard to series, will be entitled to
elect two additional directors at the next annual meeting and each subsequent
meeting, until all cumulative dividends have been paid in full or until
noncumulative dividends have been paid regularly for at least one year.
3.4 Except as set forth herein, holders of Series C Preferred Stock shall
have no special voting rights and their consent shall not be required (except
to the extent they are entitled to vote with holders of Common Stock as set
forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
4.1 Whenever quarterly dividends or other dividends or distributions payable
on the Series C Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions,
whether or not declared, on shares of Series C Preferred Stock outstanding
shall have been paid in full, the Corporation shall not
(a) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series C Preferred Stock;
(b) declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series C Preferred Stock,
except dividends paid ratably on the Series C Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(c) redeem or purchase or otherwise acquire for consideration shares of
any stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series C Preferred Stock, provided that
the Corporation may at any time redeem, purchase or otherwise acquire
shares of any such parity stock in exchange for shares of any stock of the
Corporation ranking junior as to dividends and as to distributions upon
dissolution, liquidation or winding up to the Series C Preferred Stock; or
(d) purchase or otherwise acquire for consideration any shares of Series
C Preferred Stock, or any shares of stock ranking on a parity with the
Series C Preferred Stock, except in accordance with a
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purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
4.2 The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under Section 4.1, purchase or
otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series C Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Serial Preferred Stock and may be reissued as part of a new series of the
Serial Preferred Stock to be created by resolution or resolutions of the Board
of Directors, subject to the conditions and restrictions on issuance set forth
herein.
Section 6. Liquidation, Dissolution or Winding Up. Subject to (a) the rights
of the holders of preferred stock of the Corporation ranking senior to the
Series C Preferred Stock as to dividends and amounts payable upon any voluntary
or involuntary liquidation, dissolution or winding up and (b) any other
provision of the Restated Certificate of Incorporation of the Corporation (as
amended from time to time, the "Restated Certificate"), upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (1) to the holders of shares of stock ranking junior
(either as to dividends or upon any voluntary or involuntary liquidation,
dissolution or winding up) to the Series C Preferred Stock unless, prior
thereto, the holders of shares of the Series C Preferred Stock shall have
received $100.00 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, provided that the holders of shares of Series C Preferred Stock
shall be entitled to receive an aggregate amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 100 times the
aggregate amount to be distributed per share to holders of Common Stock, or (2)
to the holders of stock ranking on a parity (either as to dividends or upon any
voluntary or involuntary liquidation, dissolution or winding up) with the
Series C Preferred Stock, except distributions made ratably on the Series C
Preferred Stock and all other such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
voluntary or involuntary liquidation, dissolution or winding up. In the event
the Corporation shall at any time declare or pay any dividend on Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Series C Preferred Stock then
outstanding were entitled immediately prior to such event under the proviso in
clause (1) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series C Preferred Stock then outstanding shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time declare or pay any
dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the amount set forth in the preceding sentence with
respect to the
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exchange or change of shares of Series C Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series C Preferred Stock shall not be
redeemable.
Section 9. Ranking. The Series C Preferred Stock shall rank junior to all
other series of the Corporation's preferred stock, whether now or hereafter
outstanding, as to dividends and amounts payable upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, unless
the terms of any such series shall provide otherwise.
Section 10. Amendment. The Restated Certificate shall not be amended in any
manner which would materially alter or change the powers, preferences or
special rights of the Series C Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of two-thirds or more of the
outstanding shares of Series C Preferred Stock, voting together as a single
class.
D. DESIGNATION, PREFERENCES AND RIGHTS OF SERIES D REDEEMABLE PREFERRED STOCK
Unless otherwise indicated, any reference in this Article FOURTH, Part I.D to
"Section", "Subsection", "paragraph", "subparagraph" or "clause" shall refer to
a Section, Subsection, paragraph, subparagraph or clause of this Article
FOURTH, Part I.D.
Section 1. Number of Shares and Designations.
Fifty thousand (50,000) shares of the Serial Preferred Stock, without par
value, of the Corporation are hereby constituted as a series designated as
Series D Redeemable Preferred Stock (the "Series D Preferred Stock").
Section 2. Definitions. For purposes of the Series D Preferred Stock, the
following terms shall have the meanings indicated:
2.1 "Common Stock" shall mean the common stock of the Corporation, par value
$0.01 per share.
2.2 "Deposit Agreement" shall mean the Deposit Agreement dated as of ,
1994 between the Corporation and , as Depositary, as the same may be
amended from time to time, a copy of which is on file in the office of the
Secretary of the Corporation.
2.3 "Depositary" shall mean the party named as such in the Deposit Agreement,
and any successor Depositary named or appointed pursuant to such agreement.
2.4 "Depositary Shares" shall have the meaning provided in the Deposit
Agreement.
2.5 "Redemption Consideration" shall mean (subject to Section 6 hereof) (i)
$25.80 in cash, (ii) $15.55 principal amount of Series A Debentures,* (iii)
$15.55 principal amount of Series B Debentures** and (iv) Depositary Shares
representing interests in $31.10 in liquidation preference of shares of Series
B Preferred Stock, which Preferred Stock shall be issued in the name of the
Depositary pursuant to the Deposit
- --------
* If the Underwriting Alternative with respect to the Series A Debentures is
consummated, delete clause (ii), increase the cash payment in clause (i) by
the Series A Debenture Proceeds Amount and revise definitions as
appropriate.
** If the Underwriting Alternative with respect to the Series B Debentures is
consummated, delete clause (iii), increase the cash payment in clause (i) by
the Series B Debenture Proceeds Amount and revise definitions as
appropriate.
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<PAGE>
Agreement and against which the Depositary shall issue Depositary Shares to the
holder of the fraction of a share of the Series D Preferred Stock being
redeemed, as provided in the Deposit Agreement,* such Redemption Consideration
to be distributed by the Corporation in respect of each 1/1,000th of a share of
Series D Preferred Stock to the holder thereof upon the redemption of such
fraction of a share as provided in Section 6 hereof and as adjusted as provided
in Section 6 hereof.
2.6 "Series A Debentures" shall mean the % Series A Senior Debentures due
2004 issued by United.
2.7 "Series B Debentures" shall mean the % Series B Senior Debentures due
2014 issued by United.
2.8 "Series B Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series B Preferred
Stock in Article FOURTH, part I.B. of this Restated Certificate.
2.9 "Series D Preferred Stock" shall have the meaning set forth in Section 1
hereof.
2.10 "Transfer Agent" means the Corporation or such agent or agents of the
Corporation as may be designated by the Board of Directors of the Corporation
(or any committee of such board of directors authorized to perform any of its
responsibilities with respect to the Series D Preferred Stock) as the transfer
agent for the Series D Preferred Stock.
2.11 "United" means United Air Lines, Inc., a Delaware corporation.
Section 3. Dividends. The holders of shares of the Series D Preferred Stock
or fractions thereof shall not be entitled to receive any dividends.
Section 4. Payments upon Liquidation.
4.1 In the event of any liquidation, dissolution or winding up of the
Corporation before any payment or distribution of the assets of the Corporation
(whether capital or surplus) shall be made to or set apart for the holders of
any class or series of stock of the Corporation that ranks junior to the Series
D Preferred Stock as to amounts distributable upon liquidation, dissolution or
winding up of the Corporation, the holders of the shares of Series D Preferred
Stock or fractions thereof shall be entitled to receive the Redemption
Consideration per 1/1,000th of a share of Series D Preferred Stock (the
"Liquidation Preference"); but such holders shall not be entitled to any
further payment. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation, or proceeds thereof, distributable
among the holders of the shares of Series D Preferred Stock and fractions
thereof shall be insufficient to pay in full the Liquidation Preference, and
the liquidation preference on all other shares of any class or series of stock
ranking, as to dividends and amounts distributable upon liquidation,
dissolution or winding up, on a parity with the Series D Preferred Stock, then
such assets, or the proceeds thereof, shall be distributed among the holders of
shares of Series D Preferred Stock or fractions thereof and any such other
parity stock ratably in accordance with the respective amounts that would be
payable on such shares of Series D Preferred Stock or fractions thereof and any
such other parity stock if all amounts payable thereon were paid in full. For
the purposes of this Section 4, neither (i) a consolidation or merger of the
Corporation with or into one or more corporations nor (ii) a sale, lease,
exchange or transfer of all or substantially all of the Corporation's assets
shall be deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary, of the Corporation.
4.2 Subject to the rights of the holders of shares of any series or class or
classes of stock ranking on a parity with or prior to the Series D Preferred
Stock as to amounts distributable upon liquidation, dissolution or winding up
of the Corporation, after payment shall have been made to the holders of the
Series D Preferred Stock, as and to the fullest extent provided in this Section
4, any other series or class or classes of stock of the Corporation that ranks
junior to the Series D Preferred Stock as to amounts distributable upon
liquidation, dissolution or winding up of the Corporation, shall, subject to
the respective terms and provisions (if any) applying thereto, be entitled to
receive any and all assets remaining to be paid or distributed, and the holders
of the Series D Preferred Stock shall not be entitled to share therein.
- --------
* If the Underwriting Alternative with respect to the Depositary Shares is
consummated, delete clause (iv), increase the cash payment in clause (i) by
the Depositary Share Proceeds Amount and revise definitions as appropriate.
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<PAGE>
Section 5. Shares to be Retired. All shares of Series D Preferred Stock and
fractions thereof that shall have been issued and reacquired in any manner by
the Corporation (excluding, until the Corporation elects to retire them, shares
that are held as treasury shares) shall be restored to the status of authorized
but unissued shares of Serial Preferred Stock, without designation as to
series.
Section 6. Redemption. Each 1/1,000th of a share of Series D Preferred Stock
is redeemable, and immediately following the issuance thereof, the Corporation,
to the extent that it may legally do so and subject to the other provisions of
this Restated Certificate, shall redeem each 1/1,000th of a share of Series D
Preferred Stock, for the Redemption Consideration. If for any reason the
Corporation is not able to redeem any portion of the Series D Preferred Stock
so issued, such shares and fractions thereof that remain outstanding shall
continue to exist and remain outstanding and shall thereafter represent the
right to receive the Redemption Consideration as soon as the Corporation is
legally and hereunder permitted to redeem such shares and fractions thereof.
The Series A Debentures and the Series B Debentures shall be issued pursuant
to an Indenture dated July 1, 1991, between United and The Bank of New York, as
Trustee, and shall contain the terms specified in the Officers' Certificate
dated 1994, that has been given to the Trustee as provided in such
Indenture. A copy of each of the Indenture and the Officers' Certificate is on
file at the office of the Secretary of the Corporation. Series A Debentures and
Series B Debentures shall be issued to holders of Series D Preferred Stock so
redeemed only in principal amounts of integral multiples of $100. In lieu of
payingSeries A Debentures and Series B Debentures other than in integral
multiples of $100, the Corporation shall pay to each holder of 1/1,000th of a
share of Series D Preferred Stock so redeemed an amount of cash in accordance
with Section 1.5(f) of the Agreement and Plan of Recapitalization, dated as of
March 25, 1994, among the Corporation, the Air Line Pilots Association,
International and the International Association of Machinists and Aerospace
Workers, as amended from time to time, a copy of which is on file at the office
of the Secretary of the Corporation (as amended, the "Plan of
Recapitalization").*
Series B Preferred Stock shall be issued to the Depositary on behalf of the
holders of Series D Preferred Stock so redeemed, only in increments of
1/1,000th of a share of Series B Preferred Stock and integral multiples
thereof, against issuance by such Depositary to holders of Series D Preferred
Stock so redeemed of Depositary Shares representing interests in integral
multiples of $25 in liquidation preference of shares of the Series B Preferred
Stock. In lieu of permitting the issuance of Depositary Shares other than in
integral multiples of $25, the Corporation shall pay each holder of 1/1,000th
of a share of Series D Preferred Stock so redeemed an amount of cash in
accordance with Section 1.5(f) of the Plan of Recapitalization.**
At the time of the redemption pursuant to this Section 6, the rights of
holders of Series D Preferred Stock so redeemed shall cease with respect to
such shares or fractions thereof (except the right to receive cash, Series A
Debentures, Series B Debentures and Depositary Shares as provided above), and
the person entitled to receive the cash, Series A Debentures, Series B
Debentures and Depositary Shares upon redemption shall be treated for all
purposes as the owner of such cash and the registered holder of such Series A
Debentures, such Series B Debentures and Depositary Shares as of the date of
such redemption.***
With respect to any shares of the Series D Preferred Stock or fractions
thereof that are redeemed by the Corporation immediately following the issuance
thereof, the Corporation need not distribute a certificate to the person
otherwise entitled to receive such shares or fractions thereof but may instead
distribute the Redemption Consideration to such person or persons directly. If
certificates representing shares of the Series
- --------
* If the Underwriting Alternative with respect to either series of Debentures
is consummated, delete reference to that series; if the Underwriting
Alternative with respect to both series of Debentures is consummated,
delete the paragraph.
** If the Underwriting Alternative with respect to the Depositary Shares is
consummated delete the paragraph.
*** Modify as appropriate.
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<PAGE>
D Preferred Stock or fractions thereof are issued, the Corporation may require
the surrender of such certificates as a condition precedent to the issuance of
the Redemption Consideration.
Section 7. Ranking.
7.1 Any class or series of stock of the Corporation shall be deemed to rank:
(a) prior to the Series D Preferred Stock, as to distributions of assets
upon liquidation, dissolution or winding up, if the holders of such class
or series shall be entitled to the receipt of amounts distributable upon
liquidation, dissolution or winding up in preference or priority to the
holders of Series D Preferred Stock;
(b) on a parity with the Series D Preferred Stock, as to distribution of
assets upon liquidation, dissolution or winding up, whether or not the
redemption or liquidation prices per share thereof be different from those
of the Series D Preferred Stock, if the holders of such class of stock or
series and the Series D Preferred Stock shall be entitled to the receipt of
amounts distributable upon liquidation, dissolution or winding up in
proportion to their respective liquidation preferences, without preference
or priority one over the other; and
(c) junior to the Series D Preferred Stock, as to the distribution of
assets upon liquidation, dissolution or winding up, if the holders of
Series D Preferred Stock shall be entitled to the receipt of amounts
distributable upon liquidation, dissolution or winding up in preference or
priority to the holders of shares of such class or series.
7.2 The Series A Convertible Preferred Stock and the Series B Preferred Stock
shall each be deemed to rank on a parity with the Series D Preferred Stock as
to amounts distributable upon liquidation, dissolution or winding up. The Class
1 ESOP Convertible Preferred Stock, the Class 2 ESOP Convertible Preferred
Stock, the Class M ESOP Voting Junior Preferred Stock, the Class P ESOP Voting
Junior Preferred Stock, the Class S ESOP Voting Junior Preferred Stock, the
Class I Junior Preferred Stock, the Class IAM Junior Preferred Stock, the Class
Pilot MEC Junior Preferred Stock, the Class SAM Junior Preferred Stock, the
Series C Junior Participating Preferred Stock and the Common Stock shall each
be deemed to rank junior to the Series D Preferred Stock as to amounts
distributable upon liquidation, dissolution or winding up.
Section 8. Voting. Except as otherwise required by applicable law, the shares
of Series D Preferred Stock shall not have any voting rights and the consent of
the holders thereof shall not be required for the taking of any corporate
action. For each matter as to which shares of the Series D Preferred Stock
shall have voting rights, each share of Series D Preferred Stock shall have one
(1) vote per share.
Section 9. Record Holders. The Corporation and the Transfer Agent may deem
and treat the record holder of any shares of Series D Preferred Stock as the
true and lawful owner thereof for all purposes, and except as otherwise
provided by law, neither the Corporation nor the Transfer Agent shall be
affected by any notice to the contrary.
PART II
Class 1 ESOP Convertible Preferred Stock
Unless otherwise indicated, any reference in this Article FOURTH, Part II to
"Section", "Subsection", "paragraph", "subparagraph" or "clause" shall refer to
a Section, Subsection, paragraph, subparagraph or clause of this Article
FOURTH, Part II.
Section 1. Number of Shares; Designation; Issuance and Automatic Conversion.
1.1 The Class 1 ESOP Convertible Preferred Stock of the Corporation (the
"Class 1 ESOP Preferred Stock") shall consist of 25,000,000 shares, par value
$0.01 per share.
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1.2 Shares of Class 1 ESOP Preferred Stock shall be issued only to a trustee
or trustees acting on behalf of the UAL Corporation Employee Stock Ownership
Plan (the "ESOP"). In the event of any sale, transfer or other disposition
(including, without limitation, upon a foreclosure or other realization upon
shares of Class 1 ESOP Preferred Stock pledged as security for any loan or
loans made to the ESOP or to the trustee or the trustees acting on behalf of
the ESOP) (hereinafter a "transfer") of shares of Class 1 ESOP Preferred Stock
to any person (including, without limitation, any participant in the ESOP)
other than (x) any trustee or trustees of the ESOP or (y) any pledgee of such
shares acquiring such shares as security for any loan or loans made to the ESOP
or to any trustee or trustees acting on behalf of the ESOP, the shares of Class
1 ESOP Preferred Stock so transferred, upon such transfer and without any
further action by the Corporation or the transferee, shall be automatically
converted into shares of Common Stock at the applicable Conversion Rate in
accordance with Section 6 hereof and thereafter such transferee shall not have
any of the voting powers, preferences or relative, participating, optional or
special rights ascribed to shares of Class 1 ESOP Preferred Stock hereunder,
but, rather, shall have only the powers and rights pertaining to the Common
Stock into which such shares of Class 1 ESOP Preferred Stock shall have been so
converted. In the event of any such automatic conversion provided for in this
Section 1.2, such transferee shall be treated for all purposes as the record
holder of the shares of Common Stock into which the Class 1 ESOP Preferred
Stock shall have been converted as of the date of such conversion. Certificates
representing shares of Class 1 ESOP Preferred Stock shall be legended to
reflect such consequences of a transfer. Notwithstanding the foregoing
provisions of this Section 1, shares of Class 1 ESOP Preferred Stock may be
converted into shares of Common Stock as provided by Section 6 hereof and the
shares of Common Stock issued upon any conversion in accordance with Section 6
hereof or this Section 1.2 may be transferred by the holder thereof as
permitted by law.
Section 2. Definitions. For purposes of the Class 1 ESOP Preferred Stock, the
following terms shall have the meanings indicated:
2.1 "Affiliate" shall have the meaning defined in Rule 12b-2 promulgated
under the Securities Exchange Act of 1934, as amended, or any successor
thereto.
2.2 "Board of Directors" shall mean the board of directors of the Corporation
or any committee autho-rized by such board of directors to perform any of its
responsibilities with respect to the Class 1 ESOP Preferred Stock.
2.3 "Business Day" shall mean any day other than a Saturday, Sunday or a day
on which state or federally chartered banking institutions in New York, New
York are not required to be open.
2.4 "Class 1 ESOP Preferred Stock" shall have the meaning set forth in
Section 1 hereof.
2.5 "Class 2 ESOP Preferred Stock" shall mean the Class 2 ESOP Convertible
Preferred Stock, par value $0.01 per share, of the Corporation.
2.6 "Class I Preferred Stock" shall mean the Class I Junior Preferred Stock,
par value $0.01 per share, of the Corporation.
2.7 "Class IAM Preferred Stock" shall mean the Class IAM Junior Preferred
Stock, par value $0.01 per share, of the Corporation.
2.8 "Class M Voting Preferred Stock" shall mean the Class M ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.9 "Class P Voting Preferred Stock" shall mean the Class P ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.10 "Class Pilot MEC Preferred Stock" shall mean the Class Pilot MEC Junior
Preferred Stock, par value $0.01 per share, of the Corporation.
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2.11 "Class S Voting Preferred Stock" shall mean the Class S ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.12 "Class SAM Preferred Stock" shall mean the Class SAM Junior Preferred
Stock, par value $0.01 per share, of the Corporation.
2.13 "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
2.14 "Common Stock" shall mean the common stock of the Corporation, par value
$0.01 per share.
2.15 "Conversion Rate" shall have the meaning set forth in Section 6.1
hereof.
2.16 "Current Market Price" of publicly traded shares of Common Stock or any
other class or series of capital stock or other security of the Corporation or
any other issuer for any day shall mean the last reported sales price, regular
way, on such day, or, if no sale takes place on such day, the average of the
reported closing bid and asked prices on such day, regular way, in either case
as reported on the New York Stock Exchange Composite Tape or, if such security
is not listed or admitted for trading on the New York Stock Exchange, Inc.
("NYSE"), on the principal national securities exchange on which such security
is listed or admitted for trading or quoted or, if not listed or admitted for
trading or quoted on any national securities exchange, on the Nasdaq National
Market, or, if such security is not quoted on such National Market, the average
of the closing bid and asked prices on such day in the over-the-counter market
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") or, if bid and asked prices for such security on
such day shall not have been reported through NASDAQ, the average of the bid
and asked prices on such day as furnished by any NYSE member firm regularly
making a market in such security selected for such purpose by the Board of
Directors.
2.17 "Director Preferred Stocks" shall mean collectively, the Class I
Preferred Stock, the Class IAM Preferred Stock, the Class Pilot MEC Preferred
Stock and the Class SAM Preferred Stock.
2.18 "Dividend Payment Date" shall mean the penultimate Business Day in each
year, commencing on such penultimate Business Day in 1994; provided that, with
respect to the Dividend Period beginning on January 1, 2000 and ending on March
31, 2000, the Dividend Payment Date shall be the penultimate Business Day in
the calendar quarter ending March 31, 2000.
2.19 "Dividend Periods" shall mean annual dividend periods commencing on the
last Business Day of each year and ending on and including the penultimate
Business Day of the next succeeding year (other than the initial Dividend
Period, which shall commence on the Issue Date and end on and include the
penultimate Business Day in 1994, the Dividend Period commencing on the last
Business Day of 1999, which shall commence on such date and end on the
penultimate Business Day in the calendar quarter ending March 31, 2000 and the
Dividend Period commencing on the last Business Day of the calendar quarter
ending on March 31, 2000, which shall commence on such date and end on the
penultimate Business Day in the year 2000).
2.20 "Equity Securities" shall mean the Common Stock or any debt, equity or
other security or contractual right convertible into or exercisable or
exchangeable for, or based on the value of, the Common Stock or any warrants,
options or other rights to purchase the Common Stock or other Equity Securities
(other than the Rights).
2.21 "ESOP Preferred Stocks" shall mean, collectively, the Class 1 ESOP
Preferred Stock and the Class 2 ESOP Preferred Stock.
2.22 "Extraordinary Distribution" shall mean any single dividend or other
distribution (including by reclassification of shares or recapitalization of
the Corporation, as well as any such dividend or distribution made in
connection with a merger or consolidation in which the Corporation is the
continuing corporation and the Common Stock is not changed or exchanged) to
holders of Common Stock (effected while any of the
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shares of Class 1 ESOP Preferred Stock are outstanding) (i) of cash, where the
aggregate amount of such single cash dividend or distribution together with the
amount of all cash dividends and distributions made to holders of Common Stock
during the period from the latest to occur of the Issue Date or the most recent
Dividend Payment Date until the payment date for such cash dividend or
distribution to holders of Common Stock, when combined with the aggregate
amount of all previous Pro Rata Repurchases during such period (for this
purpose, including only that portion of the aggregate purchase price of each
such Pro Rata Repurchase which is in excess of the Fair Market Value of the
Common Stock repurchased as determined on the Business Day prior to the public
announcement of such Pro Rata Repurchase made during such period), exceeds
twelve and one-half percent (12 1/2%) of the aggregate Fair Market Value of all
shares of Common Stock outstanding on the record date for determining the
shareholders entitled to receive such Extraordinary Distribution and (ii) of
any shares of capital stock of the Corporation (other than shares of Common
Stock), other securities of the Corporation (other than securities of the type
referred to in Sections 6.4(b) and 6.4(c) hereof), evidences of indebtedness of
the Corporation or any other person or any other property (including, without
limitation, shares of capital stock of any subsidiary of the Corporation), or
any combination thereof. The Fair Market Value of any such single dividend or
other distribution that, pursuant to clause (i), constitutes an Extraordinary
Distribution shall for purposes of the first paragraph of Section 6.4(d) hereof
be the sum of the Fair Market Value of such Extraordinary Distribution plus the
amount of any other cash dividends and distributions made within the relevant
period referred to above to holders of Common Stock to the extent such other
dividends and distributions were not previously included in the calculation of
an adjustment pursuant to the first paragraph of Section 6.4(d) hereof within
such period.
2.23 "Fair Market Value" shall mean the average of the daily Current Market
Prices of the security in question during the five (5) consecutive Trading Days
before the earlier of the day in question and the "ex" date with respect to the
issuance or distribution requiring such computation. The term "ex' date," when
used with respect to any issuance or distribution, means the first day on which
the Common Stock trades regular way, without the right to receive such issuance
or distribution, on the exchange or in the market, as the case may be, used to
determine that day's Current Market Price. With respect to any asset or
security for which there is no Current Market Price, the Fair Market Value of
such asset or security shall be determined in good faith by the Board of
Directors.
2.24 "Issue Date" shall mean the first date on which shares of Class 1 ESOP
Preferred Stock are issued.
2.25 "Liquidation Preference" shall have the meaning set forth in Section 4.1
hereof.
2.26 "Measuring Date" shall mean that date which is the 365th day following
the Issue Date.
2.27 "Non-Dilutive Amount" in respect of an issuance, sale or exchange by the
Corporation of any Equity Securities (other than Common Stock) shall mean the
excess of (i) the product of the Fair Market Value of a share of Common Stock
on the day preceding the first public announcement of such issuance, sale or
exchange multiplied by the maximum number of shares of Common Stock which could
be acquired on such date upon the exercise, conversion or exchange in full of
such Equity Securities (and any Equity Securities receivable upon exercise,
conversion or exchange thereof), whether or not then exercisable, convertible
or exchangeable at such date, over (ii) the aggregate amount payable pursuant
to the exercise, conversion or exchange of such Equity Securities, whether or
not then exercisable, convertible or exchangeable, to purchase or acquire such
maximum number of shares of Common Stock (and any Equity Securities receivable
upon exercise, conversion or exchange thereof); provided, however, that in no
event shall the Non-Dilutive Amount be less than zero. For purposes of the
foregoing sentence, the amount payable pursuant to the exercise, conversion or
exchange of such Equity Securities to purchase or acquire shares of Common
Stock shall be deemed to be the Fair Market Value of the consideration payable
pursuant to the exercise, conversion or exchange of such Equity Securities on
the date of the issuance, sale or exchange of such Equity Securities by the
Corporation (excluding for that purpose the Fair Market Value of the Equity
Security to be so exercised, converted or exchanged).
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2.28 "Pro Rata Repurchase" shall mean any purchase of shares of Common Stock
by the Corporation or any Affiliate thereof, whether for cash, shares of
capital stock of the Corporation, other securities of the Corporation,
evidences of indebtedness of the Corporation or any other person or any other
property (including, without limitation, shares of capital stock, other
securities or evidences of indebtedness of a subsidiary of the Corporation), or
any combination thereof, effected while any of the shares of Class 1 ESOP
Preferred Stock are outstanding, pursuant to any tender offer or exchange offer
subject to Section 13(e) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or any successor provision of law, or pursuant to any
other offer available to substantially all holders of Common Stock; provided,
however, that "Pro Rata Repurchase" shall not include any purchase of shares by
the Corporation or any subsidiary thereof made in open market transactions
substantially in accordance with the requirements of Rule 10b-18 as in effect
under the Exchange Act or on such other terms and conditions as the Board of
Directors shall have determined are reasonably designed to prevent such
purchases from having a material effect on the trading market for the Common
Stock. The "Effective Date" of a Pro Rata Repurchase shall mean the date of
acceptance of shares for purchase or exchange under any tender or exchange
offer which is a Pro Rata Repurchase or the date of purchase with respect to
any Pro Rata Repurchase that is not a tender or exchange offer.
2.29 "Restated Certificate" shall mean the Restated Certificate of
Incorporation of the Corporation, as amended from time to time.
2.30 "Rights" shall mean the rights of the Corporation issued or issuable
under the Corporation's Rights Agreement dated as of December 11, 1986, and as
amended from time to time (the "Rights Agreement"), or rights to purchase any
capital stock of the Corporation issued or issuable under any successor
shareholder rights plan or plans adopted in replacement of the Rights
Agreement.
2.31 "Series A Debentures" shall mean the Series A Debentures due 2004 of
United Air Lines, Inc.
2.32 "Series A Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series A Convertible
Preferred Stock in Article FOURTH, Part I.A of this Restated Certificate.
2.33 "Series B Debentures" shall mean the Series B Debentures due 2014 of
United Air Lines, Inc.
2.34 "Series B Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series B Preferred
Stock in Article FOURTH, Part I.B of this Restated Certificate.
2.35 "Series C Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series C Junior
Participating Preferred Stock in Article FOURTH, Part I.C of this Restated
Certificate.
2.36 "Series D Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series D Redeemable
Preferred Stock in Article FOURTH, Part I.D of this Restated Certificate.
2.37 [Reserved]
2.38 "set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Corporation in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to a
declaration of dividends or other distribution by the Board of Directors, the
allocation of funds to be so paid on any series or class of capital stock of
the Corporation; provided, however, that if any funds for any class or series
of stock of the Corporation ranking on a parity with or junior to the Class 1
ESOP Preferred Stock as to the payment of dividends or distributions are placed
in a separate account of the Corporation or delivered to a disbursing, paying
or other similar agent, then "set apart for payment" with
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respect to the Class 1 ESOP Preferred Stock shall mean, with respect to such
dividends or distributions, placing such funds in a separate account or
delivering such funds to a disbursing, paying or other similar agent.
2.39 "Trading Day" shall mean any day on which the securities in question are
traded on the NYSE, or if such securities are not listed or admitted for
trading or quoted on the NYSE, on the principal national securities exchange on
which such securities are listed or admitted, or if not listed or admitted for
trading or quoted on any national securities exchange, on the Nasdaq National
Market, or if such securities are not quoted on such National Market, in the
applicable securities market in which the securities are traded.
2.40 "Transfer Agent" means the Corporation or such agent or agents of the
Corporation as may be designated from time to time by the Board of Directors as
the transfer agent for the Class 1 ESOP Preferred Stock.
2.41 "Voting Preferred Stocks" shall mean collectively, the Class M Voting
Preferred Stock, the Class P Voting Preferred Stock and the Class S Voting
Preferred Stock.
Section 3. Dividends.
3.1 The holders of shares of the Class 1 ESOP Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
assets legally available for that purpose, dividends payable in cash at the
rate per annum of (i) $[ * ] per share of Class 1 ESOP Preferred Stock with
respect to any Dividend Period ending on or before March 31, 2000 and (ii) zero
thereafter (the "Fixed Dividend"). Such Fixed Dividends shall be cumulative
from the Issue Date until the penultimate Business Day in the calendar quarter
ending March 31, 2000, whether or not in any Dividend Period or Periods there
shall be assets of the Corporation legally available for the payment of such
Fixed Dividends and whether or not the Board of Directors shall have declared
such Fixed Dividends, and shall be payable annually (except as otherwise
provided herein) when, as and if declared by the Board of Directors, in arrears
on Dividend Payment Dates, commencing on the penultimate Business Day of 1994.
Each such Fixed Dividend shall be payable in arrears to the holders of record
of shares of the Class 1 ESOP Preferred Stock, as they appear on the stock
records of the Corporation at the close of business on such record dates, which
shall not be more than 60 days nor less than 10 days preceding the Dividend
Payment Dates thereof, as shall be fixed by the Board of Directors. Accrued and
unpaid Fixed Dividends for any past Dividend Periods ending on or prior to the
penultimate Business Day in the calendar quarter ending March 31, 2000 may be
declared and paid at any time, without reference to any Dividend Payment Date,
to holders of record on such date, not exceeding 45 days preceding the payment
date thereof, as may be fixed by the Board of Directors. Holders of the Class 1
ESOP Preferred Stock shall be entitled to the cumulative Fixed Dividend
provided in this Section 3.1 and the additional cumulative dividends provided
in Section 3.5 and shall not be entitled to any other dividends in excess
thereof.
3.2 The amount of Fixed Dividends payable for the initial Dividend Period, or
any other period shorter or longer than a full Dividend Period, on the Class 1
ESOP Preferred Stock shall be computed on the basis of twelve 30-day months and
a 360-day year. Except as provided in Section 3.5, holders of shares of Class 1
ESOP Preferred Stock shall not be entitled to any dividends, whether payable in
cash, property or stock, in excess of cumulative Fixed Dividends, as herein
provided, on the Class 1 ESOP Preferred Stock. No interest, or sum of money in
lieu of interest, shall be payable in respect of any Fixed Dividend payment or
payments on the Class 1 ESOP Preferred Stock that may be in arrears.
3.3 So long as any shares of the Class 1 ESOP Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on any other class or series
of stock of the Corporation ranking on a parity with the Class 1 ESOP Preferred
Stock as to the payment of dividends for any period unless full cumulative
Fixed Dividends have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart
- --------
* The dollar amount shall not exceed seven percent of the per-share price paid
by the ESOP Trustee for the Class 1 ESOP Preferred Stock in the sale which
occurs at the Effective Time.
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for such payment on the Class 1 ESOP Preferred Stock for all Dividend Periods
terminating on or prior to the date of payment of the dividends on such class
or series of parity stock. When Fixed Dividends are not paid in full or a sum
sufficient for such payment is not set apart, as aforesaid, all dividends
declared upon the Class 1 ESOP Preferred Stock and such parity stock shall be
declared ratably in proportion to the respective amounts of Fixed Dividends
accumulated and unpaid on the Class 1 ESOP Preferred Stock and dividends
accumulated and unpaid on such parity stock. Notwithstanding the foregoing to
the contrary, cumulated Fixed Dividends that remain unpaid on April 1, 2000
shall not prevent the payment of a dividend on any other security on or after
April 1, 2000 to the extent that, on the Dividend Payment Date occuring on or
prior to April 1, 2000 with respect to the Class 1 ESOP Preferred Stock that
immediately followed the last payment of a dividend on the Series A Preferred
Stock or the Series B Preferred Stock, (a) the unpaid current and cumulated
dividends on the Class 1 ESOP Preferred Stock as of such Dividend Payment Date
exceeds (b) the surplus of the Corporation available on such Dividend Payment
Date to pay Fixed Dividends on the Class 1 ESOP Preferred Stock after (I) the
payment in full of all unpaid current and cumulated dividends in respect of all
other classes or series of stock of the Corporation ranking senior to the Class
1 ESOP Preferred Stock as to the payment of dividends and (II) the payment on a
pro rata basis of all unpaid current and cumulated dividends in respect of all
other classes or series of stock of the Corporation ranking on a parity with
the Class 1 ESOP Preferred Stock as to the payment of dividends, provided that
an amount equal to the lesser of the amounts described in clause (a) and clause
(b) must be paid as a dividend in respect of the Class 1 ESOP Preferred Stock
before any amount may be paid as a dividend in respect of any class or series
of stock of the Corporation that ranks junior to the Class 1 ESOP Preferred
Stock as to the payment dividends (the amount of such excess, the "Designated
Amount"), provided further that the Designated Amount plus all unpaid Fixed
Dividends on the Class 1 ESOP Preferred Stock that accrue in respect of
Dividend Payment Dates that occurred after such Dividend Payment Date shall
remain part of the accrued and unpaid dividends on the Class 1 ESOP Preferred
Stock for the purpose of Section 4.
3.4 So long as any shares of the Class 1 ESOP Preferred Stock are
outstanding, no dividends (other than (i) the Rights and (ii) dividends or
distributions paid in shares of, or options, warrants, or rights to subscribe
for or purchase shares of, any class or series of stock of the Corporation that
is junior to the Class 1 ESOP Preferred Stock as to the payment of dividends)
shall be declared or paid or set apart for payment or other distribution
declared or made upon any class or series of stock of the Corporation that is
junior to the Class 1 ESOP Preferred Stock as to the payment of dividends, nor
shall any other class or series of stock of the Corporation ranking on a parity
with or junior to the Class 1 ESOP Preferred Stock as to the payment of
dividends or as to distributions upon liquidation, dissolution or winding up of
the Corporation, be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan of the Corporation or any
subsidiary) for any consideration (or any moneys be paid to or made available
for a sinking fund for the redemption of any shares of any such stock) by the
Corporation, directly or indirectly (except by conversion into or exchange for
any class or series of stock of the Corporation that is junior to the Class 1
ESOP Preferred Stock as to the payment of dividends and as to distributions
upon liquidation, dissolution or winding up of the Corporation), unless in each
case the full cumulative Fixed Dividends on all outstanding shares of the Class
1 ESOP Preferred Stock shall have been paid or set apart for payment for all
past Dividend Periods with respect to the Class 1 ESOP Preferred Stock and such
parity stock. Notwithstanding the foregoing to the contrary, cumulated Fixed
Dividends that remain unpaid on April 1, 2000 shall not prevent the payment of
a dividend on any other security on or after April 1, 2000 to the extent that,
on the Dividend Payment Date occurring on or prior to April 1, 2000 with
respect to the Class 1 ESOP Preferred Stock that immediately followed the last
payment of a dividend on the Series A Preferred Stock or the Series B Preferred
Stock, (a) the unpaid current and cumulated dividends on the Class 1 ESOP
Preferred Stock as of such Dividend Payment Date exceeds (b) the surplus of the
Corporation available on such Dividend Payment Date to pay Fixed Dividends on
the Class 1 ESOP Preferred Stock after (I) the payment in full of all unpaid
current and cumulated dividends in respect of all other classes or series of
stock of the Corporation ranking senior to the Class 1 ESOP Preferred Stock as
to the payment of dividends and (II) the payment on a pro rata basis of all
unpaid current and cumulated dividends in respect of all other classes or
series of stock of the Corporation
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ranking on a parity with the Class 1 ESOP Preferred Stock as to the payment of
dividends, provided that an amount equal to the lesser of the amounts described
in clause (a) and clause (b) must be paid as a dividend in respect of the Class
1 ESOP Preferred Stock before any amount may be paid as a dividend in respect
of any class or series of stock of the Corporation that ranks junior to the
Class 1 ESOP Preferred Stock as to the payment of dividends, provided further
that the Designated Amount plus all unpaid Fixed Dividends on the Class 1 ESOP
Preferred Stock that accrue in respect of Dividend Payment Dates that occurred
after such Dividend Payment Date shall remain part of the accrued and unpaid
dividends on the Class 1 ESOP Preferred Stock for the purpose of Section 4.
3.5 If, during the period ending upon the most recent Dividend Payment Date
and beginning on the immediately prior Dividend Payment Date or, if none, the
Issue Date, cash dividends have been paid to the holders of Common Stock which,
if paid at the same rate (per outstanding share of Common Stock) with respect
to the shares of Common Stock into which the Class 1 ESOP Preferred Stock is
convertible, would be in excess of the sum of the amounts of the Fixed
Dividends which have been or will have been paid during such period ending on
such Dividend Payment Date, the holders of shares of Class 1 ESOP Preferred
Stock shall be entitled to receive on such Dividend Payment Date, in addition
to the Fixed Dividends payable on such Dividend Payment Date, an additional
dividend equal to the excess of (a) the dividends which would have been
received during such period with respect to the shares of Common Stock which
would have been issued upon conversion of the Class 1 ESOP Preferred Stock had
the Class 1 ESOP Preferred Stock been outstanding as Common Stock at each
relevant time in order to receive such dividends (but only to the extent such
dividends do not constitute an Extraordinary Distribution under clause (i) of
the definition thereof), over (b) the sum of the amount of (i) the Fixed
Dividends which have been or will have been paid during such period and (ii)
the amount previously paid pursuant to this Section 3.5 during such period,
which additional dividends (hereinafter referred to as "Participating
Dividends") shall be paid in cash, pro-rata to each holder of Class 1 ESOP
Preferred Stock. In the event that an adjustment is made pursuant to the second
paragraph of Section 6.4(d) with respect to shares of Class 1 ESOP Preferred
Stock converted during the period referred to above, the amount of
Participating Dividend to be paid in accordance with the preceding sentence
shall be reduced by an amount equal to the product of (x) the number of shares
of Common Stock into which such converted shares of Class 1 ESOP Preferred
Stock would have been converted in the absence of such adjustment and (y) the
amount of the cash dividend or distributions per share of Common Stock in
respect of which such adjustment was made.
3.6 In respect of any Dividend Payment Date on which both Fixed Dividends and
Participating Dividends are due, or at any time that both Fixed Dividends and
Participating Dividends are unpaid, dividend payments made on the Class 1 ESOP
Preferred Stock shall be applied first to unpaid Participating Dividends and,
after all Participating Dividends are paid in full, then to unpaid Fixed
Dividends.
Section 4. Payments upon Liquidation.
4.1 In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, before any payment or distribution of the assets
of the Corporation (whether capital or surplus) shall be made to or set apart
for payment to the holders of any class or series of stock of the Corporation
that ranks junior to the Class 1 ESOP Preferred Stock as to amounts
distributable upon liquidation, dissolution or winding up of the Corporation,
the holders of the shares of Class 1 ESOP Preferred Stock shall be entitled to
receive an amount equal to $[ * ] per share of Class 1 ESOP Preferred Stock
plus an amount equal to all dividends (whether or not earned or declared)
accrued and unpaid thereon to the date of final distribution to such holders
(collectively, the "Liquidation Preference"), but such holders shall not be
entitled to any further payment. If, upon any liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation, or proceeds
thereof, distributable among the holders of the shares of Class 1 ESOP
Preferred Stock shall be insufficient to pay in full the Liquidation Preference
and the liquidation preference on all other shares of any class or series of
stock of the Corporation that ranks on a parity with the Class 1 ESOP Preferred
- --------
* The liquidation preference shall equal, on a per-share basis, the price per
share paid by the ESOP Trustee for the Class 1 ESOP Preferred Stock in the
sale which occurs at the Effective Time.
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Stock as to amounts distributable upon liquidation, dissolution or winding up
of the Corporation, then such assets, or the proceeds thereof, shall be
distributed among the holders of shares of Class 1 ESOP Preferred Stock and any
such other parity stock ratably in accordance with the respective amounts that
would be payable on such shares of Class 1 ESOP Preferred Stock and any such
other parity stock if all amounts payable thereon were paid in full. For the
purposes of this Section 4, (i) a consolidation or merger of the Corporation
with or into one or more corporations, or (ii) a sale, lease, exchange or
transfer of all or substantially all of the Corporation's assets, shall not be
deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary, of the Corporation.
4.2 Subject to the rights of the holders of shares of any class or series of
stock ranking prior to or on a parity with the Class 1 ESOP Preferred Stock as
to amounts distributable upon liquidation, dissolution or winding up of the
Corporation, after payment shall have been made to the holders of the Class 1
ESOP Preferred Stock, as and to the fullest extent provided in this Section 4,
any other class or series of stock of the Corporation that ranks junior to the
Class 1 ESOP Preferred Stock as to amounts distributable upon dissolution,
liquidation or winding up of the Corporation shall, subject to the respective
terms and provisions (if any) applying thereto, be entitled to receive any and
all assets remaining to be paid or distributed, and the holders of the Class 1
ESOP Preferred Stock shall not be entitled to share therein.
Section 5. Shares to be Retired. All shares of Class 1 ESOP Preferred Stock
which shall have been issued and reacquired in any manner by the Corporation
shall be retired and shall not be reissued.
Section 6. Conversion. Holders of shares of Class 1 ESOP Preferred Stock
shall have the right to convert all or a portion of such shares into shares of
Common Stock as follows:
6.1 Subject to and upon compliance with the provisions of this Section 6, a
holder of shares of Class 1 ESOP Preferred Stock shall have the right, at such
holder's option, at any time and from time to time, to convert all or any of
such shares into fully paid and nonassessable shares of Common Stock at a rate
of one share of Common Stock for one share of Class 1 ESOP Preferred Stock
subject to adjustment as provided in this Section 6 (as so adjusted, the
"Conversion Rate") by surrendering such shares to be converted, such surrender
to be made in the manner provided in Section 6.2. Certificates shall be issued
for the remaining shares of Class 1 ESOP Preferred Stock if fewer than all of
the shares of Class 1 ESOP Preferred Stock represented by a certificate are
converted.
6.2 In order to exercise the conversion right, the holder of shares of Class
1 ESOP Preferred Stock to be converted shall surrender the certificate or
certificates representing such shares, duly endorsed or assigned to the
Corporation or in blank, at the office of the Transfer Agent in the Borough of
Manhattan, City of New York, accompanied by written notice to the Corporation
that the holder thereof elects to convert Class 1 ESOP Preferred Stock. Unless
the shares issuable on conversion are to be issued in the same name as the name
in which such share of Class 1 ESOP Preferred Stock is registered, each share
surrendered for conversion shall be accompanied by instruments of transfer, in
form satisfactory to the Corporation, duly executed by the holder or such
holder's duly authorized attorney and an amount sufficient to pay any transfer
or similar tax (or evidence reasonably satisfactory to the Corporation
demonstrating that such taxes have been paid or that no such taxes are
payable).
Holders of shares of Class 1 ESOP Preferred Stock at the close of business on
a dividend payment record date shall be entitled to receive the dividend
payable on such shares on the corresponding Dividend Payment Date
notwithstanding the conversion thereof following such dividend payment record
date. The Corporation shall make no payment or allowance for unpaid dividends
on the shares of Common Stock issued upon such conversion.
As promptly as practicable after the surrender of certificates for shares of
Class 1 ESOP Preferred Stock as aforesaid, the Corporation shall issue and
shall deliver at such office to such holder, or on such holder's written order,
a certificate or certificates for the number of full shares of Common Stock
issuable upon the
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conversion of such shares in accordance with provisions of this Section 6, and
any fractional interest in respect of a share of Common Stock arising upon such
conversion shall be settled as provided in Section 6.3.
Each conversion shall be deemed to have been effected immediately prior to
the close of business on the date on which the certificates for shares of Class
1 ESOP Preferred Stock shall have been surrendered and such notice (and if
applicable, payment of an amount equal to the dividend payable on such shares)
received by the Corporation as aforesaid, and the person or persons in whose
name or names any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby at such time on such date
and such conversion shall be at the Conversion Rate in effect at such time on
such date, unless the stock transfer books of the Corporation shall be closed
on that date, in which event such person or persons shall be deemed to have
become such holder or holders of record at the close of business on the next
succeeding day on which such stock transfer books are open, but such conversion
shall be at the Conversion Rate in effect on the date upon which such shares
shall have been surrendered and such notice received by the Corporation.
6.3 No fractional shares or scrip representing fractions of shares of Common
Stock shall be issued upon conversion of the Class 1 ESOP Preferred Stock.
Instead of any fractional interest in a share of Common Stock that would
otherwise be deliverable upon the conversion of a share of Class 1 ESOP
Preferred Stock, the Corporation shall pay to the holder of such share an
amount in cash based upon the Current Market Price of Common Stock on the
Trading Day immediately preceding the date of conversion. If more than one
certificate shall be surrendered for conversion at one time by the same holder,
the number of full shares of Common Stock issuable upon conversion thereof
shall be computed on the basis of the aggregate number of shares of Class 1
ESOP Preferred Stock so surrendered.
6.4 The Conversion Rate shall be adjusted from time to time as follows:
(a) In case the Corporation shall, at any time or from time to time while
any of the shares of Class 1 ESOP Preferred Stock are outstanding, (i) pay
a dividend or make a distribution on its capital stock in shares of its
Common Stock, (ii) subdivide its outstanding Common Stock into a greater
number of shares, (iii) combine its outstanding Common Stock into a smaller
number of shares or (iv) issue any shares of capital stock by
reclassification of its Common Stock, the Conversion Rate in effect at the
opening of business on the day next following the date fixed for the
determination of stockholders entitled to receive such dividend or
distribution or at the opening of business on the day next following the
day on which such subdivision, combination or reclassification becomes
effective, as the case may be, shall be adjusted so that the holder of any
share of Class 1 ESOP Preferred Stock thereafter surrendered for conversion
shall be entitled to receive the number of shares of Common Stock or other
capital stock that such holder would have owned or have been entitled to
receive after the happening of any of the events described above had such
share been converted immediately prior to the record date in the case of a
dividend or distribution or the effective date in the case of a
subdivision, combination or reclassification. An adjustment made pursuant
to this subparagraph (a) shall become effective immediately after the
opening of business on the day next following the record date (except as
provided in Section 6.7 below) in the case of a dividend or distribution
and shall become effective immediately after the opening of business on the
day next following the effective date in the case of a subdivision,
combination or reclassification.
(b) In case the Corporation shall, at any time or from time to time while
any of the shares of Class 1 ESOP Preferred Stock are outstanding, issue
Equity Securities (other than Common Stock and the Rights) (the "Issued
Equity Securities") to all holders of shares of its Common Stock entitling
them (for a period expiring within 45 days after the record date for such
issuance) to subscribe for or purchase (whether by exercise, conversion,
exchange or otherwise) shares of Common Stock (or other Equity Securities)
at a price per share less than the Fair Market Value of the Common Stock
(or the other Equity Security to be acquired) at such record date (treating
the price per share of the Equity Securities to be acquired as equal to (x)
the sum of (i) the Fair Market Value of the consideration payable for a
unit of the Equity Security plus (ii) the Fair Market Value of any
additional consideration initially payable upon
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the exercise, conversion or exchange of such security into Common Stock
divided by (y) the number of shares of Common Stock initially underlying or
that may be acquired upon the exercise, conversion or exchange of such
Equity Security), the Conversion Rate shall be adjusted so that it shall
equal the rate determined by multiplying the Conversion Rate in effect
immediately prior to the date of issuance of such Issued Equity Securities
by a fraction, the numerator of which shall be the sum of (A) the number of
shares of Common Stock outstanding on the date of issuance of such Issued
Equity Securities plus (B) the number of additional shares of Common Stock
offered for subscription or purchase (including, without limitation, the
security underlying or that may be acquired upon the exercise, conversion
or exchange of the Equity Securities so offered) and the denominator of
which shall be the sum of (A) the number of shares of Common Stock
outstanding on the date of issuance of such Issued Equity Securities plus
(B) the number of shares of Common Stock that the aggregate offering price
of the total number of shares so offered for subscription or purchase
(including, without limitation, the Fair Market Value of the consideration
payable for a unit of the Equity Securities so offered plus the Fair Market
Value of any additional consideration payable upon exercise, conversion or
exchange of such Equity Securities) would purchase at such Fair Market
Value of the Common Stock as of the record date for such issuance. Such
adjustment shall become effective as of the record date for the
determination of stockholders entitled to receive such Issued Equity
Securities (except as provided in Section 6.6 below).
(c) In case the Corporation shall, at any time or from time to time while
any of the shares of Class 1 ESOP Preferred Stock are outstanding, issue,
sell or exchange shares of Common Stock (other than pursuant to any Rights,
Equity Securities issued in connection with any employee or director
incentive or benefit plan or arrangement of the Corporation or any
subsidiary or any Equity Security theretofore outstanding entitling the
holder to purchase or acquire shares of Common Stock) for a consideration
having a Fair Market Value on the date of such issuance, sale or exchange
less than the Fair Market Value of such shares of Common Stock on the date
of such issuance, sale or exchange, then the Conversion Rate in effect
immediately prior to such issuance, sale or exchange shall be adjusted by
multiplying such Conversion Rate by a fraction, the numerator of which
shall be the product of (i) the Fair Market Value of a share of Common
Stock on the Trading Day immediately preceding the first public
announcement of such issuance, sale or exchange multiplied by (ii) the sum
of the number of shares of Common Stock outstanding on such day plus the
number of shares of Common Stock so issued, sold or exchanged by the
Corporation, and the denominator of which shall be the sum of (i) the Fair
Market Value of all the shares of Common Stock outstanding on the Trading
Day immediately preceding the first public announcement of such issuance,
sale or exchange plus (ii) the Fair Market Value of the consideration
received by the Corporation in respect of such issuance, sale or exchange
of shares of Common Stock. In case the Corporation shall, at any time or
from time to time while any of the shares of Class 1 ESOP Preferred Stock
are outstanding, issue, sell or exchange any Equity Security (other than
any Rights, Equity Securities issued in connection with any employee or
director incentive or benefit plan or arrangement of the Corporation or any
subsidiary or Common Stock) other than any such issuance to all holders of
shares of Common Stock as a dividend or distribution (including by way of a
reclassification of shares or a recapitalization of the Corporation) for a
consideration having a Fair Market Value on the date of such issuance, sale
or exchange less than the Non-Dilutive Amount, then the Conversion Rate
shall be adjusted by multiplying such Conversion Rate by a fraction, the
numerator of which shall be the product of (i) the Fair Market Value of a
share of Common Stock on the Trading Day immediately preceding the first
public announcement of such issuance, sale or exchange multiplied by (ii)
the sum of the number of shares of Common Stock outstanding on such day
plus the maximum number of shares of Common Stock underlying or which could
be acquired pursuant to such Equity Security at the time of the issuance,
sale or exchange of such Equity Security (assuming shares of Common Stock
could be acquired pursuant to such Equity Security at such time), and the
denominator of which shall be the sum of (i) the Fair Market Value of all
the shares of Common Stock outstanding on the Trading Day immediately
preceding the first public announcement of such issuance, sale or exchange
plus (ii) the Fair Market Value of the consideration received by the
Corporation in respect of such issuance, sale or exchange of such Equity
Security plus (iii) the Fair Market Value as of the time of
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such issuance of the consideration which the Corporation would receive upon
exercise, conversion or exchange in full of all such Equity Securities.
(d) In case the Corporation shall, at any time or from time to time while
any of the shares of Class 1 ESOP Preferred Stock are outstanding, make an
Extraordinary Distribution in respect of the Common Stock or effect a Pro
Rata Repurchase of Common Stock, the Conversion Rate in effect immediately
prior to such Extraordinary Distribution or Pro Rata Repurchase shall be
adjusted by multiplying such Conversion Rate by a fraction, the numerator
of which shall be the product of (i) the number of shares of Common Stock
outstanding immediately before such Extraordinary Dividend or Pro Rata
Repurchase (minus, in the case of a Pro Rata Repurchase, the number of
shares of Common Stock repurchased by the Corporation) multiplied by (ii)
the Fair Market Value of a share of Common Stock on the record date with
respect to such Extraordinary Distribution or on the Trading Day
immediately preceding the first public announcement by the Corporation or
any of its Affiliates of the intent to effect a Pro Rata Repurchase, as the
case may be, and the denominator of which shall be (i) the product of (x)
the number of shares of Common Stock outstanding immediately before such
Extraordinary Distribution or Pro Rata Repurchase multiplied by (y) the
Fair Market Value of a share of Common Stock on the record date with
respect to such Extraordinary Distribution, or on the Trading Day
immediately preceding the first public announcement by the Corporation or
any of its Affiliates of the intent to effect a Pro Rata Repurchase, as the
case may be, minus (ii) the Fair Market Value of the Extraordinary
Distribution or the aggregate purchase price of the Pro Rata Repurchase, as
the case may be (provided that such denominator shall never be less than
1.0); provided, however, that no Pro Rata Repurchase shall cause an
adjustment to the Conversion Rate unless the amount of all cash dividends
and distributions made to holders of Common Stock during the period from
the latest to occur of the Issue Date or the most recent Dividend Payment
Date preceding the Effective Date of such Pro Rata Repurchase, when
combined with the aggregate amount of all Pro Rata Repurchases, including
such Pro Rata Repurchase (for all purposes of this Section 7.4(d),
including only that portion of the Fair Market Value of the aggregate
purchase price of each Pro Rata Repurchase which is in excess of the Fair
Market Value of the Common Stock repurchased as determined on the Trading
Day immediately preceding the first public announcement by the Corporation
or any of its Affiliates of the intent to effect each such Pro Rata
Repurchase), the Effective Dates of which fall within such period, exceeds
twelve and one-half percent (12 1/2%) of the aggregate Fair Market Value of
all shares of Common Stock outstanding on the Trading Day immediately
preceding the first public announcement by the Corporation or any of its
Affiliates of the intent to effect such Pro Rata Repurchase. Such
adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such Extraordinary
Distribution or immediately after the Effective Date of such Pro Rata
Repurchase.
Solely as an adjustment applicable to shares of Class 1 ESOP Preferred
Stock that are being converted into Common Stock as of a given date, and
not as a permanent adjustment to the Conversion Rate, the Conversion Rate
in effect immediately prior to such conversion shall be adjusted by
multiplying such Conversion Rate by a fraction, the numerator of which
shall be the product of (i) the number of shares of Common Stock
outstanding immediately before such conversion multiplied by (ii) the Fair
Market Value of a share of Common Stock on the date of such conversion, and
the denominator of which shall be (i) the product of (x) the number of
shares of Common Stock outstanding immediately before such conversion
multiplied by (y) the Fair Market Value of a share of Common Stock on the
date of such conversion minus (ii) the Fair Market Value of the cash
dividends and distributions made on or before the date of such conversion
with a record date after the later of the Issue Date or the most recent
Dividend Payment Date upon which Participating Dividends were paid in full,
but only to the extent that such cash dividends and distributions (a) would
entitle the holders of the shares of Class 1 ESOP Preferred Stock
outstanding on such conversion date to a dividend under Section 3.5 that
has not been paid and (b) would not constitute an Extraordinary
Distribution (provided that such denominator shall never be less than 1.0).
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(e) No adjustment in the Conversion Rate shall be required unless such
adjustment would require a cumulative increase or decrease of at least
0.01% in such rate; provided that any adjustments that by reason of this
subparagraph (e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment until made; and provided
further that any adjustment shall be required and made in accordance with
the provisions of this Section 6.4 (other than this subparagraph (e)) not
later than such time as may be required in order to preserve the taxfree
nature of a distribution to the holders of shares of Common Stock.
Notwithstanding any other provisions of this Section 6, the Corporation
shall not be required to make any adjustments of the Conversion Rate for
the issuance of any shares of Common Stock pursuant to any plan providing
for the reinvestment of dividends on securities of the Corporation so long
as the holders of the Class 1 ESOP Preferred Stock shall be entitled to
participate therein on substantially the same terms as holders of Common
Stock. All calculations under this Section 6 shall be made to the nearest
cent (with $.005 being rounded upward), one-tenth of a share (with .05 of a
share being rounded upward) or, in the case of the Conversion Rate, one
hundred millionth of a share (with .000000005 being rounded upward), as the
case may be. Anything in this Section 6.4 to the contrary notwithstanding,
the Corporation shall be entitled, to the extent permitted by law, to make
such reductions in the Conversion Rate, in addition to those required by
this Section 6.4, as it in its discretion shall determine to be advisable
in order that any stock dividends, subdivision of shares, reclassification
or combination of shares, distribution of rights or warrants to purchase
stock or securities, or a distribution of other assets (other than cash
dividends) hereafter made by the Corporation to its stockholders shall not
be taxable.
6.5 If:
(a) the Corporation shall declare a dividend or any other distribution on
the Common Stock (other than the Rights); or
(b) the Corporation shall authorize the granting to the holders of the
Common Stock of Equity Securities (other than Common Stock) to subscribe
for or purchase any Equity Security; or
(c) there shall be any reclassification of the Common Stock (other than
an event to which Section 6.4(a) applies) or any consolidation or merger to
which the Corporation is a party and for which approval of any stockholders
of the Corporation is required, or the sale or transfer of all or
substantially all of the assets of the Corporation as an entirety; or
(d) there shall occur the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
(e) there shall occur any Pro Rata Repurchase,
then the Corporation shall cause to be filed with the Transfer Agent and shall
cause to be mailed to the holders of shares of the Class 1 ESOP Preferred Stock
at their addresses as shown on the stock records of the Corporation, as
promptly as possible, but at least 10 days prior to the applicable date
hereinafter specified, a notice stating (A) the date on which a record is to be
taken for the purpose of such dividend, distribution or granting of Equity
Securities, or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution
or granting of Equity Securities are to be determined, (B) the date on which
such reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities or other property, if
any, deliverable upon such reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution or winding up or (C) the number of shares
subject to such offer for a Pro Rata Repurchase and the purchase price payable
by the Corporation pursuant to such offer. Failure to give or receive such
notice or any defect therein shall not affect the legality or validity of the
proceedings described in this Section 6.
6.6 Whenever the Conversion Rate is adjusted as herein provided, the
Corporation shall promptly file with the Transfer Agent an officer's
certificate setting forth the Conversion Rate after such adjustment and setting
forth a brief statement of the facts requiring and the manner of effecting such
adjustment which
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certificate shall be prima facie evidence of the correctness of such
adjustment. Promptly after delivery of such certificate, the Corporation shall
prepare a notice of such adjustment of the Conversion Rate setting forth the
adjusted Conversion Rate and the effective date of such adjustment or
adjustments and shall mail such notice of such adjustment or adjustments to the
holder of each share of Class 1 ESOP Preferred Stock at such holder's last
address as shown on the stock records of the Corporation.
6.7 In any case in which Section 6.4 provides that an adjustment shall become
effective on the day next following a record date for an event, the Corporation
may defer until the occurrence of such event (A) issuing to the holder of any
share of Class 1 ESOP Preferred Stock converted after such record date and
before the occurrence of such event the additional shares of Common Stock or
other securities issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock or other securities
issuable upon such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of any fraction pursuant to
Section 6.3.
6.8 For purposes of this Section 6, the number of shares of Common Stock at
any time outstanding shall not include any shares of Common Stock then owned or
held by or for the account of the Corporation or any subsidiary. The
Corporation shall not pay a dividend or make any distribution on shares of
Common Stock held in the treasury of the Corporation.
6.9 There shall be no adjustment of the Conversion Rate in case of the
issuance of any stock of the Corporation in a reorganization, acquisition or
other similar transaction except as specifically set forth in Section 6 or
Section 7. If any action or transaction would require adjustment of the
Conversion Rate pursuant to more than one paragraph of this Section 6, only one
adjustment shall be made and such adjustment shall be the amount of adjustment
that has the highest absolute value.
6.10 If the Corporation shall take any action affecting the Common Stock,
other than action described in this Section 6, that in the opinion of the Board
of Directors would materially adversely affect the conversion rights of the
holders of the shares of Class 1 ESOP Preferred Stock, the Conversion Rate for
the Class 1 ESOP Preferred Stock may be adjusted, to the extent permitted by
law, in such manner, if any, and at such time, as the Board of Directors may
determine to be equitable in the circumstances.
6.11 The Corporation covenants that it will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its authorized
but unissued shares of Common Stock or its issued shares of Common Stock held
in its treasury, or both, for the purpose of effecting conversion of the Class
1 ESOP Preferred Stock, the full number of shares of Common Stock deliverable
upon the conversion of all outstanding shares of Class 1 ESOP Preferred Stock
not theretofore converted. For purposes of this Section 6.11, the number of
shares of Common Stock that shall be deliverable upon the conversion of all
outstanding shares of Class 1 ESOP Preferred Stock shall be computed as if at
the time of computation all such outstanding shares were held by a single
holder.
The Corporation covenants that any shares of Common Stock issued upon
conversion of the Class 1 ESOP Preferred Stock shall be validly issued, fully
paid and non-assessable.
The Corporation shall endeavor to list the shares of Common Stock (or other
securities) required to be delivered upon conversion of the Class 1 ESOP
Preferred Stock, prior to such delivery, upon each national securities
exchange, if any, upon which the outstanding Common Stock (or other securities)
is listed at the time of such delivery.
Prior to the delivery of any securities that the Corporation shall be
obligated to deliver upon conversion of the Class 1 ESOP Preferred Stock, the
Corporation shall endeavor to comply with all federal and state laws and
regulations thereunder requiring the registration of such securities with, or
any approval of or consent to the delivery thereof by, any governmental
authority.
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6.12 The Corporation shall pay any and all documentary stamp or similar issue
or transfer taxes payable in respect of the issue or delivery of shares of
Common Stock or other securities or property on conversion of the Class 1 ESOP
Preferred Stock pursuant hereto; provided that the Corporation shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issue or delivery of shares of Common Stock or other securities or
property in a name other than that of the holder of the Class 1 ESOP Preferred
Stock to be converted and no such issue or delivery shall be made unless and
until the person requesting any such issue or delivery has paid to the
Corporation the amount of any such tax or established, to the reasonable
satisfaction of the Corporation, that such tax has been paid.
6.13 If, prior to the Distribution Date (as defined for purposes of the
Rights), the Corporation shall issue shares of Common Stock upon conversion of
shares of Class 1 ESOP Preferred Stock as contemplated by this Section 6, the
Corporation shall issue together with each such share of Common Stock that
number of Rights as are then issuable, pursuant to the Rights Agreement (or any
successor rights plan or plans adopted in replacement of the Rights Agreement),
per share of such Common Stock so issued, but only if at such time such Rights
or rights are, pursuant to the relevant rights agreement, to be represented by
certificates representing shares of Common Stock and have not expired.
Section 7. Consolidation, Merger, etc.
7.1 In case the Corporation shall enter into any consolidation, merger, share
exchange or similar transaction, however named, pursuant to which the
outstanding shares of Common Stock are to be exchanged solely for or changed,
reclassified or converted solely into stock of any successor or resulting or
other company (including the Corporation) that constitutes "qualifying employer
securities" with respect to holders of Class 1 ESOP Preferred Stock within the
meaning of Section 409(l) of the Code and Section 407(d)(5) of the Employee
Retirement Income Security Act of 1974, as amended, or any successor provisions
of law, and, if applicable, for a cash payment in lieu of fractional shares, if
any, proper provisions shall be made so that upon consummation of such
transaction, the shares of Class 1 ESOP Preferred Stock shall be converted into
or exchanged for preferred stock of such successor or resulting or other
company, having in respect of such company, the same powers, preferences and
relative, participating, optional or other special rights (including the rights
provided by this Section 7), and the qualifications, limitations or
restrictions thereof, that the Class 1 ESOP Preferred Stock had, in respect of
the Corporation, immediately prior to such transaction, except that after such
transaction each share of preferred stock of the surviving or resulting or
other company so received in such transaction upon conversion or exchange of
the Class 1 ESOP Preferred Stock shall be convertible, otherwise on the terms
and conditions provided by Section 6 hereof, into the number and kind of
"qualifying employer securities" receivable in such transaction by a holder of
the number of shares of Common Stock into which a share of Class 1 ESOP
Preferred Stock could have been converted immediately prior to such
transaction; provided, however, that if by virtue of the structure of such
transaction, a holder of Common Stock is required to make an election with
respect to the nature and kind of consideration to be received in such
transaction, which election cannot practicably be made by the holders of the
Class 1 ESOP Preferred Stock, then the shares of preferred stock of the
surviving or resulting or other company received in such transaction upon
conversion or exchange of Class 1 ESOP Preferred Stock shall, by virtue of such
transaction and on the same terms as apply to the holders of Common Stock, be
convertible into or exchangeable solely for "qualifying employer securities"
(together, if applicable, with a cash payment in lieu of fractional shares)
with the effect provided above on the basis of the number and kind of
qualifying employer securities receivable in such transaction by a holder of
the number of shares of Common Stock into which such shares of Class 1 ESOP
Preferred Stock could have been converted immediately prior to such transaction
(provided that if the kind or amount of qualifying employer securities
receivable in such transaction is not the same for each such share of Common
Stock, then the kind and amount so receivable in such transaction for each
share of Common Stock for this purpose shall be deemed to be the kind and
amount so receivable per share by the plurality of such shares of Common
Stock). The rights of the preferred stock of such successor or resulting or
other company so received in such transaction upon conversion or exchange of
the Class 1 ESOP Preferred Stock shall successively be subject to adjustments
pursuant to Section 6 hereof following
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such transaction as nearly equivalent to the adjustments provided for by such
Sections prior to such transaction.
7.2 In case the Corporation shall enter into any consolidation, merger, share
exchange or similar transaction, however named, pursuant to which the
outstanding shares of Common Stock are to be exchanged for or changed,
reclassified or converted into other stock or securities or cash or any other
property, or any combination thereof, other than any such consideration which
is constituted solely of "qualifying employer securities" (as referred to in
Section 7.1) and cash payments, if applicable, in lieu of fractional shares,
proper provisions shall be made so that upon consummation of such transaction
the outstanding shares of Class 1 ESOP Preferred Stock shall, by virtue of such
transaction and on the same terms as are applicable to the holders of Common
Stock, be converted into or exchanged for the aggregate amount of stock,
securities, cash or other property (payable in like kind) receivable by holders
of the number of shares of Common Stock into which such shares of Class 1 ESOP
Common Stock Preferred Stock could have been converted immediately prior to
such transaction; provided, however, that if by virtue of the structure of such
transaction, a holder of Common Stock is required to make an election with
respect to the nature and kind of consideration to be received in such
transaction, which election cannot practicably be made by holders of the Class
1 ESOP Preferred Stock, then the shares of Class 1 ESOP Preferred Stock shall,
by virtue of such transaction and on the same terms as apply to the holders of
Common Stock, be converted into or exchanged for the aggregate amount of stock,
securities, cash or other property (payable in kind) receivable by a holder of
the number of shares of Common Stock into which such shares of Class 1 ESOP
Preferred Stock could have been converted immediately prior to such transaction
if such holder of Common Stock failed to exercise any rights of election to
receive any kind or amount of stock, securities, cash or other property
receivable in such transaction (provided that if the kind or amount of stock,
securities, cash or other property receivable in such transaction are not the
same for each non-electing share, then the kind and amount of stock,
securities, cash or other property so receivable upon such transaction for each
non-electing share shall be the kind and amount so receivable per share by the
plurality of the non-electing shares).
7.3 In case the Corporation shall enter into any agreement providing for any
consolidation, merger, share exchange or similar transaction described in this
Section 7, then the Corporation shall as soon as practicable thereafter (and in
any event at least fifteen (15) Business Days before consummation of such
transaction) give notice of such agreement and the material terms thereof to
each holder of Class 1 ESOP Preferred Stock. The Corporation shall not
consummate any consolidation, merger, share exchange or similar transaction
unless all of the terms of this Section 7 have been complied with.
Section 8. Ranking.
8.1 Any class or series of stock of the Corporation shall be deemed to rank:
(a) prior to the Class 1 ESOP Preferred Stock, as to the payment of
dividends or as to distributions of assets upon liquidation, dissolution or
winding up, as the case may be, if the holders of such class or series
shall be entitled to the receipt of dividends or of amounts distributable
upon liquidation, dissolution or winding up, as the case may be, in
preference or priority to the holders of Class 1 ESOP Preferred Stock;
(b) on a parity with the Class 1 ESOP Preferred Stock as to the payment
of dividends, whether or not the dividend rates or dividend payment dates
thereof be different from those of the Class 1 ESOP Preferred Stock, if the
holders of such class or series of stock and the Class 1 ESOP Preferred
Stock shall be entitled to the receipt of dividends in proportion to their
respective amounts of accrued and unpaid dividends per share, without
preference or priority one over the other, and on a parity with the Class 1
ESOP Preferred Stock as to the distribution of assets upon liquidation,
dissolution or winding up, whether or not the liquidation prices per share
thereof be different from those of the Class 1 ESOP Preferred Stock, if the
holder of such class or series of stock and the Class 1 ESOP Preferred
Stock shall be entitled to the receipt of amounts distributable upon
liquidation, dissolution or winding up in
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proportion to their respective liquidation preferences, without preference
or priority one over the other; and
(c) junior to the Class 1 ESOP Preferred Stock, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution
or winding up, as the case may be, if the holders of Class 1 ESOP Preferred
Stock shall be entitled to receipt of dividends or of amounts distributable
upon liquidation, dissolution or winding up, as the case may be, in
preference or priority to the holders of shares of such class or series.
8.2 The Series A Preferred Stock and the Series B Preferred Stock shall each
be deemed to rank prior to the Class 1 ESOP Preferred Stock both as to the
payment of dividends and as to the distribution of assets upon liquidation,
dissolution or winding up. The Series D Preferred Stock shall be deemed to rank
prior to the Class 1 ESOP Preferred Stock as to the distribution of assets upon
liquidation, dissolution or winding up. The Class 2 ESOP Preferred Stock shall
be deemed to rank on a parity with the Class 1 ESOP Preferred Stock as to the
payment of Participating Dividends and as to amounts distributable upon
liquidation, dissolution or winding up and the Class 2 ESOP Preferred Stock
shall be deemed to rank junior to the Class 1 ESOP Preferred Stock as to the
payment of Fixed Dividends on the Class 1 Preferred Stock. The Common Stock,
the Director Preferred Stocks, the Voting Preferred Stocks and the Series C
Preferred Stock shall each be deemed to rank junior to the Class 1 ESOP
Preferred Stock both as to the payment of dividends and as to the distribution
of assets upon liquidation, dissolution or winding up.
Section 9. Voting. The holders of shares of Class 1 ESOP Preferred Stock
shall have the following voting rights:
9.1 Unless the affirmative vote or consent of the holders of a greater number
of shares of Class 1 ESOP Preferred Stock shall then be required by law or this
Restated Certificate, and in addition to any other vote required by law or this
Restated Certificate, the affirmative vote or written consent of the holders of
at least a majority of all of the outstanding shares of Class 1 ESOP Preferred
Stock, voting separately as a class, shall be necessary for authorizing,
effecting or validating the amendment, alteration or repeal (including any
amendment, alteration or repeal by operation of merger or consolidation) of any
of the provisions of this Restated Certificate or of any certificate amendatory
thereof or supplemental thereto (including any Certificate of Designation,
Preferences and Rights or any similar document relating to any series of Serial
Preferred Stock) that would adversely affect the preferences, rights, powers or
privileges of the Class 1 ESOP Preferred Stock; provided, however, that the
amendment of the provisions of this Restated Certificate so as to authorize or
create, or to increase the authorized amount of, any class or series of stock
of the Corporation ranking on a parity with or junior to the Class 1 ESOP
Preferred Stock both as to the payment of dividends and as to the distribution
of assets upon liquidation, dissolution or winding up of the Corporation shall
not be deemed to adversely affect the preferences, rights, powers or privileges
of Class 1 ESOP Preferred Stock.
9.2 Unless the affirmative vote or consent of the holders of a greater number
of shares of Class 1 ESOP Voting Preferred Stock shall then be required by law
or this Restated Certificate, and in addition to any other vote required by law
or this Restated Certificate, the affirmative vote or written consent of the
holders of at least a majority of all of the outstanding shares of Class 1 ESOP
Preferred Stock, voting separately as a class, shall be necessary for
authorizing, effecting or validating the creation, authorization or issuance of
any shares of any class or series of stock of the Corporation ranking prior to
the Class 1 ESOP Preferred Stock either as to payment of dividends or as to
distributions upon liquidation, dissolution or winding up, or the
reclassification of any authorized stock of the Corporation into any such prior
shares, or the creation, authorization or issuance of any obligation or
security convertible into or evidencing the right to purchase any such prior
shares.
9.3 For purposes of the foregoing provisions of Sections 9.1 and 9.2, each
share of Class 1 ESOP Preferred Stock shall have one (1) vote per share. Except
as otherwise required by applicable law or as set forth herein, the shares of
Class 1 ESOP Preferred Stock shall not have any relative, participating,
optional
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or other special voting rights and powers and the consent of the holders
thereof shall not be required for the taking of any corporate action.
Section 10. No Redemption. The Class 1 ESOP Preferred Stock shall not be
redeemable in whole or in part.
Section 11. Rights. The Corporation shall take such actions as are necessary
to cause each share of Class 1 ESOP Preferred Stock to also represent, prior to
the Distribution Date (as defined for purposes of the Rights Agreement), that
number of Rights as are then associated with the number of shares of Common
Stock into which such share of Class 1 ESOP Preferred Stock is then convertible
and to cause such Rights to be distributable to, and transferable and
exercisable by, holders of Class 1 ESOP Preferred Stock at the time and upon
terms substantially the same as those applicable to holders of Common Stock.
Section 12. Record Holders. The Corporation and the Transfer Agent (if other
than the Corporation) may deem and treat the record holder of any shares of
Class 1 ESOP Preferred Stock as the true and lawful owner thereof for all
purposes, and, except as otherwise provided by law, neither the Corporation nor
the Transfer Agent shall be affected by any notice to the contrary.
PART III
Class 2 ESOP Convertible Preferred Stock
Unless otherwise indicated, any reference in this Article FOURTH, Part III to
"Section", "Subsection", "paragraph", "subparagraph" or "clause" shall refer to
a Section, Subsection, paragraph, subparagraph or clause of this Article
FOURTH, Part III.
Section 1. Number of Shares; Designation; Issuance and Automatic Conversion.
1.1 The Class 2 ESOP Convertible Preferred Stock of the Corporation (the
"Class 2 ESOP Preferred Stock") shall consist of 25,000,000 shares, par value
$0.01 per share.
1.2 Shares of Class 2 ESOP Preferred Stock shall be issued only to a trustee
or trustees acting on behalf of (i) the UAL Corporation Employee Stock
Ownership Plan, or (ii) the UAL Corporation Supplemental ESOP (either of (i) or
(ii), a "Plan"). In the event of any sale, transfer or other disposition
(including, without limitation, upon a foreclosure or other realization upon
shares of Class 2 ESOP Preferred Stock pledged as security for any loan or
loans made to a Plan or to the trustee or the trustees acting on behalf of a
Plan) (hereinafter a "transfer") of shares of Class 2 ESOP Preferred Stock to
any person (including, without limitation, any participant in a Plan) other
than (x) any trustee or trustees of a Plan or (y) any pledgee of such shares
acquiring such shares as security for any loan or loans made to a Plan or to
any trustee or trustees acting on behalf of a Plan, the shares of Class 2 ESOP
Preferred Stock so transferred, upon such transfer and without any further
action by the Corporation or the transferee, shall be automatically converted
into shares of Common Stock at the applicable Conversion Rate in accordance
with Section 6 hereof and thereafter such transferee shall not have any of the
voting powers, preferences or relative, participating, optional or special
rights ascribed to shares of Class 2 ESOP Preferred Stock hereunder, but,
rather, shall have only the powers and rights pertaining to the Common Stock
into which such shares of Class 2 ESOP Preferred Stock shall have been so
converted. In the event of any such automatic conversion provided for in this
Section 1.2, such transferee shall be treated for all purposes as the record
holder of the shares of Common Stock into which the Class 2 ESOP Preferred
Stock shall have been converted as of the date of such conversion. Certificates
representing shares of Class 2 ESOP Preferred Stock shall be legended to
reflect such consequences of a transfer. Notwithstanding the foregoing
provisions of this Section 1, shares of Class 2 ESOP Preferred Stock may be
converted into shares of Common Stock as provided by Section 6 hereof and the
shares of Common Stock issued upon any conversion in accordance with Section 6
hereof or this Section 1.2 may be transferred by the holder thereof as
permitted by law.
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Section 2. Definitions. For purposes of the Class 2 ESOP Preferred Stock, the
following terms shall have the meanings indicated:
2.1 "Affiliate" shall have the meaning defined in Rule 12b-2 promulgated
under the Securities Exchange Act of 1934, as amended, or any successor
thereto.
2.2 "Board of Directors" shall mean the board of directors of the Corporation
or any committee authorized by such board of directors to perform any of its
responsibilities with respect to the Class 2 ESOP Preferred Stock.
2.3 "Business Day" shall mean any day other than a Saturday, Sunday or a day
on which state or federally chartered banking institutions in New York, New
York are not required to be open.
2.4 "Class 1 ESOP Preferred Stock" shall mean the Class 1 ESOP Convertible
Preferred Stock, par value $0.01 per share, of the Corporation.
2.5 "Class 2 ESOP Preferred Stock" shall have the meaning set forth in
Section 1 hereof.
2.6 "Class I Preferred Stock" shall mean the Class I Junior Preferred Stock,
par value $0.01 per share, of the Corporation.
2.7 "Class IAM Preferred Stock" shall mean the Class IAM Junior Preferred
Stock, par value $0.01 per share, of the Corporation.
2.8 "Class M Voting Preferred Stock" shall mean the Class M ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.9 "Class P Voting Preferred Stock" shall mean the Class P ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.10 "Class Pilot MEC Preferred Stock" shall mean the Class Pilot MEC Junior
Preferred Stock, par value $0.01 per share, of the Corporation.
2.11 "Class S Voting Preferred Stock" shall mean the Class S ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.12 "Class SAM Preferred Stock" shall mean the Class SAM Junior Preferred
Stock, par value $0.01 per share, of the Corporation.
2.13 "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
2.14 "Common Stock" shall mean the common stock of the Corporation, par value
$0.01 per share.
2.15 "Conversion Rate" shall have the meaning set forth in Section 6.1
hereof.
2.16 "Current Market Price" of publicly traded shares of Common Stock or any
other class or series of capital stock or other security of the Corporation or
any other issuer for any day shall mean the last reported sales price, regular
way, on such day, or, if no sale takes place on such day, the average of the
reported closing bid and asked prices on such day, regular way, in either case
as reported on the New York Stock Exchange Composite Tape or, if such security
is not listed or admitted for trading on the New York Stock Exchange, Inc.
("NYSE"), on the principal national securities exchange on which such security
is listed or admitted for trading or quoted or, if not listed or admitted for
trading or quoted on any national securities exchange, on the Nasdaq National
Market, or, if such security is not quoted on such National Market, the average
of the closing bid and asked prices on such day in the over-the-counter market
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") or, if bid and asked prices
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for such security on such day shall not have been reported through NASDAQ, the
average of the bid and asked prices on such day as furnished by any NYSE member
firm regularly making a market in such security selected for such purpose by
the Board of Directors.
2.17 "Director Preferred Stocks" shall mean collectively, the Class I
Preferred Stock, the Class IAM Preferred Stock, the Class Pilot MEC Preferred
Stock and the Class SAM Preferred Stock.
2.18 "Dividend Payment Date" shall mean the penultimate Business Day in each
year, commencing on such penultimate Business Day in 1994; provided that, with
respect to the Dividend Period beginning on January 1, 2000 and ending on March
31, 2000, the Dividend Payment Date shall be the penultimate Business Day in
the calendar quarter ending March 31, 2000.
2.19 "Dividend Periods" shall mean annual dividend periods commencing on the
last Business Day of each year and ending on and including the penultimate
Business Day of the next succeeding year (other than the initial Dividend
Period, which shall commence on the Issue Date and end on and include the
penultimate Business Day in 1994).
2.20 "Equity Securities" shall mean the Common Stock or any debt, equity or
other security or contractual right convertible into or exercisable or
exchangeable for, or based on the value of, the Common Stock or any warrants,
options or other rights to purchase the Common Stock or other Equity Securities
(other than the Rights).
2.21 "ESOP Preferred Stocks" shall mean, collectively, the Class 2 ESOP
Preferred Stock and the Class 1 ESOP Preferred Stock.
2.22 "Extraordinary Distribution" shall mean any single dividend or other
distribution (including by reclassification of shares or recapitalization of
the Corporation, as well as any such dividend or distribution made in
connection with a merger or consolidation in which the Corporation is the
continuing corporation and the Common Stock is not changed or exchanged) to
holders of Common Stock (effected while any of the shares of Class 2 ESOP
Preferred Stock are outstanding) (i) of cash, where the aggregate amount of
such single cash dividend or distribution together with the amount of all cash
dividends and distributions made to holders of Common Stock during the period
from the latest to occur of the Issue Date or the most recent Dividend Payment
Date until the payment date for such cash dividend or distribution to holders
of Common Stock, when combined with the aggregate amount of all previous Pro
Rata Repurchases during such period (for this purpose, including only that
portion of the aggregate purchase price of each such Pro Rata Repurchase which
is in excess of the Fair Market Value of the Common Stock repurchased as
determined on the Business Day prior to the public announcement of such Pro
Rata Repurchase made during such period), exceeds twelve and one-half percent
(12 1/2%) of the aggregate Fair Market Value of all shares of Common Stock
outstanding on the record date for determining the shareholders entitled to
receive such Extraordinary Distribution and (ii) of any shares of capital stock
of the Corporation (other than shares of Common Stock), other securities of the
Corporation (other than securities of the type referred to in Sections 6.4(b)
and 6.4(c) hereof), evidences of indebtedness of the Corporation or any other
person or any other property (including, without limitation, shares of capital
stock of any subsidiary of the Corporation), or any combination thereof. The
Fair Market Value of any such single dividend or other distribution that,
pursuant to clause (i), constitutes an Extraordinary Distribution shall for
purposes of the first paragraph of Section 6.4(d) hereof be the sum of the Fair
Market Value of such Extraordinary Distribution plus the amount of any other
cash dividends and distributions made within the relevant period referred to
above to holders of Common Stock to the extent such other dividends and
distributions were not previously included in the calculation of an adjustment
pursuant to the first paragraph of Section 6.4(d) hereof within such period.
2.23 "Fair Market Value" shall mean the average of the daily Current Market
Prices of the security in question during the five (5) consecutive Trading Days
before the earlier of the day in question and the "ex" date with respect to the
issuance or distribution requiring such computation. The term " "ex' date,"
when
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used with respect to any issuance or distribution, means the first day on which
the Common Stock trades regular way, without the right to receive such issuance
or distribution, on the exchange or in the market, as the case may be, used to
determine that day's Current Market Price. With respect to any asset or
security for which there is no Current Market Price, the Fair Market Value of
such asset or security shall be determined in good faith by the Board of
Directors.
2.24 "Issue Date" shall mean the first date on which shares of Class 2 ESOP
Preferred Stock are issued.
2.25 "Liquidation Preference" shall have the meaning set forth in Section 4.1
hereof.
2.26 "Measuring Date" shall mean that date which is the 365th day following
the Issue Date.
2.27 "Non-Dilutive Amount" in respect of an issuance, sale or exchange by the
Corporation of any Equity Securities (other than Common Stock) shall mean the
excess of (i) the product of the Fair Market Value of a share of Common Stock
on the day preceding the first public announcement of such issuance, sale or
exchange multiplied by the maximum number of shares of Common Stock which could
be acquired on such date upon the exercise, conversion or exchange in full of
such Equity Securities (and any Equity Securities receivable upon exercise,
conversion or exchange thereof), whether or not then exercisable, convertible
or exchangeable at such date, over (ii) the aggregate amount payable pursuant
to the exercise, conversion or exchange of such Equity Securities, whether or
not then exercisable, convertible or exchangeable, to purchase or acquire such
maximum number of shares of Common Stock (and any Equity Securities receivable
upon exercise, conversion or exchange thereof); provided, however, that in no
event shall the Non-Dilutive Amount be less than zero. For purposes of the
foregoing sentence, the amount payable pursuant to the exercise, conversion or
exchange of such Equity Securities to purchase or acquire shares of Common
Stock shall be deemed to be the Fair Market Value of the consideration payable
pursuant to the exercise, conversion or exchange of such Equity Securities on
the date of the issuance, sale or exchange of such Equity Securities by the
Corporation (excluding for that purpose the Fair Market Value of the Equity
Security to be so exercised, converted or exchanged).
2.28 "Pro Rata Repurchase" shall mean any purchase of shares of Common Stock
by the Corporation or any Affiliate thereof, whether for cash, shares of
capital stock of the Corporation, other securities of the Corporation,
evidences of indebtedness of the Corporation or any other person or any other
property (including, without limitation, shares of capital stock, other
securities or evidences of indebtedness of a subsidiary of the Corporation), or
any combination thereof, effected while any of the shares of Class 2 ESOP
Preferred Stock are outstanding, pursuant to any tender offer or exchange offer
subject to Section 13(e) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or any successor provision of law, or pursuant to any
other offer available to substantially all holders of Common Stock; provided,
however, that "Pro Rata Repurchase" shall not include any purchase of shares by
the Corporation or any subsidiary thereof made in open market transactions
substantially in accordance with the requirements of Rule 10b-18 as in effect
under the Exchange Act or on such other terms and conditions as the Board of
Directors shall have determined are reasonably designed to prevent such
purchases from having a material effect on the trading market for the Common
Stock. The "Effective Date" of a Pro Rata Repurchase shall mean the date of
acceptance of shares for purchase or exchange under any tender or exchange
offer which is a Pro Rata Repurchase or the date of purchase with respect to
any Pro Rata Repurchase that is not a tender or exchange offer.
2.29 "Restated Certificate" shall mean the Restated Certificate of
Incorporation of the Corporation, as amended from time to time.
2.30 "Rights" shall mean the rights of the Corporation issued or issuable
under the Corporation's Rights Agreement dated as of December 11, 1986, and as
amended from time to time (the "Rights Agreement"), or rights to purchase any
capital stock of the Corporation issued or issuable under any successor
shareholder rights plan or plans adopted in replacement of the Rights
Agreement.
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2.31 "Series A Debentures" shall mean the Series A Debentures due 2004 of
United Air Lines, Inc.
2.32 "Series A Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series A Convertible
Preferred Stock in Article FOURTH, Part I.A of this Restated Certificate.
2.33 "Series B Debentures" shall mean the Series B Debentures due 2014 of
United Air Lines, Inc.
2.34 "Series B Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series B Preferred
Stock in Article FOURTH, Part I.B of this Restated Certificate.
2.35 "Series C Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series C Junior
Participating Preferred Stock in Article FOURTH, Part I.C of this Restated
Certificate.
2.36 "Series D Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series D Redeemable
Preferred Stock in Article FOURTH, Part I.D of this Restated Certificate.
2.37 [Reserved]
2.38 "set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Corporation in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to a
declaration of dividends or other distribution by the Board of Directors, the
allocation of funds to be so paid on any series or class of capital stock of
the Corporation; provided, however, that if any funds for any class or series
of stock of the Corporation ranking on a parity with or junior to the Class 2
ESOP Preferred Stock as to the payment of dividends or distributions are placed
in a separate account of the Corporation or delivered to a disbursing, paying
or other similar agent, then "set apart for payment" with respect to the Class
2 ESOP Preferred Stock shall mean, with respect to such dividends or
distributions, placing such funds in a separate account or delivering such
funds to a disbursing, paying or other similar agent.
2.39 "Trading Day" shall mean any day on which the securities in question are
traded on the NYSE, or if such securities are not listed or admitted for
trading or quoted on the NYSE, on the principal national securities exchange on
which such securities are listed or admitted, or if not listed or admitted for
trading or quoted on any national securities exchange, on the Nasdaq National
Market, or if such securities are not quoted on such National Market, in the
applicable securities market in which the securities are traded.
2.40 "Transfer Agent" means the Corporation or such agent or agents of the
Corporation as may be designated from time to time by the Board of Directors as
the transfer agent for the Class 2 ESOP Preferred Stock.
2.41 "Voting Preferred Stocks" shall mean collectively, the Class M Voting
Preferred Stock, the Class P Voting Preferred Stock and the Class S Voting
Preferred Stock.
Section 3. Dividends.
3.1 The holders of shares of the Class 2 ESOP Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
assets legally available for that purpose, dividends payable in cash at the
rate (per outstanding share of Common Stock) equal to the dividends which would
have been received during the applicable Dividend Period with respect to the
shares of Common Stock which would have been issued upon conversion of the
Class 2 ESOP Preferred Stock had the Class 2 ESOP Preferred Stock been
outstanding as Common Stock at each relevant time in order to receive such
dividends (but only to the
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extent such dividends do not constitute an Extraordinary Distribution under
clause (i) of the definition thereof), which dividends (hereinafter referred to
as "Participating Dividends") shall be paid in cash, pro-rata to each holder of
Class 2 ESOP Preferred Stock. Such Participating Dividends shall be cumulative
from the Issue Date, whether or not in any Dividend Period or Periods there
shall be assets of the Corporation legally available for the payment of such
Participating Dividends and whether or not the Board of Directors shall have
declared such Participating Dividends, and shall be payable annually (except as
otherwise provided herein) when, as and if declared by the Board of Directors,
in arrears on Dividend Payment Dates, commencing on the penultimate Business
Day of 1994. Each such Participating Dividend shall be payable in arrears to
the holders of record of shares of the Class 2 ESOP Preferred Stock, as they
appear on the stock records of the Corporation at the close of business on such
record dates, which shall not be more than 60 days nor less than 10 days
preceding the Dividend Payment Dates thereof, as shall be fixed by the Board of
Directors. Accrued and unpaid Participating Dividends for any past Dividend
Periods may be declared and paid at any time, without reference to any Dividend
Payment Date, to holders of record on such date, not exceeding 45 days
preceding the payment date thereof, as may be fixed by the Board of Directors.
Holders of the Class 2 ESOP Preferred Stock shall be entitled to the cumulative
Participating Dividend provided in this Section 3.1 and shall not be entitled
to any other dividends in excess thereof. In the event that an adjustment is
made pursuant to the second paragraph of Section 6.4(d) with respect to shares
of Class 2 ESOP Preferred Stock converted during the applicable Dividend
Period, the amount of Participating Dividend to be paid in accordance with the
preceding sentence shall be reduced by an amount equal to the product of (x)
the number of shares of Common Stock into which such converted shares of Class
2 ESOP Preferred Stock would have been converted in the absence of such
adjustment and (y) the amount of the cash dividend or distributions per share
of Common Stock in respect of which such adjustment was made.
3.2 Except as provided in Section 3.1, holders of shares of Class 2 ESOP
Preferred Stock shall not be entitled to any dividends, whether payable in
cash, property or stock, in excess of cumulative Participating Dividends, as
herein provided, on the Class 2 ESOP Preferred Stock. No interest, or sum of
money in lieu of interest, shall be payable in respect of any Participating
Dividend payment or payments on the Class 2 ESOP Preferred Stock that may be in
arrears.
3.3 So long as any shares of the Class 2 ESOP Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on any other class or series
of stock of the Corporation ranking on a parity with the Class 2 ESOP Preferred
Stock as to the payment of dividends for any period unless full cumulative
Participating Dividends have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for such
payment on the Class 2 ESOP Preferred Stock for all Dividend Periods
terminating on or prior to the date of payment of the dividends on such class
or series of parity stock. When Participating Dividends are not paid in full or
a sum sufficient for such payment is not set apart, as aforesaid, all dividends
declared upon the Class 2 ESOP Preferred Stock and such parity stock shall be
declared ratably in proportion to the respective amounts of Participating
Dividends accumulated and unpaid on the Class 2 ESOP Preferred Stock and
dividends accumulated and unpaid on such parity stock.
3.4 So long as any shares of the Class 2 ESOP Preferred Stock are
outstanding, no dividends (other than (i) the Rights and (ii) dividends or
distributions paid in shares of, or options, warrants, or rights to subscribe
for or purchase shares of, any class or series of stock of the Corporation that
is junior to the Class 2 ESOP Preferred Stock as to the payment of dividends)
shall be declared or paid or set apart for payment or other distribution
declared or made upon any class or series of stock of the Corporation that is
junior to the Class 2 ESOP Preferred Stock as to the payment of dividends, nor
shall any other class or series of stock of the Corporation ranking on a parity
with or junior to the Class 2 ESOP Preferred Stock as to the payment of
dividends or as to distributions upon liquidation, dissolution or winding up of
the Corporation, be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan of the Corporation or any
subsidiary) for any consideration (or any moneys be paid to or made available
for a sinking fund for the
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redemption of any shares of any such stock) by the Corporation, directly or
indirectly (except by conversion into or exchange for any class or series of
stock of the Corporation that is junior to the Class 2 ESOP Preferred Stock as
to the payment of dividends and as to distributions upon liquidation,
dissolution or winding up of the Corporation), unless in each case the full
cumulative Participating Dividends on all outstanding shares of the Class 2
ESOP Preferred Stock shall have been paid or set apart for payment for all past
Dividend Periods with respect to the Class 2 ESOP Preferred Stock and such
parity stock.
Section 4. Payments upon Liquidation.
4.1 In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, before any payment or distribution of the assets
of the Corporation (whether capital or surplus) shall be made to or set apart
for payment to the holders of any class or series of stock of the Corporation
that ranks junior to the Class 2 ESOP Preferred Stock as to amounts
distributable upon liquidation, dissolution or winding up of the Corporation,
the holders of the shares of Class 2 ESOP Preferred Stock shall be entitled to
receive an amount equal to $[ * ] per share of Class 2 ESOP Preferred Stock
plus an amount equal to all dividends (whether or not earned or declared)
accrued and unpaid thereon to the date of final distribution to such holders
(collectively, the "Liquidation Preference"), but such holders shall not be
entitled to any further payment. If, upon any liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation, or proceeds
thereof, distributable among the holders of the shares of Class 2 ESOP
Preferred Stock shall be insufficient to pay in full the Liquidation Preference
and the liquidation preference on all other shares of any class or series of
stock of the Corporation that ranks on a parity with the Class 2 ESOP Preferred
Stock as to amounts distributable upon liquidation, dissolution or winding up
of the Corporation, then such assets, or the proceeds thereof, shall be
distributed among the holders of shares of Class 2 ESOP Preferred Stock and any
such other parity stock ratably in accordance with the respective amounts that
would be payable on such shares of Class 2 ESOP Preferred Stock and any such
other parity stock if all amounts payable thereon were paid in full. For the
purposes of this Section 4, (i) a consolidation or merger of the Corporation
with or into one or more corporations, or (ii) a sale, lease, exchange or
transfer of all or substantially all of the Corporation's assets, shall not be
deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary, of the Corporation.
4.2 Subject to the rights of the holders of shares of any class or series of
stock ranking prior to or on a parity with the Class 2 ESOP Preferred Stock as
to amounts distributable upon liquidation, dissolution or winding up of the
Corporation, after payment shall have been made to the holders of the Class 2
ESOP Preferred Stock, as and to the fullest extent provided in this Section 4,
any other class or series of stock of the Corporation that ranks junior to the
Class 2 ESOP Preferred Stock as to amounts distributable upon dissolution,
liquidation or winding up of the Corporation shall, subject to the respective
terms and provisions (if any) applying thereto, be entitled to receive any and
all assets remaining to be paid or distributed, and the holders of the Class 2
ESOP Preferred Stock shall not be entitled to share therein.
Section 5. Shares to be Retired. All shares of Class 2 ESOP Preferred Stock
which shall have been issued and reacquired in any manner by the Corporation
shall be retired and shall not be reissued.
Section 6. Conversion. Holders of shares of Class 2 ESOP Preferred Stock
shall have the right to convert all or a portion of such shares into shares of
Common Stock as follows:
6.1 Subject to and upon compliance with the provisions of this Section 6, a
holder of shares of Class 2 ESOP Preferred Stock shall have the right, at such
holder's option, at any time and from time to time, to convert all or any of
such shares into fully paid and nonassessable shares of Common Stock at a rate
of one share of Common Stock for one share of Class 2 ESOP Preferred Stock,
subject to adjustment as provided in this Section 6 (as so adjusted, the
"Conversion Rate") by surrendering such shares to be converted, such
- --------
* The liquidation preference shall equal, on a per-share basis, the price per
share paid by the ESOP Trustee for the Class 1 ESOP Preferred Stock in the
sale which occurs at the Effective Time.
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surrender to be made in the manner provided in Section 6.2. Certificates shall
be issued for the remaining shares of Class 2 ESOP Preferred Stock if fewer
than all of the shares of Class 2 ESOP Preferred Stock represented by a
certificate are converted.
6.2 In order to exercise the conversion right, the holder of shares of Class
2 ESOP Preferred Stock to be converted shall surrender the certificate or
certificates representing such shares, duly endorsed or assigned to the
Corporation or in blank, at the office of the Transfer Agent in the Borough of
Manhattan, City of New York, accompanied by written notice to the Corporation
that the holder thereof elects to convert Class 2 ESOP Preferred Stock. Unless
the shares issuable on conversion are to be issued in the same name as the name
in which such share of Class 2 ESOP Preferred Stock is registered, each share
surrendered for conversion shall be accompanied by instruments of transfer, in
form satisfactory to the Corporation, duly executed by the holder or such
holder's duly authorized attorney and an amount sufficient to pay any transfer
or similar tax (or evidence reasonably satisfactory to the Corporation
demonstrating that such taxes have been paid or that no such taxes are
payable).
Holders of shares of Class 2 ESOP Preferred Stock at the close of business on
a dividend payment record date shall be entitled to receive the dividend
payable on such shares on the corresponding Dividend Payment Date
notwithstanding the conversion thereof following such dividend payment record
date. The Corporation shall make no payment or allowance for unpaid dividends
on the shares of Common Stock issued upon such conversion.
As promptly as practicable after the surrender of certificates for shares of
Class 2 ESOP Preferred Stock as aforesaid, the Corporation shall issue and
shall deliver at such office to such holder, or on such holder's written order,
a certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of such shares in accordance with provisions of
this Section 6, and any fractional interest in respect of a share of Common
Stock arising upon such conversion shall be settled as provided in Section 6.3.
Each conversion shall be deemed to have been effected immediately prior to
the close of business on the date on which the certificates for shares of Class
2 ESOP Preferred Stock shall have been surrendered and such notice (and if
applicable, payment of an amount equal to the dividend payable on such shares)
received by the Corporation as aforesaid, and the person or persons in whose
name or names any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby at such time on such date
and such conversion shall be at the Conversion Rate in effect at such time on
such date, unless the stock transfer books of the Corporation shall be closed
on that date, in which event such person or persons shall be deemed to have
become such holder or holders of record at the close of business on the next
succeeding day on which such stock transfer books are open, but such conversion
shall be at the Conversion Rate in effect on the date upon which such shares
shall have been surrendered and such notice received by the Corporation.
6.3 No fractional shares or scrip representing fractions of shares of Common
Stock shall be issued upon conversion of the Class 2 ESOP Preferred Stock.
Instead of any fractional interest in a share of Common Stock that would
otherwise be deliverable upon the conversion of a share of Class 2 ESOP
Preferred Stock, the Corporation shall pay to the holder of such share an
amount in cash based upon the Current Market Price of Common Stock on the
Trading Day immediately preceding the date of conversion. If more than one
certificate shall be surrendered for conversion at one time by the same holder,
the number of full shares of Common Stock issuable upon conversion thereof
shall be computed on the basis of the aggregate number of shares of Class 2
ESOP Preferred Stock so surrendered.
6.4 The Conversion Rate shall be adjusted from time to time as follows:
(a) In case the Corporation shall, at any time or from time to time while any
of the shares of Class 2 ESOP Preferred Stock are outstanding, (i) pay a
dividend or make a distribution on its capital stock in shares of its Common
Stock, (ii) subdivide its outstanding Common Stock into a greater number of
shares, (iii) combine its outstanding Common Stock into a smaller number of
shares or (iv) issue any shares of capital
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stock by reclassification of its Common Stock, the Conversion Rate in effect at
the opening of business on the day next following the date fixed for the
determination of stockholders entitled to receive such dividend or distribution
or at the opening of business on the day next following the day on which such
subdivision, combination or reclassification becomes effective, as the case may
be, shall be adjusted so that the holder of any share of Class 2 ESOP Preferred
Stock thereafter surrendered for conversion shall be entitled to receive the
number of shares of Common Stock or other capital stock that such holder would
have owned or have been entitled to receive after the happening of any of the
events described above had such share been converted immediately prior to the
record date in the case of a dividend or distribution or the effective date in
the case of a subdivision, combination or reclassification. An adjustment made
pursuant to this subparagraph (a) shall become effective immediately after the
opening of business on the day next following the record date (except as
provided in Section 6.7 below) in the case of a dividend or distribution and
shall become effective immediately after the opening of business on the day
next following the effective date in the case of a subdivision, combination or
reclassification.
(b) In case the Corporation shall, at any time or from time to time while any
of the shares of Class 2 ESOP Preferred Stock are outstanding, issue Equity
Securities (other than Common Stock and the Rights) (the "Issued Equity
Securities") to all holders of shares of its Common Stock entitling them (for a
period expiring within 45 days after the record date for such issuance) to
subscribe for or purchase (whether by exercise, conversion, exchange or
otherwise) shares of Common Stock (or other Equity Securities) at a price per
share less than the Fair Market Value of the Common Stock (or the other Equity
Security to be acquired) at such record date (treating the price per share of
the Equity Securities to be acquired as equal to (x) the sum of (i) the Fair
Market Value of the consideration payable for a unit of the Equity Security
plus (ii) the Fair Market Value of any additional consideration initially
payable upon the exercise, conversion or exchange of such security into Common
Stock divided by (y) the number of shares of Common Stock initially underlying
or that may be acquired upon the exercise, conversion or exchange of such
Equity Security), the Conversion Rate shall be adjusted so that it shall equal
the rate determined by multiplying the Conversion Rate in effect immediately
prior to the date of issuance of such Issued Equity Securities by a fraction,
the numerator of which shall be the sum of (A) the number of shares of Common
Stock outstanding on the date of issuance of such Issued Equity Securities plus
(B) the number of additional shares of Common Stock offered for subscription or
purchase (including, without limitation, the security underlying or that may be
acquired upon the exercise, conversion or exchange of the Equity Securities so
offered) and the denominator of which shall be the sum of (A) the number of
shares of Common Stock outstanding on the date of issuance of such Issued
Equity Securities plus (B) the number of shares of Common Stock that the
aggregate offering price of the total number of shares so offered for
subscription or purchase (including, without limitation, the Fair Market Value
of the consideration payable for a unit of the Equity Securities so offered
plus the Fair Market Value of any additional consideration payable upon
exercise, conversion or exchange of such Equity Securities) would purchase at
such Fair Market Value of the Common Stock as of the record date for such
issuance. Such adjustment shall become effective as of the record date for the
determination of stockholders entitled to receive such Issued Equity Securities
(except as provided in Section 6.6 below).
(c) In case the Corporation shall, at any time or from time to time while any
of the shares of Class 2 ESOP Preferred Stock are outstanding, issue, sell or
exchange shares of Common Stock (other than pursuant to any Rights, Equity
Securities issued in connection with any employee or director incentive or
benefit plan or arrangement of the Corporation or any subsidiary or any Equity
Security theretofore outstanding entitling the holder to purchase or acquire
shares of Common Stock) for a consideration having a Fair Market Value on the
date of such issuance, sale or exchange less than the Fair Market Value of such
shares of Common Stock on the date of such issuance, sale or exchange, then the
Conversion Rate in effect immediately prior to such issuance, sale or exchange
shall be adjusted by multiplying such Conversion Rate by a fraction, the
numerator of which shall be the product of (i) the Fair Market Value of a share
of Common Stock on the Trading Day immediately preceding the first public
announcement of such issuance, sale or exchange multiplied by (ii) the sum of
the number of shares of Common Stock outstanding on such day plus the number of
shares of Common Stock so issued, sold or exchanged by the Corporation, and the
denominator of which
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shall be the sum of (i) the Fair Market Value of all the shares of Common Stock
outstanding on the Trading Day immediately preceding the first public
announcement of such issuance, sale or exchange plus (ii) the Fair Market Value
of the consideration received by the Corporation in respect of such issuance,
sale or exchange of shares of Common Stock. In case the Corporation shall, at
any time or from time to time while any of the shares of Class 2 ESOP Preferred
Stock are outstanding, issue, sell or exchange any Equity Security (other than
any Rights, Equity Securities issued in connection with any employee or
director incentive or benefit plan or arrangement of the Corporation or any
subsidiary or Common Stock) other than any such issuance to all holders of
shares of Common Stock as a dividend or distribution (including by way of a
reclassification of shares or a recapitalization of the Corporation) for a
consideration having a Fair Market Value on the date of such issuance, sale or
exchange less than the Non-Dilutive Amount, then the Conversion Rate shall be
adjusted by multiplying such Conversion Rate by a fraction, the numerator of
which shall be the product of (i) the Fair Market Value of a share of Common
Stock on the Trading Day immediately preceding the first public announcement of
such issuance, sale or exchange multiplied by (ii) the sum of the number of
shares of Common Stock outstanding on such day plus the maximum number of
shares of Common Stock underlying or which could be acquired pursuant to such
Equity Security at the time of the issuance, sale or exchange of such Equity
Security (assuming shares of Common Stock could be acquired pursuant to such
Equity Security at such time), and the denominator of which shall be the sum of
(i) the Fair Market Value of all the shares of Common Stock outstanding on the
Trading Day immediately preceding the first public announcement of such
issuance, sale or exchange plus (ii) the Fair Market Value of the consideration
received by the Corporation in respect of such issuance, sale or exchange of
such Equity Security plus (iii) the Fair Market Value as of the time of such
issuance of the consideration which the Corporation would receive upon
exercise, conversion or exchange in full of all such Equity Securities.
(d) In case the Corporation shall, at any time or from time to time while any
of the shares of Class 2 ESOP Preferred Stock are outstanding, make an
Extraordinary Distribution in respect of the Common Stock or effect a Pro Rata
Repurchase of Common Stock, the Conversion Rate in effect immediately prior to
such Extraordinary Distribution or Pro Rata Repurchase shall be adjusted by
multiplying such Conversion Rate by a fraction, the numerator of which shall be
the product of (i) the number of shares of Common Stock outstanding immediately
before such Extraordinary Dividend or Pro Rata Repurchase (minus, in the case
of a Pro Rata Repurchase, the number of shares of Common Stock repurchased by
the Corporation) multiplied by (ii) the Fair Market Value of a share of Common
Stock on the record date with respect to such Extraordinary Distribution or on
the Trading Day immediately preceding the first public announcement by the
Corporation or any of its Affiliates of the intent to effect a Pro Rata
Repurchase, as the case may be, and the denominator of which shall be (i) the
product of (x) the number of shares of Common Stock outstanding immediately
before such Extraordinary Distribution or Pro Rata Repurchase multiplied by (y)
the Fair Market Value of a share of Common Stock on the record date with
respect to such Extraordinary Distribution, or on the Trading Day immediately
preceding the first public announcement by the Corporation or any of its
Affiliates of the intent to effect a Pro Rata Repurchase, as the case may be,
minus (ii) the Fair Market Value of the Extraordinary Distribution or the
aggregate purchase price of the Pro Rata Repurchase, as the case may be
(provided that such denominator shall never be less than 1.0); provided,
however, that no Pro Rata Repurchase shall cause an adjustment to the
Conversion Rate unless the amount of all cash dividends and distributions made
to holders of Common Stock during the period from the latest to occur of the
Issue Date or the most recent Dividend Payment Date preceding the Effective
Date of such Pro Rata Repurchase, when combined with the aggregate amount of
all Pro Rata Repurchases, including such Pro Rata Repurchase (for all purposes
of this Section 7.4(d), including only that portion of the Fair Market Value of
the aggregate purchase price of each Pro Rata Repurchase which is in excess of
the Fair Market Value of the Common Stock repurchased as determined on the
Trading Day immediately preceding the first public announcement by the
Corporation or any of its Affiliates of the intent to effect each such Pro Rata
Repurchase), the Effective Dates of which fall within such period, exceeds
twelve and one-half percent (12 1/2%) of the aggregate Fair Market Value of all
shares of Common Stock outstanding on the Trading Day immediately preceding the
first public announcement by the Corporation or any of its Affiliates of the
intent to effect such Pro Rata Repurchase. Such adjustment shall become
effective immediately after the record date
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for the determination of stockholders entitled to receive such Extraordinary
Distribution or immediately after the Effective Date of such Pro Rata
Repurchase.
Solely as an adjustment applicable to shares of Class 2 ESOP Preferred Stock
that are being converted into Common Stock as of a given date, and not as a
permanent adjustment to the Conversion Rate, the Conversion Rate in effect
immediately prior to such conversion shall be adjusted by multiplying such
Conversion Rate by a fraction, the numerator of which shall be the product of
(i) the number of shares of Common Stock outstanding immediately before such
conversion multiplied by (ii) the Fair Market Value of a share of Common Stock
on the date of such conversion, and the denominator of which shall be (i) the
product of (x) the number of shares of Common Stock outstanding immediately
before such conversion multiplied by (y) the Fair Market Value of a share of
Common Stock on the date of such conversion minus (ii) the Fair Market Value of
the cash dividends and distributions made on or before the date of such
conversion with a record date after the later of the Issue Date or the most
recent Dividend Payment Date upon which Participating Dividends were paid in
full, but only to the extent that such cash dividends and distributions (a)
would entitle the holders of the shares of Class 2 ESOP Preferred Stock
outstanding on such conversion date to a dividend under Section 3.1 that has
not been paid and (b) would not constitute an Extraordinary Distribution
(provided that such denominator shall never be less than 1.0).
(e) No adjustment in the Conversion Rate shall be required unless such
adjustment would require a cumulative increase or decrease of at least 0.01% in
such rate; provided that any adjustments that by reason of this subparagraph
(e) are not required to be made shall be carried forward and taken into account
in any subsequent adjustment until made; and provided further that any
adjustment shall be required and made in accordance with the provisions of this
Section 6.4 (other than this subparagraph (e)) not later than such time as may
be required in order to preserve the taxfree nature of a distribution to the
holders of shares of Common Stock. Notwithstanding any other provisions of this
Section 6, the Corporation shall not be required to make any adjustments of the
Conversion Rate for the issuance of any shares of Common Stock pursuant to any
plan providing for the reinvestment of dividends on securities of the
Corporation so long as the holders of the Class 2 ESOP Preferred Stock shall be
entitled to participate therein on substantially the same terms as holders of
Common Stock. All calculations under this Section 6 shall be made to the
nearest cent (with $.005 being rounded upward), one-tenth of a share (with .05
of a share being rounded upward) or, in the case of the Conversion Rate, one
hundred millionth of a share (with .000000005 being rounded upward), as the
case may be. Anything in this Section 6.4 to the contrary notwithstanding, the
Corporation shall be entitled, to the extent permitted by law, to make such
reductions in the Conversion Rate, in addition to those required by this
Section 6.4, as it in its discretion shall determine to be advisable in order
that any stock dividends, subdivision of shares, reclassification or
combination of shares, distribu tion of rights or warrants to purchase stock or
securities, or a distribution of other assets (other than cash dividends)
hereafter made by the Corporation to its stockholders shall not be taxable.
6.5 If:
(a) the Corporation shall declare a dividend or any other distribution on the
Common Stock (other than the Rights); or
(b) the Corporation shall authorize the granting to the holders of the Common
Stock of Equity Securities (other than Common Stock) to subscribe for or
purchase any Equity Security; or
(c) there shall be any reclassification of the Common Stock (other than an
event to which Section 6.4(a) applies) or any consolidation or merger to which
the Corporation is a party and for which approval of any stockholders of the
Corporation is required, or the sale or transfer of all or substantially all of
the assets of the Corporation as an entirety; or
(d) there shall occur the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation; or
(e) there shall occur any Pro Rata Repurchase,
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then the Corporation shall cause to be filed with the Transfer Agent and shall
cause to be mailed to the holders of shares of the Class 2 ESOP Preferred Stock
at their addresses as shown on the stock records of the Corporation, as
promptly as possible, but at least 10 days prior to the applicable date
hereinafter specified, a notice stating (A) the date on which a record is to be
taken for the purpose of such dividend, distribution or granting of Equity
Securities, or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution
or granting of Equity Securities are to be determined, (B) the date on which
such reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities or other property, if
any, deliverable upon such reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution or winding up or (C) the number of shares
subject to such offer for a Pro Rata Repurchase and the purchase price payable
by the Corporation pursuant to such offer. Failure to give or receive such
notice or any defect therein shall not affect the legality or validity of the
proceedings described in this Section 6.
6.6 Whenever the Conversion Rate is adjusted as herein provided, the
Corporation shall promptly file with the Transfer Agent an officer's
certificate setting forth the Conversion Rate after such adjustment and setting
forth a brief statement of the facts requiring and the manner of effecting such
adjustment which certificate shall be prima facie evidence of the correctness
of such adjustment. Promptly after delivery of such certificate, the
Corporation shall prepare a notice of such adjustment of the Conversion Rate
setting forth the adjusted Conversion Rate and the effective date of such
adjustment or adjustments and shall mail such notice of such adjustment or
adjustments to the holder of each share of Class 2 ESOP Preferred Stock at such
holder's last address as shown on the stock records of the Corporation.
6.7 In any case in which Section 6.4 provides that an adjustment shall become
effective on the day next following a record date for an event, the Corporation
may defer until the occurrence of such event (A) issuing to the holder of any
share of Class 2 ESOP Preferred Stock converted after such record date and
before the occurrence of such event the additional shares of Common Stock or
other securities issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock or other securities
issuable upon such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of any fraction pursuant to
Section 6.3.
6.8 For purposes of this Section 6, the number of shares of Common Stock at
any time outstanding shall not include any shares of Common Stock then owned or
held by or for the account of the Corporation or any subsidiary. The
Corporation shall not pay a dividend or make any distribution on shares of
Common Stock held in the treasury of the Corporation.
6.9 There shall be no adjustment of the Conversion Rate in case of the
issuance of any stock of the Corporation in a reorganization, acquisition or
other similar transaction except as specifically set forth in Section 6 or
Section 7. If any action or transaction would require adjustment of the
Conversion Rate pursuant to more than one paragraph of this Section 6, only one
adjustment shall be made and such adjustment shall be the amount of adjustment
that has the highest absolute value.
6.10 If the Corporation shall take any action affecting the Common Stock,
other than action described in this Section 6, that in the opinion of the Board
of Directors would materially adversely affect the conversion rights of the
holders of the shares of Class 2 ESOP Preferred Stock, the Conversion Rate for
the Class 2 ESOP Preferred Stock may be adjusted, to the extent permitted by
law, in such manner, if any, and at such time, as the Board of Directors may
determine to be equitable in the circumstances.
6.11 The Corporation covenants that it will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its authorized
but unissued shares of Common Stock or its issued shares of Common Stock held
in its treasury, or both, for the purpose of effecting conversion of the Class
2 ESOP Preferred Stock, the full number of shares of Common Stock deliverable
upon the conversion of all outstanding shares of Class 2 ESOP Preferred Stock
not theretofore converted. For purposes of this Section
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6.11, the number of shares of Common Stock that shall be deliverable upon the
conversion of all outstanding shares of Class 2 ESOP Preferred Stock shall be
computed as if at the time of computation all such outstanding shares were held
by a single holder.
The Corporation covenants that any shares of Common Stock issued upon
conversion of the Class 2 ESOP Preferred Stock shall be validly issued, fully
paid and non-assessable.
The Corporation shall endeavor to list the shares of Common Stock (or other
securities) required to be delivered upon conversion of the Class 2 ESOP
Preferred Stock, prior to such delivery, upon each national securities
exchange, if any, upon which the outstanding Common Stock (or other securities)
is listed at the time of such delivery.
Prior to the delivery of any securities that the Corporation shall be
obligated to deliver upon conversion of the Class 2 ESOP Preferred Stock, the
Corporation shall endeavor to comply with all federal and state laws and
regulations thereunder requiring the registration of such securities with, or
any approval of or consent to the delivery thereof by, any governmental
authority.
6.12 The Corporation shall pay any and all documentary stamp or similar issue
or transfer taxes payable in respect of the issue or delivery of shares of
Common Stock or other securities or property on conversion of the Class 2 ESOP
Preferred Stock pursuant hereto; provided that the Corporation shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issue or delivery of shares of Common Stock or other securities or
property in a name other than that of the holder of the Class 2 ESOP Preferred
Stock to be converted and no such issue or delivery shall be made unless and
until the person requesting any such issue or delivery has paid to the
Corporation the amount of any such tax or established, to the reasonable
satisfaction of the Corporation, that such tax has been paid.
6.13 If, prior to the Distribution Date (as defined for purposes of the
Rights), the Corporation shall issue shares of Common Stock upon conversion of
shares of Class 2 ESOP Preferred Stock as contemplated by this Section 6, the
Corporation shall issue together with each such share of Common Stock that
number of Rights as are then issuable, pursuant to the Rights Agreement (or any
successor rights plan or plans adopted in replacement of the Rights Agreement),
per share of such Common Stock so issued, but only if at such time such Rights
or rights are, pursuant to the relevant rights agreement, to be represented by
certificates representing shares of Common Stock and have not expired.
Section 7. Consolidation, Merger, etc.
7.1 In case the Corporation shall enter into any consolidation, merger, share
exchange or similar transaction, however named, pursuant to which the
outstanding shares of Common Stock are to be exchanged solely for or changed,
reclassified or converted solely into stock of any successor or resulting or
other company (including the Corporation) that constitutes "qualifying employer
securities" with respect to holders of Class 2 ESOP Preferred Stock within the
meaning of Section 409(l) of the Code and Section 407(d)(5) of the Employee
Retirement Income Security Act of 1974, as amended, or any successor provisions
of law, and, if applicable, for a cash payment in lieu of fractional shares, if
any, proper provisions shall be made so that upon consummation of such
transaction, the shares of Class 2 ESOP Preferred Stock shall be converted into
or exchanged for preferred stock of such successor or resulting or other
company, having in respect of such company, the same powers, preferences and
relative, participating, optional or other special rights (including the rights
provided by this Section 7), and the qualifications, limitations or
restrictions thereof, that the Class 2 ESOP Preferred Stock had, in respect of
the Corporation, immediately prior to such transaction, except that after such
transaction each share of preferred stock of the surviving or resulting or
other company so received in such transaction upon conversion or exchange of
the Class 2 ESOP Preferred Stock shall be convertible, otherwise on the terms
and conditions provided by Section 6 hereof, into the number and kind of
"qualifying employer securities" receivable in such transaction by a holder of
the number of shares of Common Stock into which a share of Class 2 ESOP
Preferred Stock could have been converted immediately prior to such
transaction; provided, however, that if by virtue of the structure of such
transaction, a holder of
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Common Stock is required to make an election with respect to the nature and
kind of consideration to be received in such transaction, which election cannot
practicably be made by the holders of the Class 2 ESOP Preferred Stock, then
the shares of preferred stock of the surviving or resulting or other company
received in such transaction upon conversion or exchange of Class 2 ESOP
Preferred Stock shall, by virtue of such transaction and on the same terms as
apply to the holders of Common Stock, be convertible into or exchangeable
solely for "qualifying employer securities" (together, if applicable, with a
cash payment in lieu of fractional shares) with the effect provided above on
the basis of the number and kind of qualifying employer securities receivable
in such transaction by a holder of the number of shares of Common Stock into
which such shares of Class 2 ESOP Preferred Stock could have been converted
immediately prior to such transaction (provided that if the kind or amount of
qualifying employer securities receivable in such transaction is not the same
for each such share of Common Stock, then the kind and amount so receivable in
such transaction for each share of Common Stock for this purpose shall be
deemed to be the kind and amount so receivable per share by the plurality of
such shares of Common Stock). The rights of the preferred stock of such
successor or resulting or other company so received in such transaction upon
conversion or exchange of the Class 2 ESOP Preferred Stock shall successively
be subject to adjustments pursuant to Section 6 hereof following such
transaction as nearly equivalent to the adjustments provided for by such
Sections prior to such transaction.
7.2 In case the Corporation shall enter into any consolidation, merger, share
exchange or similar transaction, however named, pursuant to which the
outstanding shares of Common Stock are to be exchanged for or changed,
reclassified or converted into other stock or securities or cash or any other
property, or any combination thereof, other than any such consideration which
is constituted solely of "qualifying employer securities" (as referred to in
Section 7.1) and cash payments, if applicable, in lieu of fractional shares,
proper provisions shall be made so that upon consummation of such transaction
the outstanding shares of Class 2 ESOP Preferred Stock shall, by virtue of such
transaction and on the same terms as are applicable to the holders of Common
Stock, be converted into or exchanged for the aggregate amount of stock,
securities, cash or other property (payable in like kind) receivable by holders
of the number of shares of Common Stock into which such shares of Class 2 ESOP
Common Stock Preferred Stock could have been converted immediately prior to
such transaction; provided, however, that if by virtue of the structure of such
transaction, a holder of Common Stock is required to make an election with
respect to the nature and kind of consideration to be received in such
transaction, which election cannot practicably be made by holders of the Class
2 ESOP Preferred Stock, then the shares of Class 2 ESOP Preferred Stock shall,
by virtue of such transaction and on the same terms as apply to the holders of
Common Stock, be converted into or exchanged for the aggregate amount of stock,
securities, cash or other property (payable in kind) receivable by a holder of
the number of shares of Common Stock into which such shares of Class 2 ESOP
Preferred Stock could have been converted immediately prior to such transaction
if such holder of Common Stock failed to exercise any rights of election to
receive any kind or amount of stock, securities, cash or other property
receivable in such transaction (provided that if the kind or amount of stock,
securities, cash or other property receivable in such transaction are not the
same for each non-electing share, then the kind and amount of stock,
securities, cash or other property so receivable upon such transaction for each
non-electing share shall be the kind and amount so receivable per share by the
plurality of the non-electing shares).
7.3 In case the Corporation shall enter into any agreement providing for any
consolidation, merger, share exchange or similar transaction described in this
Section 7, then the Corporation shall as soon as practicable thereafter (and in
any event at least fifteen (15) Business Days before consummation of such
transaction) give notice of such agreement and the material terms thereof to
each holder of Class 2 ESOP Preferred Stock. The Corporation shall not
consummate any consolidation, merger, share exchange or similar transaction
unless all of the terms of this Section 7 have been complied with.
Section 8. Ranking.
8.1 Any class or series of stock of the Corporation shall be deemed to rank:
(a) prior to the Class 2 ESOP Preferred Stock, as to the payment of
dividends or as to distributions of assets upon liquidation, dissolution or
winding up, as the case may be, if the holders of such class or
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series shall be entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up, as the case may
be, in preference or priority to the holders of Class 2 ESOP Preferred
Stock;
(b) on a parity with the Class 2 ESOP Preferred Stock as to the payment
of dividends, whether or not the dividend rates or dividend payment dates
thereof be different from those of the Class 2 ESOP Preferred Stock, if the
holders of such class or series of stock and the Class 2 ESOP Preferred
Stock shall be entitled to the receipt of dividends in proportion to their
respective amounts of accrued and unpaid dividends per share, without
preference or priority one over the other, and on a parity with the Class 2
ESOP Preferred Stock as to the distribution of assets upon liquidation,
dissolution or winding up, whether or not the liquidation prices per share
thereof be different from those of the Class 2 ESOP Preferred Stock, if the
holder of such class or series of stock and the Class 2 ESOP Preferred
Stock shall be entitled to the receipt of amounts distributable upon
liquidation, dissolution or winding up in proportion to their respective
liquidation preferences, without preference or priority one over the other;
and
(c) junior to the Class 2 ESOP Preferred Stock, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution
or winding up, as the case may be, if the holders of Class 2 ESOP Preferred
Stock shall be entitled to receipt of dividends or of amounts distributable
upon liquidation, dissolution or winding up, as the case may be, in
preference or priority to the holders of shares of such class or series.
8.2 The Series A Preferred Stock and the Series B Preferred Stock, shall each
be deemed to rank prior to the Class 2 ESOP Preferred Stock both as to the
payment of dividends and as to the distribution of assets upon liquidation,
dissolution or winding up. The Series D Preferred Stock shall be deemed to rank
prior to the Class 2 ESOP Preferred Stock as to the distribution of assets upon
liquidation, dissolution or winding up. The Class 1 ESOP Preferred Stock shall
be deemed to rank on a parity with the Class 2 ESOP Preferred Stock as to the
payment of Participating Dividends and as to amounts distributable upon
liquidation, dissolution or winding up and the Class 1 ESOP Preferred Stock
shall be deemed to rank prior to the Class 2 ESOP Preferred Stock with respect
to the payment of Fixed Dividends (as such term is defined in Article FOURTH,
Part II of this Restated Certificate) on the Class 1 ESOP Preferred Stock. The
Common Stock, the Director Preferred Stocks, the Voting Preferred Stocks and
the Series C Preferred Stock shall each be deemed to rank junior to the Class 2
ESOP Preferred Stock both as to the payment of dividends and as to the
distribution of assets upon liquidation, dissolution or winding up.
Section 9. Voting. The holders of shares of Class 2 ESOP Preferred Stock
shall have the following voting rights:
9.1 Unless the affirmative vote or consent of the holders of a greater number
of shares of Class 2 ESOP Preferred Stock shall then be required by law or this
Restated Certificate, and in addition to any other vote required by law or this
Restated Certificate, the affirmative vote or written consent of the holders of
at least a majority of all of the outstanding shares of Class 2 ESOP Preferred
Stock, voting separately as a class, shall be necessary for authorizing,
effecting or validating the amendment, alteration or repeal (including any
amendment, alteration or repeal by operation of merger or consolidation) of any
of the provisions of this Restated Certificate or of any certificate amendatory
thereof or supplemental thereto (including any Certificate of Designation,
Preferences and Rights or any similar document relating to any series of Serial
Preferred Stock) that would adversely affect the preferences, rights, powers or
privileges of the Class 2 ESOP Preferred Stock; provided, however, that the
amendment of the provisions of this Restated Certificate so as to authorize or
create, or to increase the authorized amount of, any class or series of stock
of the Corporation ranking on a parity with or junior to the Class 2 ESOP
Preferred Stock both as to the payment of dividends and as to the distribution
of assets upon liquidation, dissolution or winding up of the Corporation shall
not be deemed to adversely affect the preferences, rights, powers or privileges
of Class 2 ESOP Preferred Stock.
9.2 Unless the affirmative vote or consent of the holders of a greater number
of shares of Class 2 ESOP Voting Preferred Stock shall then be required by law
or this Restated Certificate, and in addition to any other
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vote required by law or this Restated Certificate, the affirmative vote or
written consent of the holders of at least a majority of all of the outstanding
shares of Class 2 ESOP Preferred Stock, voting separately as a class, shall be
necessary for authorizing, effecting or validating the creation, authorization
or issuance of any shares of any class or series of stock of the Corporation
ranking prior to the Class 2 ESOP Preferred Stock either as to payment of
dividends or as to distributions upon liquidation, dissolution or winding up,
or the reclassification of any authorized stock of the Corporation into any
such prior shares, or the creation, authorization or issuance of any obligation
or security convertible into or evidencing the right to purchase any such prior
shares.
9.3 For purposes of the foregoing provisions of Sections 9.1 and 9.2, each
share of Class 2 ESOP Preferred Stock shall have one (1) vote per share. Except
as otherwise required by applicable law or as set forth herein, the shares of
Class 2 ESOP Preferred Stock shall not have any relative, participating,
optional or other special voting rights and powers and the consent of the
holders thereof shall not be required for the taking of any corporate action.
Section 10. No Redemption. The Class 2 ESOP Preferred Stock shall not be
redeemable in whole or in part.
Section 11. Rights. The Corporation shall take such actions as are necessary
to cause each share of Class 2 ESOP Preferred Stock to also represent, prior to
the Distribution Date (as defined for purposes of the Rights Agreement) that
number of Rights as are then associated with the number of shares of Common
Stock into which such share of Class 2 ESOP Preferred Stock is then convertible
and to cause such Rights to be distributable to, and transferrable and
exercisable by, holders of Class 2 ESOP Preferred Stock at the time and upon
terms substantially the same as those applicable to holders of Common Stock.
Section 12. Record Holders. The Corporation and the Transfer Agent (if other
than the Corporation) may deem and treat the record holder of any shares of
Class 2 ESOP Preferred Stock as the true and lawful owner thereof for all
purposes, and, except as otherwise provided by law, neither the Corporation nor
the Transfer Agent shall be affected by any notice to the contrary.
PART IV
Class P ESOP Voting Junior Preferred Stock
Unless otherwise indicated, any reference in this Article FOURTH, Part IV to
"Section", "Subsection", "paragraph", "subparagraph" or "clause" shall refer to
a Section, Subsection, paragraph, subparagraph or clause of this Article
FOURTH, Part IV.
Section 1. Number of Shares; Designation; Issuances; Automatic Conversion.
1.1 The Class P ESOP Voting Junior Preferred Stock of the Corporation (the
"Class P Voting Preferred Stock") shall consist of 11,600,000 shares, par value
$0.01 per share.
1.2 Shares of Class P Voting Preferred Stock shall be issued only to a
trustee or trustees acting on behalf of (i) the UAL Corporation Employee Stock
Ownership Plan (the "ESOP"), (ii) the UAL Corporation Supplemental ESOP (the
"Supplemental ESOP") or (iii) any other employee stock ownership trust or plan
or other employee benefit plan of the Corporation or any of its subsidiaries
(each, a "Plan"). In the event of any sale, transfer or other disposition
(including, without limitation, upon a foreclosure or other realization upon
shares of Class P Voting Preferred Stock pledged as security for any loan or
loans made to a Plan or to the trustee or the trustees acting on behalf of a
Plan) (hereinafter a "transfer") of shares of Class P Voting Preferred Stock to
any person (including, without limitation, any participant in a Plan) other
than (x) any Plan or trustee or trustees of a Plan or (y) any pledgee of such
shares acquiring such shares as security for any loan or loans made to the Plan
or to any trustee or trustees acting on behalf of the Plan, the shares of
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Class P Voting Preferred Stock so transferred, upon such transfer and without
any further action by the Corporation or the holder, shall be automatically
converted into shares of Common Stock at the applicable Conversion Rate in
accordance with Section 9 hereof and thereafter such transferee shall not have
any of the voting powers, preferences or relative, participating, optional or
special rights ascribed to shares of Class P Voting Preferred Stock hereunder,
but, rather, shall have only the powers and rights pertaining to the Common
Stock into which such shares of Class P Voting Preferred Stock shall be so
converted. In the event of any such automatic conversion provided for in this
Section 1.2, such transferee shall be treated for all purposes as the record
holder of the shares of Common Stock into which the Class P Voting Preferred
Stock shall have been converted as of the date of such conversion. Certificates
representing shares of Class P Voting Preferred Stock shall be legended to
reflect such consequences of a transfer. The shares of Common Stock issued upon
any conversion in accordance with Section 9 hereof or this Section 1.2 may be
transferred by the holder thereof as permitted by law.
Section 2. Definitions. For purposes of the Class P Voting Preferred Stock,
the following terms shall have the meanings indicated:
2.1 "Available Unissued ESOP Shares" shall have the meaning set forth in
Article FIFTH, Section 1.5 of this Restated Certificate.
2.2 "Board of Directors" shall mean the board of directors of the Corporation
or any committee of such board of directors authorized by such board of
directors to perform any of its responsibilities with respect to the Class P
Voting Preferred Stock.
2.3 "Business Day" shall mean any day other than a Saturday, Sunday or a day
on which state or federally chartered banking institutions in New York, New
York are not required to be open.
2.4 "Class 1 ESOP Convertible Preferred Stock" shall mean the Class 1 ESOP
Convertible Preferred Stock, par value $0.01 per share, of the Corporation.
2.5 "Class 2 ESOP Convertible Preferred Stock" shall mean the Class 2 ESOP
Convertible Preferred Stock, par value $0.01 per share, of the Corporation.
2.6 "Class I Preferred Stock" shall mean the Class I Junior Preferred Stock,
par value $0.01 per share, of the Corporation.
2.7 "Class IAM Preferred Stock" shall mean the Class IAM Junior Preferred
Stock, par value $0.01 per share, of the Corporation.
2.8 "Class M Voting Preferred Stock" shall mean the Class M ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.9 "Class P Voting Preferred Stock" shall have the meaning set forth in
Section 1 hereof.
2.10 "Class Pilot MEC Preferred Stock" shall mean the Class Pilot MEC Junior
Preferred Stock, par value $0.01 per share, of the Corporation.
2.11 "Class S Voting Preferred Stock" shall mean the Class S ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.12 "Class SAM Preferred Stock" shall mean the Class SAM Junior Preferred
Stock, par value $0.01 per share, of the Corporation.
2.13 "Common Stock" shall mean the common stock, par value $0.01 per share,
of the Corporation.
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2.14 "Conversion Rate" shall have the meaning set forth in Section 9.1
hereof.
2.15 "Current Market Price" of publicly traded shares of Common Stock or any
other class or series of capital stock or other security of the Corporation or
any other issuer for any day shall mean the last reported sales price, regular
way, on such day, or, if no sale takes place on such day, the average of the
reported closing bid and asked prices on such day, regular way, in either case
as reported on the New York Stock Exchange Composite Tape or, if such security
is not listed or admitted for trading on the New York Stock Exchange, Inc.
("NYSE"), on the principal national securities exchange on which such security
is listed or admitted for trading or quoted or, if not listed or admitted for
trading or quoted on any national securities exchange, on the Nasdaq National
Market or, if such security is not quoted on such National Market, the average
of the closing bid and asked prices on such day in the over-the-counter market
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") or, if bid and asked prices for such security on
such day shall not have been reported through NASDAQ, the average of the bid
and asked prices on such day as furnished by any NYSE member firm regularly
making a market in such security selected for such purpose by the Board of
Directors.
2.16 "Director Preferred Stocks" shall mean, collectively, the Class I
Preferred Stock, the Class Pilot MEC Preferred Stock, the Class IAM Preferred
Stock and the Class SAM Preferred Stock.
2.17 "ESOP Convertible Preferred Stocks" shall mean, collectively, the Class
1 ESOP Convertible Preferred Stock and the Class 2 ESOP Convertible Preferred
Stock.
2.18 "Issue Date" shall mean the first date on which shares of Class P Voting
Preferred Stock are issued.
2.19 "Liquidation Preference" shall have the meaning set forth in Section 4.1
hereof.
2.20 "Measuring Date" shall mean that date which is the 365th day following
the Issue Date.
2.21 "Pilot Fraction" shall mean 0.4623.
2.22 "Restated Certificate" shall mean the Restated Certificate of
Incorporation of the Corporation, as amended from time to time.
2.23 "Series A Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series A Convertible
Preferred Stock in Article FOURTH, Part I.A of this Restated Certificate.
2.24 "Series B Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series B Preferred
Stock in Article FOURTH, Part I.B of this Restated Certificate.
2.25 "Series C Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series C Junior
Participating Preferred Stock in Article FOURTH, Part I.C of this Restated
Certificate.
2.26 "Series D Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series D Redeemable
Preferred Stock in Article FOURTH, Part I.D of this Restated Certificate.
2.27 [Reserved]
2.28 "set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Corporation in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to a
declaration of dividends or other distribution by the Board of Directors, the
allocation
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of funds to be so paid on any series or class of capital stock of the
Corporation; provided, however, that if any funds for any class or series of
stock of the Corporation ranking on a parity with or junior to the Class P
Voting Preferred Stock as to distributions upon liquidation, dissolution or
winding up of the Corporation are placed in a separate account of the
Corporation or delivered to a disbursing, paying or other similar agent, then
"set apart for payment" with respect to the Class P Voting Preferred Stock
shall mean, with respect to such distributions, placing such funds in a
separate account or delivering such funds to a disbursing, paying or other
similar agent.
2.29 "Termination Date" shall have the meaning set forth in Article FIFTH,
Section 1.72 of this Restated Certificate.
2.30 "Trading Day" shall mean any day on which the securities in question are
traded on the NYSE, or if such securities are not listed or admitted for
trading or quoted on the NYSE, on the principal national securities exchange on
which such securities are listed or admitted, or if not listed or admitted for
trading or quoted on any national securities exchange, on the Nasdaq National
Market, or if such securities are not quoted on such National Market, in the
applicable securities market in which the securities are traded.
2.31 "Transfer Agent" means the Corporation or such agent or agents of the
Corporation as may be designated from time to time by the Board of Directors as
the transfer agent for the Class P Voting Preferred Stock.
2.32 "Voting Fraction" shall mean 0.55 with respect to votes and consents
that have a record date on or prior to the Measuring Date and a fraction that
is equivalent to the Adjusted Percentage (as defined in Section 1.10 of the
Agreement and Plan of Recapitalization, dated as of March 25, 1994, among the
Corporation, the Air Line Pilots Association, International and International
Association of Machinists and Aerospace Workers, as amended from time to time)
as in effect at the close of business on the Measuring Date with respect to
votes and consents that have a record date after the Measuring Date.
2.33 "Voting Preferred Stocks" shall mean, collectively, the Class P Voting
Preferred Stock, the Class M Voting Preferred Stock and the Class S Voting
Preferred Stock.
Section 3. Dividends. The holders of shares of the Class P Voting Preferred
Stock as such shall not be entitled to receive any dividends or other
distributions (except as provided in Section 4 below).
Section 4. Payments upon Liquidation.
4.1 In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, before any payment or distribution of the assets
of the Corporation (whether capital or surplus) shall be made to or set apart
for payment to the holders of any class or series of stock of the Corporation
that ranks junior to the Class P Voting Preferred Stock as to amounts
distributable upon liquidation, dissolution or winding up of the Corporation,
the holders of the shares of Class P Voting Preferred Stock shall be entitled
to receive $0.01 per share of Class P Voting Preferred Stock (the "Liquidation
Preference"), but such holders shall not be entitled to any further payment.
If, upon any liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation, or proceeds thereof, distributable among the holders
of the shares of Class P Voting Preferred Stock shall be insufficient to pay in
full the Liquidation Preference and the liquidation preference on all other
shares of any class or series of stock of the Corporation that ranks on a
parity with the Class P Voting Preferred Stock as to amounts distributable upon
liquidation, dissolution or winding up of the Corporation, then such assets, or
the proceeds thereof, shall be distributed among the holders of shares of Class
P Voting Preferred Stock and any such other parity stock ratably in accordance
with the respective amounts that would be payable on such shares of Class P
Voting Preferred Stock and any such other parity stock if all amounts payable
thereon were paid in full. For the purposes of this Section 4, (i) a
consolidation or merger of the Corporation with or into one or more
corporations, or (ii) a sale, lease, exchange or transfer of all or
substantially all of the Corporation's assets, shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary, of the
Corporation.
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4.2 Subject to the rights of the holders of shares of any series or class of
stock ranking prior to or on a parity with the Class P Voting Preferred Stock
as to amounts distributable upon liquidation, dissolution or winding up of the
Corporation, after payment shall have been made to the holders of the Class P
Voting Preferred Stock, as and to the fullest extent provided in this Section
4, any other series or class of stock of the Corporation that ranks junior to
the Class P Voting Preferred Stock as to amounts distributable upon
liquidation, dissolution or winding up of the Corporation, shall, subject to
the respective terms and provisions (if any) applying thereto, be entitled to
receive any and all assets remaining to be paid or distributed, and the holders
of the Class P Voting Preferred Stock shall not be entitled to share therein.
Section 5. Shares to be Retired. All shares of Class P Voting Preferred Stock
which shall have been issued and reacquired in any manner by the Corporation
shall be retired and shall not be reissued.
Section 6. Ranking.
6.1 Any class or series of stock of the Corporation shall be deemed to rank:
(a) prior to the Class P Voting Preferred Stock as to the distribution of
assets upon liquidation, dissolution or winding up, if the holders of such
class or series shall be entitled to the receipt of amounts distributable
upon liquidation, dissolution or winding up in preference or priority to
the holders of Class P Voting Preferred Stock;
(b) on a parity with the Class P Voting Preferred Stock as to the
distribution of assets upon liquidation, dissolution or winding up, whether
or not the liquidation prices per share thereof be different from those of
the Class P Voting Preferred Stock, if the holders of such class or series
and the Class P Voting Preferred Stock shall be entitled to the receipt of
amounts distributable upon liquidation, dissolution or winding up in
proportion to their respective liquidation preferences, without preference
or priority one over the other; and
(c) junior to the Class P Voting Preferred Stock, as to the distribution
of assets upon liquidation, dissolution or winding up, if the holders of
Class P Voting Preferred Stock shall be entitled to the receipt of amounts
distributable upon liquidation, dissolution or winding up in preference or
priority to the holders of shares of such class or series.
6.2 The Series A Preferred Stock, the Series B Preferred Stock, the Series D
Preferred Stock and the ESOP Convertible Preferred Stocks shall be deemed to
rank prior to the Class P Voting Preferred Stock as to amounts distributable
upon liquidation, dissolution or winding up. The other Voting Preferred Stocks
and the Director Preferred Stocks shall each be deemed to rank on a parity with
the Class P Voting Preferred Stock as to amounts distributable upon
liquidation, dissolution or winding up. The Common Stock and the Series C
Preferred Stock shall each be deemed to rank junior to the Class P Voting
Preferred Stock as to amounts distributable upon liquidation, dissolution or
winding up.
Section 7. Consolidation, Merger, etc.
7.1 In case the Corporation shall enter into any consolidation, merger, share
exchange or similar transaction, however named, pursuant to which the
outstanding shares of Common Stock are to be exchanged solely for or changed,
reclassified or converted solely into stock of any successor, resulting or
other company (including the Corporation) (each of the foregoing is referred to
herein as "Merger Transaction") that constitutes "qualifying employer
securities" with respect to holders of Class P Voting Preferred Stock within
the meaning of Section 409(l) of the Code and Section 407(d)(5) of the Employee
Retirement Income Security Act of 1974, as amended, or any successor provisions
of law, and, if applicable, for a cash payment in lieu of fractional shares, if
any, proper provisions shall be made so that upon consummation of such
transaction, the shares of Class P Voting Preferred Stock shall be converted
into or exchanged for preferred stock of such successor, resulting or other
company (the "New Pilot Voting Preferred Stock"), having in respect of such
company, except as provided below, the same powers, preferences and relative,
participating, optional or other special rights (including the rights provided
by this Section 7), and the qualifications, limitations or restrictions
thereof, that the Class P Voting Preferred Stock had, in respect of the
Corporation, immediately
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prior to such transaction, except that after such transaction each share of
such New Pilot Voting Preferred Stock so received in such transaction upon
conversion or exchange of the Class P Voting Preferred Stock shall be
convertible, otherwise on the terms and conditions provided by Section 9
hereof, into the number and kind of "qualifying employer securities" receivable
in such transaction by a holder of the number of shares of Common Stock into
which a share of Class P Voting Preferred Stock could have been converted
immediately prior to such transaction; provided, however, that the holder of
each share of New Pilot Voting Preferred Stock shall be entitled to a number of
votes per share equal to a fraction, the numerator of which is the product of
(x) the Pilot Fraction and (y) the aggregate number of votes that would be
entitled to be cast by the holders of the securities of the surviving,
resulting or other corporation into which the ESOP Convertible Preferred Stocks
are changed, reclassified or converted (collectively, the "New ESOP Convertible
Preferred Stocks") upon consummation of such transaction (assuming for such
purpose the conversion of the New ESOP Convertible Preferred Stocks), and the
denominator of which is the aggregate number of shares of New Pilot Voting
Preferred Stock then outstanding; provided, further that if by virtue of the
structure of such transaction, a holder of Common Stock is required to make an
election with respect to the nature and kind of consideration to be received in
such transaction, which election cannot practicably be made by the holders of
the Class P Voting Preferred Stock, then the shares of New Pilot Voting
Preferred Stock received in such transaction upon conversion or exchange of
Class P Voting Preferred Stock shall, by virtue of such transaction and on the
same terms as apply to the holders of Common Stock, be convertible into or
exchangeable solely for "qualifying employer securities" (together, if
applicable, with a cash payment in lieu of fractional shares) with the effect
provided above on the basis of the number and kind of qualifying employer
securities receivable in such transaction by a holder of the number of shares
of Common Stock into which such shares of Class P Voting Preferred Stock could
have been converted immediately prior to such transaction (provided that if the
kind or amount of qualifying employer securities receivable in such transaction
is not the same for each such share of Common Stock, then the kind and amount
so receivable in such transaction for each share of Common Stock for this
purpose shall be deemed to be the kind and amount so receivable per share by
the plurality of such shares of Common Stock). The rights of the New Pilot
Voting Preferred Stock so received in such transaction upon conversion or
exchange of the Class P Voting Preferred Stock shall successively be subject to
adjustment pursuant to Section 9 hereof following such transaction as nearly
equivalent to the adjustments provided for by such Section prior to such
transaction.
7.2 In case the Corporation shall enter into any Merger Transaction, however
named, pursuant to which the outstanding shares of Common Stock are exchanged
for or changed, reclassified or converted into other stock or securities or
cash or any other property, or any combination thereof, other than any such
consideration which is constituted solely of "qualifying employer securities"
(as referred to in Section 7.1) and cash payments, if applicable, in lieu of
fractional shares, proper provisions shall be made so that each outstanding
share of Class P Voting Preferred Stock shall, by virtue of and upon
consummation of such transaction, on the same terms as are applicable to the
holders of Common Stock, be converted into or exchanged for the aggregate
amount of stock, securities, cash or other property (payable in like kind)
receivable by holders of the number of shares of Common Stock into which such
shares of Class P Voting Common Stock Preferred Stock could have been converted
immediately prior to such transaction; provided, however, that if by virtue of
the structure of such transaction, a holder of Common Stock is required to make
an election with respect to the nature and kind of consideration to be received
in such transaction, which election cannot practicably be made by holders of
the Class P Voting Preferred Stock, then the shares of Class P Voting Preferred
Stock shall, by virtue of such transaction and on the same terms as apply to
the holders of Common Stock, be converted into or exchanged for the aggregate
amount of stock, securities, cash or other property (payable in kind)
receivable by a holder of the number of shares of Common Stock into which such
shares of Class P Voting Preferred Stock could have been converted immediately
prior to such transaction if such holder of Common Stock failed to exercise any
rights of election to receive any kind or amount of stock, securities, cash or
other property receivable in such transaction (provided that if the kind or
amount of stock, securities, cash or other property receivable in such
transaction are not the same for each non-electing share, then the kind and
amount of stock, securities, cash or other property so receivable upon such
transaction for each non-electing share shall be the kind and amount so
receivable per share by the plurality of the non-electing shares).
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7.3 In case the Corporation shall enter into any agreement providing for any
Merger Transaction described in Section 7.1 or 7.2, then the Corporation shall
as soon as practicable thereafter (and in any event at least fifteen (15)
Business Days before consummation of such transaction) give notice of such
agreement and the material terms thereof to each holder of Class P Voting
Preferred Stock. The Corporation shall not consummate any such Merger
Transaction unless all of the terms of this Section 7 have been complied with.
Section 8. Voting. The holders of shares of Class P Voting Preferred Stock
shall have the following voting rights:
8.1 Except as otherwise required by law or provided in this Restated
Certificate, the holders of Class P Voting Preferred Stock shall be entitled to
vote on all matters submitted to a vote of the holders of Common Stock of the
Corporation, voting together as a single class with the holders of Common Stock
and the holders of such other classes and series of stock that vote together
with the Common Stock as a single class; provided, however, that prior to the
Termination Date, the holders of Class P Voting Preferred Stock shall not be
entitled to vote with respect to the election of the members of the Board of
Directors. For purposes of this Section 8.1, with respect to any vote or
consent with a record date occurring prior to the Termination Date, (a) the
holders of the shares of Class P Voting Preferred Stock from time to time
outstanding shall, collectively, be entitled to a number of votes (rounded to
the nearest whole vote) equal to the excess of (i) the product of (I) the Pilot
Fraction, (II) the Voting Fraction and (III) a fraction, the numerator of which
shall be the number of votes entitled to be cast on the matter by the holders
of all outstanding securities of the Corporation (excluding the Voting
Preferred Stocks and the shares of Common Stock issued upon conversion of the
ESOP Convertible Preferred Stocks and held on the applicable record date in the
ESOP or the Supplemental ESOP), and the denominator of which shall be the
excess of one (1.0) over the Voting Fraction, over (ii) the sum of (A) the
aggregate number of shares of Common Stock held under the ESOP or the
Supplemental ESOP which have been issued upon conversion of the ESOP
Convertible Preferred Stocks and have been, on the applicable record date,
allocated under the ESOP or the Supplemental ESOP to the accounts of
individuals who are members of the ALPA Employee Group (as defined in the
ESOP), (B) the product of (x) the number of shares of Common Stock held under
the ESOP which have been issued upon conversion of the Class 1 ESOP Convertible
Preferred Stock and are held on the applicable record date in the Loan Suspense
Account (as defined in the ESOP) under the ESOP multiplied by (y) the Pilot
Fraction, and (C) the product of (aa) the number of shares of Common Stock held
by the Supplemental ESOP which have been issued upon conversion of the Class 2
ESOP Convertible Preferred Stock and are held on the applicable record date in
the Phantom Suspense Account (as defined in the Supplemental ESOP) under the
Supplemental ESOP multiplied by (bb) the Pilot Fraction (the excess of clause
(i) over clause (ii) being referred to herein as the "Attributed Votes"); and
(b) the holder of each share of the Class P Voting Preferred Stock shall be
entitled to a number of votes per share (rounded to the nearest one hundred
millionth of a vote) equal to the result of dividing (x) the number of
Attributed Votes by (y) the number of shares of Class P Voting Preferred Stock
outstanding on the applicable record date. With respect to each vote or consent
with a record date occurring on or after the Termination Date, each share of
Class P Voting Preferred Stock then outstanding shall be entitled to the number
of votes per share (rounded to the nearest one hundred millionth of a vote)
equal to a fraction, the numerator of which is the product of (i) the sum of
(x) the number of shares of Common Stock into which the ESOP Convertible
Preferred Stocks then outstanding can be converted as of the record date with
respect to such vote or consent and (y) the number of Available Unissued ESOP
Shares as of such record date and (ii) the Pilot Fraction, and the denominator
of which is the number of shares of Class P Voting Preferred Stock outstanding
as of such record date. For purposes of this Section 8.1, the Corporation shall
certify to the holders of Class P Voting Preferred Stock and to the judges or
similar officials appointed for the purpose of tabulating votes at any meeting
of stockholders as soon as practicable following the record date for the
determination of stockholders entitled to notice of or to vote at any meeting
of stockholders, but in no event less than five Trading Days before such
meeting, with respect to record dates prior to the Termination Date, the number
of shares of Common Stock then outstanding and the number of votes entitled to
be cast on the matter or matters in question by the holders of all outstanding
securities of the Corporation (excluding the Voting Preferred Stocks and the
shares of Common Stock issued upon conversion of the ESOP Convertible Preferred
Stocks and held on the applicable record date in the ESOP or
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the Supplemental ESOP) and, with respect to record dates from and after the
Termination Date, the number of shares of Common Stock into which a share of
ESOP Convertible Preferred Stock was convertible as of the record date for such
vote or votes. The Corporation shall be deemed to satisfy the requirements of
the preceding sentence if such matters are specified in any proxy statement
mailed to all stockholders entitled to vote on such matter or matters.
Prior to the Termination Date, the outstanding shares of the Voting Preferred
Stocks, the Class Pilot MEC Preferred Stock, the Class IAM Preferred Stock and
the Class SAM Preferred Stock, together with the shares of Common Stock held by
the ESOP and the Supplemental ESOP that were received upon conversion of the
ESOP Preferred Stocks, will represent the Voting Fraction (expressed as a
percentage) of the votes to be cast in connection with matters (other than the
election of directors) submitted to the vote of the holders of the Common Stock
and the holders of all other outstanding securities that vote as a single class
together with the Common Stock. Subject to any amendment of this Restated
Certificate after the date hereof, it is the intent of this Restated
Certificate that this Section 8.2 (with respect to the Class P Voting Preferred
Stock), Article FOURTH, Part V, Section 8.2 of the Restated Certificate (with
respect to the Class M Voting Preferred Stock) and Article FOURTH, Part VI,
Section 8.2 of the Restated Certificate (with respect to the Class S Voting
Preferred Stock) be interpreted together to achieve the foregoing result.
8.2 Unless the affirmative vote or consent of the holders of a greater number
of shares of Class P Voting Preferred Stock shall then be required by law or
this Restated Certificate, and in addition to any other vote required by law or
this Restated Certificate, the affirmative vote or written consent of the
holders of at least a majority of all of the outstanding shares of Class P
Voting Preferred Stock, voting separately as a class, shall be necessary for
authorizing, effecting or validating the amendment, alteration or repeal
(including any amendment, alteration or repeal by operation of merger or
consolidation) of any of the provisions of this Restated Certificate or of any
certificate amendatory thereof or supplemental thereto (including any
Certificate of Designation, Preferences and Rights or any similar document
relating to any series of Serial Preferred Stock) which would adversely affect
the preferences, rights, powers or privileges of the Class P Voting Preferred
Stock or of either of the ESOP Convertible Preferred Stocks.
8.3 For purposes of the foregoing provisions of Section 8.2, each share of
Class P Voting Preferred Stock shall have one (1) vote per share.
8.4 Notwithstanding anything to the contrary in Section 7 or 8.1, if at any
time prior to the Termination Date, (x) the trustee under either (i) the ESOP
or (ii) the Supplemental ESOP (together with the ESOP, the "Employee Plan")
either (a) fails to solicit, in accordance with the Employee Plan, timely
instructions from Employee Plan participants, the Committee of the ESOP (as
defined in the ESOP and hereinafter referred to as the "ESOP Committee") or the
Committee of the Supplemental ESOP (as defined in the Supplemental ESOP and,
together with the ESOP Committee, the "Committees"), as applicable
("Instructions"), with respect to any matter referred to in clause (y) below,
or (b) fails to act in accordance with such Instructions with respect to any
matter referred to in clause (y) below (but only if such failure to follow such
Instructions is attributable to (i) the trustee having concluded that, based
upon the terms of such transaction, the trustee's fiduciary duties require the
trustee to fail to follow such instructions or (ii) the unenforceability of the
provisions of the ESOP and/or the Supplemental ESOP relating to the
solicitation and/or following of such Instructions); (y) either (i) but for the
provisions of Article FOURTH, Part VII, Subsection 8.3(a), Article FOURTH, Part
VIII, Subsection 8.3(a) and Article FOURTH, Part IX, Subsection 8.3(a) of this
Restated Certificate, the vote of the stockholders of the Corporation would
have been sufficient, under applicable law, stock exchange listing requirements
and this Restated Certificate, as applicable, to approve the Merger Transaction
or other Control Transaction (as defined in the ESOP) in question (or, if no
stockholder approval would be required by this Restated Certificate, applicable
stock exchange listing requirements or applicable law, the trustee enters into
a binding commitment in connection with a Control Transaction or a Control
Transaction is consummated) or (ii) following the Issue Date, the trustee
disposes of an aggregate of 10% or more of the Common Equity (as defined in
Article FIFTH, Section 1.26 of this Restated Certificate) initially represented
by the ESOP Convertible Preferred Stocks other than in connection with Employee
Plan
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distributions or diversification requirements; and (z) any of the following
occur: (a) Instructions with respect to a matter are given, the trustee fails
to follow such Instructions and such transaction would not have been approved
by stockholders of the Corporation in accordance with the applicable provisions
of this Restated Certificate (excluding Article FOURTH, Part VII, Subsection
8.3(a), Article FOURTH, Part VIII, Subsection 8.3(a) and Article FOURTH, Part
IX, Subsection 8.3(a) of this Restated Certificate), applicable stock exchange
listing requirements or applicable law if the trustee had acted in accordance
with such Instructions (or, if no vote of stockholders would be required by
this Restated Certificate, applicable stock exchange listing requirements or
applicable law, such action by the trustee in respect of such transaction as to
which Instructions were so given would not have been authorized had the trustee
acted in accordance with such Instructions), (b) the trustee fails to solicit
timely Instructions with respect to such matters, such transaction requires the
approval of stockholders of the Corporation under applicable provisions of this
Restated Certificate, applicable stock exchange listing requirements or
applicable law and such approval would not have been obtained (without regard
to the provisions of Article FOURTH, Part VII, Subsection 8.3(a), Article
FOURTH, Part VIII, Subsection 8.3(a) and Article FOURTH, Part IX, Subsection
8.3(a) of this Restated Certificate) if the trustee had voted against such
transaction all of the votes entitled to be cast by such trustee as the holder
of securities of the Corporation held under the Employee Plan, or (c) the
trustee fails to follow Instructions or to solicit timely Instructions with
respect to such matter and no vote of stockholders of the Corporation is
required by the Restated Certificate, applicable stock exchange listing
requirements or applicable law to approve such transaction (an action or
inaction by the trustee under clauses (x) and (z) in connection with a
transaction referred to in clause (y) being referred to herein as an
"Uninstructed Trustee Action"); then each outstanding share of Class P Voting
Preferred Stock shall, immediately and automatically, without any further
action on the part of holders thereof or of the Corporation, be converted into
shares of Common Stock at the applicable Conversion Rate in accordance with
Section 9 hereof.
Section 9. Automatic Conversion.
9.1 Shares of Class P Voting Preferred Stock shall, as provided in Sections
1.2 and 8.4, be automatically converted, from time to time, in part or in
whole, respectively, upon (i) any transfer thereof other than a transfer
described in clauses (x) and (y) of Section 1.2 or (ii) an Uninstructed Trustee
Action as described in Section 8.4, at a rate of one ten thousandth of a share
of Common Stock per share of Class P Voting Preferred Stock to be converted
(the "Conversion Rate").
9.2 At the time that all of the shares of the ESOP Convertible Preferred
Stocks cease to be outstanding for any reason whatsoever, including, without
limitation, their conversion in full into Common Stock (the "Final Conversion
Date"), all outstanding shares of Class P Voting Preferred Stock shall be
automatically converted, in full, into shares of Common Stock at the Conversion
Rate then in effect.
9.3 Following any conversion in accordance with Sections 9.1 and 9.2, (i) no
holder of Class P Voting Preferred Stock shall have any of the voting powers,
preferences, relative, participating, optional or special rights ascribed to
shares of Class P Voting Preferred Stock hereunder, but, rather, shall have
only the powers and rights pertaining to the Common Stock into which such
shares of Class P Voting Preferred Stock have been so converted, and (ii) any
holder of Class P Voting Preferred Stock shall be treated for all purposes as
the record holder of the shares of Common Stock into which the Class P Voting
Preferred Stock shall have been converted as of the date of the conversion of
the shares of Class P Voting Preferred Stock.
9.4 On or after the date of (i) a transfer of shares of Class P Voting
Preferred Stock (other than as described in clauses (x) and (y) of Section
1.2), (ii) the Final Conversion Date or (iii) an Uninstructed Trustee Action,
each holder of a certificate or certificates formerly representing shares of
Class P Voting Preferred Stock converted in accordance with Sections 9.1 and
9.2 shall surrender such certificate or certificates, duly endorsed or assigned
to the Corporation or in blank, at the office of the Transfer Agent (if other
than the Corporation) in the Borough of Manhattan, City of New York. Unless the
shares issuable on conversion are to be issued in the same name as the name in
which such certificate is registered, each such certificate shall
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be accompanied by instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder or such holder's duly authorized
attorney and an amount sufficient to pay any transfer or similar tax (or
evidence reasonably satisfactory to the Corporation demonstrating that such
taxes have been paid or that no such taxes are payable).
9.5 No fractional shares or scrip representing fractions of shares of Common
Stock shall be issued upon conversion of the Class P Voting Preferred Stock.
Instead of any fractional interest in a share of Common Stock that would
otherwise be deliverable upon the conversion of a share of Class P Voting
Preferred Stock, the Corporation shall pay to the holder of such share an
amount in cash based upon the Current Market Price of Common Stock on the
Trading Day immediately preceding the date of conversion. If more than one
certificate shall be surrendered in respect of such conversion at one time by
the same holder, the number of full shares of Common Stock issuable upon
conversion shall be computed on the basis of the aggregate number of shares of
Class P Voting Preferred Stock formerly represented by the certificates so
surrendered.
9.6 In the event of an adjustment to the "Conversion Rate" in effect with
respect to the ESOP Convertible Preferred Stocks, a corresponding adjustment
shall be made to the Conversion Rate with respect to the Class P Voting
Preferred Stock.
Section 10. Record Holders. The Corporation and the Transfer Agent (if other
than the Corporation) may deem and treat the record holder of any shares of
Class P Voting Preferred Stock as the true and lawful owner thereof for all
purposes, and, except as otherwise provided by law, neither the Corporation nor
the Transfer Agent shall be affected by any notice to the contrary.
PART V
Class M ESOP Voting Junior Preferred Stock
Unless otherwise indicated, any reference in this Article FOURTH, Part V to
"Section", "Subsection", "paragraph", "subparagraph" or "clause" shall refer to
a Section, Subsection, paragraph, subparagraph or clause of this Article
FOURTH, Part V.
Section 1. Number of Shares; Designation; Issuances; Automatic Conversion.
1.1 The Class M ESOP Voting Junior Preferred Stock of the Corporation (the
"Class M Voting Preferred Stock") shall consist of 9,300,000 shares, par value
$0.01 per share.
1.2 Shares of Class M Voting Preferred Stock shall be issued only to a
trustee or trustees acting on behalf of (i) the UAL Corporation Employee Stock
Ownership Plan (the "ESOP"), (ii) the UAL Corporation Supplemental ESOP (the
"Supplemental ESOP") or (iii) any other employee stock ownership trust or plan
or other employee benefit plan of the Corporation or any of its subsidiaries
(each, a "Plan"). In the event of any sale, transfer or other disposition
(including, without limitation, upon a foreclosure or other realization upon
shares of Class M Voting Preferred Stock pledged as security for any loan or
loans made to a Plan or to the trustee or the trustees acting on behalf of a
Plan) (hereinafter a "transfer") of shares of Class M Voting Preferred Stock to
any person (including, without limitation, any participant in a Plan) other
than (x) any Plan or trustee or trustees of a Plan or (y) any pledgee of such
shares acquiring such shares as security for any loan or loans made to the Plan
or to any trustee or trustees acting on behalf of the Plan, the shares of Class
M Voting Preferred Stock so transferred, upon such transfer and without any
further action by the Corporation or the holder, shall be automatically
converted into shares of Common Stock at the applicable Conversion Rate in
accordance with Section 9 hereof and thereafter such transferee shall not have
any of the voting powers, preferences or relative, participating, optional or
special rights ascribed to shares of Class M Voting Preferred Stock hereunder,
but, rather, shall have only the powers and rights pertaining to the Common
Stock into which such shares of Class M Voting Preferred Stock shall be so
converted. In the event of any such automatic conversion provided for in this
Section 1.2, such transferee shall be treated for all purposes as the record
holder of the shares of Common
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Stock into which the Class M Voting Preferred Stock shall have been converted
as of the date of such conversion. Certificates representing shares of Class M
Voting Preferred Stock shall be legended to reflect such consequences of a
transfer. The shares of Common Stock issued upon any conversion in accordance
with Section 9 hereof or this Section 1.2 may be transferred by the holder
thereof as permitted by law.
Section 2. Definitions. For purposes of the Class M Voting Preferred Stock,
the following terms shall have the meanings indicated:
2.1 "Available Unissued ESOP Shares" shall have the meaning set forth in
Article FIFTH, Section 1.5 of this Restated Certificate.
2.2 "Board of Directors" shall mean the board of directors of the Corporation
or any committee of such board of directors authorized by such board of
directors to perform any of its responsibilities with respect to the Class M
Voting Preferred Stock.
2.3 "Business Day" shall mean any day other than a Saturday, Sunday or a day
on which state or federally chartered banking institutions in New York, New
York are not required to be open.
2.4 "Class 1 ESOP Convertible Preferred Stock" shall mean the Class 1 ESOP
Convertible Preferred Stock, par value $0.01 per share, of the Corporation.
2.5 "Class 2 ESOP Convertible Preferred Stock" shall mean the Class 2 ESOP
Convertible Preferred Stock, par value $0.01 per share, of the Corporation.
2.6 "Class I Preferred Stock" shall mean the Class I Junior Preferred Stock,
par value $0.01 per share, of the Corporation.
2.7 "Class IAM Preferred Stock" shall mean the Class IAM Junior Preferred
Stock, par value $0.01 per share, of the Corporation.
2.8 "Class M Voting Preferred Stock" shall have the meaning set forth in
Section 1 hereof.
2.9 "Class P Voting Preferred Stock" shall mean the Class P ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.10 "Class Pilot MEC Preferred Stock" shall mean the Class Pilot MEC Junior
Preferred Stock, par value $0.01 per share, of the Corporation.
2.11 "Class S Voting Preferred Stock" shall mean the Class S ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.12 "Class SAM Preferred Stock" shall mean the Class SAM Junior Preferred
Stock, par value $0.01 per share, of the Corporation.
2.13 "Common Stock" shall mean the common stock, par value $0.01 per share,
of the Corporation.
2.14 "Conversion Rate" shall have the meaning set forth in Section 9.1
hereof.
2.15 "Current Market Price" of publicly traded shares of Common Stock or any
other class or series of capital stock or other security of the Corporation or
any other issuer for any day shall mean the last reported sales price, regular
way on such day, or, if no sale takes place on such day, the average of the
reported closing bid and asked prices on such day, regular way, in either case
as reported on the New York Stock Exchange Composite Tape or, if such security
is not listed or admitted for trading on the New York Stock Exchange, Inc.
("NYSE"), on the principal national securities exchange on which such security
is listed or admitted for trading or quoted or, if not listed or admitted for
trading or quoted on any national securities exchange, on
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the Nasdaq National Market or, if such security is not quoted on such National
Market, the average of the closing bid and asked prices on such day in the
over-the-counter market as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ") or, if bid and asked prices
for such security on such day shall not have been reported through NASDAQ, the
average of the bid and asked prices on such day as furnished by any NYSE member
firm regularly making a market in such security selected for such purpose by
the Board of Directors.
2.16 "Director Preferred Stocks" shall mean, collectively, the Class I
Preferred Stock, the Class Pilot MEC Preferred Stock, the Class IAM Preferred
Stock and the Class SAM Preferred Stock.
2.17 "ESOP Convertible Preferred Stocks" shall mean, collectively, the Class
1 ESOP Convertible Preferred Stock and the Class 2 ESOP Convertible Preferred
Stock.
2.18 "Issue Date" shall mean the first date on which shares of Class M Voting
Preferred Stock are issued.
2.19 "Liquidation Preference" shall have the meaning set forth in Section 4.1
hereof.
2.20 "Machinist Fraction " shall mean 0.3713.
2.21 "Measuring Date" shall mean that date which is the 365th day following
the Issue Date.
2.22 "Restated Certificate" shall mean the Restated Certificate of
Incorporation of the Corporation, as amended from time to time.
2.23 "Series A Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series A Convertible
Preferred Stock in Article FOURTH, Part I.A of this Restated Certificate.
2.24 "Series B Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series B Preferred
Stock in Article FOURTH, Part I.B of this Restated Certificate.
2.25 "Series C Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series C Junior
Participating Preferred Stock in Article FOURTH, Part I.C of this Restated
Certificate.
2.26 "Series D Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series D Redeemable
Preferred Stock in Article FOURTH, Part I.D of this Restated Certificate.
2.27 "set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Corporation in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to a
declaration of dividends or other distribution by the Board of Directors, the
allocation of funds to be so paid on any series or class of capital stock of
the Corporation; provided, however, that if any funds for any class or series
of stock of the Corporation ranking on a parity with or junior to the Class M
Voting Preferred Stock as to distributions upon liquidation, dissolution or
winding up of the Corporation are placed in a separate account of the
Corporation or delivered to a disbursing, paying or other similar agent, then
"set apart for payment" with respect to the Class M Voting Preferred Stock
shall mean, with respect to such distributions, placing such funds in a
separate account or delivering such funds to a disbursing, paying or other
similar agent.
2.28 "Termination Date" shall have the meaning set forth in Article FIFTH,
Section 1.72 of this Restated Certificate.
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2.29 "Trading Day" shall mean any day on which the securities in question are
traded on the NYSE, or if such securities are not listed or admitted for
trading or quoted on the NYSE, on the principal national securities exchange on
which such securities are listed or admitted, or if not listed or admitted for
trading or quoted on any national securities exchange, on the Nasdaq National
Market, or if such securities are not quoted on such National Market, in the
applicable securities market in which the securities are traded.
2.30 "Transfer Agent" means the Corporation or such agent or agents of the
Corporation as may be designated from time to time by the Board of Directors as
the transfer agent for the Class M Voting Preferred Stock.
2.31 "Voting Fraction" shall mean 0.55 with respect to votes and consents
that have a record date on or prior to the Measuring Date and a fraction that
is equivalent to the Adjusted Percentage (as defined in the Agreement and Plan
of Recapitalization, dated as of March 25, 1994, among the Corporation, the Air
Line Pilots Association, International and International Association of
Machinists and Aerospace Workers, as amended from time to time) as in effect at
the close of business on the Measuring Date with respect to votes and consents
that have a record date after the Measuring Date.
2.32 "Voting Preferred Stocks" shall mean, collectively, the Class P Voting
Preferred Stock, the Class M Voting Preferred Stock and the Class S Voting
Preferred Stock.
Section 3. Dividends. The holders of shares of the Class M Voting Preferred
Stock as such shall not be entitled to receive any dividends or other
distributions (except as provided in Section 4 below).
Section 4. Payments upon Liquidation.
4.1 In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, before any payment or distribution of the assets
of the Corporation (whether capital or surplus) shall be made to or set apart
for payment to the holders of any class or series of stock of the Corporation
that ranks junior to the Class M Voting Preferred Stock as to amounts
distributable upon liquidation, dissolution or winding up of the Corporation,
the holders of the shares of Class M Voting Preferred Stock shall be entitled
to receive $0.01 per share of Class M Voting Preferred Stock (the "Liquidation
Preference"), but such holders shall not be entitled to any further payment.
If, upon any liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation, or proceeds thereof, distributable among the holders
of the shares of Class M Voting Preferred Stock shall be insufficient to pay in
full the Liquidation Preference and the liquidation preference on all other
shares of any class or series of stock of the Corporation that ranks on a
parity with the Class M Voting Preferred Stock as to amounts distributable upon
liquidation, dissolution or winding up of the Corporation, then such assets, or
the proceeds thereof, shall be distributed among the holders of shares of Class
M Voting Preferred Stock and any such other parity stock ratably in accordance
with the respective amounts that would be payable on such shares of Class M
Voting Preferred Stock and any such other parity stock if all amounts payable
thereon were paid in full. For the purposes of this Section 4, (i) a
consolidation or merger of the Corporation with or into one or more
corporations, or (ii) a sale, lease, exchange or transfer of all or
substantially all of the Corporation's assets, shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary, of the
Corporation.
4.2 Subject to the rights of the holders of shares of any series or class of
stock ranking prior to or on a parity with the Class M Voting Preferred Stock
as to amounts distributable upon liquidation, dissolution or winding up of the
Corporation, after payment shall have been made to the holders of the Class M
Voting Preferred Stock, as and to the fullest extent provided in this Section
4, any other series or class of stock of the Corporation that ranks junior to
the Class M Voting Preferred Stock as to amounts distributable upon
liquidation, dissolution or winding up of the Corporation, shall, subject to
the respective terms and provisions (if any) applying thereto, be entitled to
receive any and all assets remaining to be paid or distributed, and the holders
of the Class M Voting Preferred Stock shall not be entitled to share therein.
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Section 5. Shares to be Retired. All shares of Class M Voting Preferred Stock
which shall have been issued and reacquired in any manner by the Corporation
shall be retired and shall not be reissued.
Section 6. Ranking.
6.1 Any class or series of stock of the Corporation shall be deemed to rank:
(a) prior to the Class M Voting Preferred Stock as to the distribution of
assets upon liquidation, dissolution or winding up, if the holders of such
class or series shall be entitled to the receipt of amounts distributable
upon liquidation, dissolution or winding up in preference or priority to
the holders of Class M Voting Preferred Stock;
(b) on a parity with the Class M Voting Preferred Stock as to the
distribution of assets upon liquidation, dissolution or winding up, whether
or not the liquidation prices per share thereof be different from those of
the Class M Voting Preferred Stock, if the holders of such class or series
and the Class M Voting Preferred Stock shall be entitled to the receipt of
amounts distributable upon liquidation, dissolution or winding up in
proportion to their respective liquidation preferences, without preference
or priority one over the other; and
(c) junior to the Class M Voting Preferred Stock, as to the distribution
of assets upon liquidation, dissolution or winding up, if the holders of
Class M Voting Preferred Stock shall be entitled to the receipt of amounts
distributable upon liquidation, dissolution or winding up in preference or
priority to the holders of shares of such class or series.
6.2 The Series A Preferred Stock, the Series B Preferred Stock, the Series D
Preferred Stock and the ESOP Convertible Preferred Stocks shall be deemed to
rank prior to the Class M Voting Preferred Stock as to amounts distributable
upon liquidation, dissolution or winding up. The other Voting Preferred Stocks
and the Director Preferred Stocks shall each be deemed to rank on a parity with
the Class M Voting Preferred Stock as to amounts distributable upon
liquidation, dissolution or winding up. The Common Stock and the Series C
Preferred Stock shall each be deemed to rank junior to the Class M Voting
Preferred Stock as to amounts distributable upon liquidation, dissolution or
winding up.
Section 7. Consolidation, Merger, etc.
7.1 In case the Corporation shall enter into any consolidation, merger, share
exchange or similar transaction, however named, pursuant to which the
outstanding shares of Common Stock are to be exchanged solely for or changed,
reclassified or converted solely into stock of any successor, resulting or
other company (including the Corporation) (each of the foregoing is referred to
herein as "Merger Transaction") that constitutes "qualifying employer
securities" with respect to holders of Class M Voting Preferred Stock within
the meaning of Section 409(l) of the Code and Section 407(d)(5) of the Employee
Retirement Income Security Act of 1974, as amended, or any successor provisions
of law, and, if applicable, for a cash payment in lieu of fractional shares, if
any, proper provisions shall be made so that upon consummation of such
transaction, the shares of Class M Voting Preferred Stock shall be converted
into or exchanged for preferred stock of such successor, resulting or other
company (the "New Machinist Voting Preferred Stock"), having in respect of such
company, except as provided below, the same powers, preferences and relative,
participating, optional or other special rights (including the rights provided
by this Section 7), and the qualifications, limitations or restrictions
thereof, that the Class M Voting Preferred Stock had, in respect of the
Corporation, immediately prior to such transaction, except that after such
transaction each share of such New Machinist Voting Preferred Stock so received
in such transaction upon conversion or exchange of the Class M Voting Preferred
Stock shall be convertible, otherwise on the terms and conditions provided by
Section 9 hereof, into the number and kind of "qualifying employer securities"
receivable in such transaction by a holder of the number of shares of Common
Stock into which a share of Class M Voting Preferred Stock could have been
converted immediately prior to such transaction; provided, however, that the
holder of each share of New Machinist Voting Preferred Stock shall be entitled
to a number of votes per share equal to a fraction, the numerator of which is
the product of (x) the Machinist Fraction and (y) the aggregate number of votes
that would be entitled to be cast by the holders of the securities of the
surviving, resulting or other corporation into which
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the ESOP Convertible Preferred Stocks are changed, reclassified or converted
(collectively, the "New ESOP Convertible Preferred Stocks") upon consummation
of such transaction (assuming for such purpose the conversion of the New ESOP
Convertible Preferred Stocks), and the denominator of which is the aggregate
number of shares of New Machinist Voting Preferred Stock then outstanding;
provided, further that if by virtue of the structure of such transaction, a
holder of Common Stock is required to make an election with respect to the
nature and kind of consideration to be received in such transaction, which
election cannot practicably be made by the holders of the Class M Voting
Preferred Stock, then the shares of New Machinist Voting Preferred Stock
received in such transaction upon conversion or exchange of Class M Voting
Preferred Stock shall, by virtue of such transaction and on the same terms as
apply to the holders of Common Stock, be convertible into or exchangeable
solely for "qualifying employer securities" (together, if applicable, with a
cash payment in lieu of fractional shares) with the effect provided above on
the basis of the number and kind of qualifying employer securities receivable
in such transaction by a holder of the number of shares of Common Stock into
which such shares of Class M Voting Preferred Stock could have been converted
immediately prior to such transaction (provided that if the kind or amount of
qualifying employer securities receivable in such transaction is not the same
for each such share of Common Stock, then the kind and amount so receivable in
such transaction for each share of Common Stock for this purpose shall be
deemed to be the kind and amount so receivable per share by the plurality of
such shares of Common Stock). The rights of the New Machinist Voting Preferred
Stock so received in such transaction upon conversion or exchange of the Class
M Voting Preferred Stock shall successively be subject to adjustment pursuant
to Section 9 hereof following such transaction as nearly equivalent to the
adjustments provided for by such Section prior to such transaction.
7.2 In case the Corporation shall enter into any Merger Transaction, however
named, pursuant to which the outstanding shares of Common Stock are exchanged
for or changed, reclassified or converted into other stock or securities or
cash or any other property, or any combination thereof, other than any such
consideration which is constituted solely of "qualifying employer securities"
(as referred to in Section 7.1) and cash payments, if applicable, in lieu of
fractional shares, proper provisions shall be made so that each outstanding
share of Class M Voting Preferred Stock shall, by virtue of and upon
consummation of such transaction, on the same terms as are applicable to the
holders of Common Stock, be converted into or exchanged for the aggregate
amount of stock, securities, cash or other property (payable in like kind)
receivable by holders of the number of shares of Common Stock into which such
shares of Class M Voting Common Stock Preferred Stock could have been converted
immediately prior to such transaction; provided, however, that if by virtue of
the structure of such transaction, a holder of Common Stock is required to make
an election with respect to the nature and kind of consideration to be received
in such transaction, which election cannot practicably be made by holders of
the Class M Voting Preferred Stock, then the shares of Class M Voting Preferred
Stock shall, by virtue of such transaction and on the same terms as apply to
the holders of Common Stock, be converted into or exchanged for the aggregate
amount of stock, securities, cash or other property (payable in kind)
receivable by a holder of the number of shares of Common Stock into which such
shares of Class M Voting Preferred Stock could have been converted immediately
prior to such transaction if such holder of Common Stock failed to exercise any
rights of election to receive any kind or amount of stock, securities, cash or
other property receivable in such transaction (provided that if the kind or
amount of stock, securities, cash or other property receivable in such
transaction are not the same for each non-electing share, then the kind and
amount of stock, securities, cash or other property so receivable upon such
transaction for each non-electing share shall be the kind and amount so
receivable per share by the plurality of the non-electing shares).
7.3 In case the Corporation shall enter into any agreement providing for any
Merger Transaction described in Section 7.1 or 7.2, then the Corporation shall
as soon as practicable thereafter (and in any event at least fifteen (15)
Business Days before consummation of such transaction) give notice of such
agreement and the material terms thereof to each holder of Class M Voting
Preferred Stock. The Corporation shall not consummate any such Merger
Transaction unless all of the terms of this Section 7 have been complied with.
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Section 8. Voting. The holders of shares of Class M Voting Preferred Stock
shall have the following voting rights:
8.1 Except as otherwise required by law or provided in this Restated
Certificate, the holders of Class M Voting Preferred Stock shall be entitled to
vote on all matters submitted to a vote of the holders of Common Stock of the
Corporation, voting together as a single class with the holders of Common Stock
and the holders of such other classes and series of stock that vote together
with the Common Stock as a single class; provided, however, that prior to the
Termination Date, the holders of Class M Voting Preferred Stock shall not be
entitled to vote with respect to the election of the members of the Board of
Directors. For purposes of this Section 8.1, with respect to any vote or
consent with a record date occurring prior to the Termination Date, (a) the
holders of the shares of Class M Voting Preferred Stock from time to time
outstanding shall, collectively, be entitled to a number of votes (rounded to
the nearest whole vote) equal to the excess of (i) the product of (I) the
Machinist Fraction, (II) the Voting Fraction and (III) a fraction, the
numerator of which shall be the number of votes entitled to be cast on the
matter by the holders of all outstanding securities of the Corporation
(excluding the Voting Preferred Stocks and the shares of Common Stock issued
upon conversion of the ESOP Convertible Preferred Stocks and held on the
applicable record date in the ESOP or the Supplemental ESOP), and the
denominator of which shall be the excess of one (1.0) over the Voting Fraction,
over (ii) the sum of (A) the aggregate number of shares of Common Stock held
under the ESOP or the Supplemental ESOP which have been issued upon conversion
of the ESOP Convertible Preferred Stocks and have been, on the applicable
record date, allocated under the ESOP or the Supplemental ESOP to the accounts
of individuals who are members of the IAM Employee Group (as defined in the
ESOP), (B) the product of (x) the number of shares of Common Stock held under
the ESOP which have been issued upon conversion of the Class 1 ESOP Convertible
Preferred Stock and are held on the applicable record date in the Loan Suspense
Account (as defined in the ESOP) under the ESOP multiplied by (y) the Machinist
Fraction, and (C) the product of (aa) the number of shares of Common Stock held
by the Supplemental ESOP which have been issued upon conversion of the Class 2
ESOP Convertible Preferred Stock and are held on the applicable record date in
the Phantom Suspense Account (as defined in the Supplemental ESOP) under the
Supplemental ESOP multiplied by (bb) the Machinist Fraction (the excess of
clause (i) over clause (ii) being referred to herein as the "Attributed
Votes"); and (b) the holder of each share of the Class M Voting Preferred Stock
shall be entitled to a number of votes per share (rounded to the nearest one
hundred millionth of a vote) equal to the result of dividing (x) the number of
Attributed Votes by (y) the number of shares of Class M Voting Preferred Stock
outstanding on the applicable record date. With respect to each vote or consent
with a record date occurring on or after the Termination Date, each share of
Class M Voting Preferred Stock then outstanding shall be entitled to the number
of votes per share (rounded to the nearest one hundred millionth of a vote)
equal to a fraction, the numerator of which is the product of (i) the sum of
(x) the number of shares of Common Stock into which the ESOP Convertible
Preferred Stocks then outstanding can be converted as of the record date with
respect to such vote or consent and (y) the number of Available Unissued ESOP
Shares as of such record date and (ii) the Machinist Fraction, and the
denominator of which is the number of shares of Class M Voting Preferred Stock
outstanding as of such record date. For purposes of this Section 8.1, the
Corporation shall certify to the holders of Class M Voting Preferred Stock and
to the judges or similar officials appointed for the purpose of tabulating
votes at any meeting of stockholders as soon as practicable following the
record date for the determination of stockholders entitled to notice of or to
vote at any meeting of stockholders, but in no event less than five Trading
Days before such meeting, with respect to record dates prior to the Termination
Date, the number of shares of Common Stock then outstanding and the number of
votes entitled to be cast on the matter or matters in question by the holders
of all outstanding securities of the Corporation (excluding the Voting
Preferred Stocks and the shares of Common Stock issued upon conversion of the
ESOP Convertible Preferred Stocks and held on the applicable record date in the
ESOP or the Supplemental ESOP) and, with respect to record dates from and after
the Termination Date, the number of shares of Common Stock into which a share
of ESOP Convertible Preferred Stock was convertible as of the record date for
such vote or votes. The Corporation shall be deemed to satisfy the requirements
of the preceding sentence if such matters are specified in any proxy statement
mailed to all stockholders entitled to vote on such matter or matters.
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Prior to the Termination Date, the outstanding shares of the Voting Preferred
Stocks, the Class Pilot MEC Preferred Stock, the Class IAM Preferred Stock and
the Class SAM Preferred Stock, together with the shares of Common Stock held by
the ESOP and the Supplemental ESOP that were received upon conversion of the
ESOP Preferred Stocks, will represent the Voting Fraction (expressed as a
percentage) of the votes to be cast in connection with matters (other than the
election of directors) submitted to the vote of the holders of the Common Stock
and the holders of all other outstanding securities that vote as a single class
together with the Common Stock. Subject to any amendment of this Restated
Certificate after the date hereof, it is the intent of this Restated
Certificate that this Section 8.2 (with respect to the Class M Voting Preferred
Stock), Article FOURTH, Part IV, Section 8.2 of the Restated Certificate (with
respect to the Class P Voting Preferred Stock) and Article FOURTH, Part VI,
Section 8.2 of the Restated Certificate (with respect to the Class S Voting
Preferred Stock) be interpreted together to achieve the foregoing result.
8.2 Unless the affirmative vote or consent of the holders of a greater number
of shares of Class M Voting Preferred Stock shall then be required by law or
this Restated Certificate, and in addition to any other vote required by law or
this Restated Certificate, the affirmative vote or written consent of the
holders of at least a majority of all of the outstanding shares of Class M
Voting Preferred Stock, voting separately as a class, shall be necessary for
authorizing, effecting or validating the amendment, alteration or repeal
(including any amendment, alteration or repeal by operation of merger or
consolidation) of any of the provisions of this Restated Certificate or of any
certificate amendatory thereof or supplemental thereto (including any
Certificate of Designation, Preferences and Rights or any similar document
relating to any series of Serial Preferred Stock) which would adversely affect
the preferences, rights, powers or privileges of the Class M Voting Preferred
Stock or of either of the ESOP Convertible Preferred Stocks.
8.3 For purposes of the foregoing provisions of Section 8.2, each share of
Class M Voting Preferred Stock shall have one (1) vote per share.
8.4 Notwithstanding anything to the contrary in Section 7 or 8.1, if at any
time prior to the Termination Date, (x) the trustee under either (i) the ESOP
or (ii) the Supplemental ESOP (together with the ESOP, the "Employee Plan")
either (a) fails to solicit, in accordance with the Employee Plan, timely
instructions from Employee Plan participants, the Committee of the ESOP (as
defined in the ESOP and hereinafter referred to as the "ESOP Committee") or the
Committee of the Supplemental ESOP (as defined in the Supplemental ESOP and,
together with the ESOP Committee, the "Committees"), as applicable
("Instructions"), with respect to any matter referred to in clause (y) below,
or (b) fails to act in accordance with such Instructions with respect to any
matter referred to in clause (y) below (but only if such failure to follow such
Instructions is attributable to (i) the trustee having concluded that, based
upon the terms of such transaction, the trustee's fiduciary duties require the
trustee to fail to follow such instructions or (ii) the unenforceability of the
provisions of the ESOP and/or the Supplemental ESOP relating to the
solicitation and/or following of such Instructions); (y) either (i) but for the
provisions of Article FOURTH, Part VII, Subsection 8.3(a), Article FOURTH, Part
VIII, Subsection 8.3(a) and Article FOURTH, Part IX, Subsection 8.3(a) of this
Restated Certificate, the vote of the stockholders of the Corporation would
have been sufficient, under applicable law, stock exchange listing requirements
and this Restated Certificate, as applicable, to approve the Merger Transaction
or other Control Transaction (as defined in the ESOP) in question (or, if no
stockholder approval would be required by this Restated Certificate, applicable
stock exchange listing requirements or applicable law, the trustee enters into
a binding commitment in connection with a Control Transaction or a Control
Transaction is consummated) or (ii) following the Issue Date, the trustee
disposes of an aggregate of 10% or more of the Common Equity (as defined in
Article FIFTH, Section 1.26 of this Restated Certificate) initially represented
by the ESOP Convertible Preferred Stocks other than in connection with Employee
Plan distributions or diversification requirements; and (z) any of the
following occur: (a) Instructions with respect to a matter are given, the
trustee fails to follow such Instructions and such transaction would not have
been approved by stockholders of the Corporation in accordance with the
applicable provisions of this Restated Certificate (excluding Article FOURTH,
Part VII, Subsection 8.3(a), Article FOURTH, Part VIII, Subsection 8.3(a) and
Article FOURTH, Part IX, Subsection 8.3(a) of this Restated Certificate),
applicable
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stock exchange listing requirements or applicable law if the trustee had acted
in accordance with such Instructions (or, if no vote of stockholders would be
required by this Restated Certificate, applicable stock exchange listing
requirements or applicable law, such action by the trustee in respect of such
transaction as to which Instructions were so given would not have been
authorized had the trustee acted in accordance with such Instructions), (b) the
trustee fails to solicit timely Instructions with respect to such matters, such
transaction requires the approval of stockholders of the Corporation under
applicable provisions of this Restated Certificate, applicable stock exchange
listing requirements or applicable law and such approval would not have been
obtained (without regard to the provisions of Article FOURTH, Part VII,
Subsection 8.3(a), Article FOURTH, Part VIII, Subsection 8.3(a) and Article
FOURTH, Part IX, Subsection 8.3(a) of this Restated Certificate) if the trustee
had voted against such transaction all of the votes entitled to be cast by such
trustee as the holder of securities of the Corporation held under the Employee
Plan, or (c) the trustee fails to follow Instructions or to solicit timely
Instructions with respect to such matter and no vote of stockholders of the
Corporation is required by the Restated Certificate, applicable stock exchange
listing requirements or applicable law to approve such transaction (an action
or inaction by the trustee under clauses (x) and (z) in connection with a
transaction referred to in clause (y) being referred to herein as an
"Uninstructed Trustee Action"); then each outstanding share of Class M Voting
Preferred Stock shall, immediately and automatically, without any further
action on the part of holders thereof or of the Corporation, be converted into
shares of Common Stock at the applicable Conversion Rate in accordance with
Section 9 hereof.
Section 9. Automatic Conversion.
9.1 Shares of Class M Voting Preferred Stock shall, as provided in Sections
1.2 and 8.4, be automatically converted, from time to time, in part or in
whole, respectively, upon (i) any transfer thereof other than a transfer
described in clauses (x) and (y) of Section 1.2 or (ii) an Uninstructed Trustee
Action as described in Section 8.4, at a rate of one ten thousandth of a share
of Common Stock per share of Class M Voting Preferred Stock to be converted
(the "Conversion Rate").
9.2 At the time that all of the shares of the ESOP Convertible Preferred
Stocks cease to be outstanding for any reason whatsoever, including, without
limitation, their conversion in full into Common Stock (the "Final Conversion
Date"), all outstanding shares of Class M Voting Preferred Stock shall be
automatically converted, in full, into shares of Common Stock at the Conversion
Rate then in effect.
9.3 Following any conversion in accordance with Sections 9.1 and 9.2, (i) no
holder of Class M Voting Preferred Stock shall have any of the voting powers,
preferences, relative, participating, optional or special rights ascribed to
shares of Class M Voting Preferred Stock hereunder, but, rather, shall have
only the powers and rights pertaining to the Common Stock into which such
shares of Class M Voting Preferred Stock have been so converted, and (ii) any
holder of Class M Voting Preferred Stock shall be treated for all purposes as
the record holder of the shares of Common Stock into which the Class M Voting
Preferred Stock shall have been converted as of the date of the conversion of
the shares of Class M Voting Preferred Stock.
9.4 On or after the date of (i) a transfer of shares of Class M Voting
Preferred Stock (other than as described in clauses (x) and (y) of Section
1.2), (ii) the Final Conversion Date or (iii) an Uninstructed Trustee Action,
each holder of a certificate or certificates formerly representing shares of
Class M Voting Preferred Stock converted in accordance with Sections 9.1 and
9.2 shall surrender such certificate or certificates, duly endorsed or assigned
to the Corporation or in blank, at the office of the Transfer Agent (if other
than the Corporation) in the Borough of Manhattan, City of New York. Unless the
shares issuable on conversion are to be issued in the same name as the name in
which such certificate is registered, each such certificate shall be
accompanied by instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder or such holder's duly authorized
attorney and an amount sufficient to pay any transfer or similar tax (or
evidence reasonably satisfactory to the Corporation demonstrating that such
taxes have been paid or that no such taxes are payable).
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9.5 No fractional shares or scrip representing fractions of shares of Common
Stock shall be issued upon conversion of the Class M Voting Preferred Stock.
Instead of any fractional interest in a share of Common Stock that would
otherwise be deliverable upon the conversion of a share of Class M Voting
Preferred Stock, the Corporation shall pay to the holder of such share an
amount in cash based upon the Current Market Price of Common Stock on the
Trading Day immediately preceding the date of conversion. If more than one
certificate shall be surrendered in respect of such conversion at one time by
the same holder, the number of full shares of Common Stock issuable upon
conversion shall be computed on the basis of the aggregate number of shares of
Class M Voting Preferred Stock formerly represented by the certificates so
surrendered.
9.6 In the event of an adjustment to the "Conversion Rate" in effect with
respect to the ESOP Convertible Preferred Stocks, a corresponding adjustment
shall be made to the Conversion Rate with respect to the Class M Voting
Preferred Stock.
Section 10. Record Holders. The Corporation and the Transfer Agent (if other
than the Corporation) may deem and treat the record holder of any shares of
Class M Voting Preferred Stock as the true and lawful owner thereof for all
purposes, and, except as otherwise provided by law, neither the Corporation nor
the Transfer Agent shall be affected by any notice to the contrary.
PART VI
Class S ESOP Voting Junior Preferred Stock
Unless otherwise indicated, any reference in this Article FOURTH, Part VI to
"Section", "Subsection", "paragraph", "subparagraph" or "clause" shall refer to
a Section, Subsection, paragraph, subparagraph or clause of this Article
FOURTH, Part VI.
Section 1. Number of Shares; Designation; Issuances; Automatic Conversion.
1.1 The Class S ESOP Voting Junior Preferred Stock of the Corporation (the
"Class S Voting Preferred Stock") shall consist of 4,200,000 shares, par value
$0.01 per share.
1.2 Shares of Class S Voting Preferred Stock shall be issued only to a
trustee or trustees acting on behalf of (i) the UAL Corporation Employee Stock
Ownership Plan (the "ESOP"), (ii) the UAL Corporation Supplemental ESOP (the
"Supplemental ESOP") or (iii) any other employee stock ownership trust or plan
or other employee benefit plan of the Corporation or any of its subsidiaries
(each, a "Plan"). In the event of any sale, transfer or other disposition
(including, without limitation, upon a foreclosure or other realization upon
shares of Class S Voting Preferred Stock pledged as security for any loan or
loans made to a Plan or to the trustee or the trustees acting on behalf of a
Plan) (hereinafter a "transfer") of shares of Class S Voting Preferred Stock to
any person (including, without limitation, any participant in a Plan) other
than (x) any Plan or trustee or trustees of a Plan or (y) any pledgee of such
shares acquiring such shares as security for any loan or loans made to the Plan
or to any trustee or trustees acting on behalf of the Plan, the shares of Class
S Voting Preferred Stock so transferred, upon such transfer and without any
further action by the Corporation or the holder, shall be automatically
converted into shares of Common Stock at the applicable Conversion Rate in
accordance with Section 9 hereof and thereafter such transferee shall not have
any of the voting powers, preferences or relative, participating, optional or
special rights ascribed to shares of Class S Voting Preferred Stock hereunder,
but, rather, shall have only the powers and rights pertaining to the Common
Stock into which such shares of Class S Voting Preferred Stock shall be so
converted. In the event of any such automatic conversion provided for in this
Section 1.2, such transferee shall be treated for all purposes as the record
holder of the shares of Common Stock into which the Class S Voting Preferred
Stock shall have been converted as of the date of such conversion. Certificates
representing shares of Class S Voting Preferred Stock shall be legended to
reflect such consequences of a transfer. The shares of Common Stock issued upon
any conversion in accordance with Section 9 hereof or this Section 1.2 may be
transferred by the holder thereof as permitted by law.
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Section 2. Definitions. For purposes of the Class S Voting Preferred Stock,
the following terms shall have the meanings indicated:
2.1 "Available Unissued ESOP Shares" shall have the meaning set forth in
Article FIFTH, Section 1.5 of this Restated Certificate.
2.2 "Board of Directors" shall mean the board of directors of the Corporation
or any committee of such board of directors authorized by such board of
directors to perform any of its responsibilities with respect to the Class S
Voting Preferred Stock.
2.3 "Business Day" shall mean any day other than a Saturday, Sunday or a day
on which state or federally chartered banking institutions in New York, New
York are not required to be open.
2.4 "Class 1 ESOP Convertible Preferred Stock" shall mean the Class 1 ESOP
Convertible Preferred Stock, par value $0.01 per share, of the Corporation.
2.5 "Class 2 ESOP Convertible Preferred Stock" shall mean the Class 2 ESOP
Convertible Preferred Stock, par value $0.01 per share, of the Corporation.
2.6 "Class I Preferred Stock" shall mean the Class I Junior Preferred Stock,
par value $0.01 per share, of the Corporation.
2.7 "Class IAM Preferred Stock" shall mean the Class IAM Junior Preferred
Stock, par value $0.01 per share, of the Corporation.
2.8 "Class M Voting Preferred Stock" shall mean the Class M ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.9 "Class P Voting Preferred Stock" shall mean the Class P ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.10 "Class Pilot MEC Preferred Stock" shall mean the Class Pilot MEC Junior
Preferred Stock, par value $0.01 per share, of the Corporation.
2.11 "Class S Voting Preferred Stock" shall have the meaning set forth in
Section 1 hereof.
2.12 "Class SAM Preferred Stock" shall mean the Class SAM Junior Preferred
Stock, par value $0.01 per share, of the Corporation.
2.13 "Common Stock" shall mean the common stock, par value $0.01 per share,
of the Corporation.
2.14 "Conversion Rate" shall have the meaning set forth in Section 9.1
hereof.
2.15 "Current Market Price" of publicly traded shares of Common Stock or any
other class or series of capital stock or other security of the Corporation or
any other issuer for any day shall mean the last reported sales price, regular
way on such day, or, if no sale takes place on such day, the average of the
reported closing bid and asked prices on such day, regular way, in either case
as reported on the New York Stock Exchange Composite Tape or, if such security
is not listed or admitted for trading on the New York Stock Exchange, Inc.
("NYSE"), on the principal national securities exchange on which such security
is listed or admitted for trading or quoted or, if not listed or admitted for
trading or quoted on any national securities exchange, on the Nasdaq National
Market or, if such security is not quoted on such National Market, the average
of the closing bid and asked prices on such day in the over-the-counter market
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") or, if bid and asked prices for such security on
such day shall not have been reported through NASDAQ, the average of the bid
and
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asked prices on such day as furnished by any NYSE member firm regularly making
a market in such security selected for such purpose by the Board of Directors.
2.16 "Director Preferred Stocks" shall mean, collectively, the Class I
Preferred Stock, the Class Pilot MEC Preferred Stock, the Class IAM Preferred
Stock and the Class SAM Preferred Stock.
2.17 "ESOP Convertible Preferred Stocks" shall mean, collectively, the Class
1 ESOP Convertible Preferred Stock and the Class 2 ESOP Convertible Preferred
Stock.
2.18 "Issue Date" shall mean the first date on which shares of Class S Voting
Preferred Stock are issued.
2.19 "Liquidation Preference" shall have the meaning set forth in Section 4.1
hereof.
2.20 "Measuring Date" shall mean that date which is the 365th day following
the Issue Date.
2.21 "Restated Certificate" shall mean the Restated Certificate of
Incorporation of the Corporation, as amended from time to time.
2.22 "Salaried/Management Fraction" shall mean 0.1664.
2.23 "Series A Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series A Convertible
Preferred Stock in Article FOURTH, Part I.A of this Restated Certificate.
2.24 "Series B Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series B Preferred
Stock in Article FOURTH, Part I.B of this Restated Certificate.
2.25 "Series C Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series C Junior
Participating Preferred Stock in Article FOURTH, Part I.C of this Restated
Certificate.
2.26 "Series D Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series D Redeemable
Preferred Stock in Article FOURTH, Part I.D of this Restated Certificate.
2.27 [Reserved]
2.28 "set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Corporation in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to a
declaration of dividends or other distribution by the Board of Directors, the
allocation of funds to be so paid on any series or class of capital stock of
the Corporation; provided, however, that if any funds for any class or series
of stock of the Corporation ranking on a parity with or junior to the Class S
Voting Preferred Stock as to distributions upon liquidation, dissolution or
winding up of the Corporation are placed in a separate account of the
Corporation or delivered to a disbursing, paying or other similar agent, then
"set apart for payment" with respect to the Class S Voting Preferred Stock
shall mean, with respect to such distributions, placing such funds in a
separate account or delivering such funds to a disbursing, paying or other
similar agent.
2.29 "Termination Date" shall have the meaning set forth in Article FIFTH,
Section 1.72 of this Restated Certificate.
2.30 "Trading Day" shall mean any day on which the securities in question are
traded on the NYSE, or if such securities are not listed or admitted for
trading or quoted on the NYSE, on the principal national
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securities exchange on which such securities are listed or admitted, or if not
listed or admitted for trading or quoted on any national securities exchange,
on the Nasdaq National Market, or if such securities are not quoted on such
National Market, in the applicable securities market in which the securities
are traded.
2.31 "Transfer Agent" means the Corporation or such agent or agents of the
Corporation as may be designated from time to time by the Board of Directors as
the transfer agent for the Class S Voting Preferred Stock.
2.32 "Voting Fraction" shall mean 0.55 with respect to votes and consents
that have a record date on or prior to the Measuring Date and a fraction that
is equivalent to the Adjusted Percentage (as defined in Section 1.10 of the
Agreement and Plan of Recapitalization, dated as of March 25, 1994, among the
Corporation, the Air Line Pilots Association, International and International
Association of Machinists and Aerospace Workers, as amended from time to time)
as in effect at the close of business on the Measuring Date with respect to
votes and consents that have a record date after the Measuring Date.
2.33 "Voting Preferred Stocks" shall mean, collectively, the Class P Voting
Preferred Stock, the Class M Voting Preferred Stock and the Class S Voting
Preferred Stock.
Section 3. Dividends. The holders of shares of the Class S Voting Preferred
Stock as such shall not be entitled to receive any dividends or other
distributions (except as provided in Section 4 below).
Section 4. Payments upon Liquidation.
4.1 In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, before any payment or distribution of the assets
of the Corporation (whether capital or surplus) shall be made to or set apart
for payment to the holders of any class or series of stock of the Corporation
that ranks junior to the Class S Voting Preferred Stock as to amounts
distributable upon liquidation, dissolution or winding up of the Corporation,
the holders of the shares of Class S Voting Preferred Stock shall be entitled
to receive $0.01 per share of Class S Voting Preferred Stock (the "Liquidation
Preference"), but such holders shall not be entitled to any further payment.
If, upon any liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation, or proceeds thereof, distributable among the holders
of the shares of Class S Voting Preferred Stock shall be insufficient to pay in
full the Liquidation Preference and the liquidation preference on all other
shares of any class or series of stock of the Corporation that ranks on a
parity with the Class S Voting Preferred Stock as to amounts distributable upon
liquidation, dissolution or winding up of the Corporation, then such assets, or
the proceeds thereof, shall be distributed among the holders of shares of Class
S Voting Preferred Stock and any such other parity stock ratably in accordance
with the respective amounts that would be payable on such shares of Class S
Voting Preferred Stock and any such other parity stock if all amounts payable
thereon were paid in full. For the purposes of this Section 4, (i) a
consolidation or merger of the Corporation with or into one or more
corporations, or (ii) a sale, lease, exchange or transfer of all or
substantially all of the Corporation's assets, shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary, of the
Corporation.
4.2 Subject to the rights of the holders of shares of any series or class of
stock ranking prior to or on a parity with the Class S Voting Preferred Stock
as to amounts distributable upon liquidation, dissolution or winding up of the
Corporation, after payment shall have been made to the holders of the Class S
Voting Preferred Stock, as and to the fullest extent provided in this Section
4, any other series or class of stock of the Corporation that ranks junior to
the Class S Voting Preferred Stock as to amounts distributable upon
liquidation, dissolution or winding up of the Corporation, shall, subject to
the respective terms and provisions (if any) applying thereto, be entitled to
receive any and all assets remaining to be paid or distributed, and the holders
of the Class S Voting Preferred Stock shall not be entitled to share therein.
Section 5. Shares to be Retired. All shares of Class S Voting Preferred Stock
which shall have been issued and reacquired in any manner by the Corporation
shall be retired and shall not be reissued.
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Section 6. Ranking.
6.1 Any class or series of stock of the Corporation shall be deemed to rank:
(a) prior to the Class S Voting Preferred Stock as to the distribution of
assets upon liquidation, dissolution or winding up, if the holders of such
class or series shall be entitled to the receipt of amounts distributable
upon liquidation, dissolution or winding up in preference or priority to
the holders of Class S Voting Preferred Stock;
(b) on a parity with the Class S Voting Preferred Stock as to the
distribution of assets upon liquidation, dissolution or winding up, whether
or not the liquidation prices per share thereof be different from those of
the Class S Voting Preferred Stock, if the holders of such class or series
and the Class S Voting Preferred Stock shall be entitled to the receipt of
amounts distributable upon liquidation, dissolution or winding up in
proportion to their respective liquidation preferences, without preference
or priority one over the other; and
(c) junior to the Class S Voting Preferred Stock, as to the distribution
of assets upon liquidation, dissolution or winding up, if the holders of
Class S Voting Preferred Stock shall be entitled to the receipt of amounts
distributable upon liquidation, dissolution or winding up in preference or
priority to the holders of shares of such class or series.
6.2 The Series A Preferred Stock, the Series B Preferred Stock, the Series D
Preferred Stock and the ESOP Convertible Preferred Stocks shall be deemed to
rank prior to the Class S Voting Preferred Stock as to amounts distributable
upon liquidation, dissolution or winding up. The other Voting Preferred Stocks
and the Director Preferred Stocks shall each be deemed to rank on a parity with
the Class S Voting Preferred Stock as to amounts distributable upon
liquidation, dissolution or winding up. The Common Stock and the Series C
Preferred Stock shall each be deemed to rank junior to the Class S Voting
Preferred Stock as to amounts distributable upon liquidation, dissolution or
winding up.
Section 7. Consolidation, Merger, etc.
7.1 In case the Corporation shall enter into any consolidation, merger, share
exchange or similar transaction, however named, pursuant to which the
outstanding shares of Common Stock are to be exchanged solely for or changed,
reclassified or converted solely into stock of any successor, resulting or
other company (including the Corporation) (each of the foregoing is referred to
herein as "Merger Transaction") that constitutes "qualifying employer
securities" with respect to holders of Class S Voting Preferred Stock within
the meaning of Section 409(l) of the Code and Section 407(d)(5) of the Employee
Retirement Income Security Act of 1974, as amended, or any successor provisions
of law, and, if applicable, for a cash payment in lieu of fractional shares, if
any, proper provisions shall be made so that upon consummation of such
transaction, the shares of Class S Voting Preferred Stock shall be converted
into or exchanged for preferred stock of such successor, resulting or other
company (the "New Salaried/Management Voting Preferred Stock"), having in
respect of such company, except as provided below, the same powers, preferences
and relative, participating, optional or other special rights (including the
rights provided by this Section 7), and the qualifications, limitations or
restrictions thereof, that the Class S Voting Preferred Stock had, in respect
of the Corporation, immediately prior to such transaction, except that after
such transaction each share of such New Salaried/Management Voting Preferred
Stock so received in such transaction upon conversion or exchange of the Class
S Voting Preferred Stock shall be convertible, otherwise on the terms and
conditions provided by Section 9 hereof, into the number and kind of
"qualifying employer securities" receivable in such transaction by a holder of
the number of shares of Common Stock into which a share of Class S Voting
Preferred Stock could have been converted immediately prior to such
transaction; provided, however, that the holder of each share of New
Salaried/Management Voting Preferred Stock shall be entitled to a number of
votes per share equal to a fraction, the numerator of which is the product of
(x) the Salaried/Management Fraction and (y) the aggregate number of votes that
would be entitled to be cast by the holders of the securities of the surviving,
resulting or other corporation into which the ESOP Convertible Preferred Stocks
are changed, reclassified or converted (collectively, the "New ESOP Convertible
Preferred Stocks") upon consummation of such transaction (assuming for such
purpose the conversion of the New ESOP Convertible Preferred Stocks), and
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the denominator of which is the aggregate number of shares of New
Salaried/Management Voting Preferred Stock then outstanding; provided, further
that if by virtue of the structure of such transaction, a holder of Common
Stock is required to make an election with respect to the nature and kind of
consideration to be received in such transaction, which election cannot
practicably be made by the holders of the Class S Voting Preferred Stock, then
the shares of New Salaried/Management Voting Preferred Stock received in such
transaction upon conversion or exchange of Class S Voting Preferred Stock
shall, by virtue of such transaction and on the same terms as apply to the
holders of Common Stock, be convertible into or exchangeable solely for
"qualifying employer securities" (together, if applicable, with a cash payment
in lieu of fractional shares) with the effect provided above on the basis of
the number and kind of qualifying employer securities receivable in such
transaction by a holder of the number of shares of Common Stock into which such
shares of Class S Voting Preferred Stock could have been converted immediately
prior to such transaction (provided that if the kind or amount of qualifying
employer securities receivable in such transaction is not the same for each
such share of Common Stock, then the kind and amount so receivable in such
transaction for each share of Common Stock for this purpose shall be deemed to
be the kind and amount so receivable per share by the plurality of such shares
of Common Stock). The rights of the New Salaried/Management Voting Preferred
Stock so received in such transaction upon conversion or exchange of the Class
S Voting Preferred Stock shall successively be subject to adjustment pursuant
to Section 9 hereof following such transaction as nearly equivalent to the
adjustments provided for by such Section prior to such transaction.
7.2 In case the Corporation shall enter into any Merger Transaction, however
named, pursuant to which the outstanding shares of Common Stock are exchanged
for or changed, reclassified or converted into other stock or securities or
cash or any other property, or any combination thereof, other than any such
consideration which is constituted solely of "qualifying employer securities"
(as referred to in Section 7.1) and cash payments, if applicable, in lieu of
fractional shares, proper provisions shall be made so that each outstanding
share of Class S Voting Preferred Stock shall, by virtue of and upon
consummation of such transaction, on the same terms as are applicable to the
holders of Common Stock, be converted into or exchanged for the aggregate
amount of stock, securities, cash or other property (payable in like kind)
receivable by holders of the number of shares of Common Stock into which such
shares of Class S Voting Common Stock Preferred Stock could have been converted
immediately prior to such transaction; provided, however, that if by virtue of
the structure of such transaction, a holder of Common Stock is required to make
an election with respect to the nature and kind of consideration to be received
in such transaction, which election cannot practicably be made by holders of
the Class S Voting Preferred Stock, then the shares of Class S Voting Preferred
Stock shall, by virtue of such transaction and on the same terms as apply to
the holders of Common Stock, be converted into or exchanged for the aggregate
amount of stock, securities, cash or other property (payable in kind)
receivable by a holder of the number of shares of Common Stock into which such
shares of Class S Voting Preferred Stock could have been converted immediately
prior to such transaction if such holder of Common Stock failed to exercise any
rights of election to receive any kind or amount of stock, securities, cash or
other property receivable in such transaction (provided that if the kind or
amount of stock, securities, cash or other property receivable in such
transaction are not the same for each non-electing share, then the kind and
amount of stock, securities, cash or other property so receivable upon such
transaction for each non-electing share shall be the kind and amount so
receivable per share by the plurality of the non-electing shares).
7.3 In case the Corporation shall enter into any agreement providing for any
Merger Transaction described in Section 7.1 or 7.2, then the Corporation shall
as soon as practicable thereafter (and in any event at least fifteen (15)
Business Days before consummation of such transaction) give notice of such
agreement and the material terms thereof to each holder of Class S Voting
Preferred Stock. The Corporation shall not consummate any such Merger
Transaction unless all of the terms of this Section 7 have been complied with.
Section 8. Voting. The holders of shares of Class S Voting Preferred Stock
shall have the following voting rights:
8.1 Except as otherwise required by law or provided in this Restated
Certificate, the holders of Class S Voting Preferred Stock shall be entitled to
vote on all matters submitted to a vote of the holders of Common
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Stock of the Corporation, voting together as a single class with the holders of
Common Stock and the holders of such other classes and series of stock that
vote together with the Common Stock as a single class; provided, however, that
prior to the Termination Date, the holders of Class S Voting Preferred Stock
shall not be entitled to vote with respect to the election of the members of
the Board of Directors. For purposes of this Section 8.1, with respect to any
vote or consent with a record date occurring prior to the Termination Date, (a)
the holders of the shares of Class S Voting Preferred Stock from time to time
outstanding shall, collectively, be entitled to a number of votes (rounded to
the nearest whole vote) equal to the excess of (i) the product of (I) the
Salaried/Management Fraction, (II) the Voting Fraction and (III) a fraction,
the numerator of which shall be the number of votes entitled to be cast on the
matter by the holders of all outstanding securities of the Corporation
(excluding the Voting Preferred Stocks and the shares of Common Stock issued
upon conversion of the ESOP Convertible Preferred Stocks and held on the
applicable record date in the ESOP or the Supplemental ESOP), and the
denominator of which shall be the excess of one (1.0) over the Voting Fraction,
over (ii) the sum of (A) the aggregate number of shares of Common Stock held
under the ESOP or the Supplemental ESOP which have been issued upon conversion
of the ESOP Convertible Preferred Stocks and have been, on the applicable
record date, allocated under the ESOP or the Supplemental ESOP to the accounts
of individuals who are members of the Salaried/Management Employee Group (as
defined in the ESOP), (B) the product of (x) the number of shares of Common
Stock held under the ESOP which have been issued upon conversion of the Class 1
ESOP Convertible Preferred Stock and are held on the applicable record date in
the Loan Suspense Account (as defined in the ESOP) under the ESOP multiplied by
(y) the Salaried/Management Fraction, and (C) the product of (aa) the number of
shares of Common Stock held by the Supplemental ESOP which have been issued
upon conversion of the Class 2 ESOP Convertible Preferred Stock and are held on
the applicable record date in the Phantom Suspense Account (as defined in the
Supplemental ESOP) under the Supplemental ESOP multiplied by (bb) the
Salaried/Management Fraction (the excess of clause (i) over clause (ii) being
referred to herein as the "Attributed Votes"); and (b) the holder of each share
of the Class S Voting Preferred Stock shall be entitled to a number of votes
per share (rounded to the nearest one hundred millionth of a vote) equal to the
result of dividing (x) the number of Attributed Votes by (y) the number of
shares of Class S Voting Preferred Stock outstanding on the applicable record
date. With respect to each vote or consent with a record date occurring on or
after the Termination Date, each share of Class S Voting Preferred Stock then
outstanding shall be entitled to the number of votes per share (rounded to the
nearest one hundred millionth of a vote) equal to a fraction, the numerator of
which is the product of (i) the sum of (x) the number of shares of Common Stock
into which the ESOP Convertible Preferred Stocks then outstanding can be
converted as of the record date with respect to such vote or consent and (y)
the number of Available Unissued ESOP Shares as of such record date and (ii)
the Salaried/Management Fraction, and the denominator of which is the number of
shares of Class S Voting Preferred Stock outstanding as of such record date.
For purposes of this Section 8.1, the Corporation shall certify to the holders
of Class S Voting Preferred Stock and to the judges or similar officials
appointed for the purpose of tabulating votes at any meeting of stockholders as
soon as practicable following the record date for the determination of
stockholders entitled to notice of or to vote at any meeting of stockholders,
but in no event less than five Trading Days before such meeting, with respect
to record dates prior to the Termination Date, the number of shares of Common
Stock then outstanding and the number of votes entitled to be cast on the
matter or matters in question by the holders of all outstanding securities of
the Corporation (excluding the Voting Preferred Stocks and the shares of Common
Stock issued upon conversion of the ESOP Convertible Preferred Stocks and held
on the applicable record date in the ESOP or the Supplemental ESOP) and, with
respect to record dates from and after the Termination Date, the number of
shares of Common Stock into which a share of ESOP Convertible Preferred Stock
was convertible as of the record date for such vote or votes. The Corporation
shall be deemed to satisfy the requirements of the preceding sentence if such
matters are specified in any proxy statement mailed to all stockholders
entitled to vote on such matter or matters.
Prior to the Termination Date, the outstanding shares of the Voting Preferred
Stocks, the Class Pilot MEC Preferred Stock, the Class IAM Preferred Stock and
the Class SAM Preferred Stock, together with the shares of Common Stock held by
the ESOP and the Supplemental ESOP that were received upon conversion
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of the ESOP Preferred Stocks, will represent the Voting Fraction (expressed as
a percentage) of the votes to be cast in connection with matters (other than
the election of directors) submitted to the vote of the holders of the Common
Stock and the holders of all other outstanding securities that vote as a single
class together with the Common Stock. Subject to any amendment of this Restated
Certificate after the date hereof, it is the intent of this Restated
Certificate that this Section 8.2 (with respect to the Class S Voting Preferred
Stock), Article FOURTH, Part V, Section 8.2 of the Restated Certificate (with
respect to the Class M Voting Preferred Stock) and Article FOURTH, Part IV,
Section 8.2 of the Restated Certificate (with respect to the Class P Voting
Preferred Stock) be interpreted together to achieve the foregoing result.
8.2 Unless the affirmative vote or consent of the holders of a greater number
of shares of Class S Voting Preferred Stock shall then be required by law or
this Restated Certificate, and in addition to any other vote required by law or
this Restated Certificate, the affirmative vote or written consent of the
holders of at least a majority of all of the outstanding shares of Class S
Voting Preferred Stock, voting separately as a class, shall be necessary for
authorizing, effecting or validating the amendment, alteration or repeal
(including any amendment, alteration or repeal by operation of merger or
consolidation) of any of the provisions of this Restated Certificate or of any
certificate amendatory thereof or supplemental thereto (including any
Certificate of Designation, Preferences and Rights or any similar document
relating to any series of Serial Preferred Stock) which would adversely affect
the preferences, rights, powers or privileges of the Class S Voting Preferred
Stock or of either of the ESOP Convertible Preferred Stocks.
8.3 For purposes of the foregoing provisions of Section 8.2, each share of
Class S Voting Preferred Stock shall have one (1) vote per share.
8.4 Notwithstanding anything to the contrary in Section 7 or 8.1, if at any
time prior to the Termination Date, (x) the trustee under either (i) the ESOP
or (ii) the Supplemental ESOP (together with the ESOP, the "Employee Plan")
either (a) fails to solicit, in accordance with the Employee Plan, timely
instructions from Employee Plan participants, the Committee of the ESOP (as
defined in the ESOP and hereinafter referred to as the "ESOP Committee") or the
Committee of the Supplemental ESOP (as defined in the Supplemental ESOP and,
together with the ESOP Committee, the "Committees"), as applicable
("Instructions"), with respect to any matter referred to in clause (y) below,
or (b) fails to act in accordance with such Instructions with respect to any
matter referred to in clause (y) below (but only if such failure to follow such
Instructions is attributable to (i) the trustee having concluded that, based
upon the terms of such transaction, the trustee's fiduciary duties require the
trustee to fail to follow such instructions or (ii) the unenforceability of the
provisions of the ESOP and/or the Supplemental ESOP relating to the
solicitation and/or following of such Instructions); (y) either (i) but for the
provisions of Article FOURTH, Part VII, Subsection 8.3(a), Article FOURTH, Part
VIII, Subsection 8.3(a) and Article FOURTH, Part IX, Subsection 8.3(a) of this
Restated Certificate, the vote of the stockholders of the Corporation would
have been sufficient, under applicable law, stock exchange listing requirements
and this Restated Certificate, as applicable, to approve the Merger Transaction
or other Control Transaction (as defined in the ESOP) in question (or, if no
stockholder approval would be required by this Restated Certificate, applicable
stock exchange listing requirements or applicable law, the trustee enters into
a binding commitment in connection with a Control Transaction or a Control
Transaction is consummated) or (ii) following the Issue Date, the trustee
disposes of an aggregate of 10% or more of the Common Equity (as defined in
Article FIFTH, Section 1.26 of this Restated Certificate) initially represented
by the ESOP Convertible Preferred Stocks other than in connection with Employee
Plan distributions or diversification requirements; and (z) any of the
following occur: (a) Instructions with respect to a matter are given, the
trustee fails to follow such Instructions and such transaction would not have
been approved by stockholders of the Corporation in accordance with the
applicable provisions of this Restated Certificate (excluding Article FOURTH,
Part VII, Subsection 8.3(a), Article FOURTH, Part VIII, Subsection 8.3(a) and
Article FOURTH, Part IX, Subsection 8.3(a) of this Restated Certificate),
applicable stock exchange listing requirements or applicable law if the trustee
had acted in accordance with such Instructions (or, if no vote of stockholders
would be required by this Restated Certificate, applicable stock exchange
listing requirements or applicable law, such action by the trustee in respect
of such transaction as
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to which Instructions were so given would not have been authorized had the
trustee acted in accordance with such Instructions, (b) the trustee fails to
solicit timely Instructions with respect to such matters, such transaction
requires the approval of stockholders of the Corporation under applicable
provisions of this Restated Certificate, applicable stock exchange listing
requirements or applicable law and such approval would not have been obtained
(without regard to the provisions of Article FOURTH, Part VII, Subsection
8.3(a), Article FOURTH, Part VIII, Subsection 8.3(a) and Article FOURTH, Part
IX, Subsection 8.3(a) of this Restated Certificate) if the trustee had voted
against such transaction all of the votes entitled to be cast by such trustee
as the holder of securities of the Corporation held under the Employee Plan, or
(c) the trustee fails to follow Instructions or to solicit timely Instructions
with respect to such matter and no vote of stockholders of the Corporation is
required by the Restated Certificate, applicable stock exchange listing
requirements or applicable law to approve such transaction (an action or
inaction by the trustee under clauses (x) and (z) in connection with a
transaction referred to in clause (y) being referred to herein as an
"Uninstructed Trustee Action"); then each outstanding share of Class S Voting
Preferred Stock shall, immediately and automatically, without any further
action on the part of holders thereof or of the Corporation, be converted into
shares of Common Stock at the applicable Conversion Rate in accordance with
Section 9 hereof.
Section 9. Automatic Conversion.
9.1 Shares of Class S Voting Preferred Stock shall, as provided in Sections
1.2 and 8.4, be automatically converted, from time to time, in part or in
whole, respectively, upon (i) any transfer thereof other than a transfer
described in clauses (x) and (y) of Section 1.2 or (ii) an Uninstructed Trustee
Action as described in Section 8.4, at a rate of one ten thousandth of a share
of Common Stock per share of Class S Voting Preferred Stock to be converted
(the "Conversion Rate").
9.2 At the time that all of the shares of the ESOP Convertible Preferred
Stocks cease to be outstanding for any reason whatsoever, including, without
limitation, their conversion in full into Common Stock (the "Final Conversion
Date"), all outstanding shares of Class S Voting Preferred Stock shall be
automatically converted, in full, into shares of Common Stock at the Conversion
Rate then in effect.
9.3 Following any conversion in accordance with Sections 9.1 and 9.2, (i) no
holder of Class S Voting Preferred Stock shall have any of the voting powers,
preferences, relative, participating, optional or special rights ascribed to
shares of Class S Voting Preferred Stock hereunder, but, rather, shall have
only the powers and rights pertaining to the Common Stock into which such
shares of Class S Voting Preferred Stock have been so converted, and (ii) any
holder of Class S Voting Preferred Stock shall be treated for all purposes as
the record holder of the shares of Common Stock into which the Class S Voting
Preferred Stock shall have been converted as of the date of the conversion of
the shares of Class S Voting Preferred Stock.
9.4 On or after the date of (i) a transfer of shares of Class S Voting
Preferred Stock (other than as described in clauses (x) and (y) of Section
1.2), (ii) the Final Conversion Date or (iii) an Uninstructed Trustee Action,
each holder of a certificate or certificates formerly representing shares of
Class S Voting Preferred Stock converted in accordance with Sections 9.1 and
9.2 shall surrender such certificate or certificates, duly endorsed or assigned
to the Corporation or in blank, at the office of the Transfer Agent (if other
than the Corporation) in the Borough of Manhattan, City of New York. Unless the
shares issuable on conversion are to be issued in the same name as the name in
which such certificate is registered, each such certificate shall be
accompanied by instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder or such holder's duly authorized
attorney and an amount sufficient to pay any transfer or similar tax (or
evidence reasonably satisfactory to the Corporation demonstrating that such
taxes have been paid or that no such taxes are payable).
9.5 No fractional shares or scrip representing fractions of shares of Common
Stock shall be issued upon conversion of the Class S Voting Preferred Stock.
Instead of any fractional interest in a share of Common Stock that would
otherwise be deliverable upon the conversion of a share of Class S Voting
Preferred Stock,
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the Corporation shall pay to the holder of such share an amount in cash based
upon the Current Market Price of Common Stock on the Trading Day immediately
preceding the date of conversion. If more than one certificate shall be
surrendered in respect of such conversion at one time by the same holder, the
number of full shares of Common Stock issuable upon conversion shall be
computed on the basis of the aggregate number of shares of Class S Voting
Preferred Stock formerly represented by the certificates so surrendered.
9.6 In the event of an adjustment to the "Conversion Rate" in effect with
respect to the ESOP Convertible Preferred Stocks, a corresponding adjustment
shall be made to the Conversion Rate with respect to the Class S Voting
Preferred Stock.
Section 10. Record Holders. The Corporation and the Transfer Agent (if other
than the Corporation) may deem and treat the record holder of any shares of
Class S Voting Preferred Stock as the true and lawful owner thereof for all
purposes, and, except as otherwise provided by law, neither the Corporation nor
the Transfer Agent shall be affected by any notice to the contrary.
PART VII
Class Pilot MEC Junior Preferred Stock
Unless otherwise indicated, any reference in this Article FOURTH, Part VII to
"Section", "Subsection", "paragraph", "subparagraph" or "clause" shall refer to
a Section, Subsection, paragraph, subparagraph or clause of this Article
FOURTH, Part VII.
Section 1. Number of Shares; Designation; Issuance; Restrictions on Transfer.
1.1 The Class Pilot MEC Junior Preferred Stock of the Corporation (the "Class
Pilot MEC Preferred Stock") shall consist of one (1) share, par value $0.01.
1.2 The share of Class Pilot MEC Preferred Stock shall be issued only to (i)
the United Airlines Pilots Master Executive Council of the Air Line Pilots
Association, International ("ALPA") pursuant to ALPA's authority as the
collective bargaining representative for the crafts or class of pilots employed
by United Air Lines, Inc. (the "MEC") or (ii) a duly authorized agent acting
for the benefit of the MEC. Any purported sale, transfer, pledge or other
disposition (hereinafter a "transfer") of the share of Class Pilot MEC
Preferred Stock to any person, other than a successor to the MEC or a duly
authorized agent acting for the benefit of such successor, shall be null and
void and of no force and effect. Upon any purported transfer of the share of
Class Pilot MEC Preferred Stock by the holder thereof other than as expressly
permitted above, and without any further action by the Corporation or such
holder, such share shall, to the extent of funds legally available therefor and
subject to the other provisions of this Restated Certificate, be automatically
redeemed by the Corporation in accordance with Section 9 hereof, and thereupon
such share shall no longer be deemed outstanding, and neither such holder nor
any purported transferee thereof shall have in respect thereof any of the
voting powers, preferences or relative, participating, optional or special
rights ascribed to the share of Class Pilot MEC Preferred Stock hereunder, but
rather such holder thereafter shall only be entitled to receive the amount
payable upon redemption in accordance with Section 9. The certificate
representing the share of Class Pilot MEC Preferred Stock shall be legended to
reflect the restrictions on transfer and automatic redemption provided for
herein.
Section 2. Definitions. For purposes of the Class Pilot MEC Preferred Stock,
the following terms shall have the meanings indicated:
2.1 "Affiliate" shall have the meaning defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended, or any successor thereto.
2.2 "ALPA Termination Date" shall have the meaning set forth in Section 8
hereof.
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2.3 "Board of Directors" shall mean the board of directors of the Corporation
or any committee thereof authorized by such board of directors to perform any
of its responsibilities with respect to the Class Pilot MEC Preferred Stock.
2.4 "Business Day" shall mean any day other than a Saturday, Sunday or a day
on which state or federally chartered banking institutions in New York, New
York are not required to be open.
2.5 "Class I Preferred Stock" shall mean the Class I Junior Preferred Stock,
par value $0.01 per share, of the Corporation.
2.6 "Class IAM Preferred Stock" shall mean the Class IAM Junior Preferred
Stock, par value $0.01 per share, of the Corporation.
2.7 "Class M Voting Preferred Stock" shall mean the Class M ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.8 "Class P Voting Preferred Stock" shall mean the Class P ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.9 "Class Pilot MEC Preferred Stock" shall have the meaning set forth in
Section 1 hereof.
2.10 "Class S Voting Preferred Stock" shall mean the Class S ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.11 "Class SAM Preferred Stock" shall mean the Class SAM Junior Preferred
Stock, par value $0.01 per share, of the Corporation.
2.12 "Common Stock" shall mean the common stock, par value $0.01 per share,
of the Corporation.
2.13 "Director Preferred Stocks" shall mean, collectively, the Class I
Preferred Stock, the Class IAM Preferred Stock, the Class Pilot MEC Preferred
Stock and the Class SAM Preferred Stock.
2.14 "ESOP Convertible Preferred Stocks" shall mean, collectively, the Class
1 ESOP Convertible Preferred Stock and the Class 2 ESOP Convertible Preferred
Stock, each of the par value of $0.01 per share, of the Corporation.
2.15 "Issue Date" shall mean the first date on which shares of Class Pilot
MEC Preferred Stock are issued.
2.16 "Liquidation Preference" shall have the meaning set forth in Section 4.1
hereof.
2.17 "Measuring Date" shall mean that date which is the 365th day following
the Issue Date.
2.18 "Pilot Fraction" shall mean 0.4623.
2.19 "Restated Certificate" shall mean the Restated Certificate of
Incorporation of the Corporation, as amended from time to time.
2.20 "Series A Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series A Convertible
Preferred Stock in Article FOURTH, Part I.A of this Restated Certificate.
2.21 "Series B Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series B Preferred
Stock in Article FOURTH, Part I.B of this Restated Certificate.
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2.22 "Series C Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series C Junior
Participating Preferred Stock in Article FOURTH, Part I.C of this Restated
Certificate.
2.23 "Series D Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series D Redeemable
Preferred Stock in Article FOURTH, Part I.D of this Restated Certificate.
2.24 [Reserved]
2.25 "set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Corporation in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to a
declaration of dividends or other distribution by the Board of Directors, the
allocation of funds to be so paid on any series or class of capital stock of
the Corporation; provided, however, that if any funds for any class or series
of stock of the Corporation ranking on a parity with or junior to the Class
Pilot MEC Preferred Stock as to distributions upon liquidation, dissolution or
winding up of the Corporation are placed in a separate account of the
Corporation or delivered to a disbursing, paying or other similar agent, then
"set apart for payment" with respect to the Class Pilot MEC Preferred Stock
shall mean, with respect to such distributions, placing such funds in a
separate account or delivering such funds to a disbursing, paying or other
similar agent.
2.26 "Termination Date" shall have the meaning set forth in Article FIFTH,
Section 1.72 of this Restated Certificate.
2.27 "Trading Day" shall mean any day on which the securities in question are
traded on the New York Stock Exchange, Inc. (the "NYSE"), or if such securities
are not listed or admitted for trading or quoted on the NYSE, on the principal
national securities exchange on which such securities are listed or admitted,
or if not listed or admitted for trading or quoted on any national securities
exchange, on the Nasdaq National Market, or if such securities are not quoted
on such National Market, in the applicable securities market in which the
securities are traded.
2.28 "Transfer Agent" means the Corporation or such agent or agents of the
Corporation as may be designated from time to time by the Board of Directors as
the transfer agent for the Class Pilot MEC Preferred Stock.
2.29 "Voting Fraction" shall mean 0.55 with respect to votes or consents that
have a record date on or prior to the Measuring Date, and a fraction that is
equivalent to the Adjusted Percentage (as defined in Section 1.10 of the
Agreement and Plan of Recapitalization, dated as of March 25, 1994, among the
Corporation, the Air Line Pilots Association, International and International
Association of Machinists and Aerospace Workers, as amended from time to time)
as in effect at the close of business on the Measuring Date with respect to
votes and consents that have a record date after the Measuring Date.
2.30 "Voting Preferred Stocks" shall mean, collectively, the Class P Voting
Preferred Stock, the Class M Voting Preferred Stock and the Class S Voting
Preferred Stock.
Section 3. Dividends. The holder of the share of Class Pilot MEC Preferred
Stock as such shall not be entitled to receive any dividends or other
distributions (except as provided in Section 4).
Section 4. Payments upon Liquidation.
4.1 In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, before any payment or distribution of the assets
of the Corporation (whether capital or surplus) shall be made to or set apart
for payment to the holders of any class or series of stock of the Corporation
that ranks junior to the Class Pilot MEC Preferred Stock as to amounts
distributable upon liquidation, dissolution
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or winding up of the Corporation, the holder of the share of Class Pilot MEC
Preferred Stock shall be entitled to receive $0.01 per share of Class Pilot MEC
Preferred Stock (the "Liquidation Preference"), but such holder shall not be
entitled to any further payment. If, upon any liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation, or proceeds
thereof, distributable to the holder of the share of Class Pilot MEC Preferred
Stock shall be insufficient to pay in full the Liquidation Preference and the
liquidation preference on all other shares of any class or series of stock of
the Corporation that ranks on a parity with the Class Pilot MEC Preferred Stock
as to amounts distributable upon liquidation, dissolution or winding up of the
Corporation, then such assets, or the proceeds thereof, shall be distributed
among the holder of the share of Class Pilot MEC Preferred Stock and any such
other parity stock ratably in accordance with the respective amounts that would
be payable on such share of Class Pilot MEC Preferred Stock and any such other
parity stock if all amounts payable thereon were paid in full. For the purposes
of this Section 4, (i) a consolidation or merger of the Corporation with or
into one or more corporations, or (ii) a sale, lease, exchange or transfer of
all or substantially all of the Corporation's assets, shall not be deemed to be
a liquidation, dissolution or winding up, voluntary or involuntary, of the
Corporation.
4.2 Subject to the rights of the holders of shares of any series or class of
stock ranking prior to or on a parity with the Class Pilot MEC Preferred Stock
as to amounts distributable upon liquidation, dissolution or winding up of the
Corporation, after payment shall have been made to the holder of the share of
Class Pilot MEC Preferred Stock, as and to the fullest extent provided in this
Section 4, any series or class of stock of the Corporation that ranks junior to
the Class Pilot MEC Preferred Stock as to amounts distributable upon
liquidation, dissolution or winding up of the Corporation, shall, subject to
the respective terms and provisions (if any) applying thereto, be entitled to
receive any and all assets remaining to be paid or distributed, and the holder
of the share of Class Pilot MEC Preferred Stock shall not be entitled to share
therein.
Section 5. Shares to be Retired. The share of Class Pilot MEC Preferred Stock
which shall have been issued and reacquired in any manner (other than
redemption pursuant to Section 9.1) by the Corporation shall be retired and
restored to the status of an authorized but unissued share of Class Pilot MEC
Preferred Stock and, in the event of the redemption of such share pursuant to
Section 9.1 hereof, shall not be reissued.
Section 6. Ranking.
6.1 Any class or series of stock of the Corporation shall be deemed to rank:
(a) prior to the Class Pilot MEC Preferred Stock as to the distribution
of assets upon liquidation, dissolution or winding up, if the holders of
such class or series shall be entitled to the receipt of amounts
distributable upon liquidation, dissolution or winding up in preference or
priority to the holder of Class Pilot MEC Preferred Stock;
(b) on a parity with the Class Pilot MEC Preferred Stock as to the
distribution of assets upon liquidation, dissolution or winding up, whether
or not the liquidation prices per share thereof be different from those of
the Class Pilot MEC Preferred Stock, if the holders of such class or series
and the Class Pilot MEC Preferred Stock shall be entitled to the receipt of
amounts distributable upon liquidation, dissolution or winding up in
proportion to their respective liquidation preferences, without preference
or priority one over the other; and
(c) junior to the Class Pilot MEC Preferred Stock, as to the distribution
of assets upon liquidation, dissolution or winding up, if the holder of
Class Pilot MEC Preferred Stock shall be entitled to the receipt of amounts
distributable upon liquidation, dissolution or winding up in preference or
priority to the holders of shares of such class or series.
6.2 The Series A Preferred Stock, the Series B Preferred Stock, the Series D
Preferred Stock and the ESOP Convertible Preferred Stocks shall be deemed to
rank prior to the Class Pilot MEC Preferred Stock as to amounts distributable
upon liquidation, dissolution or winding up. The other Director Preferred
Stocks and the Voting Preferred Stocks shall each be deemed to rank on a parity
with the Class Pilot MEC Preferred Stock as to amounts distributable upon
liquidation, dissolution or winding up. The Common Stock and the
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Series C Preferred Stock shall each be deemed to rank junior to the Class Pilot
MEC Preferred Stock as to amounts distributable upon liquidation, dissolution
or winding up.
Section 7. Consolidation, Merger, etc.
7.1 In case the Corporation enters into any consolidation, merger, share
exchange or similar transaction, however named, involving the Corporation or
its subsidiary, United Air Lines, Inc. ("United") (or any successor to all or
substantially all the assets or business of United), pursuant to which the
outstanding shares of Common Stock are to be exchanged for or changed,
reclassified or converted into securities of any successor or resulting or
other company (including the Corporation), or cash or other property (each of
the foregoing transactions is referred to herein as a "Merger Transaction"),
proper provision shall be made so that, upon consummation of such transaction,
the share of Class Pilot MEC Preferred Stock shall be converted, reclassified
or changed into or exchanged for preferred stock of such successor or resulting
or other company having, in respect of such company, the same powers,
preferences and relative, participating, optional or other special rights
(including the rights provided by this Section 7), and the qualifications,
limitations or restrictions thereof, that the Class Pilot MEC Preferred Stock
had, in respect of the Corporation, immediately prior to such transaction;
specifically including, without limitation, the right, until the ALPA
Termination Date, to elect one member of the board of directors (or similar
governing body) of such company.
7.2 In case the Corporation shall enter into any agreement providing for any
Merger Transaction, then the Corporation shall as soon as practicable
thereafter (and in any event at least fifteen (15) Business Days before
consummation of such transaction) give notice of such agreement and the
material terms thereof to the holder of the share of Class Pilot MEC Preferred
Stock. The Corporation shall not consummate any such Merger Transaction unless
all of the terms of this Section 7 and Section 8 have been complied with.
Section 8. Voting. The holder of the share of Class Pilot MEC Preferred Stock
shall have the following voting rights:
8.1 Until the later of (i) the Termination Date and (ii) such time as there
are no longer any persons represented by the Air Line Pilots Association,
International (or any successor organization) employed by the Corporation or
any of its Affiliates (the "ALPA Termination Date"), the holder of the share of
Class Pilot MEC Preferred Stock shall have the right (a) voting as a separate
class, to elect one Class Pilot MEC Director (as defined in Article FIFTH,
Section 2.2 of this Restated Certificate) to the Board of Directors and (b)
voting together as a single class with the holders of Common Stock and the
holders of such other classes or series of stock that vote together with the
Common Stock as a single class, to vote on all matters submitted to a vote of
the holders of Common Stock of the Corporation, except as otherwise required by
law.
8.2 Notwithstanding anything to the contrary in Section 7.1, 7.2 or 8.1, if
at any time prior to the Termination Date, (x) the trustee under either (i) the
UAL Corporation Employee Stock Ownership Plan (the "ESOP") or (ii) the UAL
Corporation Supplemental ESOP (together with the ESOP, the "Plan") either (a)
fails to solicit, in accordance with the Plan, timely instructions from Plan
participants, the Committee of the ESOP (as defined in the ESOP and hereinafter
referred to as the "ESOP Committee") or the Committee of the Supplemental ESOP
(as defined in the Supplemental ESOP and, together with the ESOP Committee, the
"Committees"), as applicable ("Instructions"), with respect to any matter
referred to in clause (y) below, or (b) fails to act in accordance with such
Instructions with respect to any matter referred to in clause (y) below (but
only if such failure to follow such Instructions is attributable to (i) the
trustee having concluded that, based upon the terms of such transaction, the
trustee's fiduciary duties require the trustee to fail to follow such
Instructions or (ii) the unenforceability of the provisions of the ESOP and/or
the Supplemental ESOP relating to the solicitation and/or following of such
Instructions); (y) either (i) but for the provisions of Subsection 8.3(a) and
Article FOURTH, Part VIII, Subsection 8.3(a) and Article FOURTH, Part IX,
Subsection 8.3(a) of this Restated Certificate, the vote of the stockholders of
the Corporation would have been sufficient, under applicable law, stock
exchange listing requirements and this Restated Certificate, as applicable, to
approve the Merger Transaction or other Control Transaction (as defined in the
ESOP) in question (or, if no stockholder approval would be required by this
Restated Certificate, applicable stock
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exchange listing requirements or applicable law, the trustee enters into a
binding commitment in connection with a Control Transaction or a Control
Transaction is consummated) or (ii) following the Issue Date, the trustee
disposes of an aggregate of 10% or more of the Common Equity (as defined in
Article FIFTH, Section 1.26 of this Restated Certificate) initially represented
by the ESOP Convertible Preferred Stocks other than in connection with Plan
distributions; and (z) any of the following occur: (a) Instructions with
respect to a matter are given, the trustee fails to follow such Instructions
and such transaction would not have been approved by stockholders of the
Corporation in accordance with the applicable provisions of this Restated
Certificate (excluding Subsection 8.3(a) and Article FOURTH, Part VIII,
Subsection 8.3(a) and Article FOURTH, Part IX, Subsection 8.3(a) of this
Restated Certificate), applicable stock exchange listing requirements or
applicable law if the trustee had acted in accordance with such Instructions
(or, if no vote of stockholders would be required by this Restated Certificate,
applicable stock exchange listing requirements or applicable law, such action
by the trustee in respect of such transaction as to which Instructions were so
given would not have been authorized had the trustee acted in accordance with
such Instructions), (b) the trustee fails to solicit timely Instructions with
respect to such matters, such transaction requires the approval of stockholders
of the Corporation under applicable provisions of this Restated Certificate,
applicable stock exchange listing requirements or applicable law and such
approval would not have been obtained (without regard to Subsection 8.3(a) and
Article FOURTH, Part VIII, Subsection 8.3(a) and Article FOURTH, Part IX,
Subsection 8.3(a) of this Restated Certificate) if the trustee had voted
against such transaction all of the votes entitled to be cast by such trustee
as the holder of securities of the Corporation held under the Plan, or (c) the
trustee fails to follow Instructions or to solicit timely Instructions with
respect to such matter and no vote of stockholders of the Corporation is
required by the Restated Certificate, applicable stock exchange listing
requirements or applicable law to approve such transaction (an action or
inaction by the trustee under clauses (x) and (z) in connection with a
transaction referred to in clause (y) being referred to herein as an
"Uninstructed Trustee Action"); then, (I) the Merger Transaction or other
Control Transaction referred to in clause (y)(i) of Section 8.2 involving an
Uninstructed Trustee Action, if it requires stockholder approval under
applicable law, stock exchange listing requirements or this Restated
Certificate, must also be approved by the vote of stockholders described in
Subsection 8.3(a), and (II) from and after such Uninstructed Trustee Action, in
addition to the voting rights provided for under Section 8.1, the share of
Class Pilot MEC Preferred Stock shall have the voting rights set forth in
Subsection 8.3(b).
8.3 (a) In addition to any other vote or consent of stockholders required by
this Restated Certificate, applicable stock exchange listing requirements or
applicable law, any Merger Transaction or other Control Transaction referred to
in clause (y)(i) of Section 8.2 involving an Uninstructed Trustee Action that
requires stockholder approval under applicable law, stock exchange listing
requirements or this Restated Certificate must also be approved by at least a
majority of the votes entitled to be cast in respect of all outstanding shares
of the Class Pilot MEC Preferred Stock, the Class IAM Preferred Stock, the
Class SAM Preferred Stock, the Common Stock and such other classes and series
of stock that vote together with the Common Stock as a single class (other than
the Voting Preferred Stocks), with all such shares voting, for purposes of this
paragraph, as a single class, and for purposes of such vote the Class Pilot MEC
Preferred Stock shall be entitled to cast a number of votes calculated in
accordance with Subsection 8.3(c).
(b) Except as otherwise required by law or provided in this Restated
Certificate, from and after an Uninstructed Trustee Action, the holder of the
share of Class Pilot MEC Preferred Stock shall be entitled to vote on all
matters submitted to a vote of the holders of Common Stock, voting together as
a single class with the holders of Class IAM Preferred Stock, the holders of
Class SAM Preferred Stock, the holders of Common Stock and the holders of such
other classes and series of stock that vote together with the Common Stock as a
single class (other than the Voting Preferred Stocks) and for purposes of such
vote the Class Pilot MEC Preferred Stock shall be entitled to cast a number of
votes calculated in accordance with Subsection 8.3(c); provided, however, that,
except as provided in Section 8.1, prior to the Termination Date, the holder of
the share of Class Pilot MEC Preferred Stock shall not be entitled to vote with
the holders of Common Stock with respect to the election of the members of the
Board of Directors.
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(c) With respect to any vote or consent (i) with respect to which the Class
Pilot MEC Preferred Stock is entitled to vote pursuant to Subsection 8.3(a) or
(ii) with respect to which the Class Pilot MEC Preferred Stock is entitled to
vote pursuant to Subsection 8.3(b) and the record date for which occurs after
an Uninstructed Trustee Action and prior to the Termination Date, the holder of
the share of Class Pilot MEC Preferred Stock shall be entitled to a number of
votes (rounded to the nearest whole vote) equal to the product of (I) the Pilot
Fraction, (II) the Voting Fraction and (III) a fraction, the numerator of which
shall be the number of votes entitled to be cast on the matter by the holders
of all outstanding securities of the Corporation (excluding the Class IAM
Preferred Stock and the Class SAM Preferred Stock), and the denominator of
which shall be the excess of one (1.0) over the Voting Fraction (the
"Attributed Vote"). If, with respect to any matter as to which the immediately
preceding sentence shall apply, (i) shares of Common Stock are held under the
ESOP or the Supplemental ESOP which have been issued upon conversion of the
ESOP Convertible Preferred Stocks ("Subject Shares"), (ii) with respect to any
action as to which the trustee is required, in accordance with the terms of the
ESOP or the Supplemental ESOP, to solicit Instructions, the trustee has
solicited such Instructions and (iii) the trustee has voted some or all of the
Subject Shares in accordance with such Instructions (the shares which the
trustee has voted in accordance with such Instructions, "Instructed Trustee
Common Shares"), then the Attributed Votes shall be reduced by the Pro Rata
Reduction. The "Pro Rata Reduction" shall equal, with respect to any such
matter, the sum of (I) the product of (x) a fraction, the numerator of which is
the number of votes represented by Subject Shares as to which members of the
ALPA Employee Group (or the Committees) gave Instructions to the trustee to
vote in favor of the matter, and the denominator of which is the number of
votes represented by Subject Shares as to which members of all Employee Groups
(as defined in the ESOP) (or the Committees) gave Instructions to the trustee
to vote in favor of the matter (such denominator being referred to as the
"Instructed Pro Vote") and (y) the number of votes represented by Subject
Shares that the trustee actually voted in favor of the matter (but in no event
more than the Instructed Pro Vote); and (II) the product of (x) a fraction, the
numerator of which is the number of votes represented by Subject Shares as to
which members of the ALPA Employee Group (or the Committees) gave instructions
to the trustee to vote against the matter, and the denominator of which is the
number of votes represented by Subject Shares as to which members of all
Employee Groups (or the Committees) gave Instructions to the trustee to vote
against the matter (such denominator being referred to as the "Instructed Con
Vote") and (y) the number of votes represented by Subject Shares that the
trustee actually voted against the matter (but in no event more than the
Instructed Con Vote).
For purposes of this Section 8.3, the Corporation shall certify to the
holders of Class Pilot MEC Preferred Stock and to the judges or similar
officials appointed for the purpose of tabulating votes at any meeting of
stockholders as soon as practicable following the record date for the
determination of stockholders entitled to notice of or to vote at any meeting
of stockholders, but in no event less than five Trading Days before such
meeting, the number of shares of Common Stock then outstanding and the number
of votes entitled to be cast on the matter or matters in question by the
holders of all outstanding securities of the Corporation (excluding the Class
IAM Preferred Stock and the Class SAM Preferred Stock). The Corporation shall
be deemed to satisfy the requirements of the preceding sentence if such matters
are specified in any proxy statement mailed to all stockholders entitled to
vote on such matter or matters. With respect to any vote or consent as to which
the first sentence of this Subsection 8.3(c) applies, the outstanding share of
Class Pilot MEC Preferred Stock, together with the outstanding shares of the
Class IAM Preferred Stock and the outstanding shares of Class SAM Preferred
Stock, will represent the Voting Fraction (expressed as a percentage) of the
votes to be cast in connection with matters (other than the election of
directors) submitted to the vote of the holders of the Common Stock and the
holders of all other outstanding securities that vote as a single class
together with the Common Stock. Subject to any amendment of this Restated
Certificate after the date hereof, it is the intent of this Restated
Certificate that this Section 8.3 (with respect to the Class Pilot MEC
Preferred Stock), Article FOURTH, Part VIII, Section 8.3 of the Restated
Certificate (with respect to the Class IAM Preferred Stock), and Article
FOURTH, Part IX, Section 8.3 of the Restated Certificate (with respect to the
Class SAM Preferred Stock), be interpreted together to achieve the foregoing
result. With respect to any vote or consent as to which the first sentence of
this Section 8.3(c) does not apply, the Class Pilot MEC Preferred Stock shall
not have any voting rights except as provided by Sections 8.1, 8.2
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and 8.4 and applicable law; provided, however, that if the Termination Date
occurs directly or indirectly as a result of an Uninstructed Trustee Action
then, notwithstanding anything to the contrary contained herein, the voting
rights of the Class Pilot MEC Preferred Stock set forth in this Section 8.3
shall continue until the anniversary of the Issue Date occurring in the year
2010. For purposes of the proviso in the immediately preceding sentence, the
Termination Date shall be deemed to have occurred as a result of an
Uninstructed Trustee Action if the Termination Date occurs within one year of
such Uninstructed Trustee Action.
8.4 The affirmative vote or written consent of the holder of the share of
Class Pilot MEC Preferred Stock, voting separately as a class, shall be
necessary for authorizing, effecting or validating the amendment, alteration or
repeal (including any amendment, alteration or repeal by operation of merger or
consolidation) of any of the provisions of this Restated Certificate or of any
certificate amendatory thereof or supplemental thereto (including any
Certificate of Designation, Preferences and Rights or any similar document
relating to any series of Serial Preferred Stock) which would adversely affect
the preferences, rights, powers or privileges of the Class Pilot MEC Preferred
Stock.
8.5 For purposes of the foregoing provisions of Sections 8.1 and 8.4, each
share of Class Pilot MEC Preferred Stock shall have one (1) vote per share.
Section 9. Redemption.
9.1 The share of Class Pilot MEC Preferred Stock shall, to the extent of
funds legally available therefor and subject to the other provisions of this
Restated Certificate, be automatically redeemed on the ALPA Termination Date,
at a price of $0.01 per share of Class Pilot MEC Preferred Stock, as provided
hereinbelow. As promptly as reasonably possible following the occurrence of the
ALPA Termination Date, the Corporation shall give notice thereof and of the
redemption under this Section 9 to the record holder of the Class Pilot MEC
Preferred Stock. From and after the redemption provided for in this Section
9.1, all rights of the holder of the Class Pilot MEC Preferred Stock as such,
except the right to receive the redemption price of such shares upon the
surrender of the certificate formerly representing the same, shall cease and
terminate and such share shall not thereafter be deemed to be outstanding for
any purpose whatsoever.
9.2 The share of Class Pilot MEC Preferred Stock shall, to the extent of
funds legally available therefor and subject to the other provisions of this
Restated Certificate, be automatically redeemed upon any purported transfer
thereof other than as expressly permitted under Section 1.2. The redemption
price to be paid in connection with any redemption shall be $0.01 per share of
Class Pilot MEC Preferred Stock. Upon any such redemption, all rights of the
holder of Class Pilot MEC Preferred Stock as such, except the right to receive
the redemption price of such share upon the surrender of the certificate
formerly representing the same, shall cease and terminate and such share shall
not thereafter be deemed to be outstanding for any purpose whatsoever.
9.3 The holder of the share of Class Pilot MEC Preferred Stock so redeemed
pursuant to Section 9.1 or 9.2 shall present and surrender his certificate
formerly representing such share to the Corporation and thereupon the
redemption price of such share shall be paid to or on the order of the person
whose name appears on such certificate as the owner thereof and the surrendered
certificate shall be cancelled.
Section 10. Record Holders. The Corporation and the Transfer Agent (if other
than the Corporation) may deem and treat the record holder of the share of
Class Pilot MEC Preferred Stock as the true and lawful owner thereof for all
purposes, and, except as otherwise provided by law, neither the Corporation nor
the Transfer Agent shall be affected by any notice to the contrary.
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PART VIII
Class IAM Junior Preferred Stock
Unless otherwise indicated, any reference in this Article FOURTH, Part VIII
to "Section", "Subsection", "paragraph", "subparagraph" or "clause" shall refer
to a Section, Subsection, paragraph, subparagraph or clause of this Article
FOURTH, Part VIII.
Section 1. Number of Shares; Designation; Issuance; Restrictions on Transfer.
1.1 The Class IAM Junior Preferred Stock of the Corporation (the "Class IAM
Preferred Stock") shall consist of one (1) share, par value $0.01.
1.2 The share of Class IAM Preferred Stock shall be issued only to (i) the
International Association of Machinists and Aerospace Workers (the "IAM")
pursuant to the IAM's authority as the collective bargaining representative for
the crafts or classes of mechanics and related employees, ramp and stores
employees, food service employees, dispatchers and security officers employed
by United Air Lines, Inc. or (ii) a duly authorized agent acting for the
benefit of the IAM. Any purported sale, transfer, pledge or other disposition
(hereinafter a "transfer") of the share of Class IAM Preferred Stock to any
person, other than a successor to the IAM or a duly authorized agent acting for
the benefit of such successor, shall be null and void and of no force and
effect. Upon any purported transfer of the share of Class IAM Preferred Stock
by the holder thereof other than as expressly permitted above, and without any
further action by the Corporation or such holder, such share shall, to the
extent of funds legally available therefor and subject to the other provisions
of this Restated Certificate, be automatically redeemed by the Corporation in
accordance with Section 9 hereof, and thereupon such share shall no longer be
deemed outstanding, and neither such holder nor any purported transferee
thereof shall have in respect thereof any of the voting powers, preferences or
relative, participating, optional or special rights ascribed to the share of
Class IAM Preferred Stock hereunder, but rather such holder thereafter shall
only be entitled to receive the amount payable upon redemption in accordance
with Section 9. The certificate representing the share of Class IAM Preferred
Stock shall be legended to reflect the restrictions on transfer and automatic
redemption provided for herein.
Section 2. Definitions. For purposes of the Class IAM Preferred Stock, the
following terms shall have the meanings indicated:
2.1 "Affiliate" shall have the meaning defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended, or any successor thereto.
2.2 "Board of Directors" shall mean the board of directors of the Corporation
or any committee thereof authorized by such board of directors to perform any
of its responsibilities with respect to the Class IAM Preferred Stock.
2.3 "Business Day" shall mean any day other than a Saturday, Sunday or a day
on which state or federally chartered banking institutions in New York, New
York are not required to be open.
2.4 "Class I Preferred Stock" shall mean the Class I Junior Preferred Stock,
par value $0.01 per share, of the Corporation.
2.5 "Class IAM Preferred Stock" shall have the meaning set forth in Section 1
hereof.
2.6 "Class M Voting Preferred Stock" shall mean the Class M ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.7 "Class P Voting Preferred Stock" shall mean the Class P ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
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2.8 "Class Pilot MEC Preferred Stock" shall mean the Class Pilot MEC Junior
Preferred Stock, par value $0.01 per share, of the Corporation.
2.9 "Class S Voting Preferred Stock" shall mean the Class S ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.10 "Class SAM Preferred Stock" shall mean the Class SAM Junior Preferred
Stock, par value $0.01 per share, of the Corporation.
2.11 "Common Stock" shall mean the common stock, par value $0.01 per share,
of the Corporation.
2.12 "Director Preferred Stocks" shall mean, collectively, the Class I
Preferred Stock, the Class IAM Preferred Stock, the Class Pilot MEC Preferred
Stock and the Class SAM Preferred Stock.
2.13 "ESOP Convertible Preferred Stocks" shall mean, collectively, the Class
1 ESOP Convertible Preferred Stock and the Class 2 ESOP Convertible Preferred
Stock, each of the par value of $0.01 per share, of the Corporation.
2.14 "IAM Fraction" shall mean 0.3713.
2.15 "IAM Termination Date" shall have the meaning set forth in Section 8
hereof.
2.16 "Issue Date" shall mean the first date on which shares of Class IAM
Preferred Stock are issued.
2.17 "Liquidation Preference" shall have the meaning set forth in Section 4.1
hereof.
2.18 "Measuring Date" shall mean that date which is the 365th day following
the Issue Date.
2.19 "Restated Certificate" shall mean the Restated Certificate of
Incorporation of the Corporation, as amended from time to time.
2.20 "Series A Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series A Convertible
Preferred Stock in Article FOURTH, Part I.A of this Restated Certificate.
2.21 "Series B Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series B Preferred
Stock in Article FOURTH, Part I.B of this Restated Certificate.
2.22 "Series C Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series C Junior
Participating Preferred Stock in Article FOURTH, Part I.C of this Restated
Certificate.
2.23 "Series D Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series D Redeemable
Preferred Stock in Article FOURTH, Part I.D of this Restated Certificate.
2.24 [Reserved]
2.25 "set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Corporation in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to a
declaration of dividends or other distribution by the Board of Directors, the
allocation of funds to be so paid on any series or class of capital stock of
the Corporation; provided, however, that if any funds for any class or series
of stock of the Corporation ranking on a parity with or junior to the Class IAM
Preferred Stock as to distributions upon liquidation, dissolution or winding up
of the Corporation are placed
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in a separate account of the Corporation or delivered to a disbursing, paying
or other similar agent, then "set apart for payment" with respect to the Class
IAM Preferred Stock shall mean, with respect to such distributions, placing
such funds in a separate account or delivering such funds to a disbursing,
paying or other similar agent.
2.26 "Termination Date" shall have the meaning set forth in Article FIFTH,
Section 1.72 of this Restated Certificate.
2.27 "Trading Day" shall mean any day on which the securities in question are
traded on the New York Stock Exchange, Inc. (the "NYSE"), or if such securities
are not listed or admitted for trading or quoted on the NYSE, on the principal
national securities exchange on which such securities are listed or admitted,
or if not listed or admitted for trading or quoted on any national securities
exchange, on the Nasdaq National Market, or if such securities are not quoted
on such National Market, in the applicable securities market in which the
securities are traded.
2.28 "Transfer Agent" means the Corporation or such agent or agents of the
Corporation as may be designated from time to time by the Board of Directors as
the transfer agent for the Class IAM Preferred Stock.
2.29 "Voting Fraction" shall mean 0.55 with respect to votes or consents that
have a record date on or prior to the Measuring Date, and a fraction that is
equivalent to the Adjusted Percentage (as defined in Section 1.10 of the
Agreement and Plan of Recapitalization, dated as of March 25, 1994, among the
Corporation, the Air Line Pilots Association, International and International
Association of Machinists and Aerospace Workers, as amended from time to time)
as in effect at the close of business on the Measuring Date with respect to
votes and consents that have a record date after the Measuring Date.
2.30 "Voting Preferred Stocks" shall mean, collectively, the Class P Voting
Preferred Stock, the Class M Voting Preferred Stock and the Class S Voting
Preferred Stock.
Section 3. Dividends. The holder of the share of Class IAM Preferred Stock as
such shall not be entitled to receive any dividends or other distributions
(except as provided in Section 4).
Section 4. Payments upon Liquidation.
4.1 In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, before any payment or distribution of the assets
of the Corporation (whether capital or surplus) shall be made to or set apart
for payment to the holders of any class or series of stock of the Corporation
that ranks junior to the Class IAM Preferred Stock as to amounts distributable
upon liquidation, dissolution or winding up of the Corporation, the holder of
the share of Class IAM Preferred Stock shall be entitled to receive $0.01 per
share of Class IAM Preferred Stock (the "Liquidation Preference"), but such
holder shall not be entitled to any further payment. If, upon any liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation, or
proceeds thereof, distributable to the holder of the share of Class IAM
Preferred Stock shall be insufficient to pay in full the Liquidation Preference
and the liquidation preference on all other shares of any class or series of
stock of the Corporation that ranks on a parity with the Class IAM Preferred
Stock as to amounts distributable upon liquidation, dissolution or winding up
of the Corporation, then such assets, or the proceeds thereof, shall be
distributed among the holder of the share of Class IAM Preferred Stock and any
such other parity stock ratably in accordance with the respective amounts that
would be payable on such share of Class IAM Preferred Stock and any such other
parity stock if all amounts payable thereon were paid in full. For the purposes
of this Section 4, (i) a consolidation or merger of the Corporation with or
into one or more corporations, or (ii) a sale, lease, exchange or transfer of
all or substantially all of the Corporation's assets, shall not be deemed to be
a liquidation, dissolution or winding up, voluntary or involuntary, of the
Corporation.
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4.2 Subject to the rights of the holders of shares of any series or class of
stock ranking prior to or on a parity with the Class IAM Preferred Stock as to
amounts distributable upon liquidation, dissolution or winding up of the
Corporation, after payment shall have been made to the holder of the share of
Class IAM Preferred Stock, as and to the fullest extent provided in this
Section 4, any series or class of stock of the Corporation that ranks junior to
the Class IAM Preferred Stock as to amounts distributable upon liquidation,
dissolution or winding up of the Corporation, shall, subject to the respective
terms and provisions (if any) applying thereto, be entitled to receive any and
all assets remaining to be paid or distributed, and the holder of the share of
Class IAM Preferred Stock shall not be entitled to share therein.
Section 5. Shares to be Retired. The share of Class IAM Preferred Stock which
shall have been issued and reacquired in any manner (other than redemption
pursuant to Section 9.1) by the Corporation shall be retired and restored to
the status of an authorized but unissued share of Class IAM Preferred Stock
and, in the event of the redemption of such share pursuant to Section 9.1
hereof, shall not be reissued.
Section 6. Ranking.
6.1 Any class or series of stock of the Corporation shall be deemed to rank:
(a) prior to the Class IAM Preferred Stock as to the distribution of
assets upon liquidation, dissolution or winding up, if the holders of such
class or series shall be entitled to the receipt of amounts distributable
upon liquidation, dissolution or winding up in preference or priority to
the holder of Class IAM Preferred Stock;
(b) on a parity with the Class IAM Preferred Stock as to the distribution
of assets upon liquidation, dissolution or winding up, whether or not the
liquidation prices per share thereof be different from those of the Class
IAM Preferred Stock, if the holders of such class or series and the Class
IAM Preferred Stock shall be entitled to the receipt of amounts
distributable upon liquidation, dissolution or winding up in proportion to
their respective liquidation preferences, without preference or priority
one over the other; and
(c) junior to the Class IAM Preferred Stock, as to the distribution of
assets upon liquidation, dissolution or winding up, if the holder of Class
IAM Preferred Stock shall be entitled to the receipt of amounts
distributable upon liquidation, dissolution or winding up in preference or
priority to the holders of shares of such class or series.
6.2 The Series A Preferred Stock, the Series B Preferred Stock, the Series D
Preferred Stock and the ESOP Convertible Preferred Stocks shall be deemed to
rank prior to the Class IAM Preferred Stock as to amounts distributable upon
liquidation, dissolution or winding up. The other Director Preferred Stocks and
the Voting Preferred Stocks shall each be deemed to rank on a parity with the
Class IAM Preferred Stock as to amounts distributable upon liquidation,
dissolution or winding up. The Common Stock and the Series C Preferred Stock
shall each be deemed to rank junior to the Class IAM Preferred Stock as to
amounts distributable upon liquidation, dissolution or winding up.
Section 7. Consolidation, Merger, etc.
7.1 In case the Corporation enters into any consolidation, merger, share
exchange or similar transaction, however named, involving the Corporation or
its subsidiary, United Air Lines, Inc. ("United") (or any successor to all or
substantially all the assets or business of United), pursuant to which the
outstanding shares of Common Stock are to be exchanged for or changed,
reclassified or converted into securities of any successor or resulting or
other company (including the Corporation), or cash or other property (each of
the foregoing transactions is referred to herein as a "Merger Transaction"),
proper provision shall be made so that, upon consummation of such transaction,
the share of Class IAM Preferred Stock shall be converted, reclassified or
changed into or exchanged for preferred stock of such successor or resulting or
other company having, in respect of such company, the same powers, preferences
and relative, participating, optional or other special rights (including the
rights provided by this Section 7), and the qualifications, limitations or
restrictions thereof, that the Class IAM Preferred Stock had, in respect of the
Corporation, immediately prior to such
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transaction; specifically including, without limitation, the right, until the
IAM Termination Date, to elect one member of the board of directors (or similar
governing body) of such company.
7.2 In case the Corporation shall enter into any agreement providing for any
Merger Transaction, then the Corporation shall as soon as practicable
thereafter (and in any event at least fifteen (15) Business Days before
consummation of such transaction) give notice of such agreement and the
material terms thereof to the holder of the share of Class IAM Preferred Stock.
The Corporation shall not consummate any such Merger Transaction unless all of
the terms of this Section 7 and Section 8 have been complied with.
Section 8. Voting. The holder of the share of Class IAM Preferred Stock shall
have the following voting rights:
8.1 Until the later of (i) the Termination Date and (ii) such time as there
are no longer any persons represented by the IAM (or any successor
organization) employed by the Corporation or any of its Affiliates (the "IAM
Termination Date"), the holder of the share of Class IAM Preferred Stock shall
have the right (a) voting as a separate class, to elect one Class IAM Director
(as defined in Article FIFTH, Section 2.2 of this Restated Certificate) to the
Board of Directors and (b) voting together as a single class with the holders
of Common Stock and the holders of such other classes or series of stock that
vote together with the Common Stock as a single class, to vote on all matters
submitted to a vote of the holders of Common Stock of the Corporation, except
as otherwise required by law.
8.2 Notwithstanding anything to the contrary in Section 7.1, 7.2 or 8.1, if
at any time prior to the Termination Date, (x) the trustee under either (i) the
UAL Corporation Employee Stock Ownership Plan (the "ESOP") or (ii) the UAL
Corporation Supplemental ESOP (together with the ESOP, the "Plan") either (a)
fails to solicit, in accordance with the Plan, timely instructions from Plan
participants, the Committee of the ESOP (as defined in the ESOP and hereinafter
referred to as the "ESOP Committee") or the Committee of the Supplemental ESOP
(as defined in the Supplemental ESOP and, together with the ESOP Committee, the
"Committees"), as applicable ("Instructions"), with respect to any matter
referred to in clause (y) below, or (b) fails to act in accordance with such
Instructions with respect to any matter referred to in clause (y) below (but
only if such failure to follow such Instructions is attributable to (i) the
trustee having concluded that, based upon the terms of such transaction, the
trustee's fiduciary duties require the trustee to fail to follow such
Instructions or (ii) the unenforceability of the provisions of the ESOP and/or
the Supplemental ESOP relating to the solicitation and/or following of such
Instructions); (y) either (i) but for the provisions of Subsection 8.3(a) and
Article FOURTH, Part VII, Subsection 8.3(a) and Article FOURTH, Part IX,
Subsection 8.3(a) of this Restated Certificate, the vote of the stockholders of
the Corporation would have been sufficient, under applicable law, stock
exchange listing requirements and this Restated Certificate, as applicable, to
approve the Merger Transaction or other Control Transaction (as defined in the
ESOP) in question (or, if no stockholder approval would be required by this
Restated Certificate, applicable stock exchange listing requirements or
applicable law, the trustee enters into a binding commitment in connection with
a Control Transaction or a Control Transaction is consummated) or (ii)
following the Issue Date, the trustee disposes of an aggregate of 10% or more
of the Common Equity (as defined in Article FIFTH, Section 1.26 of this
Restated Certificate) initially represented by the ESOP Convertible Preferred
Stocks other than in connection with Plan distributions; and (z) any of the
following occur: (a) Instructions with respect to a matter are given, the
trustee fails to follow such Instructions and such transaction would not have
been approved by stockholders of the Corporation in accordance with the
applicable provisions of this Restated Certificate (excluding Subsection 8.3(a)
and Article FOURTH, Part VII, Subsection 8.3(a) and Article FOURTH, Part IX,
Subsection 8.3(a) of this Restated Certificate), applicable stock exchange
listing requirements or applicable law if the trustee had acted in accordance
with such Instructions (or, if no vote of stockholders would be required by
this Restated Certificate, applicable stock exchange listing requirements or
applicable law, such action by the trustee in respect of such transaction as to
which Instructions were so given would not have been authorized had the trustee
acted in accordance with such Instructions), (b) the trustee fails to solicit
timely Instructions with respect to such matters, such transaction requires the
approval of stockholders of the Corporation under applicable provisions of this
Restated Certificate, applicable stock
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exchange listing requirements or applicable law and such approval would not
have been obtained (without regard to Subsection 8.3(a) and Article FOURTH,
Part VII, Subsection 8.3(a) and Article FOURTH, Part IX, Subsection 8.3(a) of
this Restated Certificate) if the trustee had voted against such transaction
all of the votes entitled to be cast by such trustee as the holder of
securities of the Corporation held under the Plan, or (c) the trustee fails to
follow Instructions or to solicit timely Instructions with respect to such
matter and no vote of stockholders of the Corporation is required by the
Restated Certificate, applicable stock exchange listing requirements or
applicable law to approve such transaction (an action or inaction by the
trustee under clauses (x) and (z) in connection with a transaction referred to
in clause (y) being referred to herein as an "Uninstructed Trustee Action");
then, (I) the Merger Transaction or other Control Transaction referred to in
clause (y)(i) of Section 8.2 involving an Uninstructed Trustee Action, if it
requires stockholder approval under applicable law, stock exchange listing
requirements or this Restated Certificate, must also be approved by the vote of
stockholders described in Subsection 8.3(a), and (II) from and after such
Uninstructed Trustee Action, in addition to the voting rights provided for
under Section 8.1, the share of Class IAM Preferred Stock shall have the voting
rights set forth in Subsection 8.3(b).
8.3 (a) In addition to any other vote or consent of stockholders required by
this Restated Certificate, applicable stock exchange listing requirements or
applicable law, any Merger Transaction or other Control Transaction referred to
in clause (y)(i) of Section 8.2 involving an Uninstructed Trustee Action that
requires stockholder approval under applicable law, stock exchange listing
requirements or this Restated Certificate must also be approved by at least a
majority of the votes entitled to be cast in respect of all outstanding shares
of the Class Pilot MEC Preferred Stock, the Class IAM Preferred Stock, the
Class SAM Preferred Stock, the Common Stock and such other classes and series
of stock that vote together with the Common Stock as a single class (other than
the Voting Preferred Stocks), with all such shares voting, for purposes of this
paragraph, as a single class, and for purposes of such vote the Class IAM
Preferred Stock shall be entitled to cast a number of votes calculated in
accordance with Subsection 8.3(c).
(b) Except as otherwise required by law or provided in this Restated
Certificate, from and after an Uninstructed Trustee Action, the holder of the
share of Class IAM Preferred Stock shall be entitled to vote on all matters
submitted to a vote of the holders of Common Stock, voting together as a single
class with the holders of Class Pilot MEC Preferred Stock, the holders of Class
SAM Preferred Stock, the holders of Common Stock and the holders of such other
classes and series of stock that vote together with the Common Stock as a
single class (other than the Voting Preferred Stocks) and for purposes of such
vote the Class IAM Preferred Stock shall be entitled to cast a number of votes
calculated in accordance with Subsection 8.3(c); provided, however, that,
except as provided in Section 8.1, prior to the Termination Date, the holder of
the share of Class IAM Preferred Stock shall not be entitled to vote with the
holders of Common Stock with respect to the election of the members of the
Board of Directors.
(c) With respect to any vote or consent (i) with respect to which the Class
IAM Preferred Stock is entitled to vote pursuant to Subsection 8.3(a) or (ii)
with respect to which the Class IAM Preferred Stock is entitled to vote
pursuant to Subsection 8.3(b) and the record date for which occurs after an
Uninstructed Trustee Action and prior to the Termination Date, the holder of
the share of Class IAM Preferred Stock shall be entitled to a number of votes
(rounded to the nearest whole vote) equal to the product of (I) the IAM
Fraction, (II) the Voting Fraction and (III) a fraction, the numerator of which
shall be the number of votes entitled to be cast on the matter by the holders
of all outstanding securities of the Corporation (excluding the Class Pilot MEC
Preferred Stock and the Class SAM Preferred Stock), and the denominator of
which shall be the excess of one (1.0) over the Voting Fraction (the
"Attributed Vote"). If, with respect to any matter as to which the immediately
preceding sentence shall apply, (i) shares of Common Stock are held under the
ESOP or the Supplemental ESOP which have been issued upon conversion of the
ESOP Convertible Preferred Stocks ("Subject Shares"), (ii) with respect to any
action as to which the trustee is required, in accordance with the terms of the
ESOP or the Supplemental ESOP, to solicit Instructions, the trustee has
solicited such Instructions and (iii) the trustee has voted some or all of the
Subject Shares in accordance with such Instructions (the shares which the
trustee has voted in accordance with such Instructions, "Instructed
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Trustee Common Shares"), then the Attributed Votes shall be reduced by the Pro
Rata Reduction. The "Pro Rata Reduction" shall equal, with respect to any such
matter, the sum of (I) the product of (x) a fraction, the numerator of which is
the number of votes represented by Subject Shares as to which members of the
IAM Employee Group (or the Committees) gave Instructions to the trustee to vote
in favor of the matter, and the denominator of which is the number of votes
represented by Subject Shares as to which members of all Employee Groups (as
defined in the ESOP) (or the Committees) gave Instructions to the trustee to
vote in favor of the matter (such denominator being referred to as the
"Instructed Pro Vote") and (y) the number of votes represented by Subject
Shares that the trustee actually voted in favor of the matter (but in no event
more than the Instructed Pro Vote); and (II) the product of (x) a fraction, the
numerator of which is the number of votes represented by Subject Shares as to
which members of the IAM Employee Group (or the Committees) gave instructions
to the trustee to vote against the matter, and the denominator of which is the
number of votes represented by Subject Shares as to which members of all
Employee Groups (or the Committees) gave Instructions to the trustee to vote
against the matter (such denominator being referred to as the "Instructed Con
Vote") and (y) the number of votes represented by Subject Shares that the
trustee actually voted against the matter (but in no event more than the
Instructed Con Vote).
For purposes of this Section 8.3, the Corporation shall certify to the
holders of Class IAM Preferred Stock and to the judges or similar officials
appointed for the purpose of tabulating votes at any meeting of stockholders as
soon as practicable following the record date for the determination of
stockholders entitled to notice of or to vote at any meeting of stockholders,
but in no event less than five Trading Days before such meeting, the number of
shares of Common Stock then outstanding and the number of votes entitled to be
cast on the matter or matters in question by the holders of all outstanding
securities of the Corporation (excluding the Class Pilot MEC Preferred Stock
and the Class SAM Preferred Stock). The Corporation shall be deemed to satisfy
the requirements of the preceding sentence if such matters are specified in any
proxy statement mailed to all stockholders entitled to vote on such matter or
matters. With respect to any vote or consent as to which the first sentence of
this Subsection 8.3(c) applies, the outstanding share of Class IAM Preferred
Stock, together with the outstanding shares of the Class Pilot MEC Preferred
Stock and the outstanding shares of Class SAM Preferred Stock, will represent
the Voting Fraction (expressed as a percentage) of the votes to be cast in
connection with matters (other than the election of directors) submitted to the
vote of the holders of the Common Stock and the holders of all other
outstanding securities that vote as a single class together with the Common
Stock. Subject to any amendment of this Restated Certificate after the date
hereof, it is the intent of this Restated Certificate that this Section 8.3
(with respect to the Class IAM Preferred Stock), Article FOURTH, Part VII,
Section 8.3 of the Restated Certificate (with respect to the Class Pilot MEC
Preferred Stock), and Article FOURTH, Part IX, Section 8.3 of the Restated
Certificate (with respect to the Class SAM Preferred Stock), be interpreted
together to achieve the foregoing result. With respect to any vote or consent
as to which the first sentence of this Section 8.3(c) does not apply, the Class
IAM Preferred Stock shall not have any voting rights except as provided by
Sections 8.1, 8.2 and 8.4 and applicable law provided, however, that if the
Termination Date occurs directly or indirectly as a result of an Uninstructed
Trustee Action then, notwithstanding anything to the contrary contained herein,
the voting rights of the Class IAM Preferred Stock set forth in this Section
8.3 shall continue until the anniversary of the Issue Date occurring in the
year 2010. For purposes of the proviso in the immediately preceding sentence,
the Termination Date shall be deemed to have occurred as a result of an
Uninstructed Trustee Action if the Termination Date occurs within one year of
such Uninstructed Trustee Action.
8.4 The affirmative vote or written consent of the holder of the share of
Class IAM Preferred Stock, voting separately as a class, shall be necessary for
authorizing, effecting or validating the amendment, alteration or repeal
(including any amendment, alteration or repeal by operation of merger or
consolidation) of any of the provisions of this Restated Certificate or of any
certificate amendatory thereof or supplemental thereto (including any
Certificate of Designation, Preferences and Rights or any similar document
relating to any series of Serial Preferred Stock) which would adversely affect
the preferences, rights, powers or privileges of the Class IAM Preferred Stock.
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8.5 For purposes of the foregoing provisions of Sections 8.1 and 8.4, each
share of Class IAM Preferred Stock shall have one (1) vote per share.
Section 9. Redemption.
9.1 The share of Class IAM Preferred Stock shall, to the extent of funds
legally available therefor and subject to the other provisions of this Restated
Certificate, be automatically redeemed on the IAM Termination Date, at a price
of $0.01 per share of Class IAM Preferred Stock, as provided hereinbelow. As
promptly as reasonably possible following the occurrence of the IAM Termination
Date, the Corporation shall give notice thereof and of the redemption under
this Section 9 to the record holder of the Class IAM Preferred Stock. From and
after the redemption provided for in this Section 9.1, all rights of the holder
of the Class IAM Preferred Stock as such, except the right to receive the
redemption price of such shares upon the surrender of the certificate formerly
representing the same, shall cease and terminate and such share shall not
thereafter be deemed to be outstanding for any purpose whatsoever.
9.2 The share of Class IAM Preferred Stock shall, to the extent of funds
legally available therefor and subject to the other provisions of this Restated
Certificate, be automatically redeemed upon any purported transfer thereof
other than as expressly permitted under Section 1.2. The redemption price to be
paid in connection with any redemption shall be $0.01 per share of Class IAM
Preferred Stock. Upon any such redemption, all rights of the holder of Class
IAM Preferred Stock as such, except the right to receive the redemption price
of such share upon the surrender of the certificate formerly representing the
same, shall cease and terminate and such share shall not thereafter be deemed
to be outstanding for any purpose whatsoever.
9.3 The holder of the share of Class IAM Preferred Stock so redeemed pursuant
to Section 9.1 or 9.2 shall present and surrender his certificate formerly
representing such share to the Corporation and thereupon the redemption price
of such share shall be paid to or on the order of the person whose name appears
on such certificate as the owner thereof and the surrendered certificate shall
be cancelled.
Section 10. Record Holders. The Corporation and the Transfer Agent (if other
than the Corporation) may deem and treat the record holder of the share of
Class IAM Preferred Stock as the true and lawful owner thereof for all
purposes, and, except as otherwise provided by law, neither the Corporation nor
the Transfer Agent shall be affected by any notice to the contrary.
PART IX
Class SAM Junior Preferred Stock
Unless otherwise indicated, any reference in this Article FOURTH, Part IX, to
"Section", "Subsection", "paragraph", "subparagraph" or "clause" shall refer to
a Section, Subsection, paragraph, subparagraph or clause of this Article
FOURTH, Part IX.
Section 1. Number of Shares; Designation; Issuance; Restrictions on Transfer.
1.1 The Class SAM Junior Preferred Stock of the Corporation (the "Class SAM
Preferred Stock") shall consist of ten shares, par value $0.01 per share.
1.2 Shares of Class SAM Preferred Stock shall be issued only to the persons
who are designated, pursuant to Section 8 of the Class SAM Preferred Stock
Stockholders' Agreement, to be the nominee for election pursuant to Article
FIFTH, Section 2.2 of this Restated Certificate as the Salaried/Management
Employee Director (the "Salaried/Management Director") or as a Designated
Stockholder (as defined in the Class SAM Stockholders' Agreement, the
"Designated Stockholder"). Any purported sale, transfer, pledge (other than a
pledge made in accordance with the Class SAM Stockholders' Agreement) or other
disposition (hereinafter a "transfer") of shares of Class SAM Preferred Stock
by a holder thereof other than to (x) any
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person to whom shares of Class SAM Preferred Stock may be issued in accordance
with the immediately prior sentence, (y) another person designated pursuant to
Section 8 of the Class SAM Stockholders' Agreement or (z) in the case where no
successor Salaried/Management Director (the "Successor Salaried/Management
Director") has been elected concurrently with the Salaried/Management
Director's removal, resignation, failure to remain qualified, failure to be re-
elected or otherwise ceasing to serve as Salaried/Management Director, to the
Corporation (to be held in escrow pending transfer to the Successor
Salaried/Management Director when such successor is duly elected) shall be null
and void and of no force and effect. Upon any purported transfer other than as
expressly permitted above, and without any further action by the Corporation or
such holder, such share of Class SAM Preferred Stock so purported to be
transferred shall, to the extent of funds legally available therefor and
subject to the other provisions of this Restated Certificate, be automatically
redeemed by the Corporation in accordance with Section 9 hereof, and thereupon
such share shall no longer be deemed outstanding and neither such holder nor
any purported transferee thereof shall have in respect thereof any of the
voting powers, preferences or relative, participating, optional or special
rights ascribed to the shares of Class SAM Preferred Stock hereunder, but
rather such holder thereafter shall only be entitled to receive the amount
payable upon redemption in accordance with Section 9. Certificates representing
the shares of Class SAM Preferred Stock shall be legended to reflect the
restrictions on transfer and automatic redemption provided for herein.
Section 2. Definitions. For purposes of the Class SAM Preferred Stock, the
following terms shall have the meanings indicated:
2.1 "ALPA Termination Date" shall have the meaning set forth in Article
FOURTH, Part VII, Section 8.1 of this Restated Certificate.
2.2 "Board of Directors" shall mean the board of directors of the Corporation
or any committee thereof authorized by such board of directors to perform any
of its responsibilities with respect to the Class SAM Preferred Stock.
2.3 "Business Day" shall mean any day other than a Saturday, Sunday or a day
on which state or federally chartered banking institutions in New York, New
York are not required to be open.
2.4 "Class I Preferred Stock" shall mean the Class I Junior Preferred Stock,
par value $0.01 per share, of the Corporation.
2.5 "Class IAM Preferred Stock" shall mean the Class IAM Junior Preferred
Stock, par value $0.01 per share, of the Corporation.
2.6 "Class M Voting Preferred Stock" shall mean the Class M ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.7 "Class P Voting Preferred Stock" shall mean the Class P ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.8 "Class Pilot MEC Preferred Stock" shall mean the Class Pilot MEC Junior
Preferred Stock, par value $0.01 per share, of the Corporation.
2.9 "Class S Voting Preferred Stock" shall mean the Class S ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.10 "Class SAM Preferred Stock" shall have the meaning set forth in Section
1 hereof.
2.11 "Class SAM Stockholders' Agreement" shall mean the Class SAM Preferred
Stockholders' Agreement dated , 1994 among the Corporation and the
individuals named therein, a copy of which is on file at the office of the
Secretary of the Corporation.
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2.12 "Common Stock" shall mean the common stock of the Corporation, par value
$0.01 per share.
2.13 "Director Preferred Stocks" shall mean collectively, the Class I
Preferred Stock, the Class IAM Preferred Stock, the Class Pilot MEC Preferred
Stock and the Class SAM Preferred Stock.
2.14 "ESOP Convertible Preferred Stocks" shall mean, collectively, the Class
1 ESOP Convertible Preferred Stock and the Class 2 ESOP Convertible Preferred
Stock, each of the par value of $0.01 per share, of the Corporation.
2.15 "IAM Termination Date" shall have the meaning set forth in Article
FOURTH, Part VIII, Section 8.1 of this Restated Certificate.
2.16 "Issue Date" shall mean the first date on which shares of Class SAM
Preferred Stock are issued.
2.17 "Liquidation Preference" shall have the meaning set forth in Section 4.1
hereof.
2.18 "Measuring Date" shall mean that date which is the 365th day following
the Issue Date.
2.19 "Restated Certificate" shall mean the Restated Certificate of
Incorporation of the Corporation, as amended from time to time.
2.20 "Salaried/Management Employee Director" shall have the meaning set forth
in Section 1.2 hereof.
2.21 "SAM Fraction" shall mean 0.1664.
2.22 "Series A Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series A Convertible
Preferred Stock in Article FOURTH, Part I.A of this Restated Certificate.
2.23 "Series B Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series B Preferred
Stock in Article FOURTH, Part I.B of this Restated Certificate.
2.24 "Series C Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series C Junior
Participating Preferred Stock in Article FOURTH, Part I.C of this Restated
Certificate.
2.25 "Series D Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series D Redeemable
Preferred Stock in Article FOURTH, Part I.D of this Restated Certificate.
2.26 [Reserved]
2.27 "set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Corporation in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to a
declaration of dividends or other distribution by the Board of Directors, the
allocation of funds to be so paid on any series or class of capital stock of
the Corporation; provided, however, that if any funds for any class or series
of stock of the Corporation ranking on a parity with or junior to the Class SAM
Preferred Stock as to distributions upon liquidation, dissolution or winding up
of the Corporation are placed in a separate account of the Corporation or
delivered to a disbursing, paying or other similar agent, then "set apart for
payment" with respect to the Class SAM Preferred Stock shall mean, with respect
to such distributions, placing such funds in a separate account or delivering
such funds to a disbursing, paying or other similar agent.
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2.28 "Termination Date" shall have the meaning set forth in Article FIFTH,
Section 1.72 of this Restated Certificate.
2.29 "Trading Day" shall mean any day on which the securities in question are
traded on the New York Stock Exchange, Inc. (the "NYSE"), or if such securities
are not listed or admitted for trading or quoted on the NYSE, on the principal
national securities exchange on which such securities are listed or admitted,
or if not listed or admitted for trading or quoted on any national securities
exchange, on the Nasdaq National Market, or if such securities are not quoted
on such National Market, in the applicable securities market in which the
securities are traded.
2.30 "Transfer Agent" means the Corporation or such agent or agents of the
Corporation as may be designated from time to time by the Board of Directors as
the transfer agent for the Class SAM Preferred Stock.
2.31 "Voting Fraction" shall mean 0.55 with respect to votes or consents that
have a record date on or prior to the Measuring Date, and a fraction that is
equivalent to the Adjusted Percentage (as defined in Section 1.10 of the
Agreement and Plan of Recapitalization, dated as of March 25, 1994, among the
Corporation, the Air Line Pilots Association, International and International
Association of Machinists and Aerospace Workers, as amended from time to time)
as in effect at the close of business on the Measuring Date with respect to
votes and consents that have a record date after the Measuring Date.
2.32 "Voting Preferred Stocks" shall mean, collectively, the Class P Voting
Preferred Stock, the Class M Voting Preferred Stock and the Class S Voting
Preferred Stock.
Section 3. Dividends. The holders of shares of the Class SAM Preferred Stock
as such shall not be entitled to receive any dividends or other distributions
(except as provided in Section 4).
Section 4. Payments upon Liquidation.
4.1 In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, before any payment or distribution of the assets
of the Corporation (whether capital or surplus) shall be made to or set apart
for payment to the holders of any class or series of stock of the Corporation
that ranks junior to the Class SAM Preferred Stock as to amounts distributable
upon liquidation, dissolution or winding up of the Corporation, the holders of
the shares of Class SAM Preferred Stock shall be entitled to receive $0.01 per
share of Class SAM Preferred Stock (the "Liquidation Preference"), but such
holders shall not be entitled to any further payment. If, upon any liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation, or
proceeds thereof, distributable to the holders of the shares of Class SAM
Preferred Stock shall be insufficient to pay in full the Liquidation Preference
and the liquidation preference on all other shares of any class or series of
stock of the Corporation that ranks on a parity with the Class SAM Preferred
Stock as to amounts distributable upon liquidation, dissolution or winding up
of the Corporation, then such assets, or the proceeds thereof, shall be
distributed among the holders of shares of Class SAM Preferred Stock and any
such other parity stock ratably in accordance with the respective amounts that
would be payable on such shares of Class SAM Preferred Stock and any such other
parity stock if all amounts payable thereon were paid in full. For the purposes
of this Section 4, (i) a consolidation or merger of the Corporation with or
into one or more corporations, or (ii) a sale, lease, exchange or transfer of
all or substantially all of the Corporation's assets, shall not be deemed to be
a liquidation, dissolution or winding up, voluntary or involuntary, of the
Corporation.
4.2 Subject to the rights of the holders of shares of any series or class of
stock ranking prior to or on a parity with the Class SAM Preferred Stock as to
amounts distributable upon liquidation, dissolution or winding up of the
Corporation, after payment shall have been made to the holders of the Class SAM
Preferred Stock, as and to the fullest extent provided in this Section 4, any
series or other class of stock of the Corporation that ranks junior to the
Class SAM Preferred Stock as to amounts distributable upon liquidation,
dissolution or winding up of the Corpora tion, shall, subject to the respective
terms and provisions (if any)
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applying thereto, be entitled to receive any and all assets remaining to be
paid or distributed, and the holders of the Class SAM Preferred Stock shall not
be entitled to share therein.
Section 5. Shares to be Retired. All shares of Class SAM Preferred Stock
which shall have been issued and reacquired in any manner (other than
redemption pursuant to Section 9.1) by the Corporation, other than in its
capacity as escrow agent in accordance with Section 1.2 hereof, shall be
retired and restored to the status of authorized but unissued shares of Class
SAM Preferred Stock and, in the event of redemption of such shares pursuant to
Section 9.1 hereof, shall not be reissued.
Section 6. Ranking.
6.1 Any class or series of stock of the Corporation shall be deemed to rank:
(a) prior to the Class SAM Preferred Stock as to the distribution of
assets upon liquidation, dissolution or winding up, if the holders of such
class or series shall be entitled to the receipt of amounts distributable
upon liquidation, dissolution or winding up in preference or priority to
the holders of Class SAM Preferred Stock;
(b) on a parity with the Class SAM Preferred Stock as to the distribution
of assets upon liquidation, dissolution or winding up, whether or not the
liquidation prices per share thereof be different from those of the Class
SAM Preferred Stock, if the holders of such class or series and the Class
SAM Preferred Stock shall be entitled to the receipt of amounts
distributable upon liquidation, dissolution or winding up in proportion to
their respective liquidation preferences, without preference or priority
one over the other; and
(c) junior to the Class SAM Preferred Stock, as to the distribution of
assets upon liquidation, dissolution or winding up, if the holders of Class
SAM Preferred Stock shall be entitled to the receipt of amounts
distributable upon liquidation, dissolution or winding up in preference or
priority to the holders of shares of such class or series.
6.2 The Series A Preferred Stock, the Series B Preferred Stock, the Series D
Preferred Stock and the ESOP Convertible Preferred Stocks shall each be deemed
to rank prior to the Class SAM Preferred Stock as to amounts distributable upon
liquidation, dissolution or winding up. The other Director Preferred Stocks and
the Voting Preferred Stocks shall each be deemed to rank on a parity with the
Class SAM Preferred Stock as to amounts distributable upon liquidation,
dissolution or winding up. The Common Stock and the Series C Preferred Stock
shall each be deemed to rank junior to the Class SAM Preferred Stock as to
amounts distributable upon liquidation, dissolution or winding up.
Section 7. Consolidation, Merger, etc.
7.1 In case the Corporation enters into any consolidation, merger, share
exchange or similar transaction, however named, involving the Corporation or
its subsidiary, United Air Lines, Inc. ("United") (or any successor to all or
substantially all the assets or business of United), pursuant to which the
outstanding shares of Common Stock are to be exchanged for or changed,
reclassified or converted into securities of any successor or resulting or
other company (including the Corporation), or cash or other property (each of
the foregoing transactions is referred to herein as a "Merger Transaction"),
proper provision shall be made so that, upon consummation of such transaction,
the shares of Class SAM Preferred Stock shall be converted, reclassified or
changed into or exchanged for preferred stock of such successor or resulting or
other company having, in respect of such company, the same powers, preferences
and relative, participating, optional or other special rights (including the
rights provided by this Section 7), and the qualifications, limitations or
restrictions thereof, that the Class SAM Preferred Stock had, in respect of the
Corporation, immediately prior to such transaction; specifically including,
without limitation, the right, until the Class SAM Preferred Stock Termination
Date (as defined in Section 9.1), to elect one member of the board of directors
(or similar governing body) of such company.
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7.2 In case the Corporation shall enter into any agreement providing for any
Merger Transaction, then the Corporation shall as soon as practicable
thereafter (and in any event at least fifteen (15) Business Days before
consummation of such transaction) give notice of such agreement and the
material terms thereof to the holders of the shares of Class SAM Preferred
Stock. The Corporation shall not consummate any such Merger Transaction unless
all of the terms of this Section 7 and Section 8 have been complied with.
Section 8. Voting. The holders of shares of Class SAM Preferred Stock shall
have the following voting rights; provided, however, that no holder of shares
of Class SAM Preferred Stock shall have any right to vote unless at such time
such person is the Salaried/Management Director or the Designated Stockholder
under the Class SAM Stockholders' Agreement:
8.1 Until the Class SAM Preferred Stock Termination Date, the holders of the
Class SAM Preferred Stock shall have the right (i) voting separately as a
class, to elect one Salaried/Management Employee Director to the Board of
Directors and (ii) voting together as a single class with the holders of Common
Stock and the holders of such other classes or series of stock that vote
together with the Common Stock as a single class, to vote on all matters
submitted to a vote of the holders of Common Stock of the Corporation, except
as otherwise required by law.
8.2 Notwithstanding anything to the contrary in Section 7.1, 7.2 or 8.1, if
at any time prior to the Termination Date, (x) the trustee under either (i) the
UAL Corporation Employee Stock Ownership Plan (the "ESOP") or (ii) the UAL
Corporation Supplemental ESOP (together with the ESOP, the "Plan") either (a)
fails to solicit, in accordance with the Plan, timely instructions from Plan
participants, the Committee of the ESOP (as defined in the ESOP and hereinafter
referred to as the "ESOP Committee") or the Committee of the Supplemental ESOP
(as defined in the Supplemental ESOP and, together with the ESOP Committee, the
"Committees"), as applicable ("Instructions"), with respect to any matter
referred to in clause (y) below, or (b) fails to act in accordance with such
Instructions with respect to any matter referred to in clause (y) below (but
only if such failure to follow such Instructions is attributable to (i) the
trustee having concluded that, based upon the terms of such transaction, the
trustee's fiduciary duties require the trustee to fail to follow such
Instructions or (ii) the unenforceability of the provisions of the ESOP and/or
the Supplemental ESOP relating to the solicitation and/or following of such
Instructions); (y) either (i) but for the provisions of Subsection 8.3(a) and
Article FOURTH, Part VII, Subsection 8.3(a) and Article FOURTH, Part VIII,
Subsection 8.3(a) of this Restated Certificate, the vote of the stockholders of
the Corporation would have been sufficient, under applicable law, stock
exchange listing requirements and this Restated Certificate, as applicable, to
approve the Merger Transaction or other Control Transaction (as defined in the
ESOP) in question (or, if no stockholder approval would be required by this
Restated Certificate, applicable stock exchange listing requirements or
applicable law, the trustee enters into a binding commitment in connection with
a Control Transaction or a Control Transaction is consummated) or (ii)
following the Issue Date, the trustee disposes of an aggregate of 10% or more
of the Common Equity (as defined in Article FIFTH, Section 1.26 of this Related
Certificate) initially represented by the ESOP Convertible Preferred Stocks
other than in connection with Plan distributions; and (z) any of the following
occur: (a) Instructions with respect to a matter are given, the trustee fails
to follow such Instructions and such transaction would not have been approved
by stockholders of the Corporation in accordance with the applicable provisions
of this Restated Certificate (excluding Subsection 8.3(a) and Article FOURTH,
Part VII, Subsection 8.3(a) and Article FOURTH, Part VIII, subsection 8.3(a) of
this Restated Certificate), applicable stock exchange listing requirements or
applicable law if the trustee had acted in accordance with such Instructions
(or, if no vote of stockholders would be required by this Restated Certificate,
applicable stock exchange listing requirements or applicable law, such action
by the trustee in respect of such transaction as to which Instructions were so
given would not have been authorized had the trustee acted in accordance with
such Instructions), (b) the trustee fails to solicit timely Instructions with
respect to such matters, such transaction requires the approval of stockholders
of the Corporation under applicable provisions of this Restated Certificate,
applicable stock exchange listing requirements or applicable law and such
approval would not have been obtained (without regard to Subsection 8.3(a) and
Article FOURTH, Part VII, Subsection 8.3(a) and Article FOURTH, Part
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VIII, Subsection 8.3(a) of this Restated Certificate) if the trustee had voted
against such transaction all of the votes entitled to be cast by such trustee
as the holder of securities of the Corporation held under the Plan, or (c) the
trustee fails to follow Instructions or to solicit timely Instructions with
respect to such matter and no vote of stockholders of the Corporation is
required by the Restated Certificate, applicable stock exchange listing
requirements or applicable law to approve such transaction (an action or
inaction by the trustee under clauses (x) and (z) in connection with a
transaction referred to in clause (y) being referred to herein as an
"Uninstructed Trustee Action"); then, (I) the Merger Transaction or other
Control Transaction referred to in clause (y)(i) of Section 8.2 involving an
Uninstructed Trustee Action, if it requires stockholder approval under
applicable law, stock exchange listing requirements or this Restated
Certificate, must also be approved by the vote of stockholders described in
Subsection 8.3(a), and (II) from and after such Uninstructed Trustee Action, in
addition to the voting rights provided for under Section 8.1, the share of
Class SAM Preferred Stock shall have the voting rights set forth in Subsection
8.3(b).
8.3 (a) In addition to any other vote or consent of stockholders required by
this Restated Certificate, applicable stock exchange listing requirements or
applicable law, any Merger Transaction or other Control Transaction referred to
in clause (y)(i) of Section 8.2 involving an Uninstructed Trustee Action that
requires stockholder approval under applicable law, stock exchange listing
requirements or this Restated Certificate must also be approved by at least a
majority of the votes entitled to be cast in respect of all outstanding shares
of the Class Pilot MEC Preferred Stock, the Class IAM Preferred Stock, the
Class SAM Preferred Stock, the Common Stock and such other classes and series
of stock that vote together with the Common Stock as a single class (other than
the Voting Preferred Stocks), with all such shares voting, for purposes of this
paragraph, as a single class, and for purposes of such vote the Class SAM
Preferred Stock shall be entitled to cast a number of votes calculated in
accordance with Subsection 8.3(c).
(b) Except as otherwise required by law or provided in this Restated
Certificate, from and after an Uninstructed Trustee Action, holders of shares
of Class SAM Preferred Stock shall be entitled to vote on all matters submitted
to a vote of the holders of Common Stock, voting together as a single class
with the holders of Class IAM Preferred Stock, the holders of Class Pilot MEC
Preferred Stock, the holders of Common Stock and the holders of such other
classes and series of stock that vote together with the Common Stock as a
single class (other than the Voting Preferred Stocks) and for purposes of such
vote the Class SAM Preferred Stock shall be entitled to cast a number of votes
calculated in accordance with Subsection 8.3(c); provided, however, that,
except as provided in Section 8.1, prior to the Termination Date, holders of
shares of Class SAM Preferred Stock shall not be entitled to vote with the
holders of Common Stock with respect to the election of the members of the
Board of Directors.
(c) With respect to any vote or consent (i) with respect to which the Class
SAM Preferred Stock is entitled to vote pursuant to Subsection 8.3(a) or (ii)
with respect to which the Class SAM Preferred Stock is entitled to vote
pursuant to Subsection 8.3(b) and the record date for which occurs after an
Uninstructed Trustee Action and prior to the Termination Date, (x) holders of
shares of Class SAM Preferred Stock shall, collectively, be entitled to a
number of votes (rounded to the nearest whole vote) equal to the product of (I)
the SAM Fraction, (II) the Voting Fraction and (III) a fraction, the numerator
of which shall be the number of votes entitled to be cast on the matter by the
holders of all outstanding securities of the Corporation (excluding the Class
IAM Preferred Stock and the Class Pilot MEC Preferred Stock), and the
denominator of which shall be the excess of one (1.0) over the Voting Fraction
(the "Aggregate SAM Vote"), and (y) the holder of each share of the Class SAM
Preferred Stock shall be entitled to a number of votes per share equal to the
result of dividing (aa) the number of Aggregate SAM Votes by (bb) the number of
shares of Class SAM Preferred Stock outstanding on the applicable record date.
If, with respect to any matter as to which the immediately preceding sentence
shall apply, (i) shares of Common Stock are held under the ESOP or the
Supplemental ESOP which have been issued upon conversion of the ESOP
Convertible Preferred Stocks ("Subject Shares"), (ii) with respect to any
action as to which the trustee is required, in accordance with the terms of the
ESOP or the Supplemental ESOP, to solicit Instructions, the trustee has
solicited such Instructions and (iii) the trustee has voted some or all of the
Subject Shares in accordance with such
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Instructions (the shares which the trustee has voted in accordance with such
Instructions, "Instructed Trustee Common Shares"), then the Attributed Votes
shall be reduced by the Pro Rata Reduction. The "Pro Rata Reduction" shall
equal, with respect to any such matter, the sum of (I) the product of (x) a
fraction, the numerator of which is the number of votes represented by Subject
Shares as to which members of the Management and Salaried Employee Group (or
the Committees) gave Instructions to the trustee to vote in favor of the
matter, and the denominator of which is the number of votes represented by
Subject Shares as to which members of all Employee Groups (as defined in the
ESOP) (or the Committees) gave Instructions to the trustee to vote in favor of
the matter (such denominator being referred to as the "Instructed Pro Vote")
and (y) the number of votes represented by Subject Shares that the trustee
actually voted in favor of the matter (but in no event more than the Instructed
Pro Vote); and (II) the product of (x) a fraction, the numerator of which is
the number of votes represented by Subject Shares as to which members of the
Management and Salaried Employee Group (or the Committees) gave instructions to
the trustee to vote against the matter, and the denominator of which is the
number of votes represented by Subject Shares as to which members of all
Employee Groups (or the Committees) gave Instructions to the trustee to vote
against the matter (such denominator being referred to as the "Instructed Con
Vote") and (y) the number of votes represented by Subject Shares that the
trustee actually voted against the matter (but in no event more than the
Instructed Con Vote).
For purposes of this Section 8.3, the Corporation shall certify to the
holders of Class SAM Preferred Stock and to the judges or similar officials
appointed for the purpose of tabulating votes at any meeting of stockholders as
soon as practicable following the record date for the determination of
stockholders entitled to notice of or to vote at any meeting of stockholders,
but in no event less than five Trading Days before such meeting, the number of
shares of Common Stock then outstanding and the number of votes entitled to be
cast on the matter or matters in question by the holders of all outstanding
securities of the Corporation (excluding the Class IAM Preferred Stock and the
Class Pilot MEC Preferred Stock). The Corporation shall be deemed to satisfy
the requirements of the preceding sentence if such matters are specified in any
proxy statement mailed to all stockholders entitled to vote on such matter or
matters. With respect to any vote or consent as to which the first sentence of
this Subsection 8.3(c) applies, the outstanding share of Class SAM Preferred
Stock, together with the outstanding shares of the Class IAM Preferred Stock
and the outstanding shares of Class Pilot MEC Preferred Stock, will represent
the Voting Fraction (expressed as a percentage) of the votes to be cast in
connection with matters (other than the election of directors) submitted to the
vote of the holders of the Common Stock and the holders of all other
outstanding securities that vote as a single class together with the Common
Stock. Subject to any amendment of this Restated Certificate after the date
hereof, it is the intent of this Restated Certificate that this Section 8.3
(with respect to the Class SAM Preferred Stock), Article FOURTH, Part VIII,
Section 8.3 of the Restated Certificate (with respect to the Class IAM
Preferred Stock), and Article FOURTH, Part VII, Section 8.3 of the Restated
Certificate (with respect to the Class Pilot MEC Preferred Stock), be
interpreted together to achieve the foregoing result. With respect to any vote
or consent as to which the first sentence of this Section 8.3(c) does not
apply, the Class SAM Preferred Stock shall not have any voting rights except as
provided by Sections 8.1, 8.2 and 8.4 and applicable law; provided, however,
that if the Termination Date occurs directly or indirectly as a result of an
Uninstructed Trustee Action then, notwithstanding anything to the contrary
contained herein, the voting rights of the Class SAM Preferred Stock set forth
in this Section 8.3 shall continue until the anniversary of the Issue Date
occurring in the year 2010. For purposes of the proviso in the immediately
preceding sentence, the Termination Date shall be deemed to have occurred as a
result of an Uninstructed Trustee Action if the Termination Date occurs within
one year of such Uninstructed Trustee Action.
8.4 The affirmative vote or written consent of the holders of a majority of
the outstanding shares of Class SAM Preferred Stock, voting separately as a
class, shall be necessary for authorizing, effecting or validating the
amendment, alteration or repeal (including any amendment, alteration or repeal
by operation of merger or consolidation) of any of the provisions of this
Restated Certificate or of any certificate amendatory thereof or supplemental
thereto (including any Certificate of Designation, Preferences and Rights or
any similar document relating to any series of Serial Preferred Stock) which
would adversely affect the preferences, rights, powers or privileges of the
Class SAM Preferred Stock.
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8.5 For purposes of the foregoing provisions of Sections 8.1 and 8.4, each
share of Class SAM Preferred Stock shall have one (1) vote per share.
Section 9. Redemption.
9.1 All outstanding shares of Class SAM Preferred Stock shall, to the extent
of funds legally available therefor and subject to the other provisions of this
Restated Certificate, be automatically redeemed on the earlier of the ALPA
Termination Date and the IAM Termination Date (the "Class SAM Preferred Stock
Termination Date"), at a price of $0.01 per share of Class SAM Preferred Stock,
as provided below. As promptly as reasonably possible following the occurrence
of the Class SAM Preferred Stock Termination Date, the Corporation shall give
notice thereof and of the redemption under this Section 9 to all record holders
of the Class SAM Preferred Stock. From and after the redemption provided for in
this Section 9.1, all rights of the holder of Class SAM Preferred Stock as
such, except the right to receive the redemption price of such shares upon the
surrender of certificates formerly representing the same, shall cease and
terminate and such shares shall not thereafter be deemed to be outstanding for
any purpose whatsoever.
9.2 The shares of Class SAM Preferred Stock shall, to the extent of funds
legally available therefor and subject to the other provisions of this Restated
Certificate, be automatically redeemed from time to time, in part, concurrently
with any purported transfer of shares of Class SAM Preferred Stock other than
as expressly permitted under Section 1.2, and the number of shares so redeemed
shall be equal to the number of shares purported to be transferred. The
redemption price to be paid in connection with any redemption shall be $0.01
per share of Class SAM Preferred Stock. From and after the redemption provided
for in this Section 9.2, all rights of the holders of the shares of Class SAM
Preferred Stock so redeemed, except the right to receive the redemption price
of such shares upon the surrender of certificates formerly representing the
same, shall cease and terminate and such shares shall not thereafter be deemed
to be outstanding for any purpose whatsoever.
9.3 Upon any such redemption provided for in Section 9.1 or 9.2 above, each
holder of a certificate formerly representing the shares of Class SAM Preferred
Stock so redeemed shall present and surrender such certificate to the
Corporation and thereupon the redemption price of such shares shall be paid to
or on the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
cancelled.
Section 10. Record Holders. The Corporation and the Transfer Agent (if other
than the Corporation) may deem and treat the record holder of any shares of
Class SAM Preferred Stock as the true and lawful owner thereof for all
purposes, and, except as otherwise provided by law, neither the Corporation nor
the Transfer Agent shall be affected by any notice to the contrary.
PART X
Class I Junior Preferred Stock
Unless otherwise indicated, any reference in this Article FOURTH, Part X, to
"Section", "Subsection", "paragraph", "subparagraph" or "clause" shall refer to
a Section, Subsection, paragraph, subparagraph or clause of this Article
FOURTH, Part X.
Section 1. Number of Shares; Designations; Issuance; Restrictions on
Transfer.
1.1 The Class I Junior Preferred Stock of the Corporation (the "Class I
Preferred Stock") shall consist of ten shares, par value $0.01 per share.
1.2 Each share of Class I Preferred Stock shall be issued only to a person
who serves as an Independent Director of the Corporation meeting the
requirements set forth in Article FIFTH, Section 2.4 of this Restated
Certificate or to the initial "Individual Parties" under the Class I
Stockholders' Agreement (as such term is
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defined in Article FIFTH, Section 1.15 of this Restated Certificate) (the
"Class I Stockholders' Agreement") (each such person, an "Independent
Director") and may be held by such person only so long as such person shall
continue to serve as an Independent Director. Any purported sale, transfer,
pledge (other than a pledge made in accordance with the Class I Stockholders'
Agreement), or other disposition (hereinafter a "transfer") of shares of Class
I Preferred Stock by a holder thereof to any person other than to (x) such
holder's successor as an Independent Director (any such individual, a
"Successor Independent Director") or (y) in the case where no such Successor
Independent Director has been elected concurrently with such holder's removal,
resignation, failure to remain qualified, failure to be re-elected or otherwise
ceasing to serve as an Independent Director, to any Independent Director then
in office, or if there are no Independent Directors then in office, to the
Corporation (to be held in escrow by such Independent Director or the
Corporation, as the case may be, pending transfer to such holder's Successor
Independent Director when such successor is duly elected) shall be null and
void and of no force and effect. Upon any purported transfer of a share of
Class I Preferred Stock by the holder thereof other than as expressly permitted
above, without any further action by the Corporation or such holder, such share
of Class I Preferred Stock so purported to be transferred shall, to the extent
of funds legally available therefor and subject to the other provisions of this
Restated Certificate, be automatically redeemed by the Corporation in
accordance with Section 8 hereof, and thereupon such share shall no longer be
deemed outstanding, and neither such holder nor any purported transferee
thereof shall have in respect thereof any of the voting powers, preferences or
relative, participating, optional or special rights ascribed to the shares of
Class I Preferred Stock hereunder, but rather such holder thereafter shall only
be entitled to receive the amount payable upon redemption in accordance with
Section 8. Certificates representing shares of Class I Preferred Stock shall be
legended to reflect the restrictions on transfer and automatic redemption
provided for herein.
Section 2. Definitions. For purposes of the Class I Preferred Stock, the
following terms shall have the meanings indicated:
2.1 "Board of Directors" shall mean the board of directors of the Corporation
or any committee thereof authorized by such board of directors to perform any
of its responsibilities with respect to the Class I Preferred Stock.
2.2 "Class I Preferred Stock" shall have the meaning set forth in Section 1
hereof.
2.3 "Class IAM Preferred Stock" shall mean the Class IAM Junior Preferred
Stock, par value $0.01 per share, of the Corporation.
2.4 "Class M Voting Preferred Stock" shall mean the Class M ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.5 "Class P Voting Preferred Stock" shall mean the Class P ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.6 "Class Pilot MEC Preferred Stock" shall mean the Class Pilot MEC Junior
Preferred Stock, par value $0.01 per share, of the Corporation.
2.7 "Class S Voting Preferred Stock" shall mean the Class S ESOP Voting
Junior Preferred Stock, par value $0.01 per share, of the Corporation.
2.8 "Class SAM Preferred Stock" shall mean the Class SAM Junior Preferred
Stock, par value $0.01 per share, of the Corporation.
2.9 "Common Stock" shall mean the common stock of the Corporation, par value
$0.01 per share.
2.10 "Director Preferred Stocks" shall mean collectively, the Class I
Preferred Stock, the Class IAM Preferred Stock, the Class Pilot MEC Preferred
Stock and the Class SAM Preferred Stock.
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2.11 "ESOP Convertible Preferred Stocks" shall mean, collectively, the Class
1 ESOP Convertible Preferred Stock and the Class 2 ESOP Convertible Preferred
Stock, each of the par value of $0.01 per share, of the Corporation.
2.12 "Issue Date" shall mean the first date on which shares of Class I
Preferred Stock are issued.
2.13 "Liquidation Preference" shall have the meaning set forth in Section 4.1
hereof.
2.14 "Restated Certificate" shall mean the Restated Certificate of
Incorporation of the Corporation, as amended from time to time.
2.15 "Series A Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series A Convertible
Preferred Stock in Article FOURTH, Part I.A of this Restated Certificate.
2.16 "Series B Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series B Preferred
Stock in Article FOURTH, Part I.B of this Restated Certificate.
2.17 "Series C Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series C Junior
Participating Preferred Stock in Article FOURTH, Part I.C of this Restated
Certificate.
2.18 "Series D Preferred Stock" shall mean the series of Serial Preferred
Stock of the Corporation, without par value, designated Series D Redeemable
Preferred Stock in Article FOURTH, Part I.D of this Restated Certificate.
2.19 [Reserved]
2.20 "set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Corporation in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to a
declaration of dividends or other distribution by the Board of Directors, the
allocation of funds to be so paid on any series or class of capital stock of
the Corporation; provided, however, that if any funds for any class or series
of stock of the Corporation ranking on a parity with or junior to the Class I
Preferred Stock as to distributions upon liquidation, dissolution or winding up
of the Corporation are placed in a separate account of the Corporation or
delivered to a disbursing, paying or other similar agent, then "set apart for
payment" with respect to the Class I Preferred Stock shall mean, with respect
to such distributions, placing such funds in a separate account or delivering
such funds to a disbursing, paying or other similar agent.
2.20 "Termination Date" shall have the meaning set forth in Article FIFTH,
Section 1.72 of this Restated Certificate.
2.21 "Transfer Agent" means the Corporation or such agent or agents of the
Corporation as may be designated from time to time by the Board of Directors as
the transfer agent for the Class I Preferred Stock.
2.22 "Voting Preferred Stocks" shall mean, collectively, the Class M Voting
Preferred Stock, the Class P Voting Preferred Stock and the Class S Voting
Preferred Stock.
Section 3. Dividends. The holders of shares of the Class I Preferred Stock as
such shall not be entitled to receive any dividends or other distributions
(except as provided in Section 4).
Section 4. Payments upon Liquidation.
4.1 In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, before any payment or distribution of the assets
of the Corporation (whether capital or surplus)
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shall be made to or set apart for payment to the holders of any class or series
of stock of the Corporation that ranks junior to the Class I Preferred Stock as
to amounts distributable upon liquidation, dissolution or winding up of the
Corporation, the holders of the shares of Class I Preferred Stock shall be
entitled to receive $0.01 per share of Class I Preferred Stock (the
"Liquidation Preference"), but such holders shall not be entitled to any
further payment. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation, or proceeds thereof, distributable
among the holders of the shares of Class I Preferred Stock shall be
insufficient to pay in full the Liquidation Preference and the liquidation
preference on all other shares of any class or series of stock of the
Corporation that ranks on a parity with the Class I Preferred Stock as to
amounts distributable upon liquidation, dissolution or winding up of the
Corporation, then such assets, or the proceeds thereof, shall be distributed to
the holders of shares of Class I Preferred Stock and any such other parity
stock ratably in accordance with the respective amounts that would be payable
on such shares of Class I Preferred Stock and any such other parity stock if
all amounts payable thereon were paid in full. For the purposes of this Section
4, (i) a consolidation or merger of the Corporation with or into one or more
corporations, or (ii) a sale, lease, exchange or transfer of all or
substantially all of the Corporation's assets, shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary, of the
Corporation.
4.2 Subject to the rights of the holders of shares of any series or class of
stock ranking prior to or on a parity with the Class I Preferred Stock as to
amounts distributable upon liquidation, dissolution or winding up of the
Corporation, after payment shall have been made to the holders of the Class I
Preferred Stock, as and to the fullest extent provided in this Section 4, any
series or other class of stock of the Corporation that ranks junior to the
Class I Preferred Stock as to amounts distributable upon liquidation,
dissolution or winding up of the Corporation, shall, subject to the respective
terms and provisions (if any) applying thereto, be entitled to receive any and
all assets remaining to be paid or distributed, and the holders of the Class I
Preferred Stock shall not be entitled to share therein.
Section 5. Shares to be Retired. All shares of Class I Preferred Stock which
shall have been issued and reacquired in any manner (other than pursuant to
Section 8.1) by the Corporation, other than in its capacity as escrow agent in
accordance with Section 1.2 hereof, shall be retired and restored to the status
of authorized but unissued shares of Class I Preferred Stock and, in the case
of shares redeemed pursuant to Section 8.1 hereof, shall not be reissued.
Section 6. Ranking.
6.1 Any class or series of stock of the Corporation shall be deemed to rank:
(a) prior to the Class I Preferred Stock as to the distribution of assets
upon liquidation, dissolution or winding up if the holders of such class or
series shall be entitled to the receipt of amounts distributable upon
liquidation, dissolution or winding up, in preference or priority to the
holders of Class I Preferred Stock;
(b) on a parity with the Class I Preferred Stock as to the distribution
of assets upon liquidation, dissolution or winding up, whether or not the
liquidation prices per share thereof be different from those of the Class I
Preferred Stock, if the holders of such class or series and the Class I
Preferred Stock shall be entitled to the receipt of amounts distributable
upon liquidation, dissolution or winding up in proportion to their
respective liquidation preferences, without preference or priority one over
the other; and
(c) junior to the Class I Preferred Stock, as to the distribution of
assets upon liquidation, dissolution or winding up, if the holders of Class
I Preferred Stock shall be entitled to the receipt of amounts distributable
upon liquidation, dissolution or winding up in preference or priority to
the holders of shares of such class or series.
6.2 The Series A Preferred Stock, the Series B Preferred Stock, the Series D
Preferred Stock and the ESOP Convertible Preferred Stocks shall each be deemed
to rank prior to the Class I Preferred Stock as to
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amounts distributable upon liquidation, dissolution or winding up. The other
Director Preferred Stocks and the Voting Preferred Stocks shall each be deemed
to rank on a parity with the Class I Preferred Stock as to amounts
distributable upon liquidation, dissolution or winding up. The Common Stock and
the Series C Preferred Stock shall each be deemed to rank junior to the Class I
Preferred Stock as to amounts distributable upon liquidation, dissolution or
winding up.
Section 7. Voting. The holders of shares of Class I Preferred Stock shall
have the following voting rights; provided, however, that no holder of shares
of Class I Preferred Stock shall have any right to vote unless at such time
such person is an Independent Director or an initial "Individual Party" under
the Class I Stockholders' Agreement:
7.1 Until the Termination Date, the holders of the Class I Preferred Stock
shall have the right, voting separately as a class, to elect four Independent
Directors to the Board of Directors.
7.2 Unless the affirmative vote or consent of the holders of a greater number
of shares of Class I Preferred Stock shall then be required by law or this
Restated Certificate, and in addition to any other vote required by law or this
Restated Certificate, the affirmative vote or written consent of the holders of
at least a majority of all of the outstanding shares of Class I Preferred
Stock, voting separately as a class, shall be necessary for authorizing,
effecting or validating the amendment, alteration or repeal (including any
amendment, alteration or repeal by operation of merger or consolidation) of any
of the provisions of this Restated Certificate or of any certificate amendatory
thereof or supplemental thereto (including any Certificate of Designation,
Preferences and Rights or any similar document relating to any series of Serial
Preferred Stock) which would adversely affect the preferences, rights, powers
or privileges of the Class I Preferred Stock.
7.3 For purposes of the foregoing provisions of Sections 7.1 and 7.2, each
share of Class I Preferred Stock shall have one (1) vote per share. Except as
otherwise required by applicable law or as set forth herein, the shares of
Class I Preferred Stock shall not have any relative participating, optional or
other special voting rights and powers and the consent of the holder thereof
shall not be required for the taking of any corporate action.
Section 8. Redemption.
8.1 All outstanding shares of Class I Preferred Stock shall, to the extent of
funds legally available therefor and subject to the other provisions of this
Restated Certificate, be automatically redeemed on the Termination Date, at a
price of $0.01 per share of Class I Preferred Stock, as provided below. As
promptly as reasonably possible following the occurrence of the Termination
Date, the Corporation shall give notice thereof and of the redemption under
this Section 8 to all record holders of the Class I Preferred Stock.
From and after the redemption provided for in this Section 8.1, all rights of
the holders of Class I Preferred Stock as such, except the right to receive the
redemption price of such shares upon the surrender of certificates therefor,
shall cease and terminate and such shares shall not thereafter be deemed to be
outstanding for any purpose whatsoever.
8.2 The shares of Class I Preferred Stock shall, to the extent of funds
legally available therefor and subject to the other provisions of this Restated
Certificate, be automatically redeemed from time to time, in part, concurrently
with any purported transfer of shares of Class I Preferred Stock other than as
expressly permitted under Section 1.2 and the number of shares so redeemed
shall be equal to the number of shares so purported to be transferred. The
redemption price to be paid in connection with any redemption shall be $0.01
per share of Class I Preferred Stock. From and after the redemption provided
for in this Section 8.2, all rights of such holder of Class I Preferred Stock
as such, except the right to receive the redemption price of such shares upon
the surrender of certificates representing the same, shall cease and terminate
and such share(s) shall not thereafter be deemed to be outstanding for any
purpose whatsoever.
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8.3 Upon any such redemption provided for in Section 8.1 or 8.2 above, each
holder of a certificate formerly representing the share(s) of Class I Preferred
Stock so redeemed shall present and surrender such certificate to the
Corporation and thereupon the redemption price of such share(s) shall be paid
to or on the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
cancelled.
Section 9. Record Holders.
The Corporation and the Transfer Agent (if other than the Corporation) may
deem and treat the record holder of any share(s) of Class I Preferred Stock as
the true and lawful owner thereof for all purposes, and, except as otherwise
provided by law, neither the Corporation nor the Transfer Agent shall be
affected by any notice to the contrary.
PART XI
Common Stock
Unless otherwise indicated, any reference in this Article FOURTH, Part XI to
"Section", "Subsection", "paragraph", "subparagraph" or "clause" shall refer to
a Section, Subsection, paragraph, subparagraph or clause of this Article
FOURTH, Part XI. Capitalized terms used and not otherwise defined in this
Article FOURTH, Part XI, shall have the respective meanings given those terms
in the introductory sentence of Article FOURTH.
Section 1. Dividends. Subject to any rights to receive dividends to which the
holders of the shares of any other class or series of stock may be entitled,
the holders of shares of Common Stock shall be entitled to receive dividends,
if and when declared payable from time to time by the Board of Directors, from
any funds legally available therefor.
Section 2. Liquidation. In the event of any dissolution, liquidation or
winding up of the Corporation, whether voluntary or involuntary, after there
shall have been paid to the holders of shares of any other class or series of
stock ranking prior to the Common Stock in respect thereof the full amounts to
which they shall be entitled, and subject to any rights of the holders of any
other class or series of stock to participate therein, the holders of the then
outstanding shares of Common Stock shall be entitled to receive, pro rata, any
remaining assets of the Corporation available for distribution to its
stockholders. Subject to the foregoing, the Board of Directors may distribute
in kind to the holders of the shares of Common Stock such remaining assets of
the Corporation, or may sell, transfer or otherwise dispose of all or any part
of such remaining assets to any other corporation, trust or other entity and
receive payment therefor in cash, stock or obligations of such, other
corporations, trust or entity or any combination thereof, and may sell all or
any part of the consideration so received, and may distribute the consideration
so received or any balance thereof in kind to holders of the shares of Common
Stock. The voluntary sale, conveyance, lease, exchange or transfer of all or
substantially all the property or assets of the Corporation (unless in
connection therewith the dissolution, liquidation or winding up of the
Corporation is specifically approved), or the merger or consolidation of the
Corporation into or with any other corporation, or the merger of any other
corporation into it, or any purchase or redemption of shares of stock of the
Corporation of any class, shall not be deemed to be a dissolution, liquidation
or winding up of the corporation for the purpose of this Section 2.
Section 3. Voting. Except as provided by law or this Restated Certificate of
Incorporation:
a. each outstanding share of Common Stock of the Corporation shall
entitle the holder thereof to one vote on each matter submitted to a vote
at a meeting of stockholders; and
b. until the Termination Date (as defined in Article FIFTH, Section
1.72), the holders of Common Stock, voting as a separate class, shall be
entitled to elect five Public Directors (as defined in Article FIFTH,
Section 2.3) of the Corporation.
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PART XII
General Provisions
No Preemptive Rights, Etc. Except as otherwise provided herein, no holder of
stock of the Corporation of any class shall have any preemptive, preferential
or other right to purchase or subscribe for any shares of stock, whether now or
hereafter authorized, of the Corporation of any class, or any obligations
convertible into, or any options or warrants to purchase, any shares of stock,
whether now or hereafter authorized, of the Corporation of any class, other
than such, if any, as the Board of Directors may from time to time determine,
and at such price as the Board of Directors may from time to time fix; and any
shares of stock or any obligations, options or warrants which the Board of
Directors may determine to offer for subscription to holders of any shares of
stock of the Corporation may, as the Board of Directors shall determine, be
offered to holders of shares of stock of the Corporation of any class or
classes or series, and if offered to holders of shares of stock of more than
one class or series, in such proportions as between such classes and series as
the Board of Directors may determine.
FIFTH. GOVERNANCE. Unless otherwise expressly indicated, references in this
Article FIFTH to any "Section", "Subsection", "paragraph", "subparagraph" or
"clause" shall refer to such Section, Subsection, paragraph, subparagraph or
clause of this Article FIFTH.
Section 1. Definitions. As used in this Restated Certificate, unless the
context otherwise requires, the following terms shall have the following
meanings:
1.1 "Affiliate" has the meaning defined in Rule 12b-2 promulgated under the
Exchange Act.
1.2 "Airline Business" means the business of operating an Air Carrier,
together with any business or activity reasonably related to or in support of
any and all such operations engaged in by the Corporation or any of its
Subsidiaries at or during the one year period immediately prior to the
Effective Time.
1.3 "Air Carrier" means an "air carrier" as defined in Section 1301(3) of the
Federal Aviation Act of 1958, 49 U.S.C. (S)(S) 1301 et seq., as amended, or any
successor act thereto.
1.4 "ALPA" means the Air Line Pilots Association, International.
1.5 "Available Unissued ESOP Shares" shall mean as of the date of
determination and without duplication, (a) the number of shares of Common Stock
that would be issuable upon conversion of that portion of (w) 17,675,345 shares
of ESOP Convertible Preferred Stock plus (x) an aggregate of 17,675,345 shares
of Class P Voting Preferred Stock, Class M Voting Preferred Stock and Class S
Voting Preferred Stock plus (y) the number of Additional Shares (as defined in
Section 1.10 of the Recapitalization Agreement) plus (z) an aggregate number of
shares of Class P Voting Preferred Stock, Class M Voting Preferred Stock and
Class S Voting Preferred Stock that is equal to the number of Additional Shares
that, in the case of each of clause (w), (x), (y) and (z), as of the date of
determination of Available Unissued ESOP Shares, have not been issued pursuant
to Section 1.6 or 1.10 of the Recapitalization Agreement as ESOP Convertible
Preferred Stock, Class P Voting Preferred Stock, Class M Voting Preferred
Stock, Class S Voting Preferred Stock or Common Stock, plus (b) the number of
shares of Common Stock that have been credited to the Supplemental ESOP (other
than pursuant to Section 1.6 or 1.10 of the Recapitalization Agreement) and
that have not been issued.
1.6 "Bankrupt" means "insolvent" as defined in Section 101(32) of the
Bankruptcy Code, 11 U.S.C. (S)(S) 101 et seq., as amended.
1.7 "Bankruptcy Opinions" has the meaning defined in Subsection
3.4(b)(vii)(B).
1.8 "Board" means the Board of Directors of the Corporation.
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1.9 "Board Committees" has the meaning defined in Subsection 4.1.10.
1.10 "Business Combination" means a "business combination" as defined in
Section 203 of the GCL.
1.11 "Chief Executive Officer" means the Chief Executive Officer of the
Corporation.
1.12 "Class 1 ESOP Convertible Preferred Stock" means the Class 1 ESOP
Convertible Preferred Stock, par value $0.01 per share, of the Corporation.
1.13 "Class 2 ESOP Convertible Preferred Stock" means the Class 2 ESOP
Convertible Preferred Stock, par value $0.01 per share, of the Corporation.
1.14 "Class I Preferred Stock" means the Class I Junior Preferred Stock, par
value $0.01 per share, of the Corporation.
1.15 "Class I Stockholders' Agreement" means the Class I Preferred
Stockholders' Agreement, dated as of the date of the Effective Time, among the
Corporation, ALPA, the IAM and the holders of the Class I Preferred Stock, as
amended from time to time.
1.16 "Class IAM Director" has the meaning defined in Subsection 2.2.
1.17 "Class IAM Preferred Stock" means the Class IAM Junior Preferred Stock,
par value $0.01 per share, of the Corporation.
1.18 "Class M Voting Preferred Stock" means the Class M ESOP Voting Junior
Preferred Stock, par value $0.01 per share, of the Corporation.
1.19 "Class P Voting Preferred Stock" means the Class P ESOP Voting Junior
Preferred Stock, par value $0.01 per share, of the Corporation.
1.20 "Class Pilot MEC Director" has the meaning defined in Subsection 2.2.
1.21 "Class Pilot MEC Preferred Stock" means the Class Pilot MEC Junior
Preferred Stock, par value $0.01 per share, of the Corporation.
1.22 "Class SAM Preferred Stock" means the Class SAM Junior Preferred Stock,
par value $0.01 per share, of the Corporation.
1.23 "Class SAM Stockholders' Agreement" means the Class SAM Stockholders'
Agreement, dated as of the date of the Effective Time, between the Corporation
and the holders of Class SAM Preferred Stock, as amended from time to time.
1.24 "Class S Voting Preferred Stock" means the Class S ESOP Voting Junior
Preferred Stock, par value $0.01 per share, of the Corporation.
1.25 "Collective Bargaining Agreement" means any agreement between the
Corporation or any of its Subsidiaries and any labor union representing the
Corporation's or any of its Subsidiaries' employees based in the United States
that relates to rates of pay, rules, working conditions or any other incident
or aspect of employment with the Corporation or any of its Subsidiaries.
1.26 "Common Equity" means, in the aggregate, the Common Stock outstanding at
the time in question and the Common Stock issuable upon conversion of the ESOP
Convertible Preferred Stock and Voting Stock outstanding at the time in
question, together with the Common Stock represented by the Permitted
Bankruptcy Equity outstanding at the time in question, if any, but excluding
any Equity Securities (other than Permitted Bankruptcy Equity and Equity
Securities issued pursuant to Sections 1.6 and 1.10 of the
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Recapitalization Agreement) issued in connection with a Non-Dilutive Issuance,
including, without limitation, any Equity Securities (a) outstanding
immediately prior to the Effective Time that were not included in the
definition of "Fully Diluted Shares" pursuant to Subsection 1.10(d) of the
Recapitalization Agreement or (b) issued pursuant to Subsection 3.4(b) (vii)(A)
or Subsection 3.4(b)(vii)(C) (II), (III) or (IV) (including, in each case the
shares of Equity Securities underlying such Equity Securities or issuable upon
the exercise, conversion or exchange thereof) hereof.
1.27 "Common Stock" means the common stock, par value $0.01 per share, of the
Corporation.
1.28 "Common Stock Transaction" has the meaning defined in Subsection 3.5.
1.29 "Competitive Action Plan" means the Corporation's business plan to
develop a low cost operation, which is intended to compete against other low
cost Air Carriers.
1.30 "Corporation" means UAL Corporation.
1.31 "Director" means a director of the Corporation.
1.32 "Director Incentive Plan" means the UAL Corporation 1992 Stock Plan for
Outside Directors.
1.33 "Distribution Companies" means Galileo International Partnership, Apollo
Travel Services Partnership and Galileo Japan Partnership, each a Delaware
general partnership.
1.34 "Effective Time" has the meaning defined in the Recapitalization
Agreement.
1.35 "Employee Directors" has the meaning defined in Subsection 2.2.
1.36 "entire Board" means all Directors of the Corporation who would be in
office if there were no vacancies.
1.37 "Equity Securities" means common stock of the Corporation or any debt,
equity or other security or contractual right convertible into or exercisable
or exchangeable for common stock or any warrants, options or other rights to
purchase common stock or such other Equity Securities, but in no event shall
the term "Equity Securities" include non-voting, non-convertible preferred
stock.
1.38 "ESOP Convertible Preferred Stock" means collectively, the Class 1 ESOP
Convertible Preferred Stock and the Class 2 ESOP Convertible Preferred Stock
and any other securities into which such preferred stocks are changed or
reclassified, into which they are converted or for which they are exchanged.
1.39 "ESOPs" means collectively, the UAL Corporation Employee Stock Ownership
Plan and the UAL Corporation Supplemental ESOP and any similar or successor
plans thereto.
1.40 "Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor act thereto.
1.41 "Existing Plans" means collectively, the United Air Lines, Inc. Flight
Attendant Employees' Savings Plan; the United Air Lines, Inc. Management and
Salaried Employees' Personal Investment Program; the United Air Lines, Inc.
Union Ground Employees' Long Term Investment Program; the United Air Lines,
Inc. Pilots' Directed Account Retirement Income Plan; and the Employees' Stock
Purchase Plan of UAL Corporation.
1.42 "Extraordinary Matters" means (a) any matter that pursuant to the GCL
requires stockholder approval, (b) any Substantive Amendment to the Restated
Bylaws and (c) any Other Extraordinary Matters.
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1.43 "First Refusal Agreement" means the First Refusal Agreement, dated as of
the date of the Effective Time, among the Corporation, ALPA, the IAM and the
Salaried/Management Employee Director.
1.44 "GCL" means the General Corporation Law of the State of Delaware, as
amended from time to time.
1.45 "Gross Proceeds" means, with respect to any sale, lease, exchange,
surrender to or at the direction of a lessor, or other disposition of assets,
whether tangible or intangible, real or personal, or the issuance of ownership
interests, by any Person (each, a "Gross Proceeds Event"), (a) (i) with respect
to owned assets or the issuance of ownership interests, the sum of (A) the
aggregate cash consideration received by such Person in connection with such
Gross Proceeds Event, (B) the fair market value of (1) all cash consideration
to be received in the future (including future payments evidenced by a note or
other instrument) by such Person in connection with such Gross Proceeds Event
and (2) all future payments that are obligations of such Person and are assumed
by another Person in connection with such Gross Proceeds Event and (C) the fair
market value of all other non-cash consideration, and (ii) with respect to
leased assets, the fair market value of such assets (in each case with respect
to clauses (i)(B) and (i)(C) and clause (ii), such fair market value as
determined in good faith by the Corporation as of the date of such Gross
Proceeds Event), minus (b) the sum, without duplication, of:
(i) any taxes (including, but not limited to, any alternative minimum
taxes and other similar taxes) that are paid, actually payable or would be
payable (absent the availability of any net operating loss carryover, tax
credit or other tax benefit that reduces the amount paid or payable) to any
Federal, state, local or foreign taxing authority and that are directly or
indirectly attributable to such Gross Proceeds Event; and
(ii) the amount of fees and commissions (including, without limitation,
reasonable investment banking fees), legal, title and recording tax
expenses and other similar costs and expenses directly incident to such
Gross Proceeds Event that are paid or payable by such Person, other than
fees and commissions (including, without limitation, management consulting
and financial services fees) paid or payable to Affiliates of such Person
(or officers or employees of such Person or any Affiliate of such Person).
1.46 "IAM" means the International Association of Machinists and Aerospace
Workers.
1.47 "Investment" means all (A) investments in any Person by stock purchase,
capital contribution, loan, advance, guarantee of obligations of (other than
any guarantee of an obligation of the Corporation or any of its Subsidiaries)
or creation or assumption by the Corporation or any of its Subsidiaries of any
other liability in respect of any indebtedness (other than indebtedness of the
Corporation or any of its Subsidiaries) of such Person and (B) investments in
any other property, other than:
(i) an investment in the ordinary course of business in the Corporation,
any of its Subsidiaries or the Distribution Companies, so long as such
investment is in the Airline Business;
(ii) investments in the ordinary course of business in direct obligations
of the United States of America, or obligations of any instrumentality or
agency thereof, or obligations the payment of which is unconditionally
guaranteed by the United States of America or any instrumentality or agency
thereof;
(iii) investments in the ordinary course of business in obligations of
any state or municipal government or obligations of any instrumentality or
agency thereof;
(iv) investments in the ordinary course of business in readily marketable
commercial paper;
(v) investments in the ordinary course of business in short-term deposit
accounts in, or negotiable certificates of deposit or negotiable bankers
acceptances issued by, any bank or trust company organized under the laws
of the United States or a state thereof or Canada, Western Europe or Japan;
(vi) investments in negotiable instruments for collection in the ordinary
course of business;
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(vii) investments in tangible assets to be used in the ordinary course of
business of the Corporation or any of its Subsidiaries;
(viii) investments in the ordinary course of business in stocks of
investment companies registered under the Investment Company Act of 1940,
as amended, which are no-load money market funds and which invest primarily
in obligations of the type described in clause (ii), (iii) or (iv) above
and which are classified as current assets in accordance with generally
accepted accounting principles;
(ix) investments in Persons resulting from non-payment by such Persons of
receivables of the Corporation or any of its Subsidiaries arising in the
ordinary course of business;
(x) investments in connection with the settlement of claims of the
Corporation or any of its Subsidiaries in financially-distressed companies
or in connection with bankruptcy proceedings;
(xi) investments in airline clearing houses, other similar industry
organizations or other Air Carriers arising out of receivables payable to
the Corporation or any of its Subsidiaries relating to airline tickets and
similar liabilities and arising in the ordinary course of business of the
Corporation or its Subsidiaries;
(xii) advances to employees of the Corporation or its Subsidiaries made
in the ordinary course of business;
(xiii) investments in Persons pursuant to obligations of the Corporation
or any of its Subsidiaries, including contingent obligations, in effect on
the Effective Time;
(xiv) other investments made in the ordinary course of the Corporation's
and its Subsidiaries' business in connection with the Corporation's and its
Subsidiaries' cash management program or fiscal management policies and
practices (including, without limitation, interest rate, currency and
commodity risk management and similar activities);
(xv) investments in the ordinary course of business of the Corporation or
its Subsidiaries in ARINC, SITA, Air Cargo, Inc., Scheduled Airline Traffic
Offices, Inc., organizations used to provide aircraft fuel services or
other similar industry organizations;
(xvi) the purchase or other acquisition by the Corporation or any of its
Subsidiaries from Persons other than the Corporation or any of its
Subsidiaries of evidences of indebtedness or other obligations or
securities issued by the Corporation or any of its Subsidiaries;
(xvii) investments in Persons through customary indemnity obligations
contained in contracts of the Corporation or its Subsidiaries; and
(xviii) loans or advances to the Corporation by any of its Subsidiaries.
1.48 "Labor Affiliate" means (a) any Person that has been formed by or is an
Affiliate of one or more labor groups representing employees of the Corporation
or any of its Subsidiaries or (b) any Person determined by the Board to be a
Person in which a substantial group of employees of the Corporation or any of
its Subsidiaries, acting as an organized group, owns a majority ownership
interest.
1.49 "Management Public Directors" has the meaning defined in Subsection 2.3.
1.50 "Market Capitalization" means the aggregate market value of a Public
Company's voting stock held by Persons that are not Affiliates of such Public
Company as set forth in the most recent Form 10-K or any successor form of such
Public Company preceding the date of determination.
1.51 "Measuring Period" means the 365-day period commencing on the Effective
Time.
1.52 "Non-Dilutive Issuance" means an issuance of Equity Securities pursuant
to Subsection 3.4(b)(vii).
1.53 "Other Board Committee" has the meaning defined in Subsection 4.1.10.
1.54 "Other Extraordinary Matters" has the meaning defined in Subsection
3.4(b).
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1.55 "Outside Public Directors" has the meaning defined in Subsection 2.3.
1.56 "Permitted Bankruptcy Equity" has the meaning defined in Subsection
3.4(b)(vii)(B).
1.57 "Person" means an individual, corporation, association, partnership,
joint venture, limited liability company, trust, estate, unincorporated
organization, governmental authority, judicial entity or other entity.
1.58 "Post-Termination Meeting" has the meaning defined in Subsection
2.13(b).
1.59 "Public Company" means a Person with a class of securities registered
pursuant to Section 12 of the Exchange Act.
1.60 "Public Directors" has the meaning defined in Subsection 2.3.
1.61 "Recapitalization Agreement" means the Recapitalization Agreement, dated
as of March 25, 1994, among the Corporation, ALPA and the IAM, as amended from
time to time.
1.62 "Restated Bylaws" means the Amended and Restated Bylaws of the
Corporation, as amended from time to time.
1.63 "Restated Certificate" means the Restated Certificate of Incorporation
of the Corporation, as amended from time to time.
1.64 "Rights Agreement" means the Rights Agreement, dated as of December 11,
1986, between the Corporation and First Chicago Trust Company of New York
(formerly Morgan Shareholder Services Trust Company), as amended from time to
time.
1.65 "Salaried and Management Employee Investment" means the concessions and
other investments of employees who perform the functions currently performed by
the salaried and management employees of the Corporation or United Air Lines,
Inc. (including any functions which such group of employees begins performing
in the future) as set forth in Schedule 5.8(iii) to the Recapitalization
Agreement, which shall be provided for the term identified in such Schedule
5.8(iii).
1.66 "Salaried/Management Employee Director" has the meaning defined in
Subsection 2.2.
1.67 "Significant Labor-Related Business Transaction" means any purchase,
sale, transfer or other disposition of assets, or the issuance of capital
stock, by any Person, or any merger or consolidation with any Person, in a
single transaction or series of related transactions, in which the Gross
Proceeds to be received by any Person or Persons in connection with such
purchase, sale, transfer, disposition, issuance, merger or consolidation
exceeds $1,000,000.
1.68 "Solvency Determination" has the meaning defined in Subsection
3.4(b)(vii)(B).
1.69 "Stockholders" means the stockholders of the Corporation.
1.70 "Subsidiary" means, with respect to any Person (herein referred to as
the "parent"), any corporation, partnership, association or other business
entity which such parent, directly or indirectly, controls, including, without
limitation, any such Person of which securities or other ownership interests
representing 50% or more of the equity, or 50% or more of the ordinary voting
power or voting power representing the right to elect 50% or more of the Board
of Directors or similar governing body, or 50% or more of the general
partnership interests, are, at the time any determination is being made, owned,
controlled or held by such parent; provided, however, that the term
"Subsidiary" shall not include a Distribution Company where the Corporation
does not, directly or indirectly, control the particular actions or activities
under consideration (including the power, under the relevant organizational
documents of such Distribution Company, to block such actions or activities)
with respect to such Distribution Company.
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1.71 "Substantive Amendment" means the adoption of any material amendment to,
the deletion or repeal of, or the adoption of any provision materially
inconsistent with, any of the following sections of the Restated Bylaws:
2.2(a), 2.6(a), 2.6(c), 3.1, 3.2, 3.3, 3.6, 3.7, 3.8, 3.9(a), 3.10, 3.12(a),
3.14(a), 4.1(a), 4.2, 4.3, 4.5(a), 4.7(a), 4.8(a), 5.1, 5.2(a), 5.3(a), 5.4(a),
5.6(a) and 8.1.
1.72 "Termination Date" means, except as otherwise provided in this Restated
Certificate, the date on which the Common Equity held in the ESOPs, the
Existing Plans or in any other employee trusts or pension, retirement or other
employee benefit plans sponsored by the Corporation or any of its Subsidiaries
for the benefit of its employees as of the close of business on such date, plus
the number of Available Unissued ESOP Shares represent, in the aggregate, less
than 20% of (a) the Common Equity of the Corporation plus (b) the number of
Available Unissued ESOP Shares.
1.73 "Union Directors" has the meaning defined in Subsection 2.2.
1.74 "United Air Lines, Inc." means United Air Lines, Inc., a Delaware
corporation, or any successor to all or substantially all of the assets
thereof.
1.75 "Voting Stock" means collectively, the Common Stock, Class IAM Preferred
Stock, Class M Voting Preferred Stock, Class Pilot MEC Preferred Stock, Class P
Voting Preferred Stock, Class SAM Preferred Stock and Class S Voting Preferred
Stock.
Section 2. Directors.
2.1 General Powers. Except as otherwise provided in this Restated
Certificate, the business and affairs of the Corporation shall be managed by or
under the direction of the Board. The Board may adopt such rules and
regulations, not inconsistent with this Restated Certificate, the Restated
Bylaws or applicable law, as it may deem proper for the conduct of its meetings
and the management of the Corporation. In addition to the powers conferred
expressly by this Restated Certificate and the Restated Bylaws, the Board may
exercise all powers and perform all acts that are not required, by this
Restated Certificate, the Restated Bylaws or applicable law, to be exercised or
performed by the Stockholders.
2.2 Number and Composition. Subject to Article FOURTH, Parts I.A and I.B of
this Restated Certificate and Subsection 2.13 of this Article FIFTH, the Board
shall consist of twelve members and shall be comprised as follows: five
Directors shall be designated Public Directors who shall be elected, subject to
Subsection 2.3, by the holders of the Common Stock in accordance with Article
FOURTH, Part XI of this Restated Certificate, voting separately as a class;
four Directors shall be designated Independent Directors who shall be elected,
subject to Subsection 2.4, by the holders of the Class I Preferred Stock in
accordance with Article FOURTH, Part X of this Restated Certificate, voting
separately as a class; and three Directors shall be designated Employee
Directors, of whom one shall be elected by the holders of the Class IAM
Preferred Stock, voting separately as a class, in accordance with Article
FOURTH, Part VIII of this Restated Certificate (the "Class IAM Director"), one
shall be elected by the holders of the Class Pilot MEC Preferred Stock, voting
separately as a class, in accordance with Article FOURTH, Part VII of this
Restated Certificate (the "Class Pilot MEC Director," and together with the
Class IAM Director, the "Union Directors") and one shall be elected by the
holders of the Class SAM Preferred Stock, voting separately as a class, in
accordance with Article FOURTH, Part IX of this Restated Certificate (the
"Salaried/Management Employee Director"). The Union Directors and the
Salaried/Management Employee Director are referred to in this Restated
Certificate collectively as the "Employee Directors."
2.3 Qualifications of Public Directors. Until the Termination Date, of the
five Public Directors, (a) three shall be individuals who are not and have
never been an officer or employee of, or a provider of professional services
to, the Corporation or any of its Subsidiaries (collectively, the "Outside
Public Directors") and (b) two shall be, at the time of their election,
substantially full-time employees of the Corporation or one of its
Subsidiaries, one of whom, in addition, to the fullest extent such additional
qualification is permitted by law, shall be, at the time of such election, the
Chief Executive Officer, and the
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second of whom, in addition, to the fullest extent such additional
qualification is permitted by law, shall be a senior executive officer of the
Corporation satisfactory to the Chief Executive Officer (collectively, the
"Management Public Directors"). The Outside Public Directors and the Management
Public Directors are referred to in this Restated Certificate collectively as
the "Public Directors."
2.4 Qualifications of Independent Directors. Until the Termination Date, no
Independent Director shall either (a) without the consent of both Union
Directors and all of the Public Directors, have a current affiliation (other
than an affiliation that may result from being a member of the Board) or
business relationship with the Corporation or any of its Subsidiaries
(collectively, an "affiliation") which is required to be disclosed or have had
a prior such affiliation (other than an affiliation that may result from having
been an Independent Director) which, had such Independent Director been a
Director of the Corporation at the time of such prior affiliation, would have
been required to be disclosed, pursuant to Item 7 of Schedule 14A promulgated
under the Exchange Act (or any successor provision thereto) or (b) be an
officer, director, trustee or official of any labor organization that serves as
a collective bargaining "representative" under the Railway Labor Act, 45 U.S.C.
(S)(S) 151 et seq., or the National Labor Relations Act, 29 U.S.C. (S)(S) 141
et seq. or any similar laws as may from time to time be in effect. In addition
to the foregoing, until the Termination Date, at the time of the election or
appointment of an Independent Director to the Board, at least two of the
Independent Directors (or at least one of the Independent Directors if only one
Independent Director vacancy is being filled and none of the incumbent
Independent Directors meet the criteria specified in clause (i) or (ii) below),
after giving effect to the election or appointment of the Independent Directors
being elected or appointed, shall be, or have been at the time of their initial
election or appointment as Independent Directors, either (i) a senior executive
officer of a company (other than the Corporation) with revenues during such
company's prior fiscal year in excess of $1 billion as set forth in such
company's most recent annual financial statements or (ii) a member of the board
of directors of at least one other Public Company with a Market Capitalization
in excess of $1 billion as of the date of such Public Company's most recent
annual financial statements.
2.5 Nomination of Board's Nominees for Public Directors. Until the
Termination Date, the Board's nominees for the Outside Public Directors shall
be nominated by the Outside Public Director Nomination Committee in accordance
with Subsection 4.1.8. Until the Termination Date, the Board's nominees for the
Management Public Directors shall be nominated by action of the Board by the
affirmative vote of at least a majority of the votes entitled to be cast by the
entire Board. For purposes of this Subsection 2.5 and Subsection 4.1.8,
"nominate" means to designate those persons who are recommended by the Board
for election as Public Directors in the proxy materials distributed by the
Corporation to the holders of its Voting Stock and to take such other action as
required to place their name in nomination for election at the meeting of
Stockholders called in accordance with such proxy material.
2.6 Term of Office. Subject to Subsection 2.13(b), and except as otherwise
provided in this Restated Certificate, each Director shall hold office until
the next annual meeting of Stockholders and until his or her successor is
elected and qualified, subject to such Director's earlier death, resignation or
removal; provided, however, that, until the Termination Date, the term of an
Outside Public Director or an Independent Director shall automatically
terminate if during such term the status of such Director shall change such
that the qualification requirements set forth in Subsection 2.3(a) or the first
sentence of Subsection 2.4, as applicable, are no longer satisfied.
2.7 Resignation of Directors. Any Director may resign at any time upon
written notice to the Corporation.
2.8 Removal of Directors. (a) Any Director may be removed without cause at
any time only by the affirmative vote of the holders of a majority in voting
power of the shares of the class or classes or series of stock that are
entitled to vote for the election of such Director, voting separately as a
class or series.
(b) Any Director or the entire Board may be removed for cause as provided
under the GCL.
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2.9 Vacancies on the Board. Vacancies on the Board may only be filled as
follows:
2.9.1 Vacancies of Public Directors. Until the Termination Date, in the event
of a vacancy of an Outside Public Director, such vacancy may be filled only by
the Outside Public Director Nomination Committee in accordance with Subsection
4.1.8. Until the Termination Date, in the event of a vacancy of a Management
Public Director, such vacancy may be filled only by action of the Board by the
affirmative vote of at least a majority of the votes entitled to be cast by the
entire Board with an individual who would be eligible to be nominated for
election to such position in accordance with Subsections 2.3 and 2.5.
2.9.2 Vacancies of Independent Directors. Until the Termination Date, in the
event of a vacancy of an Independent Director, such vacancy may be filled only
by the Independent Director Nomination Committee in accordance with Subsection
4.1.6.
2.9.3 Vacancies of Employee Directors. In the event of a vacancy of an
Employee Director, such vacancy may be filled only by a vote of the class or
series of stock that elected such Director.
2.9.4 Board Action During Vacancies. Until the Termination Date, in the event
of a vacancy on the Board of an Employee Director or Public Director, or in the
event of a vacancy of an Independent Director who immediately prior to the
occurrence of such vacancy was a member of a Board Committee of which only one
Independent Director was a member, then, subject to the fiduciary duties of the
remaining Directors or members of such Board Committee, as the case may be,
then in office, neither the Board nor such Board Committee may take any action
(other than to fill such vacancy of such Public Director), until after the
earlier of (a) 20 days following the occurrence of such vacancy and (b) the
time that such vacancy is filled in accordance with the provisions of this
Restated Certificate.
2.10 Quorum Requirements of Board Meetings. Until the Termination Date, at
all meetings of the Board, other than meetings of Board Committees, a quorum
shall exist only if (a) Directors having at least a majority of the votes
entitled to be cast by the entire Board are present at the meeting and (b)
unless otherwise consented to by each of the Union Directors, if less than all
of the Public Directors, Independent Directors and Employee Directors are
present, or if Directors other than the Public Directors, Independent Directors
and Employee Directors are present, the number of votes constituting a majority
of the votes present is no greater than the sum of (i) two plus (ii) the
aggregate number of votes entitled to be cast by the Independent Directors
present at such meeting.
2.11 Voting by Directors. Subject to any greater or additional vote of the
Board or of any class of Directors required by law or by this Restated
Certificate, including, without limitation, Section 3, an act of the Board
shall require the affirmative vote of at least a majority of the votes entitled
to be cast by the Directors present at a meeting of the Board at which a quorum
is present. Each Director shall have one vote; provided, however, that, until
the Termination Date, at any time there is a vacancy of one or more Independent
Directors, then with respect to any action of the Board (but not including any
action of a Board Committee), each Independent Director shall have the number
of votes equal to a fraction, (a) the numerator of which equals four and (b)
the denominator of which equals four minus the number of vacancies then
existing among the Independent Directors.
2.12 Quorum Requirements of Stockholder Meetings. Until the Termination Date,
except as otherwise required by law or by this Restated Certificate, the
presence in person or by proxy of the holders of outstanding shares
representing at least a majority of the total voting power of all outstanding
shares entitled to vote at a meeting of Stockholders shall constitute a quorum
at a meeting of Stockholders; provided, however, that where a separate vote of
a class or classes or series of stock is required, the presence in person or by
proxy of the holders of outstanding shares representing at least a majority of
the total voting power of all outstanding shares of such class or classes or
series shall constitute a quorum thereof entitled to take action with respect
to such separate vote.
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2.13 Events Upon the Occurrence of the Termination Date.
(a) Upon the occurrence of the Termination Date, the Board shall take all
necessary and appropriate actions to cause to be filed and become effective
a restated certificate of incorporation of the Corporation under Section
245 of the GCL, or any successor provision then in effect, deleting all
provisions in this Restated Certificate that, by their terms, are no longer
in effect and operative as a result of the occurrence of the Termination
Date and integrating into a single document all other amendments to this
Restated Certificate that have been adopted between the date hereof and the
Termination Date.
(b) Upon the occurrence of the Termination Date, the Outside Public
Director Nomination Committee shall, on behalf of the Board, subject to
Subsection 2.13(c), nominate the individuals to be the Board's nominees for
election as Directors (other than the Employee Directors) to be recommended
for election by the Stockholders entitled to vote thereon at a meeting of
Stockholders to be held promptly following the Termination Date (the "Post-
Termination Meeting"), and the officers of the Corporation shall take all
necessary and appropriate actions to promptly call and hold the Post-
Termination Meeting. Upon the effectiveness of the election of the
Directors elected at such Post-Termination Meeting, the term of office of
each Director in office immediately prior thereto (except any such Director
re-elected in such election or as to whom no successor is elected in such
election) shall terminate.
(c) Notwithstanding any other provision in this Restated Certificate, but
subject to Article FOURTH, Parts I.A and I.B, following the Termination
Date the Board shall consist of twelve members and shall be comprised as
follows: nine Directors shall be elected by the holders of the outstanding
Common Stock and of any other class or series of stock entitled to vote
thereon together with the Common Stock, voting together as a single class;
one Director shall be elected by the holders of the outstanding Class IAM
Preferred Stock, voting separately as a class; one Director shall be
elected by the holders of the outstanding Class Pilot MEC Preferred Stock,
voting separately as a class; and one Director shall be elected by the
holders of the outstanding Class SAM Preferred Stock, voting separately as
a class. After the Termination Date, and until the IAM Termination Date (as
defined in Article FOURTH, Part VIII of this Restated Certificate) in the
case of the Director elected by the holders of the outstanding Class IAM
Preferred Stock or the ALPA Termination Date (as defined in Article FOURTH,
Part VII of this Restated Certificate) in the case of the Director elected
by the holders of the outstanding Class Pilot MEC Preferred Stock, the
Director elected by the holders of the outstanding Class IAM Preferred
Stock and the Director elected by the holders of the outstanding Class
Pilot MEC Preferred Stock shall each be deemed a "Union Director," and
collectively shall be deemed "Union Directors," for purposes of this
Restated Certificate. After the Termination Date, and until the IAM
Termination Date in the case of the Director elected by the holders of the
outstanding Class IAM Preferred Stock, until the ALPA Termination Date in
the case of the Director elected by the holders of the outstanding Class
Pilot MEC Preferred Stock, and until the earlier of the IAM Termination
Date and the ALPA Termination Date in the case of the Director elected by
the holders of the outstanding Class SAM Preferred Stock, the Director
elected by the holders of the outstanding Class IAM Preferred Stock, the
Director elected by the holders of the outstanding Class Pilot MEC
Preferred Stock and the Director elected by the holders of the outstanding
Class SAM Preferred Stock shall each be deemed an "Employee Director," and
collectively shall be deemed "Employee Directors," for purposes of this
Restated Certificate.
Section 3. Special Voting Provisions.
3.1 Matters Requiring Stockholder Vote under the GCL.
3.1.1 Amendment to the Restated Certificate. Until the Termination Date,
subject to Subsection 3.8, notwithstanding that a lesser or no vote may be
required by law of either the Board or the Stockholders, and in addition to any
other vote of the Board or the Stockholders required by law or this Restated
Certificate, any amendment to the Restated Certificate (excluding a restatement
of the Restated Certificate effected solely pursuant to Section 245 of the GCL
(which merely restates and integrates but does not further amend this
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Restated Certificate) and any action taken by the Board in accordance with this
Restated Certificate pursuant to Section 151(g) of the GCL not inconsistent
with this Restated Certificate) must be approved by one of the following:
(a) (i) the affirmative vote of at least a majority of the votes entitled
to be cast by the Directors present at a meeting of the Board at which a
quorum is present, which vote must include the affirmative vote of at least
six of the votes entitled to be cast by the Directors present at the Board
meeting other than the Employee Directors, plus (ii) the affirmative vote
of at least 75% in voting power of the Voting Stock present in person or
represented by proxy at a meeting of Stockholders at which a quorum is
present;
(b) (i) the affirmative vote of at least 75% in voting power of the
Voting Stock present in person or represented by proxy at a meeting of
Stockholders at which a quorum is present, plus (ii) the affirmative vote
of at least a majority in voting power of the outstanding capital stock of
the Corporation entitled to vote thereon not held by the trustees, in their
capacity as such, under the ESOPs, voting separately as a class;
(c) the affirmative vote of at least 75% of the votes entitled to be cast
by the entire Board, which vote must include (i) the affirmative vote of at
least one Union Director and (ii) the affirmative vote of at least a
majority of the votes entitled to be cast by the Directors present at a
meeting of the Board at which a quorum is present, which vote must include
the affirmative vote of at least six of the votes entitled to be cast by
the Directors present at the Board meeting other than the Employee
Directors; or
(d) (i) the affirmative vote of at least 75% of the votes entitled to be
cast by the entire Board, which vote must include the affirmative vote of
at least one Union Director, plus (ii) the affirmative vote of at least a
majority in voting power of the outstanding capital stock of the
Corporation entitled to vote thereon not held by the trustees, in their
capacity as such, under the ESOPs, voting separately as a class.
3.1.2 Merger or Consolidation. Until the Termination Date, subject to
Subsection 3.8, notwithstanding that a lesser or no vote may be required by law
of either the Board or the Stockholders, and in addition to any other vote of
the Board or the Stockholders required by law or this Restated Certificate, but
subject in each case to the provisions of Section 253 of the GCL, any merger or
consolidation of the Corporation or any of its Subsidiaries must be approved,
(a) if the merger or consolidation is with or into a Labor Affiliate, by
one of the following:
(i) (A) the affirmative vote of at least a majority of the votes
entitled to be cast by the Directors present at a meeting of the Board
at which a quorum is present, which vote must include the affirmative
vote of at least six of the votes entitled to be cast by the Directors
present at the Board meeting other than the Employee Directors, plus
(B) the affirmative vote of at least 75% in voting power of the Voting
Stock present in person or represented by proxy at a meeting of
Stockholders at which a quorum is present;
(ii) (A) the affirmative vote of at least 75% in voting power of the
Voting Stock present in person or represented by proxy at a meeting of
Stockholders at which a quorum is present, plus (B) the affirmative
vote of at least a majority in voting power of the outstanding capital
stock of the Corporation entitled to vote thereon not held by the
trustees, in their capacity as such, under the ESOPs, voting separately
as a class;
(iii) the affirmative vote of at least 75% of the votes entitled to
be cast by the entire Board, which vote must include (A) the
affirmative vote of at least one Union Director and (B) the affirmative
vote of at least a majority of the votes entitled to be cast by the
Directors present at a meeting of the Board at which a quorum is
present, which vote must include the affirmative vote of at least six
of the votes entitled to be cast by the Directors present at the Board
meeting other than the Employee Directors; or
(iv) (A) the affirmative vote of at least 75% of the votes entitled
to be cast by the entire Board, which vote must include the affirmative
vote of at least one Union Director, plus (B) the affirmative
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vote of at least a majority in voting power of the outstanding capital
stock of the Corporation entitled to vote thereon not held by the
trustees, in their capacity as such, under the ESOPs, voting separately
as a class; or
(b) if the merger or consolidation is not with or into a Labor Affiliate,
by either:
(i) the affirmative vote of at least 75% in voting power of the
Voting Stock present in person or represented by proxy at a meeting of
Stockholders at which a quorum is present; or
(ii) the affirmative vote of at least 75% of the votes entitled to be
cast by the entire Board, which vote must include the affirmative vote
of at least one Union Director.
3.1.3 Sale, Lease or Exchange of All or Substantially All Assets. Until the
Termination Date, subject to Subsection 3.8, notwithstanding that a lesser or
no vote may be required by law of either the Board or the Stockholders, and in
addition to any other vote of the Board or the Stockholders required by law or
this Restated Certificate, the sale, lease or exchange of all or substantially
all of the property and assets of the Corporation or of United Air Lines, Inc.,
including its goodwill and its corporate franchises (treating as a sale, lease
or exchange of assets for purposes of Subsection 3.1.3(a) below, the issuance
of ownership interests by any Subsidiary of the Corporation to a Person other
than the Corporation or a wholly-owned Subsidiary of the Corporation if such
issuance would diminish the percentage ownership held by the Corporation or any
of its Subsidiaries), must be approved,
(a) if such sale, lease or exchange is to or with a Labor Affiliate, by
one of the following:
(i) (A) the affirmative vote of at least a majority of the votes
entitled to be cast by the Directors present at a meeting of the Board
at which a quorum is present, which vote must include the affirmative
vote of at least six of the votes entitled to be cast by the Directors
present at the Board meeting other than the Employee Directors, plus
(B) the affirmative vote of at least 75% in voting power of the Voting
Stock present in person or represented by proxy at a meeting of
Stockholders at which a quorum is present;
(ii) (A) the affirmative vote of at least 75% in voting power of the
Voting Stock present in person or represented by proxy at a meeting of
Stockholders at which a quorum is present, plus (B) the affirmative
vote of at least a majority in voting power of the outstanding capital
stock of the Corporation entitled to vote thereon not held by the
trustees, in their capacity as such, under the ESOPs, voting separately
as a class;
(iii) the affirmative vote of at least 75% of the votes entitled to
be cast by the entire Board, which vote must include (A) the
affirmative vote of at least one Union Director and (B) the affirmative
vote of at least a majority of the votes entitled to be cast by the
Directors present at a meeting of the Board at which a quorum is
present, which vote must include the affirmative vote of at least six
of the votes entitled to be cast by the Directors present at the Board
meeting other than the Employee Directors; or
(iv) (A) the affirmative vote of at least 75% of the votes entitled
to be cast by the entire Board, which vote must include the affirmative
vote of at least one Union Director, plus (B) the affirmative vote of
at least a majority in voting power of the outstanding capital stock of
the Corporation entitled to vote thereon not held by the trustees, in
their capacity as such, under the ESOPs, voting separately as a class;
or
(b) if such sale, lease or exchange is not to or with a Labor Affiliate,
by either:
(i) the affirmative vote of at least 75% in voting power of the
Voting Stock present in person or represented by proxy at a meeting of
Stockholders at which a quorum is present; or
(ii) the affirmative vote of at least 75% of the votes entitled to be
cast by the entire Board, which vote must include the affirmative vote
of at least one Union Director.
3.1.4 Dissolution. Until the Termination Date, subject to Subsection 3.8,
notwithstanding that a lesser or no vote may be required by law of either the
Board or the Stockholders, and in addition to any other vote
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of the Board or the Stockholders required by law or this Restated Certificate,
but subject to the provisions of Section 275(c) of the GCL, the dissolution of
the Corporation must be approved by either:
(a) the affirmative vote of at least 75% in voting power of the Voting
Stock present in person or represented by proxy at a meeting of
Stockholders at which a quorum is present; or
(b) the affirmative vote of at least 75% of the votes entitled to be cast
by the entire Board, which vote must include the affirmative vote of at
least one Union Director.
3.2 Substantive Amendment to the Restated Bylaws. Subject to the provisions
of this Subsection 3.2 and the bylaws of the Corporation, the Board is
expressly authorized to make, alter or repeal the bylaws of the Corporation.
Until the Termination Date, subject to Subsection 3.8, notwithstanding that a
lesser or no vote may be required by law of either the Board or the
Stockholders, and in addition to any other vote of the Board or the
Stockholders required by law or this Restated Certificate, any Substantive
Amendment to the Restated Bylaws must be approved by one of the following:
(a) (i) the affirmative vote of at least a majority of the votes entitled
to be cast by the Directors present at a meeting of the Board at which a
quorum is present, which vote must include the affirmative vote of at least
six of the votes entitled to be cast by the Directors present at the Board
meeting other than the Employee Directors, plus (ii) the affirmative vote
of at least 75% in voting power of the Voting Stock present in person or
represented by proxy at a meeting of Stockholders at which a quorum is
present;
(b) (i) the affirmative vote of at least 75% in voting power of the
Voting Stock present in person or represented by proxy at a meeting of
Stockholders at which a quorum is present, plus (ii) the affirmative vote
of at least a majority in voting power of the outstanding capital stock of
the Corporation entitled to vote thereon not held by the trustees, in their
capacity as such, under the ESOPs, voting separately as a class;
(c) the affirmative vote of at least 75% of the votes entitled to be cast
by the entire Board, which vote must include (i) the affirmative vote of at
least one Union Director and (ii) the affirmative vote of at least a
majority of the votes entitled to be cast by the Directors present at a
meeting of the Board at which a quorum is present, which vote must include
the affirmative vote of at least six of the votes entitled to be cast by
the Directors present at the Board meeting other than the Employee
Directors; or
(d) (i) the affirmative vote of at least 75% of the votes entitled to be
cast by the entire Board, which vote must include the affirmative vote of
at least one Union Director, plus (ii) the affirmative vote of at least a
majority in voting power of the outstanding capital stock of the
Corporation entitled to vote thereon not held by the trustees, in their
capacity as such, under the ESOPs, voting separately as a class.
3.3 Significant Labor-Related Business Transaction with a Labor
Affiliate. Until the Termination Date, subject to Subsection 3.8,
notwithstanding that a lesser or no vote may be required by law of either the
Board or the Stockholders, and in addition to any other vote of the Board or
the Stockholders required by law or this Restated Certificate, any Significant
Labor-Related Business Transaction (other than entering into or modifying,
amending or supplementing a Collective Bargaining Agreement) between the
Corporation or any of its Subsidiaries and a Labor Affiliate must be approved
on behalf of the Corporation by either:
(a) the affirmative vote of at least a majority of the votes entitled to
be cast by the Directors present at a meeting of the Board at which a
quorum is present, which vote must include the affirmative vote of at least
six of the votes entitled to be cast by the Directors present at the Board
meeting other than the Employee Directors; or
(b) the affirmative vote of at least a majority in voting power of the
outstanding capital stock of the Corporation entitled to vote thereon not
held by the trustees, in their capacity as such, under the ESOPs, voting
separately as a class.
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3.4 Other Extraordinary Matters Requiring Special Voting.
(a) Until the Termination Date, subject to Subsection 3.8,
notwithstanding that a lesser or no vote may be required by law of either
the Board or the Stockholders, and in addition to any other vote of the
Board or the Stockholders required by law or this Restated Certificate, any
Other Extraordinary Matters must be approved by either:
(i) the affirmative vote of at least 75% of the votes entitled to be
cast by the entire Board, which vote must include the affirmative vote
of at least one Union Director; or
(ii) the affirmative vote of at least 75% in voting power of the
Voting Stock present in person or represented by proxy at a meeting of
Stockholders at which a quorum is present.
(b) For purposes of this Restated Certificate, the term "Other
Extraordinary Matters" means any of the following:
(i) The entry by the Corporation or any of its Subsidiaries into any
line of business outside the Airline Business;
(ii) The making by the Corporation or any of its Subsidiaries of any
Investment outside the Airline Business if immediately after giving
effect to such proposed Investment the aggregate Investments made by
the Corporation and its Subsidiaries outside the Airline Business would
exceed five percent of the total assets of the Corporation and its
Subsidiaries on a consolidated basis as set forth in the most recent
audited financial statements of the Corporation; provided, that an
Investment shall be excluded from such calculation if the Board
determines, pursuant to the affirmative vote set forth in Subsection
3.4(a)(i), or if the Stockholders determine, pursuant to the
affirmative vote set forth in Subsection 3.4(a)(ii), not to include
such Investment for purposes of the test set forth in this Subsection
3.4(b)(ii);
(iii) The acquisition, directly or indirectly, by the Corporation or
any of its Subsidiaries of all or substantially all of the assets or a
majority of the voting stock or other ownership interests of any
Person, whether or not organized in the United States, engaged, either
directly or indirectly, in the business of transporting persons,
property or mail, separately or in combination, for hire as a common or
private air carrier;
(iv) The making by the Corporation or any of its Subsidiaries of any
Investment in any Person, whether or not organized in the United
States, engaged, either directly or indirectly, in the business of
transporting persons, property or mail, separately or in combination,
for hire as a common or private air carrier, other than such
Investments made by the Corporation and its Subsidiaries in the
ordinary course of business ("Ordinary Course Air Carrier
Investments"); provided, that the aggregate of all Ordinary Course Air
Carrier Investments outstanding at any time shall not exceed one-half
of one percent of the total assets of the Corporation and its
Subsidiaries on a consolidated basis as set forth in the most recent
audited financial statements of the Corporation; and provided, further,
that an Ordinary Course Air Carrier Investment shall be excluded from
such calculation if the Board determines, pursuant to the affirmative
vote set forth in Subsection 3.4(a)(i), or if the Stockholders
determine, pursuant to the affirmative vote set forth in Subsection
3.4(a)(ii), not to include such Ordinary Course Air Carrier Investment
for purposes of the test set forth in this Subsection 3.4(b)(iv);
(v) The adoption of any material amendment or supplement to the
Rights Agreement or the taking by the Corporation of any material
actions pursuant to the Rights Agreement, including, without
limitation, the redemption of rights under the Rights Agreement;
(vi) The sale, lease, exchange, surrender to or at the direction of a
lessor, or other disposition (any of such transactions being referred
to herein as a "Disposition") by the Corporation or any of its
Subsidiaries of assets, tangible or intangible, real or personal
(including, without limitation, goodwill, franchises and the sale of
ownership interests in, or the issuance of ownership interests by
(other than director qualifying shares or the issuance of any other
minority ownership interests to
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the extent required by law), any of the Corporation's Subsidiaries to a
Person other than the Corporation or a wholly-owned Subsidiary of the
Corporation if such issuance would diminish the percentage ownership
held by the Corporation or any of its Subsidiaries, but excluding from
the term "assets" for purposes of this Subsection (vi) fixtures, office
equipment and office, cleaning, packaging, lubricating, deicing,
sanitation and similar supplies which for accounting purposes are
expensed upon acquisition and items which but for the application of
clauses (ii) through (vi), (viii) through (xi) and (xiv) of Section
1.46 would constitute Investments)), for Gross Proceeds which, when
added to the Gross Proceeds from
(aa) the Disposition of other such assets during the immediately
preceding 365 day period which ended one business day prior to the date
of such Disposition resulting in Gross Proceeds in excess of $5 million
and
(bb) the Disposition of other such assets during the immediately
preceding twelve calendar month period which ended not less than 45
days nor more than 2 full calendar months prior to the date of such
Disposition resulting in Gross Proceeds of $5 million or less,
collectively exceeds $200 million; provided, however, in all cases the
Gross Proceeds identified in clause (aa) and (bb) shall not include any
transactions consummated prior to the Effective Time and the $5 million
set forth in clauses (aa) and (bb) may be increased by action of the
Board on an annual basis based on the affirmative vote of at least 75%
of the votes entitled to be cast by the entire Board, which vote must
include the affirmative vote of at least one Union Director; provided,
further, however, that none of the following transactions shall
constitute an Other Extraordinary Matter for purposes of this
Subsection (vi) (or count against the $200 million Gross Proceeds
calculation above):
(A) secured aircraft financings,
(B) sale-leaseback and leveraged lease transactions, or sales or
similar transfers of receivables, for financing purposes,
(C) foreclosure sales of assets subject to bona fide security
interests, and deeds and other dispositions of assets subject to bona
fide security interests in lieu of foreclosure,
(D) Dispositions of assets if replacement assets (consisting of
assets of the same class (i.e., airframes of similar range and payload
capability, engines and facilities similar in character to the assets
disposed of, and ground equipment, spare parts and fixtures) as the
assets being disposed of (which for these purposes shall include the
Disposition of assets from a disassembled aircraft or engine which
shall be replaced by a fully assembled aircraft of similar range and
payload capability or engine of similar character, and similar
transactions)) have been ordered (pursuant to firm commitment, bona
fide orders) or acquired within the six calendar month period prior to
such Dispositions of assets (provided, further, that if replacement
assets are so ordered or acquired within 365 days following the
Disposition of assets for which no replacement assets had been
previously acquired, Gross Proceeds from such Disposition shall not
thereafter be included in the $200 million Gross Proceeds calculation
above unless such replacement assets are not actually acquired),
(E) Disposition providing Gross Proceeds in an amount up to 10% of
the book value (net of depreciation) of the Corporation's fixed assets
at the time of the most recent quarterly financial statements of the
Corporation if (x) Directors entitled to cast at least 75% of the votes
entitled to be cast by the entire Board, including all of the
Independent Directors, determine by resolution of the Board that such
asset Disposition is necessary to (I) cure a default under material
financing agreements binding upon the Corporation or any of its
Subsidiaries or any of their respective properties, or avoid a default
thereunder that, absent such Disposition, would be reasonably likely to
occur within 90 days, or (II) remedy a material adverse development in
the Corporation's business or condition, and (y) the Gross Proceeds of
such asset Disposition are used to remedy the condition referred to in
clause (x) (provided, that the exception afforded by this clause (E)
shall be available not more than once in any consecutive five-year
period),
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(F) Dispositions of damaged tangible assets or tangible assets that
are obsolete in the Airline Business used in the ordinary course of
business of the Corporation or any of its Subsidiaries, excluding
airframes, engines and related spare parts (other than aircraft which
may no longer be legally operated in the United States by the
Corporation or United Air Lines, Inc. and airframes, engines and
related spare parts which under applicable insurance policies have been
declared to be a total loss or a constructive total loss),
(G) without limiting clause (D), (1) leases, subleases, slides,
swaps, trades, transfers, exchanges or similar transactions involving
aircraft take-off and landing authorizations, slots or similar rights,
(2) leases, subleases, exchanges or similar transactions involving
vacant land, building space, parking areas, airport gates or similar
real property and (3) Dispositions of consumables, spare parts, ground
equipment or other similar goods, in each case (x) entered into in the
ordinary course of business, consistent with past practice, and (y) to
the extent, in connection with such Disposition, the Corporation or its
Subsidiaries receives (contemporaneously or over a reasonable time
frame) benefits of substantially the same or similar value and either
class or character,
(H) without limiting clause (D), leases, subleases, swaps, trades,
exchanges or similar transactions involving aircraft takeoff and
landing authorization, slots, or similar rights which are not being
utilized by the Corporation or a Subsidiary and where such lack of
utilization may subject such authorizations, slots or rights to loss or
forfeiture,
(I) without limiting clause (D), subleases or licenses, in the
ordinary course of business and consistent with past practices, of
gates or other airport facilities not being utilized by the Corporation
or a Subsidiary pursuant to agreements which are cancelable or
terminable by the Corporation on 90 days' notice or less;
(J) Dispositions of assets (other than airframes, engines and related
spare parts) if (x) made pursuant to a discrete asset management
program that provides for the Disposition of not more than an aggregate
of $25 million of assets and (y) such discrete asset management program
is approved by either the Board pursuant to the affirmative vote set
forth in Subsection 3.4(a)(i), or the Stockholders (following the
recommendation of the Board), pursuant to the affirmative vote set
forth in Subsection 3.4(a)(ii); provided, that only one asset
management program referred to in this clause (J) shall be in place in
any fiscal year and such program is subject to such approval on an
annual basis;
(K) Dispositions, in the ordinary course of business, of supplies or
spare parts pursuant to ground support, spare part or similar mutual
accommodation arrangements with other United States or foreign air
carriers or pursuant to the provision of maintenance, ground support or
similar support services by the Corporation or any Subsidiary,
(L) Dispositions, in the ordinary course of business consistent with
past practices, of assets which are held for resale by the Corporation
or any Subsidiary (other than airframes and engines),
(M) Dispositions, in the ordinary course of business, of flight
equipment spare parts (other than as part of a transaction or series of
related transactions involving the Disposition of airframes or engines)
(x) which are obsolete, or in excess of reasonably projected needs,
with respect to United's fleet, or (y) for which the costs of repair,
or of redistribution within the Corporation or its Subsidiaries, would
exceed the value of such assets to the Corporation or its Subsidiaries,
(N) Dispositions, in the ordinary course of business, of ground
equipment, fixtures and related spare parts (x) which are obsolete, or
in excess of reasonably projected needs, with respect to the
Corporation's or its Subsidiaries' operations or (y) for which the
costs of repair, or of redistribution within the Corporation or its
Subsidiaries, would exceed the value of such assets to the Corporation
or its Subsidiaries,
(O) Dispositions of fuel in the ordinary course of business,
(P) Dispositions of aircraft, engines, propellers, and spare parts
owned or leased by Air Wisconsin, Inc. on the date of execution of the
Recapitalization Agreement,
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(Q) Dispositions of assets to lessors, in the ordinary course of
business, in connection with the provision by the Corporation or any
Subsidiary of any replacement engines or spare parts pursuant to
replacement, modification or maintenance obligations under aircraft
leases (financing or otherwise), and
(R) Dispositions of assets which individually, or when aggregated
with other assets in the same or related Dispositions, are not in
excess of $25,000, either with respect to periods prior to December 31,
1994 or pursuant to a distinct asset management program approved in the
same manner as the procedures set forth in clause (J) above; and
(vii) The issuance by the Corporation of Equity Securities (a "Non-
Dilutive Issuance") other than pursuant to Sections 1.6 and 1.10 of the
Recapitalization Agreement to the ESOPs; provided, that such an
issuance shall not constitute an Other Extraordinary Matter if:
(A)(I) Directors entitled to cast at least 75% of the votes
entitled to be cast by the entire Board, including all of the
Independent Directors, determine by resolution of the Board that it
is in the best interests of the Corporation to issue shares of
Equity Securities, (II) such issuance is subject to the First
Refusal Agreement and (III) if such issuance occurs during the
Measuring Period (as defined in the Recapitalization Agreement), the
Board by the affirmative vote of a majority of the votes entitled to
be cast by the Directors present at a meeting of the Board at which
a quorum is present, which vote must include the affirmative votes
of both Union Directors, approves an equitable adjustment to the
number of Additional Shares (as defined in Subsection 1.10(b) of the
Recapitalization Agreement) to be issued pursuant to Sections 1.6
and 1.10 of the Recapitalization Agreement. Any shares of Equity
Securities issued in accordance with the provisions of this
Subsection 3.4(b)(vii)(A) shall not be deemed to be Common Equity
for purposes of this Restated Certificate;
(B) Directors entitled to cast at least 75% of the votes entitled
to be cast by the entire Board, including all of the Independent
Directors, determine by a resolution of the Board (I) that the
Corporation is Bankrupt (or, absent a material positive change in
the Corporation's results of operations over the immediately
succeeding 90 days from the results contained in the Corporation's
regularly prepared projections, that in their opinion the
Corporation will become Bankrupt within 90 days), which
determination is confirmed by written opinions of two nationally
recognized investment banking firms that further opine (giving
effect to the facts and circumstances applicable to the Corporation,
including discussions with prospective equity investors) that the
sale of Equity Securities is necessary to avoid or remedy such
Bankruptcy (the "Bankruptcy Opinions"), and (II) that the issuance
of additional Equity Securities (the "Permitted Bankruptcy Equity")
would cause the Corporation, after giving effect to the proposed
issuance, no longer to be or not to become Bankrupt in the time
frame referred to in the Bankruptcy Opinions (the "Solvency
Determination"). Notwithstanding the foregoing, the issuance of
Permitted Bankruptcy Equity shall constitute an Other Extraordinary
Matter unless (I) such issuance is in an amount that does not exceed
the amount determined by the Board to be reasonably necessary to
obtain sufficient equity investor participation so as to allow the
Board to make the Solvency Determination, (II) a binding commitment
for the sale of such Permitted Bankruptcy Equity is entered into
within 90 days of the delivery of the Bankruptcy Opinions and (III)
the terms of the First Refusal Agreement have been complied with in
all material respects by the Corporation. Any Permitted Bankruptcy
Equity issued in accordance with this Subsection 3.4(b)(vii)(B)
shall be included as outstanding Common Equity for purposes of the
definition of the Termination Date; or
(C) Such issuance is pursuant to (I) the exercise, conversion or
exchange of Equity Securities outstanding immediately prior to the
Effective Time, (II) the Corporation's 1981 Incentive Stock Program,
1988 Restricted Stock Plan and Incentive Compensation Plan, each as
amended in accordance with the Recapitalization Agreement, (III) the
Director Incentive Plan or (IV) any other equity incentive
compensation plan approved by the affirmative vote of
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Directors entitled to cast at least 75% of the votes entitled to be
cast by the entire Board, including all of the Independent
Directors. The shares of Equity Securities (x) outstanding
immediately prior to the Effective Time that were not included in
the definition of "Fully Diluted Shares" pursuant to Subsection
1.10(d) of the Recapitalization Agreement and (y) issued in
accordance with clauses (II), (III) and (IV) of this Subsection
3.4(b)(vii)(C) (in each case including the shares of Equity
Securities underlying such Equity Securities or issuable upon the
exercise, conversion or exchange thereof), shall not be deemed to be
Common Equity for purposes of this Restated Certificate and, along
with the other Equity Securities issued in accordance with clause
(I) of this Subsection 3.4(b)(vii)(C) (and the shares of Equity
Securities underlying such Equity Securities or issuable upon the
exercise, conversion or exchange thereof), shall not be subject to
the First Refusal Agreement.
3.5 Special Voting Provisions with Respect to the Purchase and Sale of Common
Stock. Until the Termination Date, notwithstanding that a lesser or no vote may
be required by law of either the Board or the Stockholders, and in addition to
any other vote of the Board or the Stockholders required by law or this
Restated Certificate, subject, in the case of clause (b) below, to Subsection
3.9, any Common Stock Transaction must be approved by the affirmative vote of
at least a majority of the votes entitled to be cast by the entire Board, which
vote must include the affirmative vote of at least 80% of the votes entitled to
be cast by the Public Directors. For purposes of this Restated Certificate, the
term "Common Stock Transaction" means (a) any purchase by the Corporation of
any shares of Common Stock (other than to fulfill its obligations to issue or
retain Common Stock in connection with the exercise of employee options issued
pursuant to employee benefit plans or to retain Common Stock in connection with
tax withholding obligations in connection with the exercise of employee options
or restricted stock) or (b) any sale by the Corporation of any shares of Common
Stock to a company sponsored pension, retirement or other employee benefit plan
for the account of employees (other than pursuant to the first refusal rights
provided in the First Refusal Agreement or in connection with the creation and
operation of the employee stock ownership plans and programs of the Corporation
under which the ESOP Convertible Preferred Stock is issued), whether for cash
or non-cash consideration, including, without limitation, changes in the rates
of pay, rules or working conditions for employees holding beneficial ownership
interests in the ESOP Convertible Preferred Stock.
3.6 Special Provisions with Respect to the Appointment and Removal of
Officers.
3.6.1 Appointment of Successor Chief Executive Officer. Until the Termination
Date, upon the death, resignation, removal or other termination of employment
of the Chief Executive Officer and following the making of a recommendation by
the Executive Committee as to a successor Chief Executive Officer as provided
in Subsection 4.1.5, the affirmative vote of at least a majority of the votes
entitled to be cast by the entire Board shall be required to elect a successor
Chief Executive Officer; provided, however, that the Board may elect as a
successor Chief Executive Officer only a person who is recommended for such
position by the Executive Committee.
3.6.2 Appointment of Other Officers. The officers of the Corporation (other
than the Chief Executive Officer) shall be elected or appointed, annually or at
such other time or times as the Board shall determine, by the Board or by the
Chief Executive Officer pursuant to authority delegated by the Board to the
Chief Executive Officer; provided, however, with respect to the initial
appointment of the Chief Operating Officer following the Effective Time, such
person shall be elected or appointed by the Board and shall not be found to be
unacceptable by two of the three Outside Public Directors.
3.6.3 Term of Office. Each officer of the Corporation shall hold office until
such officer's successor is chosen and qualifies or until such officer's
earlier death, resignation or removal. Any such officer may resign at any time
upon written notice to the Corporation. Such resignation shall take effect on
the date of receipt of such notice or at such later date as is therein
specified, and, unless otherwise specified, the acceptance of such resignation
shall not be necessary to make it effective. The resignation of such officer
shall be without prejudice to the contract rights of the Corporation, if any.
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3.6.4 Removal. Until the Termination Date, any officer elected or appointed
by the Board (including, without limitation, the Chief Executive Officer) may
be removed at any time, with or without cause, only by (a) the affirmative vote
of at least a majority of the votes entitled to be cast by the entire Board or
(b) the Chief Executive Officer pursuant to authority delegated by the Board
(by the same vote specified in clause (a) of this Subsection 3.6.4) to the
Chief Executive Officer.
3.6.5 Vacancy. Until the Termination Date, any vacancy occurring in any
office of the Corporation (other than the Chief Executive Officer) shall be
filled either by the Board or the Chief Executive Officer pursuant to authority
delegated by the Board to the Chief Executive Officer.
3.7 Certain Provisions with Respect to (a) the Class I Preferred Stock and
the Independent Directors and (b) the Class SAM Preferred Stock and the
Salaried/Management Employee Director.
(a) Notwithstanding any other provision of this Restated Certificate, (i)
the Corporation may issue Class I Preferred Stock only to an Independent
Director or the initial "Individual Parties" under the Class I
Stockholders' Agreement, and (ii) a holder of Class I Preferred Stock may
not sell, transfer, pledge or assign any shares of Class I Preferred Stock
or any interest therein, including, without limitation, by operation of law
or otherwise, other than to the Corporation or to another Independent
Director in accordance with the Class I Stockholders' Agreement. Any sale,
transfer, pledge or assignment of any shares of Class I Preferred Stock,
whether by operation of law or otherwise, in violation of this Subsection
3.7(a) shall be null and void and of no force and effect. The certificates
evidencing shares of Class I Preferred Stock shall bear a legend describing
the transfer restrictions set forth in this Subsection 3.7(a).
(b) Notwithstanding any other provision of this Restated Certificate, (i)
the Corporation may issue Class SAM Preferred Stock only to a
Salaried/Management Employee Director, a "Designated Shareholder" under the
Class SAM Stockholders' Agreement or the initial "Designated Nominee" under
the Class SAM Stockholders' Agreement, and (ii) a holder of Class SAM
Preferred Stock may not sell, transfer, pledge or assign any shares of
Class SAM Preferred Stock or any interest therein, including, without
limitation, by operation of law or otherwise, other than to the Corporation
or to another Salaried/Management Employee Director in accordance with the
Class SAM Stockholders' Agreement. Any sale, transfer, pledge or assignment
of any shares of Class SAM Preferred Stock, whether by operation of law or
otherwise, in violation of this Subsection 3.7(b) shall be null and void
and of no force and effect. The certificates evidencing shares of Class SAM
Preferred Stock shall bear a legend describing the transfer restrictions
set forth in this Subsection 3.7(b).
3.8 Section 203 of the GCL. Notwithstanding any provision of this Restated
Certificate to the contrary, if any provision of this Restated Certificate by
its terms purports to require for any vote of Stockholders required by Section
203 of the GCL (or any successor section thereto) a greater vote of
Stockholders than that specified in Section 203 of the GCL, then, to the
fullest extent required by law, the provision of Section 203 of the GCL that
requires such specific vote of the Stockholders shall govern and the provision
of this Restated Certificate that would require a greater vote of the
Stockholders shall not apply.
3.9 Employees' Purchase of Equity Securities. Until the Termination Date, any
repeal or modification of, or any amendment or supplement to, the terms of any
resolution of the Board or any of the Corporation's or any of its Subsidiaries'
policies, practices, procedures or employee benefit plans, which would increase
the aggregate amount of Common Equity that may be acquired or held by the
employee trusts or pension, retirement or other employee benefit plans
(including the ESOPs and the Existing Plans) sponsored by the Corporation or
any of its Subsidiaries ("Plans"), may be approved by the affirmative vote of
at least a majority of the votes entitled to be cast by the Directors present
at a meeting of the Board at which a quorum is present, provided that such vote
includes the affirmative vote of both Union Directors, but only if such
approval does not increase the maximum aggregate amount of Common Equity that
may be held by the Plans by an amount in excess of (a) the Adjusted Percentage
(as defined in Section 1.10 of the Recapitalization Agreement), minus (b) the
percentage of the Common Equity then held by the ESOPs. Until the Termination
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Date, any other repeal or modification of, or amendment or supplement to, the
terms of any such resolution of the Board or any of such policies, practices,
procedures or employee benefit plans that would in any manner materially affect
(other than as provided in the preceding sentence) the right or ability of the
employees of the Corporation or any of its Subsidiaries to purchase, directly
or indirectly, any Equity Securities, must be approved by the affirmative vote
of at least a majority of the votes entitled to be cast by the Directors
present at a meeting of the Board at which a quorum is present, which vote must
include the affirmative vote of both Union Directors and all of the Outside
Public Directors.
3.10 Construction of Special Voting Provisions. Except as otherwise expressly
provided in this Restated Certificate, where more than one Subsection of this
Section 3 is applicable to an event, transaction or other matter, the
provisions contained in each such Subsection shall apply independently to such
event, transaction or other matter.
3.11 Participation of Flight Attendants. Notwithstanding any other provision
of this Restated Certificate, until the Termination Date, the Corporation shall
not (a) amend in any way this Restated Certificate, (b) amend in any way the
Restated Bylaws, (c) issue any securities of the Corporation or any of its
Subsidiaries or (d) enter into or amend any contract, agreement, arrangement,
understanding or instrument to which the Corporation is a party, in connection
with the participation of the Association of Flight Attendants or any of its
members in any investment in the Corporation or any of its Subsidiaries, unless
the Labor Committee (as defined in Subsection 4.1.7), after complete
examination, with the assistance of outside financial and legal counsel, of
such proposed participation, shall determine (by the affirmative vote of at
least a majority of the votes entitled to be cast by the Directors present at a
meeting of such committee at which a quorum is present, which vote must include
the affirmative vote of at least one Outside Public Director) that the terms of
such participation are fair from a financial point of view to the holders of
the outstanding Common Stock of the Corporation.
Section 4. Board Committees.
4.1 Committees of the Board. Until the Termination Date (subject to
Subsection 2.13(b)), the following committees of the Board shall be constituted
and exist with the membership, functions, powers and authorizations set forth
below: Audit Committee, CAP Committee, Compensation Committee, Compensation
Administration Committee, Executive Committee, Independent Director Nomination
Committee, Labor Committee, Outside Public Director Nomination Committee and
Transaction Committee.
4.1.1 Audit Committee. The Audit Committee shall consist of the four
Independent Directors and the three Outside Public Directors or such fewer
number of such Directors (in as nearly as practicable that same proportion of
Independent Directors and Outside Public Directors) as shall qualify for audit
committee membership under applicable rules of the securities exchanges or
other similar trading market on which the Common Stock is traded. The function
of the Audit Committee shall be (a) to review the professional services and
independence of the Corporation's independent auditors and the scope of the
annual external audit as recommended by the independent auditors, (b) to ensure
that the scope of the annual external audit is sufficiently comprehensive, (c)
to review, in consultation with the independent auditors and the internal
auditors, the plan and results of the annual external audit, the adequacy of
the Corporation's internal control systems and the results of the Corporation's
internal audits, (d) to review, with management and the independent auditors,
the Corporation's annual financial statements, financial reporting practices
and the results of each external audit and (e) to undertake reasonably related
activities to those set forth in clauses (a) through (d) of this Subsection
4.1.1. The Audit Committee shall also have the authority to consider the
qualification of the Corporation's independent auditors, to make
recommendations to the Board as to their selection and to review and resolve
disputes between such independent auditors and management relating to the
preparation of the annual financial statements.
4.1.2 CAP Committee. The CAP Committee shall consist of eight Directors,
including four Public Directors, two Independent Directors and the two Union
Directors. Of the four Public Directors, three shall
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be Outside Public Directors and one shall be the Chief Executive Officer, if
the Chief Executive Officer is a Public Director. The two Independent Director
members shall be appointed by the Independent Director Nomination Committee,
which appointment shall require the affirmative vote of all of the votes
entitled to be cast by the Independent Directors. The function of the CAP
Committee shall be to oversee implementation of the Corporation's Competitive
Action Plan. The CAP Committee shall have the exclusive authority, acting for
and on behalf of the Board and consistent with the protection of the interests
of the holders of the Common Stock, to approve on behalf of the Corporation any
and all modifications of or amendments to the Competitive Action Plan;
provided, however, that to the extent such modifications or amendments relate
to changes to any provision of the Corporation's Collective Bargaining
Agreements, the two Union Directors on the CAP Committee shall not be
considered members of the CAP Committee in connection therewith and shall
neither be entitled to vote nor be counted in determining the presence of a
quorum of such committee in connection therewith. Notwithstanding the
foregoing, the Labor Committee shall have the exclusive authority on behalf of
the Board to approve on behalf of the Corporation any such modifications or
amendments to such Collective Bargaining Agreements. The CAP Committee shall
have the exclusive authority, acting for and on behalf of the Board, to approve
on behalf of the Corporation any and all modifications of or amendments to the
Salaried and Management Employee Investment; provided, however, that such
modifications or amendments must be approved by the affirmative vote of at
least a majority of the votes entitled to be cast by all the members of the CAP
Committee, which vote must include the affirmative vote of at least two Union
Directors and all of the Outside Public Directors.
4.1.3 Compensation Committee. The Compensation Committee shall consist of
seven Directors, including two Independent Directors, two Public Directors and
the three Employee Directors. Of the two Public Directors, one shall be an
Outside Public Director appointed by the Outside Public Director Nomination
Committee, and one shall be the Chief Executive Officer, if the Chief Executive
Officer is a Public Director. The two Independent Director members shall be
appointed by the Independent Director Nomination Committee, which appointment
shall require the affirmative vote of all of the votes entitled to be cast by
the Independent Directors. At all meetings of the Compensation Committee, the
presence of Directors entitled to cast at least a majority of the aggregate
number of votes entitled to be cast by all Directors on such committee,
including the presence of at least one Independent Director, shall be required
to constitute a quorum for the transaction of business. The principal functions
of the Compensation Committee shall be to review and recommend to the Board the
compensation and benefit arrangements to be established for the officers of the
Corporation and to review general policy matters relating to compensation and
benefit arrangements of non-union employees of the Corporation. The
Compensation Committee shall also administer the stock option plans and
executive compensation programs of the Corporation, including bonus and
incentive plans applicable to officers and key employees of the Corporation.
Subject to final approval by the Compensation Committee in accordance with
Section 4.1.4, the Compensation Committee may delegate to the Compensation
Administration Committee specific responsibilities with respect to the Chief
Executive Officer's compensation.
4.1.4 Compensation Administration Committee. The Compensation Administration
Committee shall consist of two Independent Directors and one Outside Public
Director, each of whom shall be (a) a "disinterested person" or "disinterested
administrator" or any related successor concepts under Rule 16b-3 (or any
successor provision) promulgated pursuant to Section 16 of the Exchange Act and
(b) an "outside director" or any related successor concepts under Section
162(m) (or any successor provision) of the Internal Revenue Code of 1986, as
amended from time to time (the "Code"). The Outside Public Director shall be
appointed by the Outside Public Director Nomination Committee. The two
Independent Directors shall be appointed by the Independent Director Nomination
Committee, which appointment shall require the affirmative vote of all the
votes entitled to be cast by the Independent Directors. The principal functions
of the Compensation Administration Committee shall be to administer the stock
option plans and executive compensation programs of the Corporation to the
extent such functions cannot or are not appropriate to be performed by the
Compensation Committee in light of any provision of the Code, the securities
laws, any other applicable law or any regulations promulgated under any of the
foregoing and to perform such
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responsibilities with respect to the Chief Executive Officer's compensation as
shall be delegated by the Compensation Committee; provided, however, that in
order for any action of the Compensation Administration Committee to be
effective, such action must also be approved by the Compensation Committee
(unless such approval would prevent a stock option plan that is intended to
qualify under Rule 16b-3 (or any successor provision) from receiving the
benefits of Rule 16b-3 or such approval would prevent an executive compensation
program (or a component thereof) that is intended to qualify for an exception
under such Section 162(m) (or any successor provision) from qualifying for such
exception).
4.1.5 Executive Committee. The Executive Committee shall consist of six
Directors, including two Independent Directors, two Public Directors and the
two Union Directors. Of the two Public Directors, one shall be an Outside
Public Director appointed by the Outside Public Director Nomination Committee,
and one shall be the Chief Executive Officer, if the Chief Executive Officer is
a Public Director. The two Independent Director members shall be appointed by
the Independent Director Nomination Committee, which appointment shall require
the affirmative vote of all of the votes entitled to be cast by the Independent
Directors. At all meetings of the Executive Committee, the presence of
Directors entitled to cast at least a majority of the aggregate number of votes
entitled to be cast by all Directors on such committee, including the presence
of at least one Independent Director, shall be required to constitute a quorum
for the transaction of business. Subject to the provisions of the GCL, and
except as otherwise expressly provided in this Restated Certificate, the
Executive Committee shall have and may exercise all of the powers of the Board
in the management and affairs of the Corporation; provided, however, that the
Executive Committee shall not be authorized to (a) take any action with respect
to any Extraordinary Matters, (b) take any action with respect to matters
specifically vested by this Restated Certificate in either the Audit Committee,
CAP Committee, Compensation Committee, Compensation Administration Committee,
Independent Director Nomination Committee, Labor Committee, Outside Public
Director Nomination Committee or Transaction Committee or (c) take any action
which under this Restated Certificate may be taken by the Board only with a
greater or additional vote of the Board or any class of Directors than that
provided for in Subsection 2.11, including, without limitation, any action that
is subject to the requirements of Section 3. In addition to the foregoing, in
the event of the death, resignation, removal or other termination of employment
of the Chief Executive Officer, the Executive Committee shall act as a search
committee in connection with and shall recommend to the Board the appointment
of a successor Chief Executive Officer. The affirmative vote of at least four
of the votes entitled to be cast by the members of the Executive Committee
(excluding the departing Chief Executive Officer, if he or she is a member of
the Executive Committee) shall be required for the Executive Committee to
recommend to the Board a successor Chief Executive Officer; provided, however,
that if the departing Chief Executive Officer is not a member of the Executive
Committee, the affirmative vote of at least five of the votes entitled to be
cast by the members of the Executive Committee shall be required for the
Executive Committee to recommend to the Board a successor Chief Executive
Officer.
4.1.6 Independent Director Nomination Committee. The Independent Director
Nomination Committee shall consist of seven Directors, consisting of the four
Independent Directors and the three Employee Directors. The function of the
Independent Director Nomination Committee shall be (a) to nominate, on behalf
of the Board, individuals satisfying the qualifications for Independent
Directors set forth in Subsection 2.4 to be the Board's nominees for election
by the holders of the Class I Preferred Stock to serve as Independent Directors
upon the expiration of the term of Independent Directors then in office, (b) to
appoint, on behalf of the Board, individuals satisfying such qualifications to
serve as Independent Directors upon the occurrence of a vacancy on the Board as
a result of the death, resignation, removal or disqualification of an
Independent Director during his or her term for the remainder of such term and
(c) to appoint Independent Directors to serve on certain Board Committees. The
vote of the Independent Director Nomination Committee required to approve any
such nomination or appointment shall be (i) the affirmative vote of at least a
majority of the votes entitled to be cast by the Independent Directors, plus
(ii) the affirmative vote of at least one Union Director.
4.1.7 Labor Committee. The Labor Committee shall consist of three or more
Directors, including one Outside Public Director, at least one Independent
Director and at least one other Director, as designated by
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the Board, but shall not include any Employee Directors. The Labor Committee
shall have the exclusive authority on behalf of the Board to approve on behalf
of the Corporation the entering into of, or any modification or amendment to, a
Collective Bargaining Agreement to which the Corporation or any of its
Subsidiaries is a party.
4.1.8 Outside Public Director Nomination Committee. The Outside Public
Director Nomination Committee shall consist of all three Outside Public
Directors. The function of the Outside Public Director Nomination Committee
shall be (a) to nominate on behalf of the Board individuals satisfying the
qualifications for Outside Public Directors set forth in Subsection 2.3 to be
the Board's nominees for election by the holders of the Common Stock to serve
as Outside Public Directors upon the expiration of the term of Outside Public
Directors, (b) to appoint on behalf of the Board individuals satisfying such
qualifications to serve as Outside Public Directors upon the occurrence of a
vacancy on the Board as a result of the death, resignation, removal or
disqualification of an Outside Public Director during his or her term for the
remainder of such term and (c) to appoint Outside Public Directors to serve on
certain Board Committees. In addition to any approval required by law or by
Subsection 3.1.1, any amendment or modification of the rights, powers,
privileges or qualifications of the Outside Public Directors or the Outside
Public Director Nomination Committee must be approved by either (a) all of the
Outside Public Directors or (b) the affirmative vote of at least a majority in
voting power of the outstanding capital stock of the Corporation entitled to
vote thereon not held by the trustees, in their capacity as such, under the
ESOPs, voting separately as a class.
4.1.9 Transaction Committee. The Transaction Committee shall consist of seven
Directors, consisting of the four Independent Directors and the three Outside
Public Directors. The function of the Transaction Committee shall be to
evaluate and advise the Board with respect to any proposed merger or
consolidation of the Corporation or any of its Subsidiaries with or into, the
sale, lease or exchange of all or substantially all of the Corporation's or any
of its Subsidiaries' property or assets to, or a Significant Labor-Related
Business Transaction (other than entering into or modifying, supplementing or
amending a Collective Bargaining Agreement, which shall be within the exclusive
authority of the Labor Committee) with, any Labor Affiliate.
4.1.10 Other Board Committees. Until the Termination Date, at any time, and
from time to time, the Board may, by resolution passed by the affirmative vote
of 80% of the votes entitled to be cast by the entire Board, which vote must
include the affirmative vote of at least one Union Director, designate one or
more other committees of the Board (an "Other Board Committee" and, together
with the Audit Committee, CAP Committee, Compensation Committee, Compensation
Administration Committee, Executive Committee, Independent Director Nomination
Committee, Labor Committee, Outside Public Director Nomination Committee and
Transaction Committee, collectively the "Board Committees"). Except as
otherwise provided in this Restated Certificate, any Other Board Committee, to
the extent permitted under the GCL and provided in a resolution of the Board
passed as aforesaid, shall have and may exercise any of the powers and
authority of the Board in the management of the business and affairs of the
Corporation; provided, however, that, until the Termination Date, no Other
Board Committee shall have the power or authority of the Board with respect to
(a) matters specifically vested by this Restated Certificate in either the
Audit Committee, CAP Committee, Compensation Committee, Compensation
Administration Committee, Executive Committee, Independent Director Nomination
Committee, Labor Committee, Outside Public Director Nomination Committee or
Transaction Committee, (b) Extraordinary Matters, (c) the appointment or
removal of officers of the Corporation or (d) any action which under this
Restated Certificate may be taken by the Board only with a greater or
additional vote of the Board or any class of Directors than that provided for
in Subsection 2.11, including, without limitation, any action that is subject
to the requirements of Section 3. Other Board Committees shall have such name
or names as may be determined from time to time by resolution adopted by the
Board. Except as otherwise provided in this Restated Certificate, until the
Termination Date each Other Board Committee shall consist of at least three
Directors, including at least one Independent Director, at least one Union
Director (unless both Union Directors consent that a Union Director need not be
a member of such Other Board Committee) and at least one other Director as
designated by the Board.
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4.1.11 Union Director Membership on Board Committees. Unless otherwise agreed
upon by both Union Directors, the Union Director membership on each of the
Board Committees on which only one Union Director serves shall be rotated
biennially between the Class IAM Director and the Class Pilot MEC Director.
4.1.12 Quorum and Voting Requirements of Board Committees. Except as
otherwise provided in this Restated Certificate, at all meetings of a Board
Committee the presence of Directors entitled to cast at least a majority of the
aggregate number of votes entitled to be cast by all Directors on such
committee shall constitute a quorum for the transaction of business; provided,
however, that, until the Termination Date, at all meetings of an Other Board
Committee, if less than all of the members of such Other Board Committee are
present, a quorum shall exist only if the number of votes constituting a
majority of the votes present is no greater than the sum of (a) one, plus (b)
the aggregate number of votes entitled to be cast by the Independent Directors
present at such meeting. Each Director serving on a Board Committee shall have
one vote; provided, however, that, until the Termination Date, at any time
there is a vacancy among the Independent Directors designated as members of a
Board Committee of which two or more Independent Directors are members, then
with respect to any action of such Board Committee while such vacancy exists,
each Independent Director serving on such Board Committee shall have a number
of votes equal to a fraction, (a) the numerator of which equals the number of
Independent Directors who would be serving on such committee if there were no
vacancies and (b) the denominator of which equals (i) the number of Independent
Directors who would be serving on such committee if there were no vacancies
minus (ii) the number of vacancies in the Independent Directors designated as
members of such committee. Except as otherwise provided in this Restated
Certificate, any act of a Board Committee shall require the affirmative vote of
a majority of the votes entitled to be cast by the Directors present at a
meeting of such Board Committee (at which a quorum is present) and entitled to
vote on the matter in question.
4.1.13 Effect of Board Committee Action. Any action that is authorized
pursuant to this Restated Certificate or pursuant to a Board resolution adopted
in accordance with Subsection 4.1.10 to be taken by a Board Committee and that
is duly taken by such committee in accordance therewith shall have the same
effect as if such action were taken by the Board.
4.1.14 Retainer of Counsel and Advisors. The CAP Committee and the
Transaction Committee shall have the authority at any time, and from time to
time, to retain independent counsel and independent financial advisors, at the
reasonable expense of the Corporation, for the purpose of advising such
committees in connection with the performance of their functions as described
in this Restated Certificate.
4.2 Board Committees Following the Termination Date.
(a) Upon the occurrence of the Termination Date, the Board may by the
affirmative vote of a majority of the votes entitled to be cast by the
entire Board designate one or more committees of the Board and provide in a
resolution of the Board passed as aforesaid the powers and functions of
such committees to the extent permitted under the GCL; provided, however,
that the number of Union Directors that shall be members of each such
committee shall be the same as the number of Union Directors that served
immediately prior to the Termination Date on the Board Committee, if any,
the function of which was substantially the same as such newly designated
committee.
(b) Unless otherwise agreed upon by both Union Directors, the Union
Director membership on each committee of the Board following the
Termination Date on which only one Union Director serves shall be rotated
annually between the Class IAM Director and the Class Pilot MEC Director.
SIXTH. (a) A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
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(b) Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer, of the Corporation or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official capacity
as a director, officer, employee or agent or in any other capacity while
serving as a director, officer, employee or agent, shall be indemnified and
held harmless by the Corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than said law permitted the Corporation to provide prior to such amendment),
against all expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators: provided, however, that, except
as provided in paragraph (b) hereof, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Article SIXTH shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition: provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expense incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Article SIXTH
or otherwise. The Corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
(c) If a claim under paragraph (b) of this Article SIXTH is not paid in full
by the Corporation within thirty days after a written claim has been received
by the Corporation, the claimant may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the Corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the applicable
standard of conduct.
(d) The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article SIXTH shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of this Restated
Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
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(e) The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under
the Delaware General Corporation Law.
SEVENTH. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate, in the manner now or
hereafter prescribed by the laws of Delaware and this Restated Certificate, and
all rights and powers conferred herein upon stockholders and directors are
granted subject to this reservation.
Upon this Restated Certificate of Incorporation becoming effective (the
"Effective Time"), each share of common stock, par value $5.00 per share, of
the Corporation ("Common Stock") outstanding immediately prior to the Effective
Time, and each share of Common Stock which immediately prior to the Effective
Time was held by the Corporation as treasury stock, shall be reclassified as
and converted into the following: (i) 0.5 shares of common stock, par value
$0.01 per share, of the Corporation (the "New Shares") and (ii) one one-
thousandth of a share of Series D Redeemable Preferred Stock, par value $.01
per share, of the Corporation; provided, however, that no fractional New Shares
shall be issued, and in lieu thereof the Corporation shall make cash payments
as provided in Section 1.5(f) of the Agreement and Plan of Recapitalization,
dated as of March 25, 1994, as amended from time to time, among the Corporation
and the other parties thereto.
I, the undersigned officer of UAL Corporation, a corporation of the State of
Delaware, Hereby Certify that the foregoing is a true, correct and complete
copy of the Restated Certificate of Incorporation of said Corporation as at
present in force.
In Witness Whereof, I have hereunto subscribed by name and affixed the seal
of this Corporation this day of 1994.
UAL Corporation
_____________________________________
Name: Title:
Attest:
_____________________________________
Name: Title:
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AMENDED AND RESTATED BYLAWS
OF
UAL CORPORATION
----------------
ARTICLE 1
Definitions
As used in these Restated Bylaws, unless the context otherwise requires, the
following terms shall have the following meanings:
1.1 "Assistant Secretary" means an Assistant Secretary of the Corporation.
1.2 "Assistant Treasurer" means an Assistant Treasurer of the Corporation.
1.3 "Board" means the Board of Directors of the Corporation.
1.4 "Board Committees" has the meaning defined in the Restated Certificate.
1.5 "Chairman" means the Chairman of the Board of Directors of the
Corporation.
1.6 "Chief Executive Officer" means the Chief Executive Officer of the
Corporation.
1.7 "Corporation" means UAL corporation.
1.8 "Director" means a director of the Corporation.
1.9 "Effective Time" has the meaning defined in the Restated Certificate.
1.10 "entire Board" means all Directors of the Corporation who would be in
office if there were no vacancies.
1.11 "General Counsel" means the General Counsel of the Corporation.
1.12 "GCL" means the General Corporation Law of the State of Delaware, as
amended from time to time.
1.13 "Management Public Director" has the meaning defined in the Restated
Certificate.
1.14 "President" means the President of the Corporation.
1.15 "Restated Certificate" means the Restated Certificate of Incorporation
of the Corporation, as amended from time to time.
1.16 "Restated Bylaws" means the Amended and Restated Bylaws of the
Corporation, as amended from time to time.
1.17 "Secretary" means the Secretary of the Corporation.
1.18 "Stockholders" means the stockholders of the Corporation.
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1.19 "Subsidiary" has the meaning defined in the Restated Certificate.
1.20 "Substantive Amendment" has the meaning defined in the Restated
Certificate.
1.21 "Termination Date" has the meaning defined in the Restated Certificate.
1.22 "Treasurer" means the Treasurer of the Corporation.
1.23 "Union Directors" has the meaning defined in the Restated Certificate.
1.24 "Vice President" means a Vice President of the Corporation.
ARTICLE 2
Stockholders' Meetings
2.1 Annual Meeting. A meeting of Stockholders shall be held annually for the
election of Directors and the transaction of other business at an hour and
date as shall be determined by the Board and designated in the notice of
meeting.
2.2 Special Meetings.
(a) Until the Termination Date, a special meeting of Stockholders may be
called at any time by (i) the Board, (ii) any two Directors, (iii) the Chief
Executive Officer or (iv) the Secretary. At any special meeting of
Stockholders only such business may be transacted as is related to the purpose
or purposes of such meeting set forth in the notice thereof given pursuant to
Section 2.4.*
(b) Upon the occurrence of the Termination Date, subject to the Restated
Certificate, a special meeting of the Stockholders may be called only by the
Board, and at an hour and date as shall be determined by them.
2.3 Place of Meetings. All meetings of Stockholders shall be held at such
places, within or without the State of Delaware, as may from time to time be
fixed by the Board or as specified or fixed in the respective notices.
2.4 Notices of Stockholders' Meetings. Except as otherwise provided in
Section 2.5 or otherwise required by the Restated Certificate or applicable
law, written notice of each meeting of Stockholders, whether annual or
special, shall be given to each Stockholder required or permitted to take any
action at or entitled to notice of such meeting not less than ten nor more
than sixty days before the date on which the meeting is to be held, by
delivering such notice to him, personally or by mail. If mailed, such notice
shall be deemed to be given when deposited in the United States mail, with
postage prepaid, directed to the Stockholder at his address as it appears on
the stock books of the Corporation. Every notice of a meeting of Stockholders
shall state the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called.
2.5 Waivers of Notice. Notwithstanding any other provision in these Restated
Bylaws, notice of any meeting of Stockholders shall not be required as to any
Stockholder who shall attend such meeting in person or be represented by
proxy, except when such Stockholder attends such meeting for the express
purpose of objecting at the beginning of the meeting to the transaction of any
business at such meeting because the meeting is not lawfully called or
convened. If any Stockholder shall, in person or represented by proxy, waive
notice of any meeting, whether before or after such meeting, notice thereof
shall not be required as to such Stockholder.
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* An asterisk indicates those Sections or Subsections of these Restated Bylaws
the Substantive Amendment of which will require, until the Termination Date,
a special vote of either the Board or the Stockholders, as provided in the
Restated Certificate.
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2.6 Quorum Requirements and Required Vote at Stockholder Meetings.
(a) Except as otherwise required by applicable law, until the Termination
Date, the quorum requirements at any meeting of Stockholders shall be as set
forth in the Restated Certificate.*
(b) Except as otherwise required by applicable law, the Restated Certificate
or these Restated Bylaws, upon the occurrence of the Termination Date, at all
meetings of Stockholders the presence, in person or represented by proxy, of
the holders of outstanding shares representing at least one-third of the total
voting power entitled to vote at a meeting of Stockholders shall constitute a
quorum for the transaction of business; provided, however, that where a
separate vote of a class or classes or series of stock is required, the
presence in person or represented by proxy of the holders of outstanding shares
representing at least one-third of the total voting power of all outstanding
shares of such class or classes or series shall constitute a quorum thereof
entitled to take action with respect to such separate vote.
(c) Except as otherwise required by applicable law, the Restated Certificate
or these Restated Bylaws, including, without limitation, Section 3.3 hereof,
the affirmative vote of at least a majority in voting power of the shares
present in person or represented by proxy and entitled to vote thereon at a
meeting of Stockholders at which a quorum is present shall be the act of the
Stockholders.*
(d) The holders of a majority in voting power of the shares entitled to vote
and present in person or represented by proxy at any meeting of Stockholders,
whether or not a quorum is present, may adjourn such meeting to another time
and place. At any such adjourned meeting at which a quorum shall be present,
any business may be transacted that might have been transacted at the meeting
as originally called. Unless otherwise required by applicable law, the Restated
Certificate or these Restated Bylaws, no notice of an adjourned meeting need be
given.
2.7 Proxies. Each Stockholder entitled to vote at a meeting of Stockholders
may authorize another person or persons to act for him by proxy, but such proxy
shall no longer be valid eleven months after the date of such proxy.
2.8 Judges. At every meeting of Stockholders, the votes shall be conducted by
two judges appointed for that purpose by the Board or, failing such
appointment, appointed by the affirmative vote of a majority in voting power of
the Stockholders present in person or represented by proxy at the meeting. All
questions with respect to the qualification of voters, the validity of the
proxies and the acceptance or rejection of votes shall be decided by such
judges. Before acting at any meeting, the judges shall be sworn faithfully to
execute their duties with strict impartiality and according to the best of
their ability. If any judge appointed to act at any meeting shall fail to be
present or shall decline to act, the Stockholders at the meeting present in
person or represented by proxy shall, by the affirmative vote of the holders of
at least a majority in voting power of the stock present in person or
represented by proxy and entitled to vote thereon, appoint another judge to act
in his place.
2.9 Conduct of Stockholders' Meetings. The Chairman or, in his absence, a
Director or officer designated by the Chairman, shall preside at all meetings
of Stockholders and may establish such rules of procedure for conducting the
meetings as he deems fair and reasonable.
ARTICLE 3
Board of Directors
3.1 Number, Composition and Term of Office. The number of Directors on the
Board, the composition of the Board and term of office of Directors shall be as
provided in the Restated Certificate.*
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3.2 Nomination of the Chief Executive Officer as a Management Public
Director. Until the Termination Date, subject to the fiduciary obligations of
the Directors, one of the Management Public Directors nominated by the Board in
accordance with Section 2.5 of Article Fifth of the Restated Certificate shall
be the Chief Executive Officer.*
3.3 Election. Except as otherwise required by applicable law or the Restated
Certificate, and notwithstanding Section 2.6(c) hereof, Directors shall be
elected by a plurality of the votes cast at a meeting of Stockholders by the
holders of shares entitled to vote on their election.*
3.4 Place of Meetings. Meetings of the Board may be held either within or
without the State of Delaware.
3.5 Organization Meeting. The Board shall meet as soon as practicable after
each annual meeting of Stockholders at the place of such annual meeting for the
purpose of organization and the transaction of other business. No notice of
such meeting of the Board shall be required. Such organization meeting may be
held at any other time or place specified in a notice given as hereinafter
provided for special meetings of the Board, or in a consent and waiver of
notice thereof, signed by all of the Directors.
3.6 Stated Meetings. The Board may from time to time, by resolution adopted
by the affirmative vote of at least a majority of the votes entitled to be cast
by the entire Board, appoint the time and place for holding stated meetings of
the Board; and such meetings shall thereupon be held at the time and place so
appointed, without the giving of any special notice with regard thereto. In
case the day appointed for a stated meeting shall fall upon a legal holiday,
such meeting shall be held on the next following day, not a legal holiday, at
the regularly appointed hour. Any and all business may be transacted at any
stated meeting; provided, however, no business may be transacted at any stated
meeting which under the Restated Certificate may be taken by the Board only
with a greater or additional vote of the Board or any class of Directors than
that provided for in Section 2.11 of Article Fifth of the Restated Certificate,
including, without limitation, any business that is subject to Section 3 of
Article Fifth of the Restated Certificate, unless a description of such
business is set forth in a notice of meeting given in accordance with Section
3.8.*
3.7 Special Meetings. Special meetings of the Board shall be held whenever
called by any two Directors or by the Chairman, or, in the event that the
office of the Chairman is vacant, by the President. Notice of a special meeting
shall set forth a description of such meeting and be sent to the Directors as
provided in Section 3.8. The only business that may be transacted at such
meeting shall be the business as described in such notice.*
3.8 Notices of Board Meetings. Notice of any special meeting or, to the
extent required pursuant to Section 3.6, stated meeting shall be sent to each
Director at his residence or usual place of business either (a) by reputable
overnight delivery service in circumstances to which such service guarantees
next day delivery, not later than five business days before the day of such
meeting, or (b) by facsimile, telex, telegram or electronic mail, not later
than two business days before the day of such meeting. If sent by overnight
delivery service, such notice shall be deemed to be given when delivered to
such service; if sent by facsimile, telex, telegram or electronic mail, such
notice shall be deemed to be given when transmitted. Notice of any meeting of
the Board need not however be given to any Director, if waived by him in
writing or if, subject to applicable law, he shall be present at the meeting.
Any meeting of the Board shall be a legal meeting without any notice thereof
having been given if all of the Directors shall be present thereat, except when
a Director attends a meeting for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened.*
3.9 Quorum and Manner of Acting.
(a) Until the Termination Date, the quorum requirements for meetings of the
Board and the vote required for Board action shall be as provided in the
Restated Certificate.*
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(b) Upon the occurrence of the Termination Date, except as otherwise required
by applicable law, the Restated Certificate or these Restated Bylaws, the
presence of at least one-third of the Directors in office at the time of any
organization, stated or special meeting of the Board shall constitute a quorum
for the transaction of business; and, except as otherwise required by
applicable law, the Restated Certificate or these Restated Bylaws, the
affirmative vote of a majority of the votes entitled to be cast by the
Directors present at any meeting at which a quorum is present shall be the act
of the Board. In the absence of a quorum, the affirmative vote of a majority of
the votes entitled to be cast by the Directors present may adjourn any meeting,
from time to time, until a quorum is present.
3.10 Telephone Meetings. Directors or members of any committee of the Board
may participate in a meeting of the Board or of such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in
a meeting pursuant to this Section 3.10 shall constitute presence in person at
such meeting.*
3.11 Chairman of the Board Pro Tempore. In the absence of both the Chairman
and the Chief Executive Officer at any meeting of the Board, the Board may
appoint from among its members a Chairman of the Board pro tempore, who shall
preside at such meeting, except where otherwise provided by law.
3.12 Removal of Directors.
(a) Until the Termination Date, any Director may be removed without cause or
for cause as provided in the Restated Certificate.*
(b) Upon the occurrence of the Termination Date, (i) any Director may be
removed without cause at any time only by the affirmative vote of the holders
of a majority in voting power of the shares of the class or classes or series
of stock that are entitled to vote for the election of such Director, voting
separately as a class or series, and (ii) any Director or the entire Board may
be removed for cause as provided under the GCL.
3.13 Additional Qualification of Directors. No person shall be eligible for
election as a Director if at the time of such election such person is 70 or
more years of age.
3.14 Vacancies on the Board.
(a) Until the Termination Date, vacancies on the Board may only be filled as
provided in the Restated Certificate.*
(b) Upon the occurrence of the Termination Date, except as otherwise provided
in the Restated Certificate, any vacancy on the Board caused by the removal,
either for or without cause, of a Director may be filled by the Stockholders
entitled to vote thereon at the meeting at which such Director is removed or at
any subsequent meeting. Upon the occurrence of the Termination Date, except as
otherwise provided in the Restated Certificate, in case of any increase in the
authorized number of Directors, unless such increase is created by reason of
the failure to pay dividends on some class or classes or series of stock of the
Corporation, or of any vacancy created by the death or resignation of a
Director, unless such vacancy arises in any Directorship created by reason of a
failure to pay dividends on some class or classes or series of stock of the
Corporation, then, the additional Director or Directors may be elected, or, as
the case may be, the vacancy or vacancies may be filled, either (a) by the
Board by the affirmative vote of a majority of the votes entitled to be cast by
the Directors then in office, although less than a quorum, or (b) by a
plurality of the votes cast by the Stockholders entitled to vote thereon,
either at an annual meeting or at a special meeting called for such purpose at
which a quorum is present.
3.15 Directors' Fees. The Board shall have authority to determine, from time
to time, the amount of compensation that shall be paid to its members for
attendance at meetings of the Board or of any committee of the Board, which
compensation may be payable currently or deferred.
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ARTICLE 4
Board Committees
4.1 Designation.
(a) Until the Termination Date, the designation of Board Committees shall be
as provided in the Restated Certificate.*
(b) So far as practicable, members of each committee of the Board shall be
appointed annually at the organization meeting of the Board.
(c) Upon the occurrence of the Termination Date, except as otherwise provided
in the Restated Certificate, the Board may, by resolution adopted by the
affirmative vote of at least a majority of the votes entitled to be cast by the
entire Board designate one or more committees of the Board, each such committee
to consist of one or more Directors. Upon the occurrence of the Termination
Date, except as otherwise provided in the Restated Certificate, unless sooner
discharged by the affirmative vote of a majority of the votes entitled to be
cast by the entire Board, members of each committee of the Board shall hold
office until the organization meeting of the Board in the next subsequent year
and until their respective successors are appointed. Each committee of the
Board shall have power to appoint one of its members to act as chairman of such
committee by the affirmative vote of a majority of the votes entitled to be
cast by all of the members of such committee.
4.2 Meetings.
(a) Stated meetings of any committee of the Board shall be held at such times
and at such places as shall be fixed, from time to time, by resolution adopted
by the Board or by the affirmative vote of a majority of the votes entitled to
be cast by the members of such committee of the Board and upon notification
pursuant to Section 4.3 to all the members of such committee. In the case the
day appointed for a stated meeting shall fall upon a legal holiday, such
meeting shall be held on the next following day, not a legal holiday, at the
appointed hour. Any and all business may be transacted at any stated meeting of
any committee of the Board; provided, however, no business may be transacted at
any stated meeting of any committee of the Board which under the Restated
Certificate may be taken by such committee only with a greater or additional
vote of such committee or any class of Directors than that provided for in
Section 4.1.12 of Article Fifth of the Restated Certificate, unless a
description of such business is set forth in a notice of meeting given in
accordance with Section 4.3.*
(b) Special meetings of any committee of the Board may be called at any time
by the chairman of such committee or by any two members of the committee.
Notice of a special meeting of any committee of the Board shall set forth a
description of the business to be transacted at such meeting and be sent to the
members of such committee of the Board as provided in Section 4.3.
The only business that may be transacted at such meeting shall be the business
as described in such notice.*
4.3 Notice of Board Committee Meetings. Notice of any special meeting of any
committee of the Board or, to the extent required pursuant to Section 4.2(a),
stated meeting of any committee of the Board shall be sent to each member of
such committee at his residence or usual place of business either (a) by
reputable overnight delivery service in circumstances to which such service
guarantees next day delivery, not later than five business days before the day
of such meeting, or (b) by facsimile, telex, telegram or electronic mail, not
later than two business days before the day of such meeting. If sent by
overnight delivery service, such notice shall be deemed to be given when
delivered to such service; if sent by facsimile, telex, telegram or electronic
mail, such notice shall be deemed to be given when transmitted. Notice of any
meeting of a committee of the Board need not however be given to any member of
such committee, if waived by him in writing or if, subject to applicable law,
he shall be present at the meeting. Any meeting of a committee of the Board
shall be a
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legal meeting without any notice thereof having been given if all of the
members shall be present thereat except when a Director attends a meeting for
the express purpose of objecting at the beginning of the meeting to the
transaction of any business because the meeting is not lawfully called or
convened.*
4.4 Place of Meetings. Meetings of any committee of the Board may be held
either within or without the State of Delaware.
4.5 Quorum and Voting Requirements of Board Committees.
(a) Until the Termination Date, the quorum and voting requirements of Board
Committee meetings shall be as provided in the Restated Certificate.*
(b) Upon the occurrence of the Termination Date, the presence of Directors
entitled to cast at least a majority of the aggregate number of votes entitled
to be cast by all Directors on a committee of the Board shall constitute a
quorum for the transaction of business, and any act of a committee of the Board
shall require the affirmative vote of at least a majority of the votes entitled
to be cast by the Directors present at a meeting of such committee at which a
quorum is present.
(c) Upon the occurrence of the Termination Date, members of a committee of
the Board present at a meeting of such committee, whether or not constituting a
quorum, may unanimously appoint other Directors to act at such meeting in place
of absent members (other than Employee Directors). The members of any committee
of the Board shall act only as a committee of the Board, and the individual
members of the Board shall have no power as such.
4.6 Records. Each Board Committee shall keep a record of its acts and
proceedings and shall report the same, from time to time, to the Board. The
Secretary, or, in his absence, an Assistant Secretary, shall act as secretary
to each Board Committee, or a Board Committee may, in its discretion, appoint
its own secretary.
4.7 Vacancies.
(a) Until the Termination Date, the filling of vacancies on any Board
Committee shall be as provided in the Restated Certificate.*
(b) Upon the occurrence of the Termination Date, except as otherwise provided
in the Restated Certificate, any vacancy in any committee of the Board shall be
filled by the affirmative vote of a majority of the votes entitled to be cast
by the entire Board.
4.8 Executive Committee.
(a) Until the Termination Date, the composition, function and powers of the
Executive Committee shall be as provided in the Restated Certificate.*
(b) Upon the occurrence of the Termination Date, in addition to any
requirements set forth in the Restated Certificate, an Executive Committee
shall be appointed, to consist of the Chairman, ex officio, and two or more
other Directors; provided, however, that (i) each of the Union Directors shall
be members of the Executive Committee and (ii) at least a majority of the
Executive Committee shall consist of Directors who are neither officers nor
employees of the Corporation or of any of its affiliated corporations.
(c) Upon the occurrence of the Termination Date, subject to the provisions of
the GCL, the Executive Committee shall have and may exercise all the powers of
the Board in the management of the business and affairs of the Corporation,
including, without limitation, the power to authorize the seal of the
Corporation to be affixed to all papers that may require it; provided, that
neither the Executive Committee nor any other committee of the Board shall be
authorized to (i) elect any officer designated as such in Section 5.1 or to
fill any vacancy in any such office, (ii) designate the Chief Executive
Officer, (iii) fill any vacancy in the Board or
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any newly created Directorship, (iv) amend these Restated Bylaws or (v) take
any action that under these Restated Bylaws is required to be taken by vote of
a specified proportion of the entire Board or of the Directors at the time in
office.
(d) Upon the occurrence of the Termination Date, subject to any provision in
the Restated Certificate, any action herein authorized to be taken by the
Executive Committee and which is duly taken by it in accordance herewith shall
have the same effect as if such action were taken by the Board. Upon the
occurrence of the Termination Date, with the exception of members who are also
elected officers designated as such in Section 5.1, no member may serve on the
Executive Committee more than three consecutive years, but may again serve
after an intervening period of at least one year.
ARTICLE 5
Officers, Employees and Agents: Powers and Duties
5.1 Officers.
(a) Until the Termination Date, to the extent provided therein, the
appointment of officers of the Corporation shall be as provided in the Restated
Certificate.*
(b) Until the Termination Date, to the extent not otherwise provided in the
Restated Certificate, and upon the occurrence of the Termination Date, the
officers of the Corporation, who shall be elected by the Board, may be a
Chairman of the Board (who shall be a Director) and a Treasurer, and shall be a
Chief Executive Officer (who shall be a Director), a President, one or more
Vice Presidents, a General Counsel and a Secretary. The Board may also elect
such other officers and select such other employees or agents as, from time to
time, may appear to be necessary or advisable in the conduct of the affairs of
the Corporation. Any officer may also be elected to another office or offices.*
5.2 Term of Office.
(a) Until the Termination Date, the term of office for officers of the
Corporation shall be as provided in the Restated Certificate.*
(b) Upon the occurrence of the Termination Date, so far as practicable, each
officer shall be elected at the organization meeting of the Board in each year,
and shall hold office until the organization meeting of the Board in the next
subsequent year and until his successor is chosen or until his earlier death,
resignation or removal in the manner hereinafter provided.
5.3 Removal of Officers.
(a) Until the Termination Date, removal of officers of the Corporation shall
be as provided in the Restated Certificate; provided, however, that the term of
office of the Chief Executive Officer (other than the first Chief Executive
Officer following the Effective Time) shall automatically terminate if
following his appointment or proposed appointment as Chief Executive Officer he
is not elected as a Management Public Director by the Stockholders entitled to
vote thereon at the first meeting for the election of Directors at which he is
eligible for nomination as a Management Public Director under Subsection 2.3 of
Article Fifth of the Restated Certificate. Such automatic termination shall not
be applicable in the event the Chief Executive Officer is not elected as a
Management Public Director by the Stockholders entitled to vote thereon at any
meeting following such first meeting.*
(b) Upon the occurrence of the Termination Date, any officer may be removed
at any time, either for or without cause, by the affirmative vote of at least a
majority of the votes entitled to be cast by the entire Board, at any meeting
called for that purpose.
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5.4 Vacancies.
(a) Until the Termination Date, vacancies in any office of the Corporation
shall be filled as provided in the Restated Certificate.*
(b) Upon the occurrence of the Termination Date, if any vacancy occurs in any
office, the Board may elect a successor to fill such vacancy for the remainder
of the term.
5.5 Chief Executive Officer. The Chief Executive Officer shall have general
and active control of the business and affairs of the Corporation. He shall
have general power (a) to execute bonds, deeds and contracts in the name of the
Corporation, (b) to affix the corporate seal, (c) to sign stock certificates,
(d) subject to the provisions of the Restated Certificate, these Restated
Bylaws and the approval of the Board, to select all employees and agents of the
Corporation whose selection is not otherwise provided for and to fix the
compensation thereof, (e) to remove or suspend any employee or agent who shall
not have been selected by the Board, (f) to suspend for cause, pending final
action by the Board any employee or agent who shall have been selected by the
Board and (g) to exercise all the powers usually and customarily performed by
the chief executive officer of a corporation.
5.6 Chairman of the Board.
(a) The Board may elect a Director as Chairman of the Board. Until the
Termination Date, so long as the Chief Executive Officer is a Director, he
shall also be the Chairman of the Board.*
(b) The Chairman shall preside at all meetings of Stockholders and of the
Board at which he may be present. The Chairman shall have such other powers and
duties as he may be called upon by the Board to perform.
5.7 President. The President, if not designated as Chief Executive Officer of
the Corporation, shall perform such duties as are delegated by the Board, the
Chairman or the Chief Executive Officer. In the event of the absence,
disability or vacancy in the office of the Chief Executive Officer, the
President shall act in the place of the Chief Executive Officer with authority
to exercise all his powers and perform his duties. In the event no Treasurer is
elected, the President shall also have the duties of the Treasurer specified in
these Restated Bylaws.
5.8 Vice Presidents and Other Officers. The several Vice Presidents and other
elected officers, including, without limitation, the General Counsel, shall
perform all such duties and services as shall be assigned to or required of
them, from time to time, by the Board, or the Chief Executive Officer,
respectively. In the event of the absence or disability of both the Chairman
and the Chief Executive Officer, the President may designate one of the several
Vice Presidents to act in his place with authority to exercise all of his
powers and perform his duties, provided that the Board may change such
designation, or if the President fails or is unable to make such designation,
the Board may make such designation at a regular or special meeting called for
that purpose.
5.9 Secretary. The Secretary shall attend to the giving of notice of all
meetings of Stockholders and the Board and shall keep and attest true records
of all proceedings thereat. He shall have charge of the corporate seal and have
authority to attest any and all instruments or writings to which the same may
be affixed. He shall keep and account for all books, documents, papers and
records of the Corporation, except those which are hereinafter directed to be
in charge of the Treasurer. He shall have authority to sign stock certificates
and shall generally perform all the duties usually appertaining to the office
of secretary of a corporation. In the absence of the Secretary, an Assistant
Secretary or Secretary pro tempore shall perform his duties.
5.10 Treasurer. The Treasurer, if any, shall be responsible for the
collection, receipt, care, custody and disbursement of the funds of the
Corporation and shall deposit or cause to be deposited all funds of the
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Corporation in and with such depositaries as the Board shall, from time to
time, direct. He shall have the care and custody of all securities owned by the
Corporation and shall deposit such securities with such banks or in such safe
deposit vaults, and under such controls, as the Board shall, from time to time,
direct. He shall disburse funds of the Corporation on the basis of vouchers
properly approved for payment by the controller of the Corporation or his duly
authorized representative. He shall be responsible for the maintenance of
detailed records of cash and security transactions and shall prepare such
reports thereof as may be required. He shall have the power to sign stock
certificates and to endorse for deposit or collection or otherwise all checks,
drafts, notes, bills of exchange or other commercial paper payable to the
Corporation and to give proper receipts or discharges therefor. He shall have
such other duties as are commonly incidental to the office of treasurer of a
corporation. In the absence of the Treasurer, an Assistant Treasurer shall
perform his duties.
5.11 Additional Powers and Duties. In addition to the foregoing especially
enumerated duties and powers, the officers of the Corporation shall perform
such other duties and exercise such further powers as may be provided in these
Restated Bylaws or as the Board may, from time to time, determine or as may be
assigned to them by any competent superior officer.
5.12 Compensation. Except as otherwise provided in the Restated Certificate,
the compensation of all officers of the Corporation shall be fixed, from time
to time, by the Board.
ARTICLE 6
Stock and Transfers of Stock
6.1 Stock Certificates. Every Stockholder shall be entitled to a certificate
signed by the Chairman or the President or a Vice President, and by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary, certifying the number of shares owned by such Stockholder in the
Corporation. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, Transfer Agent or Registrar who has signed or
whose facsimile signature has been placed upon a certificate shall cease to be
such officer, Transfer Agent or Registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer, Transfer Agent or Registrar at the date of issuance.
6.2 Transfer Agents and Registrars. The Board may, in its discretion, appoint
responsible banks or trust companies in the Borough of Manhattan, in the City
of New York, State of New York, and in such other city or cities as the Board
may deem advisable, from time to time, to act as Transfer Agents and Registrars
of the stock of the Corporation; and, when such appointments shall have been
made, no stock certificate shall be valid until countersigned by one of such
Transfer Agents and registered by one of such Registrars.
6.3 Transfers of Stock. Except as otherwise provided in the Restated
Certificate, and subject to any other transfer restriction applicable thereto,
shares of stock may be transferred by delivery of the certificates therefor,
accompanied either by an assignment in writing on the back of the certificates
or by written power of attorney to sell, assign and transfer the same, signed
by the record holder thereof; but no transfer shall affect the right of the
Corporation to pay any dividend upon the stock to the holder of record thereof,
or to treat the holder of record as the holder in fact thereof for all
purposes, and no transfer shall be valid, except between the parties thereto,
until such transfer shall have been made upon the books of the Corporation.
6.4 Lost Certificates. In case any certificate of stock shall be lost, stolen
or destroyed, the Board, in its discretion, may authorize the issuance of a
substitute certificate in place of the certificate so lost, stolen or destroyed
and may cause such substitute certificate to be countersigned by the
appropriate Transfer Agent (if any) and registered by the appropriate Registrar
(if any); provided, that, in each such case, the applicant for a substitute
certificate shall furnish to the Corporation and to such of its Transfer Agents
and Registrars as
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may require the same, evidence to their satisfaction, in their discretion, of
the loss, theft or destruction of such certificate and of the ownership
thereof, and also such security or indemnity as may be required by them.
6.5 Record Date.
(a) In order that the Corporation may determine the Stockholders entitled to
notice of or to vote at any meeting of Stockholders or any adjournment thereof,
or, subject to applicable law, to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board is authorized, from time to time,
to fix, in advance, a record date, which shall not be more than sixty nor less
than ten days before the date of such meeting, nor more than sixty days prior
to any other action.
(b) A determination of Stockholders of record entitled to notice of or to
vote at a meeting of Stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board may fix a new record date for the
adjourned meeting.
ARTICLE 7
Miscellaneous
7.1 Fiscal Year. The fiscal year of the Corporation shall be the calendar
year.
7.2 Surety Bonds. The Treasurer, each Assistant Treasurer and such other
officers or agents of the Corporation as the Board may direct, from time to
time, shall be bonded for the faithful performance of their duties in such
amounts and by such surety companies as the Board may determine. The premiums
on such bonds shall be paid by the Corporation and the bonds so furnished shall
be in the custody of the Chief Executive Officer.
7.3 Signature of Negotiable Instruments. All bills, notes, checks or other
instruments for the payment of money shall be signed or countersigned by such
officer or officers and in such manner as, from time to time, may be prescribed
by resolution (whether general or special) of the Board.
ARTICLE 8
Amendments
8.1 Amendment of these Restated Bylaws Prior to the Termination Date. Until
the Termination Date, notwithstanding that a lesser or no vote of either the
Board or the Stockholders may be required by applicable law, and in addition to
any other vote of the Board or the Stockholders required by applicable law or
the Restated Certificate, (a) any Substantive Amendment to these Restated
Bylaws shall be effected as provided in the Restated Certificate and (b) any
amendment or supplement to or modification of these Restated Bylaws that is not
a Substantive Amendment and any new bylaw provisions not inconsistent with any
provision of the Restated Certificate, these Restated Bylaws or applicable law
may be effected or adopted, as the case may be, either (i) by the affirmative
vote of at least a majority of the votes entitled to be cast by the entire
Board, or (ii) by the affirmative vote of the holders of at least 75% in voting
power of the stock present in person or represented by proxy and entitled to
vote thereon, at an annual meeting of Stockholders, or at a special meeting
thereof, at which a quorum is present, the notice of which meeting shall
include the form of the proposed amendment or supplement to or modification of
these Restated Bylaws or of the proposed new bylaws, or a summary thereof.*
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8.2 Amendment of these Restated Bylaws Upon the Occurrence of the Termination
Date. Upon the occurrence of the Termination Date, except as herein otherwise
expressly provided, these Restated Bylaws may be altered or repealed, and new
bylaws, not inconsistent with any provision of the Restated Certificate or
applicable law, may be adopted, either (a) by the affirmative vote of at least
a majority of the votes entitled to be cast by the entire Board, or (b) by the
affirmative vote of the holders of at least a majority in voting power of the
stock present in person or represented by proxy and entitled to vote thereon,
at an annual meeting of Stockholders, or at a special meeting thereof, at which
a quorum is present, the notice of which meeting shall include the form of the
proposed amendment or supplement to or modification of these Restated Bylaws or
of the proposed new bylaws, or a summary thereof.
I, The Undersigned, Secretary of UAL CORPORATION, a corporation of the State
of Delaware, HEREBY CERTIFY that the foregoing is a true, correct and complete
copy of the Restated Bylaws of said Corporation as at present in force.
In Witness Whereof, I have hereunto subscribed my name and affixed the seal
of this Corporation this day of , 1994.
Secretary
UAL CORPORATION
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware empowers each of the
Registrants to indemnify, subject to the standards herein prescribed, any
person in connection with any action, suit or proceeding brought or threatened
by reason of the fact that such person is or was a director, officer, employee
or agent of a Registrant or was serving as such with respect to another
corporation or other entity at the request of a Registrant. Article Sixth (b)
of each of the Registrants' Restated Certificates of Incorporation provides
that each person who was or is made a party to (or is threatened to be made a
party to) or is otherwise involved in any action, suit or proceeding by reason
of the fact that such person is or was a director or officer of the applicable
Registrant shall be indemnified and held harmless by the applicable Registrant
to the fullest extent authorized by the General Corporation Law of Delaware
against all expense, liability and loss (including, without limitation,
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred by such person in
connection therewith. The rights conferred by Article Sixth (b) are contractual
rights and include the right to be paid by the applicable Registrant the
expenses incurred in defending such action, suit or proceeding in advance of
the final disposition thereof.
Article SIXTH (a) of each of the Registrants' Restated Certificate of
Incorporation and the proposed Restated Certificate of Incorporation of UAL
provides that the applicable Registrant's directors will not be personally
liable to the applicable Registrant or its stockholders for monetary damages
resulting from breaches of their fiduciary duty as directors except for
liability (a) for any breach of the duty of loyalty to the applicable
Registrant or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the General Corporation Law of Delaware, which makes directors
liable for unlawful dividends or unlawful stock repurchases or redemptions or
(d) for any transaction from which directors derive improper personal benefit.
The Registrants maintain directors and officers liability insurance covering
all directors and officers of the Registrants against claims arising out of the
performance of their duties.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 Amended and Restated Agreement and Plan of Recapitalization dated as
of March 25, 1994, among UAL, Air Line Pilots Association,
International UAL-MEC and the International Association of
Machinists and Aerospace Workers, including all schedules and
exhibits thereto (attached as Exhibit A to the Proxy
Statement/Prospectus filed in this Registration Statement).
2.2 Letter agreement dated as of March 25, 1994, among UAL, Air Line
Pilots Association, International UAL-MEC and the International
Association of Machinists and Aerospace Workers (filed as Exhibit
10.2 to UAL's Form 8-K dated March 28, 1994 and incorporated herein
by reference).
2.3 Letter agreement dated as of March 25, 1994, between UAL and State
Street Bank and Trust Company (filed as Exhibit 10.3 to UAL's Form
8-K dated March 28, 1994 and incorporated herein by reference).
3.1 UAL's Restated Certificate of Incorporation as filed in Delaware on
November 1, 1993 (filed as Exhibit 3.1 of UAL's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993 and incorporated
herein by reference).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.2 UAL's Bylaws, as amended on October 28, 1993 (filed as Exhibit 3.2
of UAL's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993 and incorporated herein by reference).
3.3 United's Restated Certificate of Incorporation, as amended March 13,
1992 (filed as Exhibit 3.1 of United's Annual Report on Form 10-K
for the year ended December 31, 1991, and incorporated herein by
reference).
3.4 United's Bylaws, as amended on June 25, 1987 (filed as Exhibit 3(b)
to United's S-1 Registration Statement (Nos. 33-21220 and 22-18246)
effective June 3, 1988, and incorporated herein by reference).
4.1 UAL's Proposed Restated Certificate of Incorporation, to be filed in
connection with the consummation of the Recapitalization (attached
as Exhibit B to the Proxy Statement/Prospectus filed in this
Registration Statement).
4.2 UAL's Proposed Restated Bylaws, to be adopted in connection with the
consummation of the Recapitalization (attached as Exhibit C to the
Proxy Statement/Prospectus filed in this Registration Statement).
4.3 Form of Deposit Agreement between UAL and the Holders from Time to
Time of the Depositary Receipts Described therein (filed as Exhibit
10.1(C) to UAL's Form 8-K dated June 3, 1994 and incorporated
herein by reference).
4.4 Rights Agreement dated as of December 11, 1986 between UAL and
Morgan Shareholder Services Trust Company, as Rights Agent (filed
as Exhibit 4.1 of UAL's Annual Report on Form 10-K for the year
ended December 31, 1992 and incorporated herein by reference;
Amendment Nos. 1, 2, 3 and 4 thereto filed, respectively, as (i)
Exhibit 2 to UAL's Form 8 dated February 26, 1988, (ii) Exhibit 3
to Registrant's Form 8 dated July 28, 1989, (iii) Exhibit 4 to
UAL's Form 8 dated September 26, 1989, and (iv) Exhibit to UAL's
Form 8 dated February 3, 1993, and each incorporated herein by
reference).
4.5 Indenture dated as of July 1, 1991 between United and The Bank of
New York providing for the Issuance of Senior Debt Securities in
Series (filed as Exhibit 4(a) of United's Registration Statement
Form S-3 (No. 33-57192) and incorporated herein by reference).
4.6 Form of Officer's Certificate relating to United's Series A
Debentures due 2004 and United Series B Debentures due 2014 (filed
as Schedule 1.3 to Exhibit 10.1 of UAL's Form 8-K dated March 28,
1994 and incorporated herein by reference).
4.7 UAL's Registration Statement Form S-3 (No. 33-57192) filed on
January 21, 1993, relating to the offer of up to $1,500,000,000
Convertible Debt Securities, Preferred Stock and Common Stock and
United Air Lines, Inc. Debt Securities, Warrants to Purchase Debt
Securities, Equipment Trust Certificates and/or Pass-Through
Certificates, and incorporated herein by reference; Amendment Nos.
1, 2, 3 and 4 to UAL Registration Statement Form S-3 (No. 33-57192)
filed on January 21, March 19, May 7 and May 28, 1993,
respectively, and each incorporated herein by reference.
UAL's indebtedness under any single instrument, or any potential
indebtedness under any instruments except as described in Exhibit
4.6, does not exceed 10% of UAL's total assets on a consolidated
basis. Copies of such instruments will be furnished to the
Commission upon request.
4.8 United's Registration Statement Form S-3 (No. 33-46033) filed on
January 21, 1993, relating to the offer of $1,500,000,000 Debt
Securities, Preferred Stock and Common Stock and incorporated
herein by reference; Amendment Nos. 1, 2, 3 and 4 to UAL's (File
No. 1-6033) Registration Statement Form S-3 (No. 33-46033) filed on
January 21, March 19, May 7 and May 28, 1993, respectively, and
each incorporated herein by reference.
United's indebtedness under any single instrument, other than
Exhibit 4.7, does not exceed 10% of United's total assets on a
consolidated basis. Copies of such instruments will be furnished to
the Commission upon request.
4.9 Form of Stock Certificate of Common Stock, par value $0.01 per
share, of UAL.
4.10 Form of Stock Certificate of Series B Preferred Stock of UAL.
4.11 Form of Stock Certificate of Series D Redeemable Preferred Stock, no
par value, of UAL.
5 Opinion of Skadden, Arps, Slate, Meagher & Flom as to the legality
of the Securities dated as of June 10, 1994.
7 Opinion of Skadden, Arps, Slate, Meagher & Flom as to liquidity
preference (see Exhibit No. 5).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
8 Tax Opinion of Skadden, Arps, Slate, Meagher & Flom dated as of June
10, 1994.
10.1 Letter Agreement, dated December 22, 1993, among UAL Corporation,
Air Line Pilots Association, International UAL-MEC and the
International Association of Machinists and Aerospace Workers
(filed as Exhibit 10.1 to UAL's Form 8-K dated December 22, 1993
and incorporated herein by reference; amendment thereto filed as
Exhibit 10.1 to UAL's Form 8-K dated February 4, 1994 and
incorporated herein by reference).
10.2 Letter Agreement No. 6-1162-DLJ-1193 dated January 25, 1994 to
Agreement dated December 18, 1990 between The Boeing Company, as
seller, and United Air Lines, Inc., and United Worldwide
Corporation, as buyer, for the acquisition of Boeing 777-200
aircraft (as previously amended and supplemented, "777-200 Purchase
Agreement" (filed as Exhibit 10.7 to UAL's Annual Report on Form
10-K for the year ended December 31, 1990 and incorporated herein
by reference; supplements thereto filed as Exhibits 10.1, 10.2 and
10.22 to UAL's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993, and incorporated herein by reference)) (filed as
Exhibit 10.2 to UAL's Annual Report on Form 10-K for the year ended
December 31, 1993, as amended, with a request for confidential
treatment of certain portions, and incorporated herein by
reference).
10.3 Supplemental Agreement No. 5 dated January 17, 1994 to Agreement
dated December 18, 1990 between The Boeing Company, as seller, and
United Air Lines, Inc., and United Worldwide Corporation, as buyer,
for the acquisition of Boeing 747-400 aircraft (as previously
amended and supplemented, "747-400 Purchase Agreement" (filed as
Exhibit 10.8 to UAL's Annual Report on Form 10-K for the year ended
December 31, 1990, and incorporated herein by reference;
supplements thereto filed as (i) Exhibits 10.4 and 10.5 to UAL's
Annual Report on Form 10-K for the year ended December 31, 1991 and
(ii) Exhibits 10.3, 10.4, 10.5, 10.6 and 10.22 to UAL's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993 and
incorporated herein by reference)) (filed as Exhibit 10.3 to UAL's
Annual Report on Form 10-K for the year ended December 31, 1993, as
amended, with a request for confidential treatment of certain
portions, and incorporated herein by reference).
10.4 Amendment No. 1 dated as of November 24, 1993 to A320 Purchase
Agreement dated August 10, 1992 between AVSA, S.A.R.L., as seller,
and United Air Lines, Inc., as buyer, for the acquisition of Airbus
Industrie A320-200 model aircraft (as previously amended and
supplemented, "A320-200 Purchase Agreement" (filed as Exhibit 10.14
to UAL's Annual Report on Form 10-K for the year ended December 31,
1992, and incorporated herein by reference)) (filed as Exhibit 10.4
to UAL's Annual Report on Form 10-K for the year ended December 31,
1993, as amended, with a request for confidential treatment of
certain portions, and incorporated herein by reference).
10.5 Amendment No. 1 dated as of November 24, 1993 to Letter Agreement
No. 8 dated as of August 10, 1992 to A320-200 Purchase Agreement
(filed as Exhibit 10.5 to UAL's Annual Report on Form 10-K for the
year ended December 31, 1993, as amended, with a request for
confidential treatment of certain portions, and incorporated herein
by reference).
10.6 Agreement dated March 1, 1990 between The Boeing Company and United
Air Lines, Inc., as amended and supplemented, for the acquisition
of Boeing 767-300ER aircraft (filed as Exhibit (10)L to UAL's
Annual Report on Form 10-K for the year ended December 31, 1989,
and incorporated herein by reference; supplements thereto filed as
(i) Exhibits 10.7, 10.8, 10.9 and 10.10 to UAL's Annual Report on
Form 10-K for the year ended December 31, 1991, and (ii) Exhibits
10.7, 10.8, 10.9, 10.10, 10.11, 10.12, 10.13 and 10.22 to UAL's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993,
and incorporated herein by reference).
10.7 Agreement dated April 26, 1989 between The Boeing Company and United
Air Lines, Inc., as amended and supplemented, for the acquisition
of Boeing 757-200 and 737 aircraft (filed as Exhibit (10)K to UAL's
Annual Report on Form 10-K for the year ended December 31, 1989,
and incorporated herein by reference; supplements thereto filed as
(i) Exhibits 10.12 and 10.13 to UAL's Annual Report on Form 10-K
for the year ended December 31, 1991, and (ii) Exhibits 10.14,
10.15, 10.16, 10.17, 10.18, 10.19 and 10.22 to UAL's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993, and
incorporated herein by reference).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.8 An amended and restated agreement, dated March 19, 1992, between The
Boeing Company and United Air Lines, Inc., for the acquisition of
Boeing 737 aircraft (filed as Exhibit 10.15 to UAL's Annual Report
on Form 10-K for the year ended December 31, 1992, and incorporated
herein by reference; supplements thereto filed as Exhibits 10.20,
10.21 and 10.22 to UAL's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993, and incorporated herein by reference).
10.9 Letter Agreement among the State of Indiana, the City of
Indianapolis, the Indianapolis Airport Authority and United Air
Lines, Inc. dated June 15, 1992, amending the Agreement dated
November 21, 1991, concerning United's aircraft maintenance
facility ("MOC II Agreement" (filed as Exhibit 10.29 to UAL's
Annual Report on Form 10-K for the year ended December 31, 1991,
and incorporated herein by reference)) (filed as Exhibit 10.9 to
UAL's Annual Report on Form 10-K for the year ended December 31,
1993 and incorporated herein by reference).
10.10 Letter Agreement among the State of Indiana, the City of
Indianapolis, the Indianapolis Airport Authority and United Air
Lines, Inc. dated December 23, 1993, amending the MOC II Agreement
(filed as Exhibit 10.10 to UAL's Annual Report on Form 10-K for the
year ended December 31, 1993, as amended, and incorporated herein
by reference).
10.11 Employees' Stock Purchase Plan of UAL Corporation, as amended
February 1, 1993 (filed as Exhibit 10.25 to UAL's Annual Report on
Form 10-K for the year ended December 31, 1992, and incorporated
herein by reference).
10.12 UAL's 1981 Incentive Stock Program (filed as Exhibit 10.26 to UAL's
Annual Report on Form 10-K for the year ended December 31, 1992,
and incorporated herein by reference).
10.13 UAL's 1988 Restricted Stock Plan, as amended July 1, 1993 (filed as
Exhibit 10.23 to UAL's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993, and incorporated herein by reference).
10.14 Form of Option Agreement Amendment dated as of February 24, 1994 for
UAL's Section 16 officers (filed as Exhibit 10.14 to UAL's Annual
Report on Form 10-K for the year ended December 31, 1993, as
amended, and incorporated herein by reference).
10.15 Form of Option Agreement between UAL and officers and certain other
key employees of United (filed as Exhibit 10.28 to UAL's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993, and
incorporated herein by reference).
10.16 UAL's Incentive Compensation Plan, as amended June 30, 1988 (filed
as Exhibit (10)C to UAL's Annual Report on Form 10-K for the year
ended December 31, 1988, and incorporated herein by reference).
10.17 United Supplemental Retirement Plan (filed as Exhibit 10.42 to UAL's
Annual Report on Form 10-K for the year ended December 31, 1992,
and incorporated herein by reference).
10.18 UAL Corporation Retirement Plan for Outside Directors (filed as
Exhibit 10.43 to UAL's Annual Report on Form 10-K for the year
ended December 31, 1992, and incorporated herein by reference; as
amended by Exhibit 10.30 to UAL's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993, and incorporated herein by
reference).
10.19 UAL Corporation 1992 Stock Plan for Outside Directors (filed as
Exhibit 10.44 to UAL's Annual Report on Form 10-K for the year
ended December 31, 1992, and incorporated herein by reference).
10.20 Description of Complimentary Travel and Cargo Carriage Benefits for
UAL Directors (filed as Exhibit 10.20 to UAL's Annual Report on
Form 10-K for the year ended December 31, 1993, as amended, and
incorporated herein by reference).
10.21 Split Dollar Insurance Program (filed as Exhibit 10.46 to UAL's
Annual Report on Form 10-K for the year ended December 31, 1992,
and incorporated herein by reference).
10.22 Composite Employment Agreement between UAL, United and John C. Pope,
dated as July 1, 1993 (filed as Exhibit 10.1 to UAL's Form 10-Q for
the quarter ended September 30, 1993 and incorporated herein by
reference; and incorporating herein by reference paragraph 4.C. of
Employment Agreement between UAL and Pope dated January 11, 1988
and filed as Exhibit (10)I to UAL's Annual Report on Form 10-K for
the year ended December 31, 1988).
10.23 Composite Employment Agreement between UAL, United and Stephen M.
Wolf, dated as of July 1, 1993 (filed as Exhibit 10.2 to UAL's Form
10-Q for the quarter ended September 30, 1993, and incorporated
herein by reference; and incorporating by reference herein Appendix
3 to Employment Agreement between UAL, United and Stephen M. Wolf,
dated December 9, 1987 (filed as Exhibit 10.30 to UAL's Annual
Report on Form 10-K for the year ended December 31, 1992)).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.24 Accidental Death and Dismemberment Insurance Program (filed as
Exhibit 10.47 to UAL's Annual Report on Form 10-K for the year
ended December 31, 1992, and incorporated herein by reference).
10.25 Financial Advisory Services Program (filed as Exhibit 10.48 to UAL's
Annual Report on Form 10-K for the year ended December 31, 1992,
and incorporated herein by reference).
10.26 Social Club Membership Program (filed as Exhibit 10.26 to UAL's
Annual Report on Form 10-K for the year ended December 31, 1993, as
amended, and incorporated herein by reference).
10.27 Arrangement for Supplemental Long Term Disability (filed as Exhibit
10.50 to UAL's Annual Report on Form 10-K for the year ended
December 31, 1992, and incorporated herein by reference).
10.28 Arrangement for use of United Cars (filed as Exhibit 10.51 to UAL's
Annual Report on Form 10-K for the year ended December 31, 1992,
and incorporated herein by reference).
10.29 Arrangement for UAL and United Officers' Travel Benefits (filed as
Exhibit 10.52 to UAL's Annual Report on Form 10-K for the year
ended December 31, 1992, and incorporated herein by reference).
10.30 Form of Restricted Stock Deposit Agreement between UAL and officers
and certain other key employees of United (filed as Exhibit 10.29
to UAL's Form 10-Q for the quarter ended June 30, 1993, as amended,
and incorporated herein by reference).
10.31 Form of Severence Agreement between United and officers of United
other than Messrs. Stephen M. Wolf and John C. Pope (filed as
Exhibit 10.27 to UAL's Form 10-Q for the quarter ended June 30,
1993 and incorporated herein by reference).
10.32 Amendment No. 1 to Preferred Stock Purchase Agreement dated as of
June 2, 1994 between UAL and State Street Bank and Trust Company
(filed as Exhibit 10.1(I) to UAL's Form 8-K dated June 3, 1994 and
incorporated herein by reference).
10.33 Form of Employee Stock Ownership Trust Non-Recourse ESOP Note A of
UAL by State Street Bank and Trust Company (filed as Exhibit A to
Exhibit 10.1(I) to UAL's Form
8-K dated June 3, 1994 and incorporated herein by reference).
10.34 Form of Employee Stock Ownership Plan Trust Agreement between UAL
and State Street Bank and Trust Company (filed as Exhibit 10.1(E)
to UAL's Form 8-K dated June 3, 1994 and incorporated herein by
reference).
10.35 Employee Stock Ownership Plan Effective as of [July 1,] 1994 (filed
as Exhibit 10.1(F) to UAL's Form 8-K dated June 3, 1994 and
incorporated herein by reference).
10.36 Form of Stock Subscription Agreement between UAL and State Street
Bank and Trust Company (filed as Schedule 1.6(b)(i) to Exhibit 10.1
to UAL's Form 8-K dated March 28, 1994 and incorporated herein by
reference).
10.37 Form of Supplemental ESOP Trust Agreement Effective [July 1,] 1994
between UAL and State Street Bank and Trust Company (filed as
Exhibit 10.1(H) to UAL's Form 8-K dated June 3, 1994 and
incorporated by reference).
10.38 Supplemental ESOP Effective as of [July 1,] 1994 (filed as Exhibit
10.1(G) to UAL's Form 8-K filed June 3, 1994 and incorporated
herein by reference).
10.39 Form of Class I Junior Preferred Stock Subscription Agreement
between UAL, Air Line Pilots Association, International,
International Association of Machinists and Aerospace Workers and
[Name of individual to become an Independent Director/Class I
Preferred Stockholder] (filed as Schedule 1.6(c) to Exhibit 10.1 to
UAL's Form 8-K dated March 28, 1994 and incorporated herein by
reference).
10.40 Form of Class Pilot MEC Junior Preferred Stock Subscription
Agreement between UAL and United Airlines Pilots Master Executive
Council of the Air Line Pilots Association, International (filed as
Exhibit 10.1(J) to UAL's Form 8-K dated June 3, 1994 and
incorporated herein by reference).
10.41 Form of Class IAM Junior Preferred Stock Subscription Agreement
between UAL and International Association of Machinists and
Aerospace Workers (filed as Exhibit 10.1(K) to UAL's Form 8-K dated
June 3, 1994 and incorporated herein by reference).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.42 Form of Class SAM Preferred Stock Subscription Agreement between UAL
and [Name of individual to become the Salaried/Management Employee
Director/Class SAM Shareholder] and [Name of individual to be
additional Class SAM Shareholder] (filed as Exhibit 10.1(L) to
UAL's Form 8-K dated June 3, 1994 and incorporated herein by
reference).
10.43 Amendment to the UAL, Inc. 1991 Incentive Stock Program to become
effective as of the date of consummation of the Recapitalization
(filed as Schedule 3.2(i) to Exhibit 10.1 to UAL's Form 8-K dated
March 28, 1994 and incorporated herein by reference).
10.44 Amendment to the UAL Corporation 1988 Restricted Stock Plan to
become effective as of the date of consummation of the
Recapitalization (filed as Exhibit 10.1(N) to UAL's Form 8-K dated
June 3, 1994 and incorporated herein by reference).
10.45 Amendment to the UAL Corporation Incentive Compensation Plan to
become effective as of the date of consummation of the
Recapitalization (filed as Exhibit 10.1(O) to UAL's Form 8-K dated
June 3, 1994 and incorporated herein).
10.46 Form of Class I Junior Preferred Stockholders' Agreement between
UAL, Air Line Pilots Association, International, International
Association of Machinists and Aerospace Workers, [Name of initial
independent director], [Name of initial independent director],
[Name of initial independent director] and [Name of initial
independent director] (filed as Exhibit 10.1(Q) to UAL's Form 8-K
dated June 3, 1994 and incorporated herein by reference).
10.47 Form of Class SAM Preferred Stockholders' Agreement between UAL and
[Name of individual to become the Salaried/Management Employee
Director/Class SAM Shareholder] and [Name of the most senior
executive of United who has primary responsibility for human
resources immediately prior to the Effective Time] (filed as
Exhibit 10.1(R) to UAL's Form 8-K dated June 3, 1994 and
incorporated herein by reference).
10.48 UAL Corporation Retirement Plan for Outside Directors, as amended
(filed as Exhibit 10.1 to UAL's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1994 and incorporated herein by
reference).
11.1 Calculation of fully diluted net earnings per share (filed as
Exhibit 11 to UAL's Annual Report on Form 10-K for the year ended
December 31, 1993, as amended, and incorporated herein by
reference).
11.2 Calculation of fully diluted net earnings per share (filed as
Exhibit 11 to UAL's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994 and incorporated herein by reference).
12.1 UAL's Calculation of Pro Forma Ratio of Earnings to Fixed Charges.
+12.2 UAL's Calculation of Pro Forma Ratio of Earnings to Fixed Charges
and Preferred Stock Dividend Requirements.
+12.3 United's Calculation of Pro Forma Ratio of Earnings to Fixed
Charges.
12.4 Computation of UAL's Ratio of Earnings to Fixed Charges (filed as
Exhibit 12.1 to UAL's Annual Report on Form 10-K for the year ended
December 31, 1993, as amended, and incorporated herein be
reference).
12.5 Computation of UAL's Ratio of Earnings to Fixed Charges and
Preferred Stock Dividend Requirements (filed as Exhibit 12.2 to
UAL's Annual Report on Form 10-K for the year ended December 31,
1993, as amended, and incorporated herein by reference).
12.6 Computation of UAL's Ratio of Earnings to Fixed Charges (filed as
Exhibit 12.1 to UAL's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994 and incorporated herein by reference).
12.7 Computation of UAL's Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends (filed as Exhibit 12.2 to UAL's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1994 and
incorporated herein by reference).
12.8 Computation of United's Ratio of Earnings to Fixed Charges (filed as
Exhibit 12 to United's Annual Report on Form 10-K for the year
ended December 31, 1993, and incorporated herein by reference).
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
12.13 Computation of United's Ratio of Earnings to Fixed Charges (filed as
Exhibit 12.1 to United's Quarterly Report on Form 10-Q for the
period ending March 31, 1994 and incorporated herein
13.1 UAL Annual Report on Form 10-K for the year ended December 31, 1993,
as amended (incorporated herein by reference).
13.2 United Annual Report on Form 10-K for the year ended December 31,
1993, as amended (incorporated herein by reference).
13.3 UAL Quarterly Report on Form 10-Q for the quarter ended March 31,
1994 (incorporated herein by reference).
13.4 United Quarterly Report on Form 10-Q for the quarter ended March 31,
1994 (incorporated herein by reference).
22 List of UAL's subsidiaries (filed as Exhibit 22 to UAL's Annual
Report on Form 10-K for the year ended December 31, 1993, as
amended, and incorporated herein by reference).
23.1 Consent of Arthur Andersen & Co. dated as of June 10, 1994.
+23.2 Consent of KPMG Peat Marwick dated as of April 11, 1994.
+23.3 Consent of CS First Boston Corporation dated as of April 12, 1994.
+23.4 Consent of Lazard Freres & Co. dated as of April 12, 1994.
+23.5 Consent of American Appraisal Associates, Inc. dated as of April 11,
1994.
23.6 Consent of Skadden, Arps, Slate, Meagher & Flom, included as part of
Exhibit 5.
+23.7 Consent of John F. McGillicuddy.
+23.8 Consent of James J. O'Connor.
+23.9 Consent of Paul E. Tierney.
+23.10 Consent of Gerald Greenwald.
+23.11 Consent of Duane D. Fitzgerald.
+23.12 Consent of Richard D. McCormick.
+23.13 Consent of John K. Van de Kamp.
+23.14 Consent of Paul A. Volcker.
+23.15 Consent of Joseph V. Vittoria.
+23.16 Consent of Captain Roger D. Hall.
+23.17 Consent of John Peterpaul.
+24.1 Power of Attorney.
+24.2 Power of Attorney.
+25.1 Form T-1 of The Bank of New York with respect to the Series A
Debentures.
+25.2 Form T-1 of The Bank of New York with respect to the Series B
Debentures.
99.1 Form of Proxy.
+99.2 Opinion of CS First Boston Corporation.
+99.3 Opinion of Lazard Freres & Co.
99.4 Opinion of American Appraisal Associates, Inc. dated as of March 14,
1994 (filed as Schedule 5.9 to Exhibit 10.1 of UAL's Form 8-K dated
March 28, 1994 and incorporated herein by reference).
+99.5 Retention Agreement dated January 1, 1994 between Air Line Pilots
Association, International, the International Association of
Machinists and Aerospace Workers and Gerald Greenwald, attaching
Employment Agreement between UAL Corporation and Gerald Greenwald
to be entered into at the Effective Time.
99.6 Financial Statements of the Covia Partnership (filed as Exhibit 99.1
to UAL's Annual Report on Form 10-K for the year ended December 31,
1993, as amended, and incorporated herein by reference).
99.7 Financial Statements of the Galileo International Partnership
together with the report and consent of its independent public
accountants (filed as Exhibit 99.2 to UAL's Annual Report on Form
10-K for the year ended December 31, 1993, as amended, and
incorporated herein by reference).
99.8 Annual Report on Form 11-K for Employees' Stock Purchase Plan of UAL
(filed as Exhibit 99.3 to UAL's Form 10-K for the year ended
December 31, 1993, as amended, and incorporated herein by
reference).
</TABLE>
- --------
+ Previously filed.
II-7
<PAGE>
ITEM 22. UNDERTAKINGS
(a) Each of the undersigned Registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change of such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(b) Each of the undersigned Registrants hereby undertakes that, for purposes
of determining any liability under the Securities Act, each filing of a
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, the Registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by a
Registrant of expenses incurred or paid by a director, officer or controlling
person of such Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the applicable Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(d) Each of undersigned Registrants hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, 13, or 16 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
(e) Each of the undersigned Registrants hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction that was
not the subject of and included in the Registration Statement when it became
effective.
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 3 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN ELK GROVE TOWNSHIP,
ILLINOIS, ON THE 8TH DAY OF JUNE, 1994.
UAL Corporation
/s/ John C. Pope
By___________________________________
JOHN C. POPE PRESIDENT AND CHIEF
OPERATING OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES NOTED ON THIS 8TH DAY OF JUNE, 1994.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Director, and June 8, 1994
- ------------------------------------- Chairman and Chief
STEPHEN M. WOLF Executive Officer
/s/ John C. Pope Director, and
- ------------------------------------- President and Chief June 8, 1994
JOHN C. POPE Operating Officer
(principal
accounting officer
and principal
financial officer)
* Director
- ------------------------------------- June 8, 1994
NEIL A. ARMSTRONG
* Director
- ------------------------------------- June 8, 1994
ANDREW F. BRIMMER
* Director
- ------------------------------------- June 8, 1994
RICHARD P. COOLEY
* Director
- ------------------------------------- June 8, 1994
CARLA A. HILLS
* Director
- ------------------------------------- June 8, 1994
FUJIO MATSUDA
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
* Director
- ------------------------------------- June 8, 1994
JOHN F. MCGILLICUDDY
* Director
- ------------------------------------- June 8, 1994
HARRY MULLIKIN
* Director
- ------------------------------------- June 8, 1994
JAMES J. O'CONNOR
* Director
- ------------------------------------- June 8, 1994
FRANK A. OLSON
* Director
- ------------------------------------- June 8, 1994
RALPH STRANGIS
* Director
- ------------------------------------- June 8, 1994
PAUL E. TIERNEY, JR.
/s/ John C. Pope
*By__________________________________
John C. Pope, Attorney-in-fact
</TABLE>
II-10
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 3 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN ELK GROVE TOWNSHIP,
ILLINOIS, ON THE 8TH DAY OF JUNE, 1994.
United Air Lines, Inc.
/s/ John C. Pope
By___________________________________
JOHN C. POPE PRESIDENT AND CHIEF
OPERATING OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES NOTED ON THIS 8TH DAY OF JUNE, 1994.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Director, and
- ------------------------------------- Chairman and Chief June 8, 1994
STEPHEN M. WOLF Executive Officer
(principal
executive officer)
/s/ John C. Pope Director, President
- ------------------------------------- and Chief Operating June 8, 1994
JOHN C. POPE Officer (principal
financial officer)
* Director, and
- ------------------------------------- Executive Vice June 8, 1994
LAWRENCE M. NAGIN President--
Corporate Affairs
and General Counsel
* Director, and
- ------------------------------------- Executive Vice June 8, 1994
JAMES M. GUYETTE President--
Marketing and
Planning
* Director, and Senior
- ------------------------------------- Vice President-- June 8, 1994
PAUL G. GEORGE Human Resources
* Director, and
- ------------------------------------- Executive Vice June 8, 1994
JOSEPH R. O'GORMAN, JR. President--
Operations
* Vice President--
- ------------------------------------- Corporate June 8, 1994
FREDERIC F. BRACE Development and
Controller
(principal
accounting officer)
/s/ John C. Pope
*By__________________________________
John C. Pope, Attorney-in-fact
</TABLE>
II-11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
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<C> <S> <C>
2.1 Agreement and Plan of Recapitalization dated as of March 25,
1994, among UAL, Air Line Pilots Association, International
UAL-MEC and the International Association of Machinists and
Aerospace Workers, including all schedules and exhibits
thereto (attached as Exhibit A to the Proxy
Statement/Prospectus filed in this Registration Statement).
2.2 Letter agreement dated as of March 25, 1994, among UAL, Air
Line Pilots Association, International UAL-MEC and the
International Association of Machinists and Aerospace Workers
(filed as Exhibit 10.2 to UAL's Form 8-K dated March 28, 1994
and incorporated herein by reference).
2.3 Letter agreement dated as of March 25, 1994, between UAL and
State Street Bank and Trust Company (filed as Exhibit 10.3 to
UAL's Form 8-K dated March 28, 1994 and incorporated herein by
reference).
3.1 UAL's Restated Certificate of Incorporation as filed in
Delaware on November 1, 1993 (filed as Exhibit 3.1 of UAL's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1993 and incorporated herein by reference).
3.2 UAL's Bylaws, as amended on October 28, 1993 (filed as Exhibit
3.2 of UAL's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993 and incorporated herein by
reference).
3.3 United's Restated Certificate of Incorporation, as amended
March 13, 1992 (filed as Exhibit 3.1 of United's Annual Report
on Form 10-K for the year ended December 31, 1991, and
incorporated herein by reference).
3.4 United's Bylaws, as amended on June 25, 1987 (filed as Exhibit
3(b) to United's S-1 Registration Statement (Nos. 33-21220 and
22-18246) effective June 3, 1988, and incorporated herein by
reference).
4.1 UAL's Proposed Restated Certificate of Incorporation, to be
filed in connection with the consummation of the
Recapitalization (attached as Exhibit B to the Proxy
Statement/Prospectus filed in this Registration Statement).
4.2 UAL's Proposed Restated Bylaws, to be adopted in connection
with the consummation of the Recapitalization (attached as
Exhibit C to the Proxy Statement/Prospectus filed in this
Registration Statement).
4.3 Form of Deposit Agreement between UAL and the Holders from Time
to Time of the Depositary Receipts Described therein (filed as
Exhibit 10.1(C) to UAL's Form 8-K dated June 3, 1994 and
incorporated herein by reference).
4.4 Rights Agreement dated as of December 11, 1986 between UAL and
Morgan Shareholder Services Trust Company, as Rights Agent
(filed as Exhibit 4.1 of UAL's Annual Report on Form 10-K for
the year ended December 31, 1992 and incorporated herein by
reference; Amendment Nos. 1, 2, 3 and 4 thereto filed,
respectively, as (i) Exhibit 2 to UAL's Form 8 dated February
26, 1988, (ii) Exhibit 3 to Registrant's Form 8 dated July 28,
1989, (iii) Exhibit 4 to UAL's Form 8 dated September 26,
1989, and (iv) Exhibit to UAL's Form 8 dated February 3, 1993,
and each incorporated herein by reference).
4.5 Indenture dated as of July 1, 1991 between United and The Bank
of New York providing for the Issuance of Senior Debt
Securities in Series (filed as Exhibit 4(a) of United's
Registration Statement Form S-3 (No. 33-57192) and
incorporated herein by reference).
4.6 Form of Officer's Certificate relating to United's Series A
Debentures due 2004 and United Series B Debentures due 2014
(filed as Schedule 1.3 to Exhibit 10.1 of UAL's Form 8-K dated
March 28, 1994 and incorporated herein by reference).
</TABLE>
<PAGE>
<TABLE>
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NO. DESCRIPTION PAGE
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<C> <S> <C>
4.7 UAL's Registration Statement Form S-3 (No. 33-57192) filed on
January 21, 1993, relating to the offer of up to
$1,500,000,000 Convertible Debt Securities, Preferred Stock
and Common Stock and United Air Lines, Inc. Debt Securities,
Warrants to Purchase Debt Securities, Equipment Trust
Certificates and/or Pass-Through Certificates, and
incorporated herein by reference; Amendment Nos. 1, 2, 3 and 4
to UAL Registration Statement Form S-3 (No. 33-57192) filed on
January 21, March 19, May 7 and May 28, 1993, respectively,
and each incorporated herein by reference.
UAL's indebtedness under any single instrument, or any
potential indebtedness under any instruments except as
described in Exhibit 4.6, does not exceed 10% of UAL's total
assets on a consolidated basis. Copies of such instruments
will be furnished to the Commission upon request.
4.8 United's Registration Statement Form S-3 (No. 33-46033) filed
on January 21, 1993, relating to the offer of $1,500,000,000
Debt Securities, Preferred Stock and Common Stock and
incorporated herein by reference; Amendment Nos. 1, 2, 3 and 4
to UAL's (File No. 1-6033) Registration Statement Form S-3
(No. 33-46033) filed on January 21, March 19, May 7 and May
28, 1993, respectively, and each incorporated herein by
reference.
4.9 Form of Stock Certificate of Common Stock, par value $0.01 per
share, of UAL.
4.10 Form of Stock Certificate of Series B Preferred Stock of UAL.
4.11 Form of Stock Certificate of Series D Redeemable Preferred
Stock, no par value, of UAL.
United's indebtedness under any single instrument, other than
Exhibit 4.7, does not exceed 10% of United's total assets on a
consolidated basis. Copies of such instruments will be
furnished to the Commission upon request.
5 Opinion of Skadden, Arps, Slate, Meagher & Flom as to the
legality of the Securities dated as of June 10, 1994.
7 Opinion of Skadden, Arps, Slate, Meagher & Flom as to liquidity
preference (see Exhibit No. 5).
8 Tax Opinion of Skadden, Arps, Slate, Meagher & Flom dated as of
June 10, 1994.
10.1 Letter Agreement, dated December 22, 1993, among UAL
Corporation, Air Line Pilots Association, International UAL-
MEC and the International Association of Machinists and
Aerospace Workers (filed as Exhibit 10.1 to UAL's Form 8-K
dated December 22, 1993 and incorporated herein by reference;
amendment thereto filed as Exhibit 10.1 to UAL's Form 8-K
dated February 4, 1994 and incorporated herein by reference).
10.2 Letter Agreement No. 6-1162-DLJ-1193 dated January 25, 1994 to
Agreement dated December 18, 1990 between The Boeing Company,
as seller, and United Air Lines, Inc., and United Worldwide
Corporation, as buyer, for the acquisition of Boeing 777-200
aircraft (as previously amended and supplemented, "777-200
Purchase Agreement" (filed as Exhibit 10.7 to UAL's Annual
Report on Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference; supplements thereto filed as
Exhibits 10.1, 10.2 and 10.22 to UAL's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993, and
incorporated herein by reference)) (filed as Exhibit 10.2 to
UAL's Annual Report on Form 10-K for the year ended December
31, 1993, as amended, with a request for confidential
treatment of certain portions, and incorporated herein by
reference).
10.3 Supplemental Agreement No. 5 dated January 17, 1994 to
Agreement dated December 18, 1990 between The Boeing Company,
as seller, and United Air Lines, Inc., and United Worldwide
Corporation, as buyer, for the acquisition of Boeing 747-400
aircraft (as previously amended and supplemented, "747-400
Purchase Agreement" (filed as Exhibit 10.8 to UAL's Annual
Report on Form 10-K for the year ended December 31, 1990, and
incorporated herein by reference; supplements thereto filed as
(i) Exhibits 10.4 and 10.5 to UAL's Annual Report on Form 10-K
for the year ended December 31, 1991 and (ii) Exhibits 10.3,
10.4, 10.5, 10.6 and 10.22 to UAL's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993 and incorporated
herein by reference)) (filed as Exhibit 10.3 to UAL's Annual
Report on Form 10-K for the year ended December 31, 1993, as
amended, with a request for confidential treatment of certain
portions, and incorporated herein by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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NO. DESCRIPTION PAGE
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<C> <S> <C>
10.4 Amendment No. 1 dated as of November 24, 1993 to A320 Purchase
Agreement dated August 10, 1992 between AVSA, S.A.R.L., as
seller, and United Air Lines, Inc., as buyer, for the
acquisition of Airbus Industrie A320-200 model aircraft (as
previously amended and supplemented, "A320-200 Purchase
Agreement" (filed as Exhibit 10.14 to UAL's Annual Report on
Form 10-K for the year ended December 31, 1992, and
incorporated herein by reference)) (filed as Exhibit 10.4 to
UAL's Annual Report on Form 10-K for the year ended December
31, 1993, as amended, with a request for confidential
treatment of certain portions, and incorporated herein by
reference).
10.5 Amendment No. 1 dated as of November 24, 1993 to Letter
Agreement No. 8 dated as of August 10, 1992 to A320-200
Purchase Agreement (filed as Exhibit 10.5 to UAL's Annual
Report on Form 10-K for the year ended December 31, 1993, as
amended, with a request for confidential treatment of certain
portions, and incorporated herein by reference).
10.6 Agreement dated March 1, 1990 between The Boeing Company and
United Air Lines, Inc., as amended and supplemented, for the
acquisition of Boeing 767-300ER aircraft (filed as Exhibit
(10)L to UAL's Annual Report on Form 10-K for the year ended
December 31, 1989, and incorporated herein by reference;
supplements thereto filed as (i) Exhibits 10.7, 10.8, 10.9 and
10.10 to UAL's Annual Report on Form 10-K for the year ended
December 31, 1991, and (ii) Exhibits 10.7, 10.8, 10.9, 10.10,
10.11, 10.12, 10.13 and 10.22 to UAL's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993, and
incorporated herein by reference).
10.7 Agreement dated April 26, 1989 between The Boeing Company and
United Air Lines, Inc., as amended and supplemented, for the
acquisition of Boeing 757-200 and 737 aircraft (filed as
Exhibit (10)K to UAL's Annual Report on Form 10-K for the year
ended December 31, 1989, and incorporated herein by reference;
supplements thereto filed as (i) Exhibits 10.12 and 10.13 to
UAL's Annual Report on Form 10-K for the year ended December
31, 1991, and (ii) Exhibits 10.14, 10.15, 10.16, 10.17, 10.18,
10.19 and 10.22 to UAL's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993, and incorporated herein by
reference).
10.8 An amended and restated agreement, dated March 19, 1992,
between The Boeing Company and United Air Lines, Inc., for the
acquisition of Boeing 737 aircraft (filed as Exhibit 10.15 to
UAL's Annual Report on Form 10-K for the year ended December
31, 1992, and incorporated herein by reference; supplements
thereto filed as Exhibits 10.20, 10.21 and 10.22 to UAL's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1993, and incorporated herein by reference).
10.9 Letter Agreement among the State of Indiana, the City of
Indianapolis, the Indianapolis Airport Authority and United
Air Lines, Inc. dated June 15, 1992, amending the Agreement
dated November 21, 1991, concerning United's aircraft
maintenance facility ("MOC II Agreement" (filed as Exhibit
10.29 to UAL's Annual Report on Form 10-K for the year ended
December 31, 1991, and incorporated herein by reference))
(filed as Exhibit 10.9 to UAL's Annual Report on Form 10-K for
the year ended December 31, 1993, as amended, and incorporated
herein by reference).
10.10 Letter Agreement among the State of Indiana, the City of
Indianapolis, the Indianapolis Airport Authority and United
Air Lines, Inc. dated December 23, 1993, amending the MOC II
Agreement (filed as Exhibit 10.10 to UAL's Annual Report on
Form 10-K for the year ended December 31, 1993, as amended,
and incorporated herein by reference).
10.11 Employees' Stock Purchase Plan of UAL Corporation, as amended
February 1, 1993 (filed as Exhibit 10.25 to UAL's Annual
Report on Form 10-K for the year ended December 31, 1992, and
incorporated herein by reference).
10.12 UAL's 1981 Incentive Stock Program (filed as Exhibit 10.26 to
UAL's Annual Report on Form 10-K for the year ended December
31, 1992, and incorporated herein by reference).
10.13 UAL's 1988 Restricted Stock Plan, as amended July 1, 1993
(filed as Exhibit 10.23 to UAL's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993, and incorporated herein
by reference).
10.14 Form of Option Agreement Amendment dated as of February 24,
1994 for UAL's Section 16 officers (filed as Exhibit 10.14 to
UAL's Annual Report on Form 10-K for the year ended December
31, 1993, as amended, and incorporated herein by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
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<C> <S> <C>
10.15 Form of Option Agreement between UAL and officers and certain
other key employees of United (filed as Exhibit 10.28 to UAL's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1993, and incorporated herein by reference).
10.16 UAL's Incentive Compensation Plan, as amended June 30, 1988
(filed as Exhibit (10)C to UAL's Annual Report on Form 10-K
for the year ended December 31, 1988, and incorporated herein
by reference).
10.17 United Supplemental Retirement Plan (filed as Exhibit 10.42 to
UAL's Annual Report on Form 10-K for the year ended December
31, 1992, and incorporated herein by reference).
10.18 UAL Corporation Retirement Plan for Outside Directors (filed as
Exhibit 10.43 to UAL's Annual Report on Form 10-K for the year
ended December 31, 1992, and incorporated herein by reference;
as amended by Exhibit 10.30 to UAL's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993, and incorporated
herein by reference).
10.19 UAL Corporation 1992 Stock Plan for Outside Directors (filed as
Exhibit 10.44 to UAL's Annual Report on Form 10-K for the year
ended December 31, 1992, and incorporated herein by
reference).
10.20 Description of Complimentary Travel and Cargo Carriage Benefits
for UAL Directors (filed as Exhibit 10.20 to UAL's Annual
Report on Form 10-K for the year ended December 31, 1993, as
amended, and incorporated herein by reference).
10.21 Split Dollar Insurance Program (filed as Exhibit 10.46 to UAL's
Annual Report on Form 10-K for the year ended December 31,
1992, and incorporated herein by reference).
10.22 Composite Employment Agreement between UAL, United and John C.
Pope, dated as July 1, 1993 (filed as Exhibit 10.1 to UAL's
Form 10-Q for the quarter ended September 30, 1993 and
incorporated herein by reference; and incorporating herein by
reference paragraph 4.C. of Employment Agreement between UAL
and Pope dated January 11, 1988 and filed as Exhibit (10)I to
UAL's Annual Report on Form 10-K for the year ended December
31, 1988).
10.23 Composite Employment Agreement between UAL, United and Stephen
M. Wolf, dated as of July 1, 1993 (filed as Exhibit 10.2 to
UAL's Form 10-Q for the quarter ended September 30, 1993, and
incorporated herein by reference; and incorporating by
reference herein Appendix 3 to Employment Agreement between
UAL, United and Stephen M. Wolf, dated December 9, 1987 (filed
as Exhibit 10.30 to UAL's Annual Report on Form 10-K for the
year ended December 31, 1992)).
10.24 Accidental Death and Dismemberment Insurance Program (filed as
Exhibit 10.47 to UAL's Annual Report on Form 10-K for the year
ended December 31, 1992, and incorporated herein by
reference).
10.25 Financial Advisory Services Program (filed as Exhibit 10.48 to
UAL's Annual Report on Form 10-K for the year ended December
31, 1992, and incorporated herein by reference).
10.26 Social Club Membership Program (filed as Exhibit 10.26 to UAL's
Annual Report on Form 10-K for the year ended December 31,
1993, as amended, and incorporated herein by reference).
10.27 Arrangement for Supplemental Long Term Disability (filed as
Exhibit 10.50 to UAL's Annual Report on Form 10-K for the year
ended December 31, 1992, and incorporated herein by
reference).
10.28 Arrangement for use of United Cars (filed as Exhibit 10.51 to
UAL's Annual Report on Form 10-K for the year ended December
31, 1992, and incorporated herein by reference).
10.29 Arrangement for UAL and United Officers' Travel Benefits (filed
as Exhibit 10.52 to UAL's Annual Report on Form 10-K for the
year ended December 31, 1992, and incorporated herein by
reference).
10.30 Form of Restricted Stock Deposit Agreement between UAL and
officers and certain other key employees of United (filed as
Exhibit 10.29 to UAL's Form 10-Q for the quarter ended June
30, 1993, as amended, and incorporated herein by reference).
10.31 Form of Severence Agreement between United and officers of
United other than Messrs. Stephen M. Wolf and John C. Pope
(filed as Exhibit 10.27 to UAL's Form 10-Q for the quarter
ended June 30, 1993 and incorporated herein by reference).
</TABLE>
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<TABLE>
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NO. DESCRIPTION PAGE
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10.32 Amendment No. 1 to Preferred Stock Purchase Agreement dated as
of June 2, 1994 between UAL and State Street Bank and Trust
Company (filed as Exhibit 10.1(I) to UAL's Form
8-K dated June 3, 1994 and incorporated herein by reference).
10.33 Form of Employee Stock Ownership Trust Non-Recourse ESOP Note A
of UAL by State Street Bank and Trust Company (filed as
Exhibit A to Exhibit 10.1(I) to UAL's Form 8-K dated June 3,
1994 and incorporated herein by reference).
10.34 Form of Employee Stock Ownership Plan Trust Agreement between
UAL and State Street Bank and Trust Company (filed as Exhibit
10.1(E) to UAL's Form 8-K dated June 3, 1994 and incorporated
herein by reference).
10.35 Employee Stock Ownership Plan Effective as of [July 1,] 1994
(filed as Exhibit 10.1(F) to UAL's Form 8-K dated June 3, 1994
and incorporated herein by reference).
10.36 Form of Stock Subscription Agreement between UAL and State
Street Bank and Trust Company (filed as Schedule 1.6(b)(i) to
Exhibit 10.1 to UAL's Form 8-K dated March 28, 1994 and
incorporated herein by reference).
10.37 Form of Supplemental ESOP Trust Agreement Effective [July 1,]
1994 between UAL and State Street Bank and Trust Company
(filed as Exhibit 10.1(H) to UAL's Form 8-K dated June 3, 1994
and incorporated by reference).
10.38 Supplemental ESOP Effective as of [July 1,] 1994 (filed as
Exhibit 10.1(G) to UAL's Form 8-K filed June 3, 1994 and
incorporated herein by reference).
10.39 Form of Class I Junior Preferred Stock Subscription Agreement
between UAL, Air Line Pilots Association, International,
International Association of Machinists and Aerospace Workers
and [Name of individual to become an Independent
Director/Class I Preferred Stockholder] (filed as Schedule
1.6(c) to Exhibit 10.1 to UAL's Form 8-K dated March 28, 1994
and incorporated herein by reference).
10.40 Form of Class Pilot MEC Junior Preferred Stock Subscription
Agreement between UAL and United Airlines Pilots Master
Executive Council of the Air Line Pilots Association,
International (filed as Exhibit 10.1(J) to UAL's Form 8-K
dated June 3, 1994 and incorporated herein by reference).
10.41 Form of Class IAM Junior Preferred Stock Subscription Agreement
between UAL and International Association of Machinists and
Aerospace Workers (filed as Exhibit 10.1(K) to UAL's Form 8-K
dated June 3, 1994 and incorporated herein by reference).
10.42 Form of Class SAM Preferred Stock Subscription Agreement
between UAL and [Name of individual to become the
Salaried/Management Employee Director/Class SAM Shareholder]
and [Name of individual to be additional Class SAM
Shareholder] (filed as Exhibit 10.1(L) to UAL's Form 8-K dated
June 3, 1994 and incorporated herein by reference).
10.43 Amendment to the UAL, Inc. 1991 Incentive Stock Program to
become effective as of the date of consummation of the
Recapitalization (filed as Schedule 3.2(i) to Exhibit 10.1 to
UAL's Form 8-K dated March 28, 1994 and incorporated herein by
reference).
10.44 Amendment to the UAL Corporation 1988 Restricted Stock Plan to
become effective as of the date of consummation of the
Recapitalization (filed as Exhibit 10.1(N) to UAL's Form 8-K
dated June 3, 1994 and incorporated herein by reference).
10.45 Amendment to the UAL Corporation Incentive Compensation Plan to
become effective as of the date of consummation of the
Recapitalization (filed as Exhibit 10.1(O) to UAL's Form 8-K
dated June 3, 1994 and incorporated herein).
10.46 Form of Class I Junior Preferred Stockholders' Agreement
between UAL, Air Line Pilots Association, International,
International Association of Machinists and Aerospace Workers,
[Name of initial independent director], [Name of initial
independent director], [Name of initial independent director]
and [Name of initial independent director] (filed as Exhibit
10.1(Q) to UAL's Form 8-K dated June 3, 1994 and incorporated
herein by reference).
</TABLE>
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<TABLE>
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NO. DESCRIPTION PAGE
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<C> <S> <C>
10.47 Form of Class SAM Preferred Stockholders' Agreement between UAL
and [Name of individual to become the Salaried/Management
Employee Director/Class SAM Shareholder] and [Name of the most
senior executive of United who has primary responsibility for
human resources immediately prior to the Effective Time]
(filed as Exhibit 10.1(R) to UAL's Form 8-K dated June 3, 1994
and incorporated herein by reference).
10.48 UAL Corporation Retirement Plan for Outside Directors, as
amended (filed as Exhibit 10.1 to UAL's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1994 and
incorporated herein by reference).
11.1 Calculation of fully diluted net earnings per share (filed as
Exhibit 11 to UAL's Annual Report on Form 10-K for the year
ended December 31, 1993, as amended, and incorporated herein
by reference).
11.2 Calculation of fully diluted net earnings per share (filed as
Exhibit 11 to UAL's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1994 and incorporated herein by
reference).
12.1 UAL's Calculation of Pro Forma Ratio of Earnings to Fixed
Charges.
+12.2 UAL's Calculation of Pro Forma Ratio of Earnings to Fixed
Charges and Preferred Stock Dividend Requirements.
+12.3 United's Calculation of Pro Forma Ratio of Earnings to Fixed
Charges.
12.4 Computation of UAL's Ratio of Earnings to Fixed Charges (filed
as Exhibit 12.1 to UAL's Annual Report on Form 10-K for the
year ended December 31, 1993, as amended, and incorporated
herein be reference).
12.5 Computation of UAL's Ratio of Earnings to Fixed Charges and
Preferred Stock Dividend Requirements (filed as Exhibit 12.2
to UAL's Annual Report on Form 10-K for the year ended
December 31, 1993, as amended, and incorporated herein by
reference).
12.6 Computation of UAL's Ratio of Earnings to Fixed Charges (filed
as Exhibit 12.1 to UAL's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1994 and incorporated herein by
reference).
12.7 Computation of UAL's Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends (filed as Exhibit 12.2 to UAL's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1994 and incorporated herein by reference).
12.8 Computation of United's Ratio of Earnings to Fixed Charges
(filed as Exhibit 12 to United's Annual Report on Form 10-K
for the year ended December 31, 1993, and incorporated herein
by reference).
12.9 Computation of United's Ratio of Earnings to Fixed Charges
(filed as Exhibit 12.1 to United's Quarterly Report on Form
10-Q for the period ending March 31, 1994 and incorporated
herein by reference).
13.1 UAL Annual Report on Form 10-K for the year ended December 31,
1993, as amended (incorporated herein by reference).
13.2 United Annual Report on Form 10-K for the year ended December
31, 1993, as amended (incorporated herein by reference).
13.3 UAL Quarterly Report on Form 10-Q for the quarter ended March
31, 1994 (incorporated herein by reference).
13.4 United Quarterly Report on Form 10-Q for the quarter ended
March 31, 1994 (incorporated herein by reference).
22 List of UAL's subsidiaries (filed as Exhibit 22 to UAL's Annual
Report on Form 10-K for the year ended December 31, 1993, as
amended, and incorporated herein by reference).
23.1 Consent of Arthur Andersen & Co. dated as of May 18, 1994.
</TABLE>
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<TABLE>
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NO. DESCRIPTION PAGE
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<C> <S> <C>
+23.2 Consent of KPMG Peat Marwick dated as of April 11, 1994.
+23.3 Consent of CS First Boston Corporation dated as of April 12,
1994.
+23.4 Consent of Lazard Freres & Co. dated as of April 12, 1994.
+23.5 Consent of American Appraisal Associates, Inc. dated as of
April 11, 1994.
23.6 Consent of Skadden, Arps, Slate, Meagher & Flom, included as
part of Exhibit 5.1.
+23.7 Consent of John F. McGillicuddy.
+23.8 Consent of James J. O'Connor.
+23.9 Consent of Paul E. Tierney.
+23.10 Consent of Gerald Greenwald.
+23.11 Consent of Duane D. Fitzgerald.
+23.12 Consent of Richard D. McCormick.
+23.13 Consent of John K. Van de Kamp.
+23.14 Consent of Paul A. Volcker.
+23.15 Consent of Joseph V. Vittoria.
+23.16 Consent of Captain Roger D. Hall.
+23.17 Consent of John Peterpaul.
+24.1 Power of Attorney.
+24.2 Power of Attorney.
+25.1 Form T-1 of The Bank of New York, with respect to the Series A
Debentures.
+25.2 Form T-1 of The Bank of New York, with respect to the Series B
Debentures.
99.1 Form of Proxy.
+99.2 Opinion of CS First Boston Corporation.
+99.3 Opinion of Lazard Freres & Co.
99.4 Opinion of American Appraisal Associates, Inc. dated as of
March 14, 1994 (filed as Schedule 5.9 to Exhibit 10.1 of UAL's
Form 8-K dated March 28, 1994 and incorporated herein by
reference).
+99.5 Retention Agreement dated January 1, 1994 between Air Line
Pilots Association, International, the International
Association of Machinists and Aerospace Workers and Gerald
Greenwald, attaching Employment Agreement between UAL
Corporation and Gerald Greenwald to be entered into at the
Effective Time.
99.6 Financial Statements of the Covia Partnership (filed as Exhibit
99.1 to UAL's Annual Report on Form 10-K for the year ended
December 31, 1993, as amended, and incorporated herein by
reference).
99.7 Financial Statements of the Galileo International Partnership
together with the report and consent of its independent public
accountants (filed as Exhibit 99.2 to UAL's Annual Report on
Form 10-K for the year ended December 31, 1993, as amended,
and incorporated herein by reference).
99.8 Annual Report on Form 11-K for Employees' Stock Purchase Plan
of UAL (filed as Exhibit 99.3 to UAL's Form 10-K for the year
ended December 31, 1993, as amended, and incorporated herein
by reference).
</TABLE>
- --------
+ Previously filed.
<PAGE>
UAL CORPORATION
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE IN THE
CITY OF NEW YORK
CUSIP
SEE REVERSE FOR CERTAIN DEFINITIONS
This
Certifies
that
is the Owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK
UAL Corporation transferable in person or by duly authorized attorney upon
surrender of this certificate properly endorsed. This certificate and the
shares represented hereby are issued and subject to all the provisions of the
Certificate of Incorporation as amended (copies of which are on file with
Transfer Agent) to all of which the holder hereof by the acceptance of this
certificate assents. This certificate is not valid until countersigned by the
Transfer Agent and registered by the Registrar.
Witness the signatures of its authorized officers.
DATED
COUNTERSIGNED AND REGISTERED
FIRST CHICAGO TRUST COMPANY OF NEW YORK
BY TRANSFER AGENT
AND REGISTRAR
AUTHORIZED OFFICER SECRETARY CHAIRMAN
<PAGE>
UAL CORPORATION
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT Custodian
-------------------------------
(Cost (Minor)
TEN ENT -- as tenants by the entireties under Uniform Gifts to Minors
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common Act___________________
(State
</TABLE>
Additional abbreviations may also be used though not in the above list.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS,
THE POWERS, DESIGNATIONS,PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR
OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE CORPORATION
AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS. SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE SECRETARY OF THE
CORPORATION OR TO THE TRANSFER AGENT.
This certificate also evidences and entities the holder hereof to certain
Rights as set forth in a Rights Agreement between UAL Corporation and Morgan
Shareholder Services Trust Company dated as of December 11, 1986, as amended
(the "Rights Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive offices of
UAL Corporation. Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate certificates and will no
longer be evidenced by this certificate. UAL Corporation will mail to the
holder of this certificate a copy of the Rights Agreement without charge after
receipt of a written request therefor.
For value received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------
- -------------------------
_____________________________________PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS
INCLUDING POSTAL ZIP CODE OR ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
_________. Shares of the capital stock represented by the within Certificate,
and do hereby irrevocably constitute and appoint________________________________
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated, ____________________
NOTICE: THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
CERTIFICATE NUMBER SHARES
SERIES B PREFERRED STOCK
UAL CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
The certificate is transferable in New York
CUSIP
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF SERIES B PREFERRED STOCK OF UAL
CORPORATION
(hereinafter and on the reverse hereof called the "Corporation"), transferable
on the books of the Corporation by the holder hereof, in person or by duly
authorized attorney, upon surrender of this Certificate properly endorsed. This
Certificate and the shares represented hereby are issued and shall be held
subject to all of the provisions of the Restated Certificate of Incorporation of
the Corporation (copies of which are on file with the Transfer Agent), to all of
which the holder by acceptance hereof assents. This Certificate is not valid
unless countersigned by the Transfer Agent and registered by the Registrar.
WITNESS the facsimile signatures of its duly authorized officers
COUNTERSIGNED AND REGISTERED
FIRST CHICAGO TRUST COMPANY OF NEW YORK
BY TRANSFER AGENT Attest By
AND REGISTRAR
Vice President and Chairman and
Secretary Chief Executive Officer
<PAGE>
UAL CORPORATION
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT Custodian
----------------------------------
(Cost (Minor)
TEN ENT -- as tenants by the entireties under Uniform Gifts to Minors
JT TEN -- as joint tenants with right of
survivorship and not as tenants Act______________________
in common (State
</TABLE>
Additional abbreviations may also be used though not in the above list.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS,
THE POWERS, DESIGNATIONS,PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR
OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE CORPORATION
AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS. SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE SECRETARY OF THE
CORPORATION OR TO THE TRANSFER AGENT.
For value received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OR ASSIGNEE
- ----------------------------
- ----------------------------
_______________________________________________________________. Shares of the
capital stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated, ____________________
NOTICE: THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
2
<PAGE>
CERTIFICATE NUMBER SHARES
SERIES D REDEEMABLE PREFERRED STOCK
UAL CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
The certificate is transferable in New York
CUSIP
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF SERIES D REDEEMABLE PREFERRED STOCK OF
UAL CORPORATION
(hereinafter and on the reverse hereof called the "Corporation"), transferable
on the books of the Corporation by the holder hereof, in person or by duly
authorized attorney, upon surrender of this Certificate properly endorsed. This
Certificate and the shares represented hereby are issued and shall be held
subject to all of the provisions of the Restated Certificate of Incorporation of
the Corporation (copies of which are on file with the Transfer Agent), to all of
which the holder by acceptance hereof assents. This Certificate is not valid
unless countersigned by the Transfer Agent and registered by the Registrar.
WITNESS the facsimile signatures of its duly authorized officers
COUNTERSIGNED AND REGISTERED
FIRST CHICAGO TRUST COMPANY OF NEW YORK
BY TRANSFER AGENT Attest By
AND REGISTRAR
Vice President and Chairman and
Secretary Chief Executive Officer
<PAGE>
UAL CORPORATION
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT Custodian
---------------------
(Cost (Minor)
under Uniform Gifts to Minors
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as
tenants in common Act
--------------------
(State)
Additional abbreviations may also be used though not in the above list.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS,
THE POWERS, DESIGNATIONS,PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR
OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE CORPORATION
AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS. SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE SECRETARY OF THE
CORPORATION OR TO THE TRANSFER AGENT.
For value received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OR ASSIGNEE
// //
____________________________________________________________. Shares of the
capital stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated, ____________________
NOTICE: THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
June 10, 1994
UAL Corporation
United Air Lines, Inc.
1200 East Algonquin Road
Elk Grove Township, IL 60007
Re: (i) UAL Corporation Common Stock, par value $.01 per share, (ii)
UAL Corporation Series D Redeemable Preferred Stock, without par
value, (iii) UAL Corporation Depositary Shares, (iv) UAL
Corporation Series B Preferred Stock, without par value, (v)
United Air Lines, Inc. Series A Debentures due 2004 and (vi)
United Air Lines, Inc. Series B Debentures due 2014
-----------------------------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to UAL Corporation, a Delaware
corporation ("UAL"), and United Air Lines, Inc., a Delaware corporation
("United"), in connection with (i) the proposed recapitalization (the
"Recapitalization") of UAL pursuant to terms and conditions of the Amended and
Restated Agreement and Plan of Recapitalization, dated as of March 25, 1994,
as amended by the First Amendment to the Agreement and Plan of
Recapitalization, dated as of June 2, 1994 (as so amended, the "Plan of
Recapitalization"), among UAL, the Air Line Pilots Association, International
and the International Association of Machinists and Aerospace Workers, (ii)
the Registration Statement, as amended through the date hereof, on Form S-4
(the "Form S-4") (Registration No. 33-53107), filed by UAL and United with the
Securities and Exchange Commission (the "Commission") with respect to the
Recapitalization described more fully below, (iii)
<PAGE>
UAL Corporation
United Air Lines, Inc.
June 10, 1994
Page 2
the Registration Statement, as amended through the date hereof, on Form S-3
("UAL Form S-3") (Registration No. 33-53893), filed by UAL with the Commission
with respect to the sale of 30,600,000 Depositary Shares (the "Depositary
Shares"), each representing one one-thousandth of a share of Series B Preferred
Stock, without par value (the "Series B Preferred Stock"), of UAL (the "UAL
Preferred Offering") and (iv) the Registration Statement, as amended through
the date hereof, on Form S-3 ("United Form S-3") (Registration No. 33-53891),
filed by United with the Commission with respect to the sale of $382,500,000
principal amount of Series A Debentures due 2004 of United (the "Series A
Debentures") and $382,500,000 principal amount of Series B Debentures due 2014
of United (the "Series B Debentures" and, together with the Series A Debentures,
the "Debentures") (the "United Debenture Offering"). The Form S-4 relates,
among other things, to the Recapitalization, pursuant to which each share of
Common Stock, par value $5.00 per share, of UAL that is currently outstanding
will be reclassified into one half of a share of Common Stock, par value $.01
per share (the "New Shares"), of UAL and one one-thousandth of a share of
Series D Redeemable Preferred Stock, without par value (the "Series D
Redeemable Preferred Stock"), of UAL. Subject to the provisions described
below, immediately after issuance, each one-thousandth of a share of Series D
Redeemable Preferred Stock will be redeemed by UAL for (a) $25.80 in cash, (b)
depositary receipts (the "Depositary Receipts") evidencing 1.244 Depositary
Shares (representing an aggregate of $31.10 liquidation preference of Series B
Preferred Stock), (c) $15.55 principal amount of Series A Debentures and (d)
$15.55 principal amount of Series B Debentures.
UAL and United are registering, pursuant to the Form S-4 in connection
with the Recapitalization, an aggregate of 14,463,093 New Shares, 35,985 shares
of Series B Preferred Stock, 35,984,175 Depositary Shares, 28,927 shares of
Series D Redeemable Preferred Stock, $449,802,200 principal amount of the Series
A Debentures and $449,802,200 principal amount of the Series B Debentures.
<PAGE>
UAL Corporation
United Air Lines, Inc.
June 10, 1994
Page 3
If the Depositary Shares are sold pursuant to the UAL Preferred
Offering, the terms of the Series D Redeemable Preferred Stock will be adjusted
(i) to provide that the Depositary Shares will not be issued upon redemption of
the Series D Redeemable Preferred Stock and (ii) to increase the amount of cash
to be paid upon such redemption by an amount equal to the proceeds (without
deducting the underwriting discount or any other costs) from the sale by UAL of
such Depositary Shares pursuant to the UAL Preferred Offering.
If the Series A Debentures are sold pursuant to the United Debenture
Offering, the terms of the Series D Redeemable Preferred Stock will be adjusted
(i) to provide that the Series A Debentures will not be issued upon redemption
of the Series D Redeemable Preferred Stock and (ii) to increase the amount of
cash to be paid upon such redemption by an amount equal to the proceeds (without
deducting the underwriting discount or any other costs) from the sale by United
of such Series A Debentures pursuant to the United Debenture Offering.
If the Series B Debentures are sold pursuant to the United Debenture
Offering, the terms of the Series D Redeemable Preferred Stock will be adjusted
(i) to provide that the Series B Debentures will not be issued upon redemption
of the Series D Redeemable Preferred Stock and (ii) to increase the amount of
cash to be paid upon such redemption by an amount equal to the proceeds (without
deducting the underwriting discount or any other costs) from the sale by United
of such Series B Debentures pursuant to the United Debenture Offering.
This opinion is delivered in accordance with the requirements of Items
601(b)(5) and (7) of Regulation S-K under the Securities Act of 1933 (the "1933
Act").
In connection with this opinion, we have examined and are familiar
with originals or copies, certified or otherwise identified to our satisfaction,
of (i) the Restated Certificate of Incorporation of UAL as certified by the
Secretary of State of the State of Delaware and
<PAGE>
UAL Corporation
United Air Lines, Inc.
June 10, 1994
Page 4
the Bylaws of UAL as currently in effect, (ii) the proposed Amended and
Restated Certificate of Incorporation of UAL (the "Proposed Amended and Restated
Certificate") and the proposed Restated Bylaws (the "Proposed Restated Bylaws")
of UAL, (iii) the Plan of Recapitalization, (iv) the Restated Certificate of
Incorporation of United as certified by the Secretary of State of the State of
Delaware (the "United Restated Certificate") and the Bylaws of United as
currently in effect, (v) the proposed amendment to the United Restated
Certificate, (the "Proposed Amendment to the United Restated Certificate"),
(vi) the Indenture, dated as of July 1, 1991, between United, as issuer, and The
Bank of New York, as Trustee (the "Indenture"), pursuant to which the Debentures
will be issued and the United Officers' Certificate (the "Officers'
Certificate"), to be delivered to the Trustee pursuant to the Indenture, that
defines the terms of the Debentures, (vii) the forms of the Debentures, (viii)
resolutions adopted to date by the Board of Directors of United relating to the
authorization, execution and delivery of the Indenture, (ix) resolutions adopted
to date by the Board of Directors of UAL and the Board of Directors of United
relating to the Recapitalization and related transactions, (x) the Form S-4,
(xi) the form of the deposit agreement (the "Deposit Agreement") to be entered
into among UAL, a depositary to be appointed by UAL (the "Depositary") and the
holders from time to time of Depositary Receipts issued thereunder to evidence
Depositary Shares, including the form of Depositary Receipt included as Annex
A to the Deposit Agreement, and (xii) such other documents as we have deemed
necessary or appropriate as the basis for this opinion.
In our examination, we have assumed the genuineness of all
signatures, the legal capacity of all natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies, and
the authenticity of the originals of such copies. We have further assumed that
both UAL and United have been duly organized and are validly existing and in
good standing under the laws of
<PAGE>
UAL Corporation
United Air Lines, Inc.
June 10, 1994
Page 5
the State of Delaware. As to any facts material to this opinion which we did
not independently establish or verify, we have relied upon statements or
representations of officers and other representatives of UAL, United and others.
Members of our firm are admitted to the Bar in the States of Delaware
and New York and we express no opinion as to the laws of any other jurisdiction
except the laws of the United States of America to the extent specifically
referred to herein.
We express no opinion herein as to whether the securities that are
subject to this opinion or the Indenture, any of the transactions contemplated
thereby or by the Recapitalization or the financing of the Recapitalization, or
the use of proceeds from the sale of the securities that are subject to this
opinion may constitute a fraudulent conveyance or what effect a finding to that
effect would have on the validity or enforceability of the securities that are
the subject of this opinion or the Indenture.
This opinion is being furnished in connection with the Form S-4 and
assumes that the Debentures, the Depositary Shares and the Series B Preferred
Stock will be issued upon the redemption of the Series D Redeemable Preferred
Stock and not pursuant to the United Debentures Offering and the UAL Preferred
Offering, respectively.
Based upon the foregoing and subject to the qualifications set forth
below, we are of the opinion that:
1. With respect to the Series A Debentures and the Series B
Debentures, when (i) the Form S-4, as finally amended (including all necessary
post-effective amendments), has become effective, (ii) the Board of Directors of
United, including any appropriate committee appointed thereby, and appropriate
officers of United have taken all necessary corporate action to approve the Plan
of Recapitalization and all the transactions contem-
<PAGE>
UAL Corporation
United Air Lines, Inc.
June 10, 1994
Page 6
plated thereby including the issuance and terms of the Debentures and related
matters, (iii) the Indenture has been qualified under the Trust Indenture Act of
1939, as amended, (iv) the Officers' Certificate has been duly authorized,
executed and delivered by United to the Trustee, (v) the shareholders of UAL
have approved the Recapitalization and related matters and the other conditions
of the Plan of Recapitalization are satisfied or waived, (vi) the terms of the
Debentures and their issuance have been duly established in conformity with the
Plan of Recapitalization, the Proposed Amended and Restated Certificate, the
Indenture and the Officers' Certificate so as not to violate any applicable
law, the United Restated Certificate, the Proposed Amendment to the United
Restated Certificate or the Bylaws of United or result in a default under or
breach of any agreement or instrument binding upon United and so as to comply
with any requirement or restriction imposed by any court or governmental body
having jurisdiction over United and (vii) the Debentures have been duly executed
and authenticated in accordance with the provisions of the Indenture and the
Officers' Certificate and duly delivered in the manner provided in the Indenture
and the Officers' Certificate, the Form S-4, the Plan of Recapitalization and
the Proposed Amended and Restated Certificate, the Debentures will be, valid and
binding obligations of United enforceable against United in accordance with
their respective terms, except to the extent that enforcement may be limited by
(1) bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights generally and (2) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity).
2. With respect to the New Shares, when (i) the Form S-4, as finally
amended (including all necessary post-effective amendments), has become
effective, (ii) the filing of the Proposed Amended and Restated Certificate
with Secretary of State of the State of Delaware has duly occurred, (iii) the
Board of Directors of UAL, including any appropriate committee appointed
thereby,
<PAGE>
UAL Corporation
United Air Lines, Inc.
June 10, 1994
Page 7
and appropriate officers of UAL have taken all necessary corporate action to
approve the Plan of Recapitalization and all the transactions contemplated
thereby including the issuance of the New Shares and related matters, (iv) the
shareholders of UAL have approved the Recapitalization and related matters and
the other conditions of the Plan of Recapitalization are satisfied or waived,
(v) the New Shares have been duly issued in conformity with the Plan of
Recapitalization, the Proposed Amended and Restated Certificate and Proposed
Restated Bylaws so as not to violate any applicable law, the Proposed Amended
and Restated Certificate and the Proposed Restated Bylaws or result in a default
under or breach of any agreement or instrument binding upon UAL and so as to
comply with any restriction imposed by any court or governmental body having
jurisdiction over UAL and (vi) certificates representing the New Shares in
accordance with the applicable provision of the Delaware General Corporation
Law, 8 Del.C. (S) 158 and Article 6, Section 6.1 of the Proposed Restated
Bylaws are approved by the Board of Directors of UAL and are duly executed,
countersigned, registered and delivered in the manner provided in the Form S-
4, the Plan of Recapitalization and the Proposed Amended and Restated
Certificate, the New Shares will be duly authorized and, upon issuance, will
be validly issued, fully paid and non-assessable.
3. With respect to the Series D Redeemable Preferred Stock, when (i)
the Form S-4, as finally amended (including all necessary post-effective
amendments), has become effective, (ii) the filing of the Proposed Amended and
Restated Certificate with the Secretary of State of the State of Delaware has
duly occurred, (iii) the Board of Directors of UAL, including any appropriate
committee appointed thereby, and appropriate officers of UAL have taken all
necessary corporate action to approve the Plan of Recapitalization and all the
transactions contemplated thereby including the issuance and terms of the Series
D Redeemable Preferred Stock and related matters, (iv) the shareholders of UAL
have approved the Recapitalization and related matters and the other conditions
to the Plan of Recapitalization are satisfied or
<PAGE>
UAL Corporation
United Air Lines, Inc.
June 10, 1994
Page 8
waived, (v) the terms of Series D Redeemable Preferred Stock and its issuance
have been duly established in conformity with the Plan of Recapitalization, the
Proposed Amended and Restated Certificate and Proposed Restated Bylaws so as not
to violate any applicable law, the Proposed Amended and Restated Certificate and
the Proposed Restated Bylaws or result in a default under or breach of any
agreement or instrument binding upon UAL and so as to comply with any
restriction imposed by any court or governmental body having jurisdiction over
UAL and (vi) certificates representing the Series D Redeemable Preferred Stock
in accordance with the applicable provisions of the Delaware General
Corporation Law, 8 Del.C. (S) 158 and Article 6, Section 6.1 of the Proposed
Restated Bylaws are approved by the Board of Directors of UAL and are duly
executed, countersigned and registered in accordance with the terms of the
Form S-4, the Plan of Recapitalization and the Proposed Amended and Restated
Certificate, the Series D Redeemable Preferred Stock will be duly authorized
and, upon issuance, will be validly issued, fully paid and non-assessable.
4. With respect to the Series B Preferred Stock, when (i) the Form
S-4, as finally amended (including all necessary post-effective amendments),
has become effective, (ii) the filing of the Proposed Amended and Restated
Certificate with the Secretary of State of the State of Delaware has duly
occurred, (iii) the Board of Directors of UAL, including any appropriate
committee appointed thereby, and appropriate officers of UAL have taken all
necessary corporate action to approve the Plan of Recapitalization and all the
transactions contemplated thereby including issuance and terms of the Series B
Preferred Stock and related matters, (iv) the shareholders of UAL have approved
the Recapitalization and related matters and the other conditions to the Plan of
Recapitalization are satisfied or waived, (v) the terms of the Series B
Preferred Stock and its issuance have been duly established in conformity with
the Plan of Recapitalization, the Proposed Amended and Restated Certificate and
Proposed Restated Bylaws so as not to violate any applicable law, the Proposed
Amended and Restated Certificate
<PAGE>
UAL Corporation
United Air Lines, Inc.
June 10, 1994
Page 9
and the Proposed Restated Bylaws or result in a default under or breach of any
agreement or instrument binding upon UAL and so as to comply with any
restriction imposed by any court or governmental body having jurisdiction over
UAL and (vi) certificates representing the Series B Preferred Stock in
accordance with the applicable provisions of the Delaware General Corporation
Law, 8 Del.C. (S) 158 and Article 6, Section 6.1 of the Proposed Restated
Bylaws are approved by the Board of Directors of UAL and are duly executed,
countersigned, registered and delivered to the Depositary against delivery of
Depositary Shares in the manner provided in the Form S-4, the Plan of
Recapitalization and the Proposed Amended and Restated Certificate, the Series
B Preferred Stock will be duly authorized and, upon issuance, will be validly
issued, fully paid and non-assessable.
5. With respect to the Depositary Shares, when (i) the Form S-4, as
finally amended (including all necessary post-effective amendments), has become
effective, (ii) the filing of the Proposed Amended and Restated Certificate
with the Secretary of State of the State of Delaware has duly occurred, (iii)
the shareholders of UAL have approved the Recapitalization and related matters
and the other conditions of the Plan of Recapitalization are satisfied or
waived, (iv) the Board of Directors of UAL, including any appropriate committee
appointed thereby, and appropriate officers of UAL have taken all necessary
corporate action to approve the Plan of Recapitalization and all the
transactions contemplated thereby including the issuance and terms of the
Depositary Shares and related matters, including the Deposit Agreement, (v) the
Deposit Agreement has been duly executed and delivered, (vi) the terms of the
Depositary Shares and their issuance have been duly established in conformity
with the Plan of Recapitalization, the Proposed Amended and Restated
Certificate and the Deposit Agreement so as not to violate any applicable law,
the Proposed Amended and Restated Certificate and the Proposed Restated Bylaws
or result in a default under or breach of any agreement or instrument binding
upon UAL and so as to comply with any restriction imposed by any
<PAGE>
UAL Corporation
United Air Lines, Inc.
June 10, 1994
Page 10
court or governmental body having jurisdiction over UAL and (vii) the shares of
Series B Preferred Stock that are to be represented by Depositary Shares have
been duly authorized, validly issued and duly delivered to the Depositary for
deposit pursuant to the Deposit Agreement and (viii) the Depositary Receipts are
duly executed, countersigned and delivered against the deposit of the Series B
Preferred Stock in accordance with the Deposit Agreement in the manner provided
in the Form S-4, the Plan of Recapitalization and the Proposed Amended and
Restated Certificate, such Depositary Shares represented by the Depositary
Receipts will be validly issued and will entitle the holders thereof to the
rights specified therein and in the Deposit Agreement.
6. The Proposed Amended and Restated Certificate provides that in
the event of a liquidation, dissolution or winding up of the affairs of UAL,
whether voluntary or involuntary, each holder of Series B Preferred Stock shall
be entitled to receive out of the net assets of UAL available for distribution
to its stockholders an amount equal to $25,000 per share before any
distribution shall be made to the holders of the UAL's New Shares or any other
class of stock or series thereof ranking junior to the Series B Preferred Stock
with respect to the distribution of assets.
7. There is no provision in the Proposed Amended and Restated
Certificate which purports to restrict the surplus of UAL by reason of the
excess of the liquidation preference of the Series B Preferred Stock over its
par value. The applicable provisions of the Delaware General Corporation Law, 8
Del.C. (S)(S) 154 and 170(a), which define capital and surplus of a Delaware
corporation available for the payment of dividends, do not purport to restrict
such surplus by reason of any such excess. Moreover, we are not aware of any
applicable provisions of the Constitution of the State of Delaware nor any
controlling Delaware case law which would suggest that surplus would be
restricted by the excess of the liquidation preference over the par value of the
Series B Preferred Stock.
<PAGE>
UAL Corporation
United Air Lines, Inc.
June 10, 1994
Page 11
Accordingly, while there are no authorities specifically addressing
this issue, we are of the opinion (i) that there should be no restriction upon
the surplus of UAL available for the payment of dividends on any outstanding
capital stock of UAL solely by reason of the fact that the liquidation
preference of the Series B Preferred Stock exceeds the par value of such shares
and (ii) that no remedy should be available to the holders of the Series B
Preferred Stock before or after payment of any dividend solely because such
dividend would reduce the surplus of UAL to an amount less than the amount of
such excess, assuming that the payment of such dividend is in accordance with
the provisions of the Delaware General Corporation Law and the Proposed Amended
and Restated Certificate.
We hereby consent to the use of this opinion as an exhibit to the Form
S-4 and to the reference to our firm under the heading "Legal Opinion" in the
Form S-4. In giving such consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the 1933 Act.
Very truly yours,
Skadden, Arps, Slate
Meagher & Flom
<PAGE>
June 10, 1994
UAL Corporation
United Air Lines, Inc.
1200 East Algonquin Road
Elk Grove Township, IL 60007
Dear Ladies and Gentlemen:
We have acted as special counsel to UAL Corporation ("UAL") and United Air
Lines, Inc. ("United"), each a Delaware corporation, in connection with the
Recapitalization, as defined and described in Amendment No. 3 to Form S-4
Registration Statement dated June 10, 1994, which includes the Proxy
Statement/Joint Prospectus, as amended (the "Registration Statement") (unless
otherwise indicated each defined term has the meaning ascribed to it in the
Registration Statement).
Under the Recapitalization, each Old Share that is outstanding at the
Effective Time would be converted into, and become a right to receive:
(a) if the Offerings are consummated, (1) one half (0.5) of a share
of new common stock, par value $0.01 per share, of UAL ("New Share") and (2)
cash in an amount equal to the sum of (I) $25.80, (II) the proceeds (without
deducting the underwriting discount or other costs) from the sale by United of
$15.55 principal amount of Series A Debentures due 2004 and $15.55 principal
amount of Series B Debentures due 2014 from the United Debt Offerings and
(III) the proceeds (without deducting the underwriting discount or other
costs) from the sale by UAL of 1.244 depositary shares representing interests
in $31.10 liquidation preference of UAL's Series B Preferred Stock, without
par value, from the UAL Preferred Offering; or
<PAGE>
UAL Corporation
United Air Lines, Inc.
1200 East Algonquin Road
Elk Grove Township, IL 60007
June 10, 1994
Page 2
(b) if the Offerings are not consummated, (1) one half (0.5) of a
New Share, (2) $25.80 in cash, (3) $15.55 principal amount of Series A
Debentures, (4) $15.55 principal amount of Series B Debentures and (5)
Depositary Preferred Shares representing interests in $31.10 liquidation
preference of Public Preferred Stock.
As counsel to UAL and United, we have assisted in the preparation of the
Registration Statement filed with the Securities and Exchange Commission on June
10, 1994, under the Securities Act of 1933, as amended. In connection with this
opinion, we have examined and are familiar with originals and copies certified
or otherwise identified to our satisfaction, of (i) the Registration Statement
and (ii) such other documents as we have deemed necessary or appropriate in
order to enable us to render the opinion below. In our examination, we have
assumed the legal capacity of all natural persons, the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies, and the authenticity of the originals of such latter
documents.
Based upon and subject to (i) the Recapitalization being consummated in
the manner described in the Registration Statement, (ii) the accuracy of the
facts concerning the Recapitalization that have come to our attention during our
engagement and (iii) certain representations made by UAL and United in
connection with the issuance of our opinion, the description contained in the
Proxy Statement/Joint Prospectus, included in the Registration Statement, under
the heading "Certain Federal Income Tax Consequences," although general in
nature, fairly and accurately sets forth our opinion as to the matters addressed
therein. We express no opinion as to whether such description addresses all of
the U.S. federal income tax consequences of the Recapitalization that may be
applicable to any particular stockholder, UAL or
<PAGE>
UAL Corporation
United Air Lines, Inc.
1200 East Algonquin Road
Elk Grove Township, IL 60007
June 10, 1994
Page 3
United. In addition, we express no opinion as to the U.S. federal, state, or
local, or foreign or other tax consequences, other than as set forth in the
Proxy Statement/Joint Prospectus, included in the Registration Statement, under
the heading "Certain Federal Income Tax Consequences."
This letter is furnished to you solely for use in connection with the
Recapitalization, as described in the Registration Statement, and is not to be
used, circulated, quoted, or otherwise referred to for any other purposes
without our express written permission.
We hereby consent to the use of this opinion as an exhibit to the Form S-4
and to the reference to our firm under the heading "Certain Federal Income Tax
Consequences" in the Form S-4. In giving such consent, we do not thereby admit
that we are in the category of persons whose consent is required under Section 7
of the 1933 Act.
Very truly yours,
Skadden, Arps, Slate
Meagher & Flom
<PAGE>
EXHIBIT 12.1
UAL CORPORATION AND SUBSIDIARY COMPANIES
CALCULATION OF PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
TWELVE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1993 MARCH 31, 1994
------------------- ------------------
<S> <C> <C>
Earnings:
Earnings (loss) before income taxes.... $ (58) $(87)
Fixed charges, from below.............. 1,177 274
Interest capitalized................... (51) (10)
------ ----
Earnings............................... $1,068 $177
====== ====
Fixed Charges:
Interest expense....................... $ 431 $101
Portion of rental expense
representative of the interest factor. 746 173
------ ----
Fixed charges........................ $1,177 $274
====== ====
Pro forma ratio of earnings to fixed
charges................................ (a) (a)
====== ====
</TABLE>
- --------
(a) Earnings were inadequate to cover fixed charges by $109 million for the
twelve months ended December 31, 1993 and $97 million for the three months
ended March 31, 1994.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated February 23,
1994, included in the UAL Corporation Form 10-K for the year ended December 31,
1993, and the United Air Lines, Inc. Form 10-K for the year ended December 31,
1993, and to all references to our Firm included in this registration
statement.
Arthur Andersen & Co.
Chicago, Illinois
June 10, 1994
<PAGE>
PROXY
UAL Corporation
This Proxy is Solicited on Behalf of
the Board of Directors of UAL Corporation
- --------------------------------------------------------------------------------
The undersigned, having received the Notice of Meeting and Proxy
Statement/Joint Prospectus, hereby appoints Stephen M. Wolf, John F.
McGillicuddy and James J. O'Connor, and each of them, as proxies with full
power of substitution, for and in the name of the undersigned, to vote all
shares of Common Stock of UAL Corporation owned of record by the undersigned
on the matters listed on the reverse side hereof and, in their discretion, on
such other matters as may properly come before the Meeting of Stockholders to
be held at the Fairmont Hotel, 200 North Columbus Drive, Chicago, Illinois on
July 12, 1994, at 8:30 a.m., local time, and any adjournments thereof, unless
otherwise specified herein. The proxies, in their discretion, are further
authorized to vote for the election of a person as a Public Director to the
Board of Directors in substitution for any nominee named herein who becomes
unable to serve, are further authorized to vote on matters which the Board of
Directors does not know a reasonable time before making the proxy solicitation
will be presented at the meeting, and are further authorized to vote on other
matters which may properly come before the Meeting of Stockholders and any
adjournments thereof.
You are encouraged to specify your choices by marking -----------
the appropriate boxes (SEE REVERSE SIDE), but you need SEE REVERSE
not mark any boxes if you wish to vote in accordance SIDE
with the Board of Directors' recommendations. The -----------
proxies cannot vote your shares unless you sign and
return this card.
ELECTION OF PUBLIC DIRECTORS
Nominees for Election as Public Directors:
John F. McGillicuddy, James J. O'Connor, Paul E. Tierney and Gerald Greenwald.
If you plan to attend the Meeting of Stockholders in person, please mark
the appropriate box on the reverse side of this card.
- ---------- ----------- ----------- ----------- -----------
FOLD AND DETACH HERE
Come Fly The Airline That's Uniting The World.
Come Fly The Friendly Skies.
[LOGO OF UNITED AIRLINES APPEARS HERE]
<PAGE>
X PLEASE MARK YOUR 1447
VOTES AS IN THIS
EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" ALL OF THE BOARD OF
DIRECTORS' NOMINEES FOR PUBLIC DIRECTOR, "FOR" PROPOSALS 1, 2, 3, 5, 6, 7 AND 8
AND "AGAINST" PROPOSALS 9, 10 AND 11.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3, 4, 5, 6, 7 AND
8.
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
1. Approval of the Plan of Recapitalization. / / / / / /
2. Adoption of the Restated Certificate of
Incorporation and Bylaws, as amended. / / / / / /
3. Approval of the issuance of certain classes
of preferred stock* / / / / / /
FOR WITHHELD
4. Election of four Public Director / / / /
nominees (see reverse side for
list of nominees).
For, except vote withheld from the following nominee(s):
FOR AGAINST ABSTAIN
5. Amendment of the 1981 Incentive Stock Program. / / / / / /
6. Amendment of the 1988 Restricted Stock Plan. / / / / / /
7. Amendment of the Incentive Compensation Plan. / / / / / /
8. Ratification of the selection of Arthur
Andersen & Co. as the independent accountants. / / / / / /
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSALS 9, 10 AND 11.
- --------------------------------------------------------------------------------
9. Proposal on cumulative voting. / / / / / /
10. Proposal on contingent executive
compensation agreements. / / / / / /
11. Proposal on confidential voting. / / / / / /
Yes No
DO YOU PLAN TO ATTEND THE MEETING OF STOCKHOLDERS
IN PERSON? / / / /
- ----------------------
* The classes of preferred stock to be issued are: (a) Class 1 ESOP
Convertible Preferred Stock, (b) Class 2 ESOP Convertible Preferred
Stock, (c) Class P ESOP Voting Junior Preferred Stock, Class M ESOP Voting
Junior Preferred Stock and Class S ESOP Voting Junior Preferred Stock, (d)
Class I Junior Preferred Stock, (e) Class Pilot MEC Junior Preferred Stock, (f)
Class IAM Junior Preferred Stock and (g) Class SAM Junior Preferred Stock.
Proposal 2 is subject to and conditioned upon approval of Proposal 1,
and Proposals 3, 4, 5, 6 and 7 are subject to and conditioned upon approval of
Proposals 1 and 2.
SIGNATURE(S) ________________________________ DATE ____________________ , 1994
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. The signer hereby revokes all proxies heretofore given by
the signer to vote at said meeting or any adjournments thereof. It is important
that your shares are represented at this meeting, whether or not you attend the
meeting in person. To make sure your shares are represented, we urge you to
complete and mail this proxy card.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
ADMISSION TICKET
-------------------------------------
MEETING OF STOCKHOLDERS
OF UAL CORPORATION
July 12, 1994
8:30 a.m.
Imperial Ballroom
Fairmont Hotel
200 North Columbus Drive
Chicago, Illinois
--------------------------------
