SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FINAL AMENDMENT TO
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT
OF 1934 AND RULE 13E-3 THEREUNDER)
UAL CORPORATION
(NAME OF ISSUER)
UAL CORPORATION AND UNITED AIR LINES, INC.
(NAME OF PERSONS FILING STATEMENT)
COMMON STOCK, PAR VALUE $5 PER SHARE, OF UAL
(TITLE OF CLASS OF SECURITIES)
902549 5 10 4
(CUSIP NUMBERS OF CLASSES OF SECURITIES)
FRANCESCA A. MAHER, ESQ.
UAL CORPORATION
P.O. BOX 66100
CHICAGO, ILLINOIS 60666
(708) 952-4000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO
RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF PERSONS FILING
STATEMENT)
COPIES TO:
PETER ALLAN ATKINS, ESQ.
THOMAS H. KENNEDY, ESQ.
ERIC L. COCHRAN, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
This statement is filed in connection with (check the appropriate box):
a. x the filing of solicitation materials or an information
statement subject to Regulation 14A, Regulation 14C, or
Rule 13e-3(c) under the Securities Exchange Act of
1934.
b. x The filing of a registration statement under the
Securities Act of 1933.
c. A tender offer.
d. None of the above.
Check the following box if the soliciting materials or
information statement referred to in checking box (a) are
preliminary copies. __
INTRODUCTION
This Final Amendment to Schedule 13E-3 relates to a
recapitalization (the "Recapitalization") of UAL Corporation, a
Delaware corporation (the "Company" or "UAL"), pursuant to the
Amended and Restated Agreement and Plan of Recapitalization,
dated as of March 25, 1994 (as amended, the "Plan of
Recapitalization"), among UAL, the Air Line Pilots Association,
International ("ALPA") and the International Association of
Machinists and Aerospace Workers (the "IAM"). The Plan of
Recapitalization was approved and adopted by shareholders of UAL
on July 12, 1994 and became effective on the same date. Under
the Plan of Recapitalization, each share of Common Stock, par
value $5 per share, of the Company (the "Old Shares") that was
outstanding at the Effective Time (as defined in the Plan of
Recapitalization) became a right to receive: (a) $84.81 in cash
and (b) one half (0.5) of a share of new Common Stock, par value
$0.01 per share, of the Company (the "New Shares"). In addition,
the Plan of Recapitalization provides for (1) certain amendments
to the Company's Certificate of Incorporation and Bylaws that
will, among other things, effectuate the Recapitalization and put
into place the revised corporate governance structure
contemplated by the Plan of Recapitalization and (2) the issuance
of new classes of preferred stock that will (a) transfer
approximately 55% (which, under certain circumstances may be
increased, to up to a maximum of approximately 63%) of the common
equity and voting power of the Company to employee stock
ownership plans to be established for the benefit of certain
groups of employees and (b) effectuate the corporate governance
structure referred to above, among other things, by permitting
different constituent groups to elect members of the Company's
Board of Directors.
In connection with the Plan of Recapitalization, UAL
completed the public offering of 16,416,000 depositary shares
(the "Depository Shares"), each representing 1/1,000 of a share
of 12-1/4% Series B Preferred Stock of UAL (the equivalent of $25
liquidation preference of Series B Preferred Stock per Depositary
Share) (the "Series B Preferred Stock"), and United Air Lines,
Inc. ("United") completed the public offering of $370,200,000
10.67% Series A Debentures due 2004 (the "Series A Debentures")
of United and the public offering of $371,000,000 11.21% Series B
Debentures due 2014 of United (the "Series B Debentures" and,
together with the Series A Debentures, the "Debentures").
The Plan of Recapitalization further provides for certain
amendments to the existing ALPA collective bargaining agreement
and IAM collective bargaining agreements and the creation of a
salaried and management employees cost reduction program, all of
which became effective at the Effective Time and are estimated to
provide United with $8.2 billion in improved operating earnings
over a twelve year period with a net present value of
approximately $4.9 billion. Furthermore, certain employee
benefit plans maintained by the Company and United are being
amended to permit employees to acquire substantial amounts of the
New Shares, Series B Preferred Stock and the Debentures.
The Plan of Recapitalization is incorporated by reference as
Exhibit 2.1 to Amendment No. 3 to the Registration Statement on
Form S-4 (the "Registration Statement"), filed by UAL and United
with the Securities and Exchange Commission (the "Commission") on
June 10, 1994 from Exhibit 10.1 to UAL's Form 8-K dated June 3,
1994. The Plan of Recapitalization was amended by an amendment
dated as of June 29, 1994 filed as Exhibit 1 to the July 1, 1994
Supplement to the Proxy Statement/Joint Prospectus dated June 10,
1994 filed with the Commission on July 5, 1994 (the "Prospectus
Supplement"). A copy of the Prospectus Supplement is attached
hereto as Exhibit 20.1.
This Final Amendment to Schedule 13E-3 is being filed
jointly by UAL and United. By filing this Schedule 13E-3,
neither UAL nor United concedes that Rule 13e-3 under the
Securities Exchange Act of 1934 is applicable to the
Recapitalization or any other transactions contemplated by the
Plan of Recapitalization.
The information set forth in the Registration Statement and
Amendment No. 3 to the Registration Statement, including the Plan
of Recapitalization and other exhibits, is incorporated in its
entirety herein by reference.
Pursuant to General Instruction H to Schedule 13E-3, this
Final Amendment omits information previously disclosed in this
Schedule 13E-3.
Item 3. Past Contacts, Transactions or Negotiations
Item 3(a)(2) of the Schedule 13E-3 is hereby amended and
supplemented as follows:
At the meeting held on July 12, 1994, the shareholders
of UAL voted to approve and adopt the Plan of
Recapitalization and related transactions and UAL filed a
Restated Certificate of Incorporation with the Secretary of
State of the State of Delaware. As a result, the Plan of
Recapitalization became effective on July 12, 1994.
Item 4. Terms of the Transaction
Item 4(a) of the Schedule 13E-3 is hereby amended and
supplemented as follows:
The Company entered into a Second Amendment to the Plan
of Recapitalization dated as of June 29, 1994. Such
amendment was filed as Exhibit 1 to the Prospectus
Supplement a copy of which is attached hereto as Exhibit
20.1.
Item 5. Plans or Proposals of the Issuers or Affiliates
Item 5(a) of the Schedule 13E-3 is hereby amended and
supplemented as follows:
The Plan of Recapitalization and related transactions
were consummated on July 12, 1994.
Item 5(b) of the Schedule 13E-3 is hereby amended and
supplemented as follows:
The Company has filed a Certificate and Notice of
Termination of Registration under Section 12(g) of the
Securities Exchange Act of 1934 on Form 15 relating to the
Old Shares.
Item 6. Source and Amount of Funds and Other Consideration
Item 6(a) of the Schedule 13E-3 is hereby amended and
supplemented as follows:
The $84.81 in cash paid to holders of Old Shares was
funded as follows: $38.00 from the Company's existing cash
resources, $15.05 from the sale of the Series A Debentures,
$15.08 from the sale of the Series B Debentures, and $16.68
from the sale of the Series B Preferred Stock.
Item 9. Reports, Opinions, Appraisals and Certain
Negotiations.
Item 9(a) of the Schedule 13E-3 is hereby amended and
supplemented as follows:
On July 1, 1994, CS First Boston Corporation and Lazard
Freres & Co. each delivered their updated opinions that as
of such date, 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. Copies of these opinions were
attached as Exhibits 2 and 3, respectively, to the
Prospectus Supplement a copy of which is attached hereto as
Exhibit 20.1.
On July 11, 1994, American Appraisal Associates, Inc.
("American Appraisal") delivered its updated solvency
opinion. A copy of such opinion is attached hereto as
Exhibit 99.1
Item 11. Contracts,Arrangements or Understandings With
Respect to the Issuer's Securities
Item 11 of the Schedule 13E-3 is hereby amended and
supplemented as follows:
The Company entered into a Second Amendment to the Plan
of Recapitalization dated as of June 29, 1994. Such
amendment was filed as Exhibit 1 to the Prospectus
Supplement a copy of which is attached hereto as Exhibit
20.1.
Item 17. Material to be Filed as Exhibits
20.1(c) July 1, 1994 Supplement to the Proxy
Statement/Joint Prospectus dated June 10, 1994
filed with the Commission on July 5, 1994.
99.1(b) Updated solvency opinion of American Appraisal
dated July 11, 1994.
99.2(d) Notice to shareholders and Letter of Transmittal
dated July 12, 1994.
99.3(d) Guidelines for Certification of Taxpayer
Identification number on substitute Form W-9.
99.4(d) Press release issued by the Company dated July 12,
1994 announcing the closing of the Plan of
Recapitalization and related transactions.
SIGNATURE
After due inquiry, and to the best of my knowledge and
belief, the undersigned certifies that the information set forth
in this statement is true, complete and correct.
UAL Corporation
By:/s/ James M. Guyette
James M. Guyette
Executive Vice President
Dated: July 21, 1994
SIGNATURE
After due inquiry, and to the best of my knowledge and
belief, the undersigned certifies that the information set forth
in this statement is true, complete and correct.
United Air Lines, Inc.
By:/s/ James M. Guyette
James M. Guyette
Executive Vice President
Dated: July 21, 1994
EXHIBIT INDEX
Exhibit No.
Description
20.1(c) July 1, 1994 Supplement to the
Proxy Statement/Joint
Prospectus dated June 10, 1994
filed with the Commission on
July 5, 1994.
99.1(b) Updated solvency opinion of
American Appraisal dated July
11, 1994.
99.2(d) Notice to shareholders and
Letter of Transmittal dated
July 12, 1994.
99.3(d) Guidelines for Certification
of Taxpayer Identification
number on substitute Form W-9.
99.4(d) Press release issued by the
Company dated July 12, 1994
announcing the closing of the
Plan of Recapitalization and
related transactions.
Exhibit 20.1
SUPPLEMENT TO THE PROXY STATEMENT/JOINT PROSPECTUS
DATED JUNE 10, 1994
UAL CORPORATION
UNITED AIR LINES, INC.
July 1, 1994
Dear UAL Corporation Stockholder:
The following information amends and supplements the Proxy Statement/Joint
Prospectus, dated June 10, 1994 (the "Proxy Statement/Prospectus"), of UAL
Corporation, a Delaware corporation (the "Company"), and its wholly-owned
subsidiary United Air Lines, Inc., a Delaware corporation ("United"). A copy of
the Proxy Statement/Prospectus has been sent to you previously. An additional
copy of the Proxy Statement/Prospectus may be obtained by calling (800)
223-2064. Certain information contained in this Supplement modifies, and should
be read in conjunction with, the Proxy Statement/Prospectus. Capitalized terms
used but not defined herein shall have the meanings set forth in the Proxy
Statement/Prospectus, as modified by the provisions of the Amendment (defined
below). Cross references set forth in this Supplement are to material in the
Proxy Statement/Prospectus.
Meeting of Stockholders
A meeting of holders of common stock, $5.00 par value per share (the "Old
Shares"), of the Company (the "Meeting") is scheduled for July 12, 1994, at
8:30 a.m., local time, in the Imperial Ballroom of the Fairmont Hotel, 200
North Columbus Drive, Chicago, Illinois. The principal purpose of the Meeting
is to consider and vote upon various proposals relating to the Recapitalization
of the Company. The other purposes of the Meeting are as stated in the Notice
of Meeting attached to the Proxy Statement/Prospectus (the "Notice of
Meeting").
Consummation of the Recapitalization is subject to approval by the
stockholders of the Company at the Meeting.
Proxies
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, AS AMENDED, 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, 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.
A proxy card has been enclosed with this Supplement. Stockholders should
complete and return the proxy card accompanying this Supplement if they have
not previously completed and returned a proxy card or if they desire to revoke
any proxy previously given.
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.
Amendments to Amended and Restated Plan of Recapitalization and Amended and
Restated Certificate of Incorporation of the Company
On June 29, 1994, the Company entered into a second amendment (the
"Amendment") to the Amended and Restated Agreement and Plan of
Recapitalization, dated as of March 25, 1994 (as amended, the "Plan of
Recapitalization"), with the Air Line Pilots Association, International and the
International Association of Machinists and Aerospace Workers (the "IAM"),
which was previously amended on June 2, 1994. A copy of the Amendment is
attached hereto as Exhibit 1. The Plan of Recapitalization as it existed prior
to the Amendment was filed as part of the Company's Current Report on Form 8-K
dated June 2, 1994 and the Amendment was filed as part of the Company's Current
Report on Form 8-K dated June 30, 1994.
The Plan of Recapitalization generally provides for the Recapitalization of
the Company and the transfer of between 55% and 63% of the equity of the
Company to various trusts to be established for the benefit of certain employee
groups in exchange for wage and benefit reductions and work rule changes. The
Recapitalization is described in detail in the Proxy Statement/Prospectus.
As a result of the Amendment, stockholders of the Company would be entitled
to receive in the Recapitalization for each Old Share: (i) one-half of a New
Share; (ii) $38.00 in cash from the Company's existing cash resources; (iii)
either $15.05 in cash from the proceeds of the United Series A Offering or, if
the United Series A Offering is not consummated, $15.55 principal amount of
United 10.125% Series A Debentures; (iv) either $15.08 in cash from the
proceeds of the United Series B Offering or, if the United Series B Offering is
not consummated, $15.55 principal amount of United 10.825% Series B Debentures;
and (v) either $16.68 in cash from the proceeds of the UAL Preferred Offering
or, if the UAL Preferred Offering is not consummated, Depositary Preferred
Shares representing interests in $17.96 liquidation preference of UAL 11.375%
Public Preferred Stock.
Underwriting of Public Preferred Stock and Debentures
On June 30, 1994, the Company entered into an underwriting agreement relating
to the UAL Preferred Offering and United entered into an underwriting agreement
relating to the Series A Offering and the Series B Offering. Completion of the
offerings contemplated by each of the underwriting agreements is subject to
completion of the Recapitalization and certain other conditions.
The underwriting agreement relating to the UAL Preferred Offering provides
that the Company will offer 16,416,000 Depositary Preferred Shares representing
interest in $410,400,000 liquidation preference of the Public Preferred Stock.
If the offering is consummated, the Depositary Preferred Shares representing
interests in the Public Preferred will bear an interest rate of 121/4%. The
offering price on the Depositary Preferred Shares is $25.00 per share; each
Depositary Preferred Share represents $25 liquidation preference of Public
Preferred Stock.
The underwriting agreement relating to the Series A Offering provides that
United will offer $370,200,000 aggregate principal amount of United 10.67%
Series A Debentures. The underwriting
agreement relating to the Series B Offering provides that United will offer
$371,000,000 aggregate principal amount of United 11.21% Series B Debentures.
There can be no assurance that any of the offerings will be consummated.
Recommendation of the Board
THE BOARD OF DIRECTORS HAS APPROVED 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) ON THE
ENCLOSED PROXY CARD.
Set forth below is certain additional information concerning the views of Dr.
Brimmer and Mr. Olson:
In connection with his testimony in the Shareholder Actions (as defined in
"Litigation" below), Dr. Brimmer stated that his abstention on May 20, 1994 was
not intended as a vote in favor of the Recapitalization. He was opposed to the
Recapitalization because, in addition to the reasons previously set qqforth in
the Proxy Statement/Prospectus, he believed that there were preferable
alternatives to the Recapitalization which included modifying the Company's
organization to start or acquire a subsidiary which would compete against other
low cost carriers, giving up non-competitive routes, disposing of high cost
assets, or pursuing alternatives which would not transfer majority control from
the common stockholders.
In connection with his testimony in the Shareholder Action, Mr. Olson stated
that he was opposed to the first amendment to the Agreement and Plan of
Recapitalization, dated as of June 2, 1994, because he did not believe that an
increase in the employees' equity ownership was necessary to secure the
Coalition's agreement to proceed with the transaction or that any modification
was warranted.
Recent Developments: Union Organizing Activity
On June 9, 1994, the Aircraft Mechanics Fraternal Association ("AMFA") filed
an application with the National Mediation Board seeking authorization to
represent the craft or class of mechanics and related employees at United who
constitute approximately 50% of the IAM's current membership at United. AMFA's
actions or future actions may affect the achievement of estimated labor savings
and harmonious labor relations within the Company.
Additional Information Concerning Investments and Savings
In computing the estimated net present value of the labor savings and
short-haul savings set forth in the Proxy Statement/Prospectus, the Company
utilized a 10% discount rate. Such rate, which is generally used by the Company
in its internal discounted cash flow models, was selected by the Company based
on the Company's weighted average cost of capital. If a higher discount rate
were applied to the calculation (if, for example, it was determined that the
lack of assurance that the cost savings would be obtained should result in the
application of such a higher discount rate), the estimated net present value of
the labor savings and short-haul savings would be less than $4.9 billion.
Such $4.9 billion estimate has not been adjusted for taxes. The Company
believes it would be difficult to isolate the tax implications of the savings
and, in any event, believes that the ESOP will generate tax benefits to offset
a significant portion of the income generated by such cost savings.
Additional Information Concerning Implementation of "Airline-Within-An-Airline"
On June 23, 1994, United issued a press release discussing the implementation
of the "airline-within-an-airline", which read in part as follows:
United Airlines today said it is shifting its planning focus from conceptual
to implementation of its new "airline within an airline," noting that most key
strategic and operational decisions have already been reached.
The specialized carrier is targeted to take to the skies first on the West
Coast on Oct. 1, 1994 with an initial schedule of 82 daily flights. The service
will be expanded quickly to 129 flights in November and 143 flights in
December.
United said it has established centralized implementation teams matched with
local implementation teams in key West Coast cities to assure a smooth
transition as the new service is introduced.
* * *
The initial group of 14 city pair markets to receive U-2 service include
seven presently served by United and seven not served today by United.
United said the fares to be charged in these markets will be announced later
but emphasized they will be very attractive.
United said that in addition to low fares its new operation will have these
additional features among others:
~ Boeing 737 jet aircraft.
~ Short ground time between flights (20 minutes).
~ Seat assignments at the airport.
~ Dedicated gates and a core group of front-line employees.
Other service features including pricing and the name of the new carrier will
be announced at a later date. A number of names suggested by employees and
others are being reviewed through focus groups.
Certain Risk Factors
In addition to the other information contained in the Proxy
Statement/Prospectus and this Supplement, holders of Old Shares should
carefully consider the risk factors set forth in the Proxy Statement/Prospectus
and this Supplement concerning the New Shares, and, if the Offerings are not
consummated, the Debentures and/or 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 $3.427 billion of
long-term debt and a deficit of approximately $710 million of stockholders'
equity, as compared to the approximately $2.693 billion of long-term debt and
approximately $1.097 billion of stockholder's 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 $50 million for the
year ended December 31, 1993 and a loss from continuing operations of
approximately $60 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 "REVISED 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 $128
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 $101
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 $82 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 $107 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.
Opinion of Financial Advisors to the Board
The valuation ranges as of May 20, 1994 referred to in the fifth sentence of
the section entitled "BACKGROUND OF THE PLAN OF RECAPITALIZATION-Definitive
Documentation Amendment" of the Proxy Statement/Prospectus relate to the
alternative proposal made by the Company to the Coalition and not to the
proposal made by the Coalition.
On July 1, 1994, CS First Boston and Lazard each delivered their updated
written opinions that, as of such date, 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.
Copies of these opinions are attached hereto as Exhibit 2 and Exhibit 3,
respectively.
Listing of New Shares, Depositary Preferred Shares and Debentures
The Company has been informed that, subject to approval of the Plan of
Recapitalization by the stockholders of the Company, the New Shares, the
Depositary Preferred Shares and the Debentures have been authorized for listing
on the New York Stock Exchange, Inc. (the "NYSE"). Trading of the Depository
Preferred Shares on the NYSE is expected to commence within a 30-day period
after the initial delivery of the Depository Preferred Shares. The Company
expects to apply for listing of the New Shares on the Pacific Stock Exchange
and the Chicago Stock Exchange.
Certain Federal Income Tax Consequences
Generally, the Federal income tax consequences described under the heading
"Certain Federal Income Tax Consequences" in the Proxy Statement/Joint
Prospectus remain as described therein. However, because the amount of cash
that will be exchanged (i) if the Offerings are consummated will decrease from
$88 per Old Share to $84.81 per Old Share and (ii) if the Offerings are not
consummated will increase to $38 per Old Share from $25.80 per Old Share, the
corresponding dollar amounts in numbered paragraph 2 (on page 57 of the Proxy
Statement/Joint Prospectus) should be adjusted accordingly. Specifically, if
the Offerings are consummated, in whole or in part, the maximum taxable gain
associated with the transaction will not exceed $84.81 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 $84.81 per Old Share. If the
Offerings are not consummated, assuming the Debentures have a fair market value
of $30.13 per Old Share, the maximum taxable gain associated with the
transaction will not exceed $68.13 per Old Share (i.e., the sum of the assumed
fair market value of the Debentures and the amount of cash received).
Litigation
The Company, together with certain officers and directors of the Company and
the Unions, are parties to two stockholder actions pending in the Court of
Chancery of the State of Delaware, New Castle County, captioned Kaufman v.
Wolf, C.A. No. 13312, and Krasner v. UAL Corp., C.A. No. 13316 (the
"Shareholder Actions"). On June 17, 1994, plaintiffs in these two actions
jointly filed an Amended Complaint. The Amended Complaint alleged, among other
things, that the Proxy Statement issued by the Company in connection with the
proposed Recapitalization of the Company, on which common stockholders of the
Company are scheduled to vote on July 12, 1994, was false and misleading, and
further alleged that the proposed Recapitalization failed to maximize
shareholder value. The Amended Complaint seeks, among other things, a
preliminary and permanent injunction against consummation of the
Recapitalization.
On June 21, 1994, plaintiffs filed a motion for a preliminary injunction to
enjoin consummation of the Recapitalization. The Court has scheduled a hearing
on this motion for July 7, 1994. On July 1, 1994, the Company and the
plaintiffs entered into a memorandum of understanding relating to a settlement
of the Shareholder Actions, on the basis of changes to the Plan of
Recapitalization (which changes are consistent with the changes disclosed in
this Supplement), and certain disclosures that are contained in this
Supplement. The settlement is subject to, among other things, definitive
documentation and court approval.
In addition, the Company has become aware of an action pending in the United
States District Court for the Northern District of Illinois, Eastern Division,
captioned Wiley v. International Association of Machinists and Aerospace
Workers, No. 94C 3958, filed on June 29, 1994. The Complaint in the Wiley
action alleges that the ratification of the Recapitalization by District Lodge
141 of the IAM was defective and invalid because, among other things, certain
members of the IAM were allegedly treated preferentially and certain
information allegedly was not disclosed to members. The Complaint seeks, among
other things, an order enjoining implementation of the Recapitalization unless
and until it is ratified by the plaintiff's District Lodge. The Company is not
a party to this action.
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 $1.8 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 would be expected
to be earned back by year end 1998. 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 were
estimated to grow to be $3.8 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 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 $128.31 per share, (ii) value of the non-New
Share portion of the Recapitalization Consideration of $84.81 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 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 affect 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.
<TABLE>
<CAPTION>
Changes to Income, Book Equity and Cash Flow*
(In millions)
Recapitalization Better/(Worse) Than Status Quo
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1999 2000
------ ------ ------- ------- ------- ------- -------
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**........................ (41) (81) (81) (81) (81) (81) (81)
Interest Income........................... (13) (22) (20) (4) 24 51 67
------ ------ ------- ------- ------- ------- -------
Earnings Before Taxes..................... 34 149 299 376 411 469 528
Income Taxes***........................... (12) (57) (114) (143) (156) (178) (201)
------ ------ ------- ------- ------- ------- -------
Net Income................................ 21 92 185 233 255 291 328
Non-Cash ESOP Accounting Charge****....... 191 390 391 393 397 405 99
Deferred Taxes............................ (1) 13 38 53 62 77 65
------ ------ ------- ------- ------- ------- -------
Funds From Operations..................... 211 495 614 679 714 773 492
Series A and B Preferred Stock Dividends.. (25) (50) (26) (13) (13) (13) (13)
------ ------ ------- ------- ------- ------- -------
Net Cash Flow............................. $186 $445 $589 $666 $700 $759 $478
Change in Cash Balance (cumulative)....... $186 $631 $1,220 $1,886 $2,586 $3,345 $3,823
Change in Book Equity (cumulative)........ $187 $619 $1,170 $1,783 $2,421 $3,103 $3,516
- ------
<FN>
* Assumes Offerings are successful and existing Series A Preferred Stock is
converted on the first redemption date (May 1996) with the expected $3.25
million cash distribution to the Series A holders coming from corporate cash
with no coincidental debt or preferred offering. Excludes cash and book
equity effects of non-recurring payments (including cash consideration paid
to the shareholders) with the exception of severance benefits paid to flight
kitchen workers which were netted from employee investment. See "REVISED
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
been set in accordance with the terms set forth above in "Underwriting of
Public Preferred Stock and Debentures."
*** For purposes of this analysis, income taxes were computed using the
statutory rates.
**** See "-Certain Risk Factors-Financial Reporting; Market Assessment."
</TABLE>
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 $3.8 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 $1.5 billion (assuming the Effective Time occurred on either June
30, 1994 or July 12, 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.
The Earnings per Share Analysis set forth in the Proxy Statement/Prospectus
would change as a result of the changes to net income reflected in the previous
table from that set forth in the Proxy Statement/Prospectus.
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. 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, and the Company's Current Report on Form 8-K
dated May 3, 1994.
<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 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 ......................... (50) (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
Shareholder's 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 passenger (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>
<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.............................................................. (60) (71) (138)
Net Loss............................................................. N.A. (97) (157)
Statement of consolidated financial position data
(at end of period):
Total assets......................................................... $11,805 $12,889 $13,288
Total long-term debt and capital lease obligations, including current
portion.............................................................. 4,421 3,687 4,017
Shareholders' equity................................................. (710) 1,097 1,137
Other data:
Ratio of earnings to fixed charges................................... (d) (d) (d)
Ratio of earnings to fixed charges and preferred 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
- ------
<FN>
(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.
(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 $128 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 $101 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.
</TABLE>
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. 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,
and United's Current Report on Form 8-K dated May 3, 1994.
<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 consolidated 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.......................... (20) (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>
<TABLE>
<CAPTION>
Three Months Ended March 31,
(Unaudited)
-----------------------------
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 account-
ing changes..................................................... (65) (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................................................. 4,301 3,567 3,864
Shareholders' equity............................................ (248) 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
- ------
<FN>
(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.
(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 $82 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 $107 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.
</TABLE>
REVISED UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following are the unaudited revised 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 $128.31 per share,
(ii) a value of the non-New Share portion of the Recapitalization Consideration
of $84.81 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. In addition, these statements are based on the
following assumptions: (i) the interest rate on the Series A Debentures has
been set at 10.67%, the interest rate on the Series B Debentures has been set
at 11.21%, and the dividend rate on the Depositary Preferred Shares has been
set at 12.25%, (ii) the size of the Depositary Preferred Share underwriting has
been reduced to $410 million from $765 million, and an amount of additional
cash equal to $300 million ($12.20 per Old Share) from Company funds will be
delivered to holders of Old Shares in the Recapitalization, as a result of the
Amendment and the application of the interest rate cap provisions set forth in
the Plan of Recapitalization and (iii) shareholders are expected to receive in
the Recapitalization $84.81 per share in cash, consisting of $25.80 provided in
the Plan of Recapitalization prior to the Amendment, $30.13 from the proceeds
of the underwriting of the Series A Debentures and Series B Debentures, $12.20
in additional cash resulting from the Amendment and $16.68 from the proceeds of
the underwriting of the Depositary Preferred Shares. With respect to the
underwritings of the Series A Debentures, Series B Debentures and the
Depositary Preferred Shares, there can be no assurance that the respective
underwritings will be completed. 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 as modified as described
above) 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. 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
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.
<TABLE>
<CAPTION>
UAL Corporation and Subsidiary Companies
Pro Forma Condensed Statement of Consolidated Operations
Year Ended December 31, 1993
(In millions, except per share amounts)
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) (81)(5)
(40)(6) (330)
Other, net....................................... (101) (101)
------------------------ ------------------ ---------------------
(310) (121) (431)
------------------------ ------------------ ---------------------
Loss from continuing operations
before income taxes.............................. (47) (30) (77)
Provision (credit) for income taxes.............. (16) (11)(7) (27)
------------------------ ------------------ ---------------------
Loss from continuing operations.................. $(31) $(19)(8) $(50)
======================== ================== =====================
Loss per share from continuing operations........ $ (2.64)(9) $ (10.66)(10)
======================== =====================
Shares used in per share computations............ 24.4 (9) 12.5 (10)
======================== =====================
See accompanying notes to Pro Forma Condensed
Statement of Consolidated Operations.
</TABLE>
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>
<S> <C>
(millions)
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 analysis...................... $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
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:
Average ESOP ESOP Accounting
Preferred Stock Charge*
Fair Value (millions)
- --------------- ---------------
$110 $338
120 369
130 400
140 430
- ------
* 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.
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)
- --------- --------------- ----------- ------------ ---------------
$136 $168 0 0 $0
140 172 2,260,410 393,115 68
150 182 6,949,234 1,208,562 220
- ------
* 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 Debentures and to record
amortization of the underwriting discount. The pro forma calculations
assume the United Debt Offerings are consummated and are based on an
interest rate on the Series A Debentures of 10.67% and on the Series B
Debentures of 11.21%. If the United Debt Offerings are not consummated,
the interest rates are subject to the stated maximums under the
Recapitalization of 10.125% for the Series A Debentures and 10.825% for
the Series B Debentures. This will not impact the pro forma interest
expense because even though the interest rate on the series of Debentures
exceeds the stated maximum, the principal amount of the series of
Debentures was reduced so that the yield to maturity will not exceed the
yield to maturity that would have resulted if the par amount of the series
of Debentures (based on the stated maximum interest rate) was priced at a
discount.
(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
$128.31 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 $50.3 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.
The pro forma calculations assume the UAL Preferred Offering is consummated and
are based on a dividend rate on the Public Preferred Stock of 12.25%. If the
UAL Preferred Offering is not consummated, the dividend rate is subject to the
stated maximum under the Recapitalization of 11.375%. This will not impact the
pro forma loss per share because even though the dividend rate of the Public
Preferred Stock exceeds the stated maximum, the number of Depositary Preferred
Shares representing the Public Preferred Stock was reduced so that the annual
dividends will not exceed the stated maximum which was calculated based upon
the dividend rate cap.
Following is a reconciliation of the historical and pro forma weighted average
shares:
<TABLE>
(in millions)
<S> <C>
Historical weighted average shares during the year.................................... 24.4
Adjustment for restricted stock issued during the year 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-Gener-
al").................................................................................. 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.
<TABLE>
<CAPTION>
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)
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) (20)(5)
(10)(6) (86)
Other, net....................................... (16) 19 (7) 3
-------------- ------------------ ----------------
(72) (11) (83)
-------------- ------------------ ----------------
Loss from continuing operations
before income taxes.............................. (108) 17 (91)
Provision (credit) for income taxes.............. (37) 6 (8) (31)
-------------- ------------------ ----------------
Loss from continuing operations.................. $(71) $11 $(60)
============== ================== ================
Loss per share from continuing operations........ $(3.31)(9) $(7.05)(10)
============== ================
Shares used in per share computations............ 24.5 (9) 12.5 (10)
============== ================
See accompanying notes to Pro Forma Condensed
Statement of Consolidated Operations.
</TABLE>
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>
<S> <C>
(millions)
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 analysis................. $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.
Following is a summary of the impact to the employee stock ownership plan
accounting charge of a range of fair market values:
Average ESOP ESOP Accounting
Preferred Stock Charge*
Fair Value (millions)
- --------------- ---------------
$110 $79
120 86
130 93
140 100
- ------
* 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.
Average ESOP Shares to Increase in
Average Preferred Additional be Released ESOP Accounting
New Share Stock Fair Shares to for the Charge****
Price Value* be Issued** Quarter*** (millions)
- --------- ------------ ----------- ----------- ---------------
$136 $168 0 0 $ 0
140 172 2,260,410 98,279 16
150 182 6,949,234 302,141 51
* 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 Debentures and to record
amortization of the underwriting discount. The pro forma calculations
assume the United Debt Offerings are consummated and are based on an
interest rate on the Series A Debentures of 10.67% and on the Series B
Debentures of 11.21%. If the United Debt Offerings are not consummated,
the interest rates are subject to the stated maximums under the
Recapitalization of 10.125% for the Series A Debentures and 10.825% for
the Series B Debentures. This will not impact the pro forma interest
expense because even though the interest rate on the series of Debentures
exceeds the stated maximum, the principal amount of the series of
Debentures was reduced so that the yield to maturity will not exceed the
yield to maturity that would have resulted if the par amount of the series
of Debentures (based on the stated maximum interest rate) was priced at a
discount.
(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.
(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, $12.6 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 assume
the UAL Preferred Offering is consummated and are based on a divided rate
on the Public Preferred Stock of 12.25%.
Following is a reconciliation of the historical and pro forma weighted average
shares:
<TABLE>
<S> <C>
(in millions)
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>
<TABLE>
<CAPTION>
UAL Corporation and Subsidiary Companies
Pro Forma Condensed Statement of Consolidated Financial Position
March 31, 1994
(In millions, except share data)
<S> <C> <C> <C>
ASSETS Historical Adjustments Pro Forma
- --------------------------------------------------------------------- ---------- ------------------- ---------
Current assets:
Cash and cash equivalents............................................ $1,046 $1,133 (1a) $
(2,129)(1b) 50
Short-term investments............................................... 1,020 (140)(2)
8 (11) 888
Other................................................................ 1,837 44 (3) 1,881
---------- ------------------- ---------
3,903 (1,084) 2,819
---------- ------------------- ---------
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 $(1,084) $11,805
========== =================== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------
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....................................................... 2,693 734 (1c) 3,427
---------- ------------------- ---------
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, 16,416 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)
399 (1d)
228 (4)
13 (6) 640
Retained earnings (deficit).......................................... 142 (1,038)(1e)
(108)(7) (1,004)
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 (1,807)(10) (710)
---------- ------------------- ---------
$12,889 $(1,084) $11,805
========== =================== =========
See the accompanying notes to Pro Forma Condensed
Statement of Consolidated Financial Position.
</TABLE>
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 $741 million of
Debentures and approximately $410 million of Depositary Preferred Shares
representing interests in Public Preferred Stock, net of underwriting
discount of $7 million for the Debentures and $11 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 an additional amount of cash equal to $12.20 per share plus proceeds
from the sales of $30.13 face amount of Debentures and Depositary Preferred
Shares representing interests in $16.68 liquidation preference of Public
Preferred Stock (before deducting underwriting discounts). The pro forma
adjustment also includes the cash payment of $84.81 per share upon exercise
of Options. (If the amounts to be sold in the Offerings differ from the
amounts discussed in entry 1(c) and 1(d) or if any of the Offerings are not
consummated, the amount paid to holders of Old Shares will change.)
(c) To record the issuance of $370 million of principal amount of Series A
Debentures and $371 million of principal amount of Series B Debentures,
less the underwriting discount of $7 million. The pro forma adjustment
assumes that the United Debt Offerings are consummated and that the
interest rate is 10.67% for the Series A Debentures and 11.21% for the
Series B Debentures based on the pricing of the United Debt Offerings. The
Debentures are being recorded at their face amount on the assumption that
they are priced to trade at par.
If the underwritings are not consummated, $382.5 of principal amount of Series
A Debentures and $382.5 million of principal amount of Series B Debentures
will be issued. The actual rates on the Debentures have been set at the
applicable stated maximum rates of 10.125% for the Series A Debentures and
10.825% for the Series B Debentures. If either or both of the United Debt
Offerings are not consummated and the then current market interest rate
exceeds the applicable stated maximum, such Debentures will be recorded at a
discount.
(d) To record the issuance of Depositary Preferred Shares representing
interests in $410 million liquidation preference of Public Preferred Stock,
net of underwriting discount of $11 million. The pro forma adjustment
assumes the UAL Preferred Offering is consummated and that the dividend
rate is 12.25% based on the pricing of the UAL Preferred Offering. 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.
If the UAL Preferred Offering is not consummated, Depositary Preferred Shares
representing interests in approximately $442 million of liquidation
preference of Public Preferred Stock will be issued. The dividend rate has
been set to the maximum rate of 11.375%.
(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):
Additional
Capital Retained
Invested Earnings
---------- ---------
Cancellation of Old Shares.. $128 $-
Distribution of cash........ (1,091) (1,038)
---------- ---------
Pro forma adjustment........ $(963) $(1,038)
========== =========
(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 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 that 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 $128.31 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.
(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 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, (v) the recognition of the anticipated benefits of the agreement to
sell the U.S. flight kitchens and (vi) the intercompany loan to UAL. 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, 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.
<TABLE>
<CAPTION>
United Air Lines, Inc. and Subsidiary Companies
Pro Forma Condensed Statement of Consolidated Operations
Year Ended December 31, 1993
(In millions)
<S> <C> <C> <C>
Historical Adjustments Pro Forma
------------- ------------------- ---------
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 from operations......................... 295 91 386
------------- ------------------- ---------
Other income (expense):
Interest, net.................................... (221) (96)(5) (317)
Other, net....................................... (100) (100)
------------- ------------------- ---------
(321) (96) (417)
------------- ------------------- ---------
Loss from continuing operations
before income taxes.............................. (26) (5) (31)
Provision (credit) for income taxes.............. (9) (2)(6) (11)
------------- ------------------- ---------
Loss from continuing operations.................. $(17) $(3)(7) $(20)
============= =================== =========
See accompanying notes to Pro Forma Condensed
Statement of Consolidated Operations.
</TABLE>
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>
<S> <C>
(millions)
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 analysis...................... $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 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:
Average ESOP ESOP Accounting
Preferred Stock Charge*
Fair Value (millions)
- --------------- ---------------
$110 $338
120 369
130 400
140 430
- ------
*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.
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)
- --------- --------------- ----------- --------- ---------------
$136 $168 0 0 $ 0
140 172 2,260,410 393,115 68
150 182 6,949,234 1,208,562 220
- ------
*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 $81 million on the Debentures and to record
amortization of the underwriting discount. The pro forma adjustment also
includes approximately $15 million of foregone interest income due to the
reduction in United's average investment balance resulting from the
transaction. The pro forma calculations assume the United Debt Offerings
are consummated and are based on an interest rate on the Series A
Debentures of 10.67% and on the Series B Debentures of 11.21%. If the
United Debt Offerings are not consummated, the interest rates are subject
to the stated maximums under the Recapitalization of 10.125% for the Series
A Debentures and 10.825% for the Series B Debentures. This will not impact
the pro forma interest expense because even though the interest rate on the
series of Debentures exceeds the stated maximum, the principal amount of
the series of Debentures was reduced so that the yield to maturity will not
exceed the yield to maturity that would have resulted if the par amount of
the series of Debentures (based on the stated maximum interest rate) was
priced at a discount.
(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 $128.31 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.
<TABLE>
<CAPTION>
United Air Lines, Inc. and Subsidiary Companies
Pro Forma Condensed Statement of Consolidated Operations
For the Three Months March 31, 1994
(In millions)
<S> <C> <C> <C>
Historical Adjustments Pro Forma
---------- ------------------- ---------
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) (24)(5) (84)
Other, net....................................... (16) 19 (6) 3
---------- ------------------- ---------
(76) (5) (81)
---------- ------------------- ---------
Loss from continuing operations
before income taxes.............................. (120) 23 (97)
Provision (credit) for income taxes.............. (41) 9 (7) (32)
---------- ------------------- ---------
Loss from continuing operations.................. $(79) $14 $(65)
========== =================== =========
See accompanying notes to Pro Forma Condensed
Statement of Consolidated Operations.
</TABLE>
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>
<S> <C>
(millions)
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 analysis................. $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.
Following is a summary of the impact to the employee stock ownership plan
accounting charge of a range of fair market values:
Average ESOP ESOP Accounting
Preferred Stock Charge*
Fair Value (millions)
- --------------- ---------------
$110 $ 79
120 86
130 93
140 100
- ------
* 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.
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)
- --------- ------------ ----------- ------------ ---------------
$136 $168 0 0 $ 0
140 172 2,260,410 98,279 16
150 182 6,949,239 302,141 51
- ------
*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 $20 million on the Debentures and to record
amortization of the underwriting discount. The pro forma adjustment also
includes approximately $4 million of foregone interest income due to the
reduction in United's average investment balance resulting from the
transaction. The pro forma calculations assume the United Debt Offerings
are consummated and are based on an interest rate on the Series A
Debentures of 10.67% and on the Series B Debentures of 11.21%. If the
United Debt Offerings are not consummated, the interest rates are subject
to the stated maximums under the Recapitalization of 10.125% for the Series
A Debentures and 10.825% for the Series B Debentures. This will not impact
the pro forma interest expense because even though the interest rate on the
series of Debentures exceeds the stated maximum, the principal amount of
the series of Debentures was reduced so that the yield to maturity will not
exceed the yield to maturity that would have resulted if the par amount of
the series of Debentures (based on the stated maximum interest rate) was
priced at a discount.
(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.
<TABLE>
<CAPTION>
United Air Lines, Inc. and Subsidiary Companies
Pro Forma Condensed Statement of Consolidated Financial Position
March 31, 1994
(In millions, except share data)
<S> <C> <C> <C>
ASSETS Historical Adjustments Pro Forma
- --------------------------------------------------------------- ---------- -------------- ---------
Current assets:
Cash and cash equivalents...................................... $666 $(140)(1) $
734 (3)
(741)(3)
(300)(10)
8 (9) 227
Short-term investments......................................... 542 542
Other.......................................................... 2,241 44 (2) 2,285
---------- -------------- ---------
3,449 (395) 3,054
---------- -------------- ---------
Operating property and equipment............................... 12,211 12,211
Less: Accumulated depreciation
and amortization............................................... (5,164) (5,164)
---------- -------------- ---------
7,047 7,047
---------- -------------- ---------
Other assets:
Other.......................................................... 1,700 300 (10) 2,000
---------- -------------- ---------
$12,196 $(95) $12,101
========== ============== =========
LIABILITIES AND SHAREHOLDER'S EQUITY
- ---------------------------------------------------------------
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................................................. 2,596 734 (3) 3,330
---------- -------------- ---------
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 (741)(3)
13 (5)
4 (6) 115
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 (818) (248)
---------- -------------- ---------
$12,196 $(95) $12,101
========== ============== =========
See the accompanying notes to Pro Forma Condensed
Statement of Consolidated Financial Position.
</TABLE>
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 issuance of $370 million of principal amount of Series A
Debentures and $371 million of principal amount of Series B Debentures and
to record the distribution of proceeds to UAL. The pro forma adjustment
assumes that the United Debt Offerings are consummated and that the
interest rate is 10.67% for the Series A Debentures and 11.21% for the
Series B Debentures based on the pricing of the United Debt Offerings. The
Debentures are being recorded at their face amount on the assumption that
they are priced to trade at par, less the underwriting discount of $7
million.
If the underwritings are not consummated, $382.5 of principal amount of Series
A Debentures and $382.5 million of principal amount of Series B Debentures
will be issued. The actual rates on the Debentures have been set at the
applicable stated maximum rates of 10.125% for the Series A Debentures and
10.825% for the Series B Debentures. If either or both of the United Debt
Offerings are not consummated and the then current market interest rate
exceeds the applicable stated maximum, such 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.
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 $128.31 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).
(10) To record an intercompany loan to UAL which will be used to pay a portion
of the Recapitalization Consideration to holders of Old Shares.
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
under capital leases.................................................................. $486 $486
---------- ----------
Long-term debt, excluding portion due within one year:
Secured notes......................................................................... 1,388 1,388
Deferred purchase certificates........................................................ 194 194
Debentures............................................................................ 1,000 1,741
Convertible debentures................................................................ 33 33
Promissory notes...................................................................... 93 93
Unamortized discount on debt.......................................................... (15) (22)
---------- ----------
2,693 3,427
Long-term obligations under capital leases............................................ 777 777
---------- ----------
Total long-term debt and capital lease obligations.................................... 3,470 4,204
---------- ----------
Class 2 ESOP Preferred Stock, $.01 par value.......................................... - (a)
---------- ----------
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 Preferred Stock, $.01 par value............................... -
Class I, Pilot MEC, IAM, and SAM Preferred Stock, $.01 par value...................... -
Common stock, $5 par value............................................................ 128 -
Common stock, $.01 par value.......................................................... -
Additional capital invested........................................................... 963 640
Retained earnings (deficit)........................................................... 142 (1,004)
Pension liability adjustment.......................................................... (53) (53)
Unearned compensation................................................................. (14) -
Unearned ESOP Preferred Stock......................................................... (228)
Unrealized loss on investments........................................................ (2) (2)
Common stock held in treasury......................................................... (67) (63)
---------- ----------
Total shareholders' equity............................................................ 1,097 (710)
---------- ----------
Total capitalization.................................................................. $ 5,053 $ 3,980
========== ==========
- ------
<FN>
(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.
</TABLE>
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 obliga-
tions under capital leases........................................................ $466 $466
---------- -------
Long-term debt, excluding portion due within one year:
Secured notes..................................................................... $1,388 $1,388
Deferred purchase certificates.................................................... 194 194
Debentures........................................................................ 1,000 1,741
Promissory notes.................................................................. 29 29
Unamortized discount on debt...................................................... (15) (22)
---------- -------
2,596 3,330
Long-term obligations under capital leases........................................ 774 774
---------- -------
Total long-term debt and capital lease obligations................................ 3,370 4,104
---------- -------
Shareholder's equity:
Common stock, $5 par value........................................................ - -
Additional capital invested....................................................... 839 115
Retained earnings (deficit)....................................................... (200) (308)
ESOP capital...................................................................... 228
Unearned ESOP shares.............................................................. (228)
Pension liability adjustment...................................................... (53) (53)
Unearned compensation............................................................. (14) -
Unrealized loss on investments.................................................... (2) (2)
---------- -------
Total shareholder's equity........................................................ 570 (248)
---------- -------
Total capitalization.............................................................. $4,406 $4,322
========== =======
</TABLE>
EXHIBIT INDEX
Exhibit 1 Second Amendment to the Plan of Recapitalization.
Exhibit 2 Opinion of CS First Boston Corporation dated July 1, 1994.
Exhibit 3 Opinion of Lazard Freres & Co. dated July 1, 1994.
Exhibit 1
SECOND AMENDMENT TO THE AGREEMENT
AND PLAN OF RECAPITALIZATION
Second Amendment (this "Amendment"), dated as of June 29, 1994, to the
Agreement and Plan of Recapitalization (as amended, the "Plan of
Recapitalization"), dated as of March 25, 1994, by and among UAL Corporation, a
Delaware corporation (the "Company"), Air Line Pilots Association,
International, 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 the International Association of Machinists and Aerospace
Workers, 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, as amended by the First Amendment to the Plan of Recapitalization,
dated as of June 2, 1994.
W I T N E S S E T H
WHEREAS, the parties hereto desire to amend the Plan of Recapitalization and
certain Schedules thereto; and
WHEREAS, Section 10.3(a) of the Plan of Recapitalization permits amendments
to the Plan of Recapitalization and the Schedules thereto by written instrument
signed by all parties;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, the parties hereto agree as follows:
1. Section 1.3 of the Plan of Recapitalization is hereby amended and restated
in its entirety in the form attached to this Amendment as Exhibit A.
2. Section 1.5(b) of the Plan of Recapitalization is hereby amended and
restated in its entirety in the form attached to this Amendment as Exhibit B.
3. Section 1.11 of the Plan of Recapitalization is hereby amended and
restated in its entirety in the form attached to this Amendment as Exhibit C.
4. Article FOURTH, Part I.D, Section 2.5 of the Restated Certificate is
hereby amended and restated in its entirety in the form attached to this
Amendment as Exhibit D.
Miscellaneous
A. Definitions. Capitalized terms used in this Amendment and not defined
herein shall have the meanings ascribed to them in the Plan of Recapitalization
or the Schedules or other attachments thereto.
B. Entire Plan of Recapitalization; Restatement. The Plan of
Recapitalization, as amended by this Amendment, is the entire agreement of the
parties with respect to the subject matter hereof and the parties hereto hereby
agree that the Plan of Recapitalization and all Schedules thereto may be
restated to reflect all amendments provided for in this Amendment.
C. Governing Law. This Amendment shall be deemed to be made in and in all
respects shall be interpreted, governed by and construed in accordance with the
laws of the State of Delaware, without regard to the conflicts of laws
principles thereof.
D. Counterparts. This Amendment may be executed in counterparts, each of
which shall be an original and all of which shall together constitute one and
the same instrument.
Second Amendment to the Agreement
and Plan of Recapitalization
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized on the date
first above written.
UAL Corporation
/s/ Stephen M. Wolf
By:
Name: Stephen M. Wolf
Title: Chairman and Chief Executive Officer
Air Line Pilots Association, International
/s/ Roger D. Hall
By:
Name: Roger D. Hall
Title: Chairman, UAL-MEC
International Association of Machinists
and Aerospace Workers
/s/ Ken Thiede
By:
Name: Ken Thiede
Title: President and General Chairman,
District Lodge 141
EXHIBIT INDEX
Exhibit A-Section 1.3 of the Plan of Recapitalization
Exhibit B-Section 1.5(b) of the Plan of Recapitalization
Exhibit C-Section 1.11 of the Plan of Recapitalization
Exhibit D-Article FOURTH, Part I.D, Section 2.5 of the Restated Certificate
EXHIBIT A
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) if the Underwriting Alternative with respect to depositary
shares (the "Depositary Shares") representing interests in Series B Preferred
Stock of the Company, without par value (the "Public Preferred Stock"), is not
consummated, both (I) an additional cash payment equal to $12.20, plus (II)
Depositary Shares representing interests in a liquidation preference of Public
Preferred Stock equal to the excess of (xx) $31.10 over (yy) the product of
$12.20 and a fraction (but in no event less than one) the numerator of which is
the Applicable Rate with respect to the Depositary Shares assuming that the
Underwriting Alternative with respect to the Depositary Shares is consummated,
and the denominator of which is 11.375%, 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 in Section 1.11 below);
(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 in Section 1.11 below); 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 in Section 1.11 below).
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.
EXHIBIT B
[Section 1.5 Surrender and Exchange.]
(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;
(ii) either (a) if the Underwriting Alternative with respect to Depositary
Shares representing interests in the Public Preferred Stock is not consummated,
for each Old Share formerly represented by such Old Certificate or Certificates
in respect of the Redemption, both (I) a cash payment equal to $12.20, plus
(II) a depositary receipt or receipts representing Depositary Shares
representing interests in a liquidation preference of Public Preferred Stock
equal to the excess of (xx) $31.10 over (yy) the product of $12.20 and a
fraction (but in no event less than one) the numerator of which is the
Applicable Rate with respect to the Depositary Shares assuming that the
Underwriting Alternative with respect to the Depositary Shares is consummated,
and the denominator of which is 11.375%, 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.
EXHIBIT C
Section 1.11 Underwriting Alternative
The Company has elected to pursue the underwriting of (a) a number of
Depositary Shares calculated as provided in the next sentence, (b) $382.5
million principal amount of Series A Debentures, subject to reduction as
described below, and (c) $382.5 principal amount of Series B Debentures,
subject to reduction as described below (referred to collectively herein as the
"Underwriting Alternative"), and the consummation of the underwritings with
respect to the Depositary Shares and the Debentures shall be in lieu of issuing
Depositary Shares and 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. The number of
Depositary Shares that shall be subject to the Underwriting Alternative (which
may be rounded up to produce an aggregate amount of Depositary Shares that is
consistent with customary aggregate underwriting denominations) shall equal one
twenty-fifth of the excess of (I) the product of $765 million and a fraction
(such fraction, which shall in no event be greater than one, is referred to
herein as the "Liquidation Preference Fraction"), the numerator of which is
11.375%, and the denominator of which is the Applicable Rate with respect to
the Depositary Shares assuming that the Underwriting Alternative with respect
to the Depositary Shares is consummated, over (II) $300 million. The Company
shall use its best efforts to accomplish such underwritings, including 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
respective 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 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 will 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 interest rate above the
applicable Maximum Pricing so that such securities may be sold at or closer to
par, provided that (1) the yield to maturity of the reduced par amount of
Debentures will not exceed the yield to maturity that would result if the
unreduced par amount of such Debentures were priced at a discount to par using
the Maximum Pricing for the respective Debenture and (2) the proceeds from the
issuance of the reduced par amount of Debentures will equal the proceeds that
would result if the unreduced par amount of such Debentures were priced at a
discount to par using the Maximum Pricing for the respective Debenture. If the
Underwriting Alternative is consummated, the amount of cash payable in respect
of each Old Share shall equal the sum of (i) $25.80 per share, (ii) the sum of
$12.20 and the gross proceeds (price to the public without deducting any
underwriting discount or other cost) received by the Company from the sale of
the "Underwriting Liquidation Preference" of Public Preferred Stock as
represented by Depositary Shares in the Underwriting Alternative (collectively,
the "Depositary Share Proceeds Amount"), (iii) the gross proceeds (price to the
public without deducting any underwriting discount or other costs) received by
United from the sale of each $15.55 principal amount of Series A Debentures in
the Underwriting Alternative (subject to adjustment as described in the
immediately preceding sentence, the "Series A Debenture Proceeds Amount") and
(iv) the gross proceeds (price to the public without deducting any underwriting
discount or other costs) received by United from the sale of each $15.55
principal amount of Series B Debentures in the Underwriting Alternative
(subject to adjustment as described in the immediately preceding sentence, the
"Series B Debenture Proceeds Amount"). The "Underwriting Liquidation
Preference" shall equal the excess of (I) the product of $31.10 and the
Liquidation Preference Fraction over (III) $12.20.
EXHIBIT D
[D. DESIGNATION, PREFERENCES AND RIGHTS OF
SERIES D REDEEMABLE PREFERRED STOCK]
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) an additional $12.20
in cash and Depositary Shares representing interests in $ *** 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 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.
- ------
* 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.
*** Amount to be calculated in accordance with Plan of Recapitalization.
**** 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.
EXHIBIT 2
[logo of CS First Boston]
CS First Boston Corporation
55 East 52nd Street
New York, NY 10055-0186
Telephone 212 909 2000
July 1, 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 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 $84.81 in cash. A portion of the cash
consideration to be received by Common Stockholders of UAL will represent the
gross proceeds of a public offering by United Air Lines, Inc. of its Series A
Debentures due 2004 and its Series B Debentures due 2014 and the gross proceeds
of a public offering by UAL of Depositary Preferred Shares representing shares
of its Series B Preferred Stock, without par value.
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
[logo of CS First Boston]
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 to effect the Transaction.
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 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
[logo of CS First Boston]
By: [authorized signature]
EXHIBIT 3
[logo of Lazard Freres & Co.]
One Rockefeller Plaza
New York, N.Y. 10020
Telephone (212) 632-6000
Facsimile (212) 632-6060
New York
July 1, 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 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 $84.81 in cash. A portion of the cash
consideration to be received by Common Stockholders of UAL will represent the
gross proceeds of a public offering by United Air Lines, Inc. of its Series A
Debentures due 2004 and its Series B Debentures due 2014 and the gross proceeds
of a public offering by UAL of Depositary Preferred Shares representing shares
of its Series B Preferred Stock, without par value.
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 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.
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 be unreasonably 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,
[authorized signature]
Lazard Freres & Co.
Exhibit 99.1
[logo of American Appraisal Associates] 100 East Wisconsin Avenue
Suite 2100
P.O. Box 664
Milwaukee, Wisconsin
53201-0664
Telephone 414/271-7240
July 11, 1994
UAL Corporation
and its
Board of Directors
1200 Algonquin Road
Elk Grove Township, IL 60007
and
United Air Lines, Inc.
and its
Board of Directors
1200 Algonquin Road
Elk Grove Township, IL 60007
Ladies and Gentlemen:
This letter is furnished at the request of UAL Corporation, a
Delaware corporation (the "Company"), and its principal
subsidiary United Air Lines, Inc., a Delaware corporation
("United"), concerning a proposed recapitalization plan (the
"Plan") for the Company and United as further described below.
We understand that the Company has entered into an Agreement and
Plan of Recapitalization, dated as of March 25, 1994, by and
among the Company, Air Line Pilots Association, International
("ALPA") and International Association of Machinists and
Aerospace Workers ("IAM"), as amended by amendments dated June 2,
1994 and June 29, 1994 (as amended, the "Agreement"). The
Agreement provides for a transaction pursuant to which employee
trusts (the "ESOPs") for the benefit of ALPA, IAM and
salaried/management employees of the Company, United and other
subsidiaries will acquire 55% of the equity of the Company
(subject to increase to up to 63% in certain circumstances) in
exchange for significant pay and benefit concessions and work
rule changes.
The Agreement provides that each share of the Company's common
stock, par value $5 per share (the "Old Common Stock"), will be
reclassified into one-half of a share of the Company's common
stock, par value $.01 per share (the "New Common Stock"), and
one-one thousandth of a share of Series D Redeemable Preferred
Stock, par value $.01 per share (the "Redeemable Preferred
Stock"). Upon issue, each one-one thousandth of a share of
Redeemable Preferred Stock shall be immediately redeemed (the
"Redemption") for $84.81 in cash (the "Redemption Cash"). The
Company is offering for sale in a public offering 16,416,000
Depositary Shares representing shares of Series B Preferred
Stock, $.01 per share, of the Company (the "Preferred Offering").
United is offering for sale in a public offering $370.2 million
principal amount of 10.67% Series A Debentures due 2004 and $371
million principal amount of 11.21% Series B Debentures Due 2014
(the "Debenture Offerings" and, together with the Preferred
Offering, the "Offerings"). The New Common Stock and Redemption
Cash are referred to herein as the "Reclassification
Consideration". The proceeds of the Debenture Offerings and a
portion of the Redemption Cash shall be delivered to the Company
by United prior to the Redemption by way of a dividend (the
"Dividend"). The Redemption Cash will be obtained from the
proceeds of the Preferred Offering, the Dividend and from other
available cash resources of the Company. Immediately following
the Transaction, the outstanding New Common Stock will represent,
in the aggregate, 45% of the common equity interest and voting
power of the Company at closing.
The proposed Plan consists of two ESOPs. There will be a
leveraged ESOP ("LESOP") covering all participating employees and
a supplemental ESOP ("Supplemental ESOP") covering certain
participating employees. THE LESOP and the Supplemental ESOP
will hold one or more series of a convertible preferred stock
(collectively, "ESOP Preferred Shares") of the recapitalized
Company. If and to the extent that the required stock deposits
cannot be made to the LESOP because of tax limitations on deposit
opportunities, the Supplemental ESOP will accept the overflow.
State Street Bank & Trust Company has been retained to act as
trustee(s) of the ESOPS (the "ESOP Trustee"). The ESOP Trustee
will purchase, for the LESOP, ESOP Preferred Shares from the
Company. The ESOP Trustee will obtain funds to pay the purchase
price with the proceeds of a loan (the "ESOP Purchase Loan") made
by the Company, and cash contributed by the Company to the ESOP.
The ESOP Purchase Loan will be in a multi-billion dollar amount,
the exact figure to be determined pursuant to a formula contained
in an agreement between the Company and the ESOP Trustee.
The stock targeted for the Supplemental ESOP will be contributed
by the Company to the Supplemental ESOP over the wage investment
period rather than by leveraged purchase at the inception of the
transaction. Until contributed, the stock will be held by the
Company in treasury or, under certain circumstances, contributed
to a nonqualified trust.
The employee groups have agreed to make wage investments over the
wage investment period as a condition to the ESOP's acquisition
of its share of the Company's equity. The ESOP Preferred Shares
initially acquired by the ESOP will be allocated to ESOP
participants' accounts as the ESOP pays down the ESOP Purchase
Loan (the ESOP's acquisition indebtedness) over that period. The
joint LESOP will pay back the ESOP Purchase Loan with employer
contributions made by the participating employers for this
purpose and dividends received on the LESOP Preferred Shares held
by the LESOP.
The Plan, the Reclassification Consideration, the Redemption, the
Offerings, the Dividend, the ESOPs, the ESOP Purchase Loan, the
transactions contemplated thereby, any changes in the Company's
or United's assets and liabilities as a result of the
Reclassification Consideration, the Redemption, the Offerings,
the Dividend, the ESOPs and the ESOP Purchase Loan, and
refinancing of existing indebtedness of the Company, and the
payment of related fees and expenses are collectively referred to
as the "Transaction".
In connection with the Transaction, you have requested that we
render a written opinion prior to the issuance of the
Reclassification Consideration (the "Opinion") addressed to the
Company and United and their respective Boards of Directors as to
whether, assuming the Transaction has been consummated as
proposed, both immediately before and after, and giving effect
to, the consummation of the Transaction:
(a) The fair value of the aggregate assets 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 saleable value of the aggregate assets
of the Company (on a consolidated basis) and United (on
a consolidated basis) will be greater than the
Company's and United's respective probable liabilities
on their debts as such debts become absolute and
matured;
(c) 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; and
(d) The capital remaining in the Company (on a consolidated
basis) and in United (on a consolidated basis) will not
be unreasonably small for the business in which the
Company and United is engaged, as management of the
Company and United has indicated such business is now
conducted and as management has indicated the business
is proposed to be conducted following the consummation
of the Transaction, 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 Reclassification Consideration
to stockholders plus the stated capital of the Company,
i.e., the Transaction meets the Delaware Test.
(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, i.e. the
Transaction meets the Delaware Test.
In rendering our Opinion, we have 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 Transaction. 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. We
believe this is a reasonable basis to value the Company and
United. Nothing has come to our attention that causes us to
believe that each of the Company (on a consolidated basis) and
United (on a consolidated basis), before and after the
Transaction, will not be going concerns. For purposes of the
Opinion, the following terms will have the meanings set forth
below:
(1) "Fair value" means the amount at which the aggregate
assets would change hands between a willing buyer and a
willing seller, within a commercially reasonable period
of time, each having reasonable knowledge of the
relevant facts, neither being under any compulsion to
act, with equity to both;
(2) "Present fair saleable value" means the amount that may
be realized if the aggregate assets are sold with
reasonable promptness in an arms-length transaction
under present conditions in a current market for the
sale of a comparable business enterprise;
(3) "Contingent liabilities" of the Company and United, as
the case may be, means the estimated amount of
contingent liabilities, which contingent liabilities
have been identified to us by responsible officers and
employees of the Company and United, their respective
accountants and financial advisors, and such other
experts as we deemed necessary to consult, and valued
by AAA after consultation with responsible officers and
employees of the Company and United and/or such
industry, economic, statistical and other experts as we
deemed necessary to consult (the valuation of
contingent liabilities to be computed in light of all
the facts and circumstances existing at the time of
such valuation as the maximum amount that can
reasonably be expected to become an actual or matured
liability), which contingent liabilities may not meet
the criteria for accrual under Statement of Financial
Accounting Standards No. 5 and therefore may not be
recorded as liabilities under GAAP;
(4) "Able to pay its debts as they mature" means that,
assuming the Transaction has been consummated as
proposed (and taking into consideration additional
borrowing capacity under the Company's and United's
borrowing facilities) during the period covered by the
financial projections (the "Financial Projections")
prepared by managements of the Company and United, the
Company or United, as the case may be, will have
positive cash flow after paying its scheduled
anticipated indebtedness; the realization of current
assets in the ordinary course of business will be
sufficient to pay recurring current debt, short-term
debt, long-term debt service and other contractual
obligations, including contingent liabilities, as such
obligations mature; and the cash flow will be
sufficient to provide cash necessary to repay the
Company's and United's long-term indebtedness as such
debt matures; and
(5) "Will not have unreasonably small capital with which to
conduct its business" means that the Company and United
will not lack sufficient capital for the needs and
anticipated needs for capital of the business,
including contingent liabilities, as managements of the
Company and United have indicated it is being conducted
and as management has indicated the Company's and
United's business is proposed to be conducted following
the consummation of the Transaction.
(6) "The Company (on a consolidated basis)" means, as
appropriate, the assets held directly by the Company,
including the stock of each subsidiary of the Company,
or the liabilities which are obligations of the
Company.
(7) "United (on a consolidated basis)" means, as
appropriate, the assets held directly by the United,
including the stock of each subsidiary of United, or
the liabilities which are obligations of United.
(8) "Stated Capital" shall mean "capital" as defined in and
computed in accordance with Sections 154 and 244 of the
General Corporation Law of the State of Delaware, which
definition is set forth herein under "Delaware Test."
(9) "Delaware Test" means that as a result of the
Transactions, the capital of each of the Company and
United was not then impaired or did not become
impaired, as such terms are used in Section 160 of the
Delaware General Corporation Law. We understand that
impairment of capital means the reduction of the net
assets of the Company or United, as the case may be,
below the capital of such corporation, i.e. the
aggregate amount represented by the aggregate par value
of the outstanding shares of capital stock of the
Company or United, as the case may be, plus any amounts
transferred to the capital of such corporation by
resolution of its board of directors.
Our opinion of fair value is subject to the following conditions:
(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; 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 our Opinion of the fair value of each of the
Company (on a consolidated basis) and United (on a consolidated
basis), we were provided historical and projected operating
results. In addition to this information, we were provided other
operating data and information all of which has been accepted,
without independent verification, as representing a fair
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, in the course of our investigation, nothing
has led us to believe that our acceptance and reliance on such
operating data and information was unreasonable.
The 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 acquirers 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 the Financial Projections. 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 their respective dates of the Company's
(on a consolidated basis) and United's (on a consolidated basis)
liabilities become absolute and matured for purposes of opinion
(a) below, we have 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 our investigation of identified contingent
liabilities, the areas brought to our attention 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 (the "Pro Forma Balance Sheet")
prepared and furnished to us 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 our valuation study as ongoing business operating
expenses. We have taken these identified contingent liabilities
into account in rendering our Opinion and have concluded that
such liabilities and ongoing expenses do not require any
qualification of our Opinion. Our conclusion is based on: (i)
our 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 each of the consolidated
financial position of the Company (on a consolidated basis) and
United (on a consolidated basis) and (iii) our discussions with
the managements of each of the Company (on a consolidated basis)
and United (on a consolidated basis), its accountants,
consultants and counsel concerning, and our investigation of the
various lawsuits, claims and other contingent liabilities
identified to us and the possible effect of the foregoing on each
of the Company and United.
We have 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 of each of the
Company (on a consolidated basis) and United (on a consolidated
basis), and the identified contingent liabilities referred to
herein. In the course of our investigation, nothing came to our
attention which caused us to believe such assumptions to be
unreasonable. The Pro Forma Balance Sheet is the unaudited Pro
Forma Condensed Balance Sheet as of March 31, 1994 each of for
the Company (on a consolidated basis) and United (on a
consolidated basis), adjusted to give effect to: (a) the planned
financing of the Transaction; and (b) the application of the
proceeds of the financing and restated by us 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 us, and
we have relied on the managements of the Company and United's
representation that no adverse changes have occurred since their
preparation which would materially impact the content of the
Company's and United's Pro Forma Balance Sheet and Financial
Projections. Nothing has come to our attention which would lead
us to believe our reliance on such representations to be
unreasonable.
In connection with our Opinion, we have made such reviews,
analyses and inquiries as we have deemed necessary and
appropriate under the circumstances. Among other things, we
have:
(i) Reviewed the Transaction documents and SEC
reporting documents;
(ii) Reviewed Financial Projections and inquired
of managements of the Company and United as
to the foundation for any such projections
and the basic assumptions made in the
preparation of projections 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 projected 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 Transaction;
(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
investigate 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
employees, agents, accountants and financial
advisors; and
(xi) Conducted such other studies, analyses and
investigations as we deem relevant or
necessary for purposes of the Opinions.
We have assumed, without independent verification, that the Pro
Forma Balance Sheet and Financial Projections provided to us 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 us. Nothing has come to our attention which would
lead us to believe that the foregoing assumption is unreasonable.
Although we have not independently verified the accuracy and
completeness of the Financial Projections and forecasts, or any
of the assumptions, estimates, or judgements referred to therein,
or the basis therefor, and although no assurances can be given
that such Financial Projections and forecasts can be realized or
that actual results will not vary materially from those
projected, nothing has come to our attention during the course of
our engagement which lead us to believe that any information
reviewed by us or presented to us in connection with our
rendering of the Opinion is unreasonable or inaccurate in any
material respect or that it was unreasonable for us to utilize
and rely upon the financial projections, 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. Our Opinion is necessarily based on
business, economic, market and other conditions as they currently
exist and as they can be evaluated by us at the date of this
Opinion.
Based upon the foregoing, and in reliance thereon, it is our
opinion as of this date that, assuming the Transaction is
consummated as proposed, both immediately before and after, and
giving effect to, the consummation of the Transaction.
(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 saleable 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; and
(d) The capital remaining in each of the Company (on a
consolidated basis) and in United (on a consolidated
basis) after consummation of the Transaction will not
be unreasonably small for the business in which the
Company and United is engaged, as management of the
Company and United has indicated such business is now
conducted and as management has indicated the business
is proposed to be conducted following the consummation
of the Transaction, 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 Reclassification Consideration
to stockholders plus the stated capital of the Company,
i.e., the Transaction meets the Delaware Test.
(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, i.e. the
Transaction meets the Delaware Test.
It is understood that the Opinion is solely for the information
of the above mentioned addressees, their successors or assignees,
and is not to be quoted, or referred to, in whole or in part, in
any written document other than a reference in (i) the filing and
disclosure of the Company's Opinion with the Securities and
Exchange Commission (the "SEC") and any state securities
commission or blue sky authority, or other governmental authority
or agency if such filing or disclosure is required pursuant to
the rules and regulations thereof, or otherwise required by
applicable law in the opinion of the Company's counsel; (ii) the
disclosure of the Opinions upon the demand, order or request of
any court, administrative or governmental agency or regulatory
body (whether or not such demand, order or request has the force
of law) or as may be required or appropriate in response to any
summons, subpoena, or discovery requests, (iii) the attachment of
the Opinions as an exhibit to the loan documents governing any
financing by banks, who, in the future, may extend credit to the
Company or United, or as an exhibit to any documents governing
debt financing by other financing sources, (iv) the disclosure of
the Opinions in connection with (A) the prospective sale,
assignment, participation or any other disposition by any bank or
other financing source of any right or interest in the debt
financing by such bank or other financing source, (B) an audit or
any bank or other financing source by an independent public
accountant or any administrative agency or regulatory body or (C)
the exercise of any right or remedy by a bank or other financing
source in connection with the debt financing, (v) the disclosure
of the Opinions as may be requested, required or ordered in, or
to protect a bank's or other financing source's interest in, any
litigation, governmental proceeding or investigation to which
any bank or other financing source is subject or purported to be
subject, (vi) the disclosure of the Opinions as otherwise
required by, or as reasonably determined by any bank or financing
source to be required by, any law, order, regulation or ruling
applicable to such bank or other financing course, (vii) the
attachment of this letter the Recapitalization Agreement, (viii)
the delivery of this letter to the managing underwriters of the
Debenture Offerings, who may rely upon it as if it were addressed
to them.
Very truly yours,
AMERICAN APPRAISAL ASSOCIATES, INC.
( "AAA")
By /s/ Ronald M. Goergen
Ronald M. Goergen
President
UNITED AIR LINES (BEFORE)
SHAREHOLDER DISTRIBUTION TEST
BASED ON
MARCH 31, 1994
STOCKHOLDERS' EQUITY $570
(PER HISTORICAL FINANCIAL STATEMENTS - PRIOR TO TRANSACTION)
EXCESS OF TOTAL ASSETS OVER PRO FORMA LIABILITIES $2,188
(RESTATED TO REFLECT PFSV - PRIOR TO TRANSACTION)
TRANSACTION
LESS DISTRIBUTION TO SHAREHOLDER:
CASH 0
CASH FROM DEBENTURES 0
LESS STATED CAPITAL OF THE CORPORATION 1
________
INDICATED EXCESS ASSETS $2,187
(PRIOR TO TRANSACTION) ========
AMERICAN APPRAISAL ASSOCIATES, INC.
1 OF 4 11-JUL-94
______________________________________________________________________________
UNITED AIR LINES (AFTER)
SHAREHOLDER DISTRIBUTION TEST
BASED ON
MARCH 31, 1994
STOCKHOLDERS' EQUITY $570
(PER HISTORICAL FINANCIAL STATEMENTS - PRIOR TO TRANSACTION)
EXCESS OF TOTAL ASSETS OVER PRO FORMA LIABILITIES $2,495
(RESTATED TO REFLECT PFSV - PRIOR TO TRANSACTION)
TRANSACTION
LESS DISTRIBUTION TO SHAREHOLDER:
CASH 300
CASH FROM DEBENTURES 741
LESS STATED CAPITAL OF THE CORPORATION 1
________
INDICATED EXCESS ASSETS $1,453
========
AMERICAN APPRAISAL ASSOCIATES, INC.
2 OF 4 11-JUL-94
______________________________________________________________________________
UAL (BEFORE)
SHAREHOLDER DISTRIBUTION TEST
BASED ON
MARCH 31, 1994
STOCKHOLDERS' EQUITY $1,097
(PER HISTORICAL FINANCIAL STATEMENTS - PRIOR TO TRANSACTION)
EXCESS OF TOTAL ASSETS OVER PRO FORMA LIABILITIES $2,271
(RESTATED TO REFLECT PFSV - PRIOR TO TRANSACTION)
TRANSACTION
LESS DISTRIBUTION TO SHAREHOLDERS:
CASH 0
CASH FROM DEBENTURES 0
CASH FROM PREFERRED 0
LESS STATED CAPITAL OF THE CORPORATION 128
________
INDICATED EXCESS ASSETS $2,143
(PRIOR TO TRANSACTION) ========
AMERICAN APPRAISAL ASSOCIATES, INC.
3 OF 4 11-JUL-94
______________________________________________________________________________
UAL (AFTER)
SHAREHOLDER DISTRIBUTION TEST
BASED ON
MARCH 31, 1994
STOCKHOLDERS' EQUITY $1,537
(PER HISTORICAL FINANCIAL STATEMENTS - PRIOR TO TRANSACTION)
EXCESS OF TOTAL ASSETS OVER PRO FORMA LIABILITIES $3,666
(RESTATED TO REFLECT PFSV - PRIOR TO TRANSACTION)
TRANSACTION
LESS DISTRIBUTION TO SHAREHOLDERS:
CASH 978
CASH FROM DEBENTURES 741
CASH FROM PREFERRED 410
LESS STATED CAPITAL OF THE CORPORATION 1
________
INDICATED EXCESS ASSETS $1,536
(AFTER TRANSACTION)
LESS DECLARATION OF DIVIDENDS:
SERIES A DIVIDEND (JULY 11, 1994) 9
SERIES B DIVIDEND (JULY 12, 1994) 3
________
INDICATED EXCESS ASSETS $1,524
(AFTER TRANSACTION AND DECLARATION OF DIVIDENDS) ========
AMERICAN APPRAISAL ASSOCIATES, INC.
4 OF 4 11-JUL-94
______________________________________________________________________________
EXHIBIT 99.2
UAL CORPORATION
[LOGO]
July 12, 1994
Dear Fellow Stockholder:
At the Meeting of Stockholders of UAL Corporation (the
"Company") held on July 12, 1994, the stockholders of the
Company voted to approve and adopt the Amended and Restated
Agreement and Plan of Recapitalization (as amended, the "Plan of
Recapitalization"), pursuant to which employees of the Company
are acquiring a majority stake in the common equity of the
Company in exchange for wage and benefit reductions and
work-rule changes. In accordance with the Plan of
Recapitalization, each outstanding share of the Company's Common
Stock, par value $5.00 per share (the "Old Shares"), will be
converted into, and become a right to receive (subject to
certain adjustments) one half of a share of Common Stock, par
value $0.01 per share, of the Company ("New Share"), $84.81 in
cash and cash-in-lieu of fractional New Shares.
To receive the consideration for your Old Shares (less any
amount required to be withheld under applicable federal income
tax regulations), please complete the enclosed Letter of
Transmittal in accordance with its instructions and return it
with the certificates representing your Old Shares in the
enclosed envelope to First Chicago Trust Company of New York,
the exchange agent appointed by the Company pursuant to the Plan
of Recapitalization. The cash payment will be made by check, and
the entire consideration will be mailed to the address shown on
the Letter of Transmittal.
Thank you for your consideration and support.
Sincerely,
(ART)
Francesca M. Maher
Vice President-Law and
Corporate Secretary
[Letterhead address]
LETTER OF TRANSMITTAL
For Shares of Common Stock,
Par Value $5.00 Per Share
of
UAL CORPORATION
Surrendered for Cash and Stock Payment
Pursuant to the
Plan of Recapitalization
Dated as of March 25, 1994,
as Amended
_____________________________
The Exchange Agent:
First Chicago Trust Company of New York
For Information Call:
(201)324-0137
By Mail: By Hand or Overnight Courier:
FIRST CHICAGO TRUST COMPANY FIRST CHICAGO TRUST COMPANY
OF NEW YORK OF NEW YORK
P.O. BOX 2565, 8TH FLOOR, SUITE 4680
MAIL SUITE 4660 JERSEY CITY, 14 WALL STREET
NJ 07303-2565 NEW YORK, NY 10005
Name & Address of Registered Holder(s): Certificate(s) Surrendered
(Please fill in if blank) (Attach Additional Lists
If Necessary. See Instruction 1)
Certificate Number Number of Shares
Total
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
LADIES/GENTLEMEN:
The undersigned hereby represents and warrants that he or she
has good title to the shares being delivered and surrendered to
First Chicago Trust Company of New York, as exchange agent (the
"Exchange Agent"), free and clear of all liens, restrictions,
charges and encumbrances, and that such shares are not subject
to any adverse claim. The undersigned represents and warrants
that he or she has full power and authority to surrender the
stock certificate(s). The undersigned will, upon request,
execute and deliver any additional documents reasonably deemed
appropriate or necessary by UAL Corporation ("UAL") or the
Exchange Agent in connection with the surrender of the
certificate(s). All authority conferred or agreed to be
conferred in this Letter of Transmittal shall be binding upon
the successors, assigns, heirs, executors, administrators,
trustees in bankruptcy and legal representatives of the
undersigned and shall not be affected by, and shall survive, the
death or incapacity of the undersigned.
The undersigned understands that the delivery and surrender of
the stock certificate(s) is not effective, and the risk of loss
of the certificate(s) does not pass to the Exchange Agent, until
receipt by the Exchange Agent of this Letter of Transmittal,
duly completed and signed, together with all accompanying
evidences of authority in a form satisfactory to UAL and the
Exchange Agent and any other required documents. All questions as
to validity, form and eligibility of any surrender of
certificate(s) hereunder will be determined by UAL, and such
determination shall be final and binding on all parties.
The undersigned hereby represents and warrants that he or she
understands that unless and until certificate(s) shall have been
surrendered to the Exchange Agent, holders of such
certificate(s) shall not be entitled to receive dividends or
other distributions with respect to Common Stock, par value $0.01
per share, of UAL to be distributed in respect of the shares
being delivered and surrendered herewith.
The undersigned understands that payment for surrendered
certificate(s) will be made as promptly as practicable after
surrender of the certificate(s) is made in acceptable form.
SHAREHOLDER SIGN HERE
Must be signed by the registered holders exactly as names
appear on certificate(s) or by persons authorized to become
registered holders by certificate(s) and documents transmitted
herewith. If signing is by an attorney-in-fact, executor,
administrator, trustee, guardian, officer of a corporation,
agent or other person acting in a fiduciary or representative
capacity, please set forth full title. See Instruction 4. The
undersigned represents and warrants that he or she has full
power and authority to surrender the certificate(s) and has read
and agrees to all the terms and conditions set forth herein.
Signatures_______________________________________________________
_________________________________________________________________
__________________________________________________________
Names
_________________________________________________________________
__________________________
_________________________________________________________________
____________________________
Capacity
_________________________________________________________________
________________________
Address
_________________________________________________________________
_________________________
Tax Identification or Social Security No.
_______________________________________________________________
(SEE INSTRUCTION 10)
Area Code and Tel. No.
_________________________________________________________________
__________
Dated ______________ , 19 ______
SIGNATURE GUARANTEE
(IF REQUIRED-SEE INSTRUCTION 4)
Authorized Signature
_________________________________________________________________
______________
Name
_________________________________________________________________
__________________________
(PLEASE TYPE OR PRINT)
Title
_________________________________________________________________
___________________________
Name of Firm
_________________________________________________________________
___________________
Address
_________________________________________________________________
________________________
_________________________________________________________________
_______________________________
(ZIP CODE)
Area Code and Tel. No.
_________________________________________________________________
___________
Dated _________ , 19 ________
PLEASE ISSUE CHECK AND CERTIFICATES AS INDICATED ABOVE (SEE "A"
OR "B" BELOW IF REQUIRED)
"A" SPECIAL PAYMENT
INSTRUCTIONS
(SEE INSTRUCTION 4)
To be completed only if a
check and certificates are to
be issued in a name other
than as shown above.
Name . . . . . . . . . . .
Address . . . . . . . . .
. . . . . . . . . . . . .
TIN # . . . . . . . . . . .
"B" SPECIAL DELIVERY
INSTRUCTIONS
(SEE INSTRUCTION 7)
To be completed only if a check
and certificates are to be mailed
to an address other than as shown
above or in "SPECIAL PAYMENT
INSTRUCTIONS."
Name . . . . . . . . . . .
Address . . . . . . . . .
. . . . . . . . . . . . .
Zip Code . . . . . . . . .
INSTRUCTIONS FOR LETTER OF TRANSMITTAL
1. General. This Letter of Transmittal should be properly
filled in, dated and signed by the registered holder(s) of the
shares which are delivered or mailed, together with the stock
certificate(s) for said shares, to the Tenders & Exchanges
Department of the Exchange Agent at one of the addresses on the
face hereof. The method of delivery is at your option and risk,
but if sent by mail, we suggest insured registered mail with
return receipt. A mailing envelope is enclosed for your
convenience. Additional copies of this Letter of Transmittal may
be obtained from the Exchange Agent. If the space provided on
this Letter of Transmittal is inadequate, the certificate numbers
and the number of shares should be listed on a separate signed
schedule and attached to this Letter of Transmittal.
2. Risk of Loss. Delivery of stock certificate(s) shall be
effected and the risk of loss and title shall pass only upon
proper delivery of the certificate(s) and this Letter of
Transmittal to the Exchange Agent.
3. Consideration Issued in the Same Name. If the consideration
for shares surrendered is issued in the same name as the
registered holder(s), no endorsement or transfer tax stamps is
required on the certificate(s). In such event, the signatures on
this Letter of Transmittal must be exactly the same as the names
that appear on the face of the certificate(s), without
alteration, enlargement or any change whatsoever.
4. Special Payment Instructions. If the consideration for
shares surrendered is to be issued in a name other than that of
the registered holder of the shares surrendered, the surrendered
certificate(s) must be endorsed or accompanied by an endorsed
stock power and the signature thereon guaranteed by an eligible
guarantor institution such as a commercial bank, trust company,
securities broker/dealer, credit union or savings institution
participating in the Medallion Signature Guarantee Program. A
verification by a Notary Public is not acceptable. Endorsements
on the certificate(s) must correspond in every particular with
the registered names on such certificate(s). In case the
endorsement on any certificate(s) is executed by an attorney,
executor, administrator, guardian or other fiduciary, or by an
officer of a corporation, the person executing the endorsement
must give his full title in such capacity and appropriate
evidence of authority to act in such capacity must be forwarded
with the certificate(s) surrendered.
5. Exchange and Payment. The Exchange Agent will mail the
consideration for the stock certificate(s) surrendered by first
class mail as soon as practicable after the receipt by the
Exchange Agent of a properly completed and duly executed Letter
of Transmittal, such certificate(s) and any required supporting
documents.
6. Validity of Surrender; Irregularities. All questions as to
validity, form and eligibility of any surrender of the
certificate(s) hereunder will be determined by UAL Corporation,
and such determination shall be final and binding on all
parties. A surrender will not be deemed to have been made until
all irregularities have been cured or waived.
7. Special Delivery Instructions. Indicate the name and address
to which payment for the shares is to be sent if different from
the name and address of the persons signing this Letter of
Transmittal.
8. Adequacy of Documentation. UAL Corporation and the Exchange
Agent reserve full discretion to determine whether each Letter
of Transmittal submitted to the Exchange Agent has been properly
filled in and is adequate. UAL Corporation and the Exchange
Agent shall have the right to request the execution of any
additional documents which either of them, in its sole
discretion, deems necessary or desirable to facilitate the
proper transmittal of stock certificate(s). Any determination by
UAL Corporation and the Exchange Agent as to the adequacy of
documentation shall be final.
9. Lost, Stolen or Destroyed Certificates. If stock
certificate(s) have been lost, stolen or destroyed, you should
contact the Exchange Agent at one of the addresses on the face
hereof or the telephone number listed below, and the Exchange
Agent will mail to you an affidavit of loss and an indemnity
bond. The consideration for shares will be delivered to you only
upon receipt of a properly completed affidavit of loss and an
indemnity bond.
10. Substitute Form W-9. You are required to provide the
Exchange Agent with a correct Taxpayer Identification Number
("TIN") on Substitute Form W-9, which is provided under
"Important Tax Information" above, and to indicate that you are
not subject to backup withholding by checking the box in Part 2
of the form. Failure to provide the information on the form may
subject you to a penalty and a 31 percent Federal income tax
withholding on certain payments due for the certificates. The
box in Part 3 of the form may be checked if you have not been
issued a TIN and have applied for a number or intend to apply for
a number in the near future. If the box in Part 3 is checked and
the Exchange Agent is not provided with a TIN within 60 days,
the Exchange Agent will withhold 31 percent of certain amounts
due for the certificates until a TIN is provided to the Exchange
Agent.
11. Questions. If you have any questions, please call our
Tenders & Exchanges Department at (201) 324-0137.
IMPORTANT TAX INFORMATION
Under the Federal income tax law, a stockholder is required by
law to provide the Exchange Agent (as payer) with his or her
correct taxpayer identification number on Substitute Form W-9
below. If such stockholder is an individual, the taxpayer
identification number is his or her social security number. If
the Exchange Agent is not provided with the correct taxpayer
identification number, the stockholder may be subject to a
penalty imposed by the Internal Revenue Service. In addition,
certain payments that are made to such stockholder may be
subject to backup withholding.
Exempt stockholders (including, among others, all corporations
and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. (In order for a foreign
individual to qualify as an exempt recipient, that stockholder
must submit a statement, signed under penalties of perjury,
attesting to that individual's exempt status. Such statements can
be obtained from the Exchange Agent.) See the Guidelines for
Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional instructions.
If backup withholding applies, the Exchange Agent is required
to withhold 31 percent of any such payments made to the
stockholder. Backup withholding is not an additional tax.
Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be
obtained.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a
stockholder, the stockholder is required to notify the Exchange
Agent of his or her correct taxpayer identification number by
completing the form below certifying that the taxpayer
identification number provided on Substitute Form W-9 is correct
(or that such stockholder is awaiting a taxpayer identification
number) and that (1) the stockholder has not been notified by
the Internal Revenue Service that he or she is subject to backup
withholding as a result of failure to report all interest or
dividends or (2) the Internal Revenue Service has notified the
stockholder that he or she is no longer subject to backup
withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The stockholder is required to give the Exchange Agent the
social security number or employer identification number of the
record owner of the shares.
PAYER'S NAME: FIRST CHICAGO TRUST COMPANY OF NEW YORK
SUBSTITUTE
FORM W-9
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
PAYER'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER ("TIN")
PART 1-
PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT
AND CERTIFY BY SIGNING AND DATING BELOW.
Social Security Number or
Employer Identification Number
_______________________________________________
PART 2-Check the box if you are NOT subject to backup withholding
under the provisions of section 340(6)(a)(1)(C) of the Internal
Revenue Code because (1) you have not been notified that you are
subject to backup withholding as a result of failure to report
all interest or dividends or (2) the Internal Revenue Service
has notified you that you are no longer subject to backup
withholding. ( )
CERTIFICATION-UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE
INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT, AND
COMPLETE.
SIGNATURE
DATE
PART 3-
Awaiting TIN ( )
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF CERTAIN PAYMENTS MADE TO YOU.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
PLEASE READ CAREFULLY THE INSTRUCTIONS CONTAINED IN THIS LETTER
OF TRANSMITTAL.
Exhibit 99.3
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the
Payer. Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits
separated by only one hyphen: i.e. 00-0000000. The table below will help
determine the number to give the payer.
______________________________________________________________________________
Give the Give the
SOCIAL EMPLOYER
For this type of SECURITY For this type of IDENTIFICATION
account: number of__ account: number of __
_______________________________________________________________________________
1. An individual's The individual 9. A valid trust, The legal
account estate, or entity (Do
pension trust not furnish
2. Two or more The actual the identifying
individuals owner of the number of the
(joint account) account or, personal repre-
if combined sentative or
funds, any trustee
one of the unless the
individuals(1) legal entity
itself is not
designated in
3. Husband and wife The actual the account
(joint account) owner of the title).(5)
account or,
if joint
funds, either 10. Corporate account The corporation
person(1)
4. Custodian account The minor(2) 11. Religious, The organization
of a minor charitable, or
(Uniform Gift to educational
Minors Act) organization
account
5. Adult and minor The adult or,
(joint account) if the minor 12. Partnership The partnership
is the only account held in
contributor, the name of the
the minor(1) business
6. Account in the The ward, 13. Association, The organization
name of guardian minor, or club, or other
or committee for incompetent tax-exempt
a designated person(3) organization
ward, minor, or
incompetent 14. A broker or The broker or
person registered nominee
nominee
7. a. The usual The grantor- 15. Account with the The public
revocable trustee(1) Department of entity
savings Agriculture in
trust the name of a
account public entity
(grantor is (such as a State
also trustee) or local
government,
school district,
or prison) that
b. So-called The actual receives agricul-
trust account owner(1) tural program
that is not a payments
legal or valid
trust under
State law
8. Sole propriet- The owner(4)
orship
account
____________________________________________________________________________
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish
such person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number
will be considered to be that of the first name listed.
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer
identification number or you
don't know your number, obtain
Form SS-5, Application for a
Social Security Number Card, or
Form SS-4, Application for an
Employer Identification Number,
at the local office of the
Social Security Administration
or the Internal Revenue Service
and apply for a number.
PAYEES EXEMPT FROM BACKUP
WITHHOLDING
Payees specifically exempted
from backup withholding on ALL
payments include the following:
* A corporation.
* A financial
institution.
* An organization exempt
from tax under section
501(a), or an
individual retirement
plan.
* The United States or
any agency or
instrumentality
thereof.
* A State, the District
of Columbia, a
possession of the
United States, or any
subdivision or
instrumentality
thereof.
* A foreign government, a
political subdivision
of a foreign
government, or any
agency or
instrumentality
thereof.
* An international
organization or any
agency, or
instrumentality
thereof.
* A registered dealer in
securities or
commodities registered
in the U.S. or a
possession of the U.S.
* A real estate
investment trust.
* A common trust fund
operated by a bank
under section 584(a).
* An exempt charitable
remainder trust, or a
non-exempt trust
described in section
4947(a)(1).
* An entity registered at
all times under the
Investment Company Act
of 1940.
* A foreign central bank
of issue.
Payments of dividends and
patronage dividends not
generally subject to backup
withholding include the
following:
* Payments to nonresident
aliens subject to
withholding under
section 1441.
* Payments to
partnerships not
engaged in a trade or
business in the U.S.
and which have at least
one nonresident
partner.
* Payments of patronage
dividends where the
amount received is not
paid in money.
* Payments made by
certain foreign
organizations.
* Payments made to a
nominee.
Payments of interest not
generally subject to backup
withholding include the
following:
* Payments of interest on
obligations issued by
individuals. Note: You
may be subject to
backup withholding if
this interest is $600
or more and is paid in
the course of the
payer's trade or
business and you have
not provided your
correct taxpayer
identification number
to the payer.
* Payments of tax-exempt
interest (including
exempt-interest
dividends under section
852).
* Payments described in
section 6049(b)(5) to
nonresident aliens.
* Payments on tax-free
covenant bonds under
section 1451.
* Payments made by
certain foreign
organizations.
* Payments made to a
nominee.
Exempt payees described above
should file Form W-9 to avoid
possible erroneous backup
withholding. FILE THIS FORM
WITH THE PAYER, FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER,
WRITE "EXEMPT" ON THE FACE OF
THE FORM, AND RETURN IT TO THE
PAYER. IF THE PAYMENTS ARE
INTEREST, DIVIDENDS, OR
PATRONAGE DIVIDENDS, ALSO SIGN
AND DATE THE FORM.
Certain payments, other than
interest, dividends, and
patronage dividends, that are
not subject to information
reporting are also not subject
to backup withholding. For
details, see the regulations
under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE. Section
6109 requires most recipients
of dividend, interest, or other
payments to give taxpayer
identification numbers to
payers who must report the
payments to IRS. IRS uses the
numbers for identification
purposes. Payers must be given
the numbers whether or not
recipients are required to file
tax returns. Payers must
generally withhold 31% of
taxable interest, dividend, and
certain other payments to a
payee who does not furnish a
taxpayer identification number
to a payer. Certain penalties
may also apply.
PENALTIES
(1) PENALTIES FOR FAILURE TO
FURNISH TAXPAYER IDENTIFICATION
NUMBER. If you fail to furnish
your taxpayer identification
number to a payer, you are
subject to a penalty of $50 for
each such failure unless your
failure is due to reasonable
cause and not to willful
neglect.
(2) FAILURE TO REPORT CERTAIN
DIVIDEND AND INTEREST
PAYMENTS. If you fail to
include any portion of an
includible payment for
interest, dividends, or
patronage dividends in gross
income, such failure will be
treated as being due to
negligence and will be subject
to a penalty of 5% on any
portion of an under-payment
attributable to that failure
unless there is clear and
convincing evidence to the
contrary.
(3) CIVIL PENALTY FOR FALSE
INFORMATION WITH RESPECT TO
WITHHOLDING. If you make a
false statement with no
reasonable basis which results
in no imposition of backup
withholding, you are subject to
a penalty of $500.
(4) CRIMINAL PENALTY FOR
FALSIFYING
INFORMATION. Falsifying
certifications or affirmations
may subject you to criminal
penalties including fines
and/or imprisonment.
FOR ADDITIONAL INFORMATION
CONTACT YOUR TAX CONSULTANT OR
THE INTERNAL REVENUE SERVICE
Exhibit 99.4
Corporate Communications Contacts:
John Kiker (708) 952-4162
Joe Hopkins (708) 952-5770
Tony Molinaro (708) 952-4971
Night (708) 952-4088
Investor Relations Contact:
Pamela Hanlon (708) 952-7501
UAL CORP. SHAREHOLDERS APPROVE HISTORIC RECAPITALIZATION
CREATING NATION'S LARGEST EMPLOYEE-OWNED COMPANY
FOR IMMEDIATE RELEASE
CHICAGO, July 12, 1994 -- UAL Corp. Chairman
and Chief Executive Officer Stephen M. Wolf announced
today that the company's shareholders have approved the
historic recapitalization in which employees will acquire
55 percent of the company's common stock in exchange for
pay and benefit reductions and work rule changes.
The employee investment transaction will make
UAL Corp., parent company of United Airlines, the largest
employee-owned company in the United States.
Wolf told shareholders, "Those of us here today
are participating in an event of monumental proportions
... a milestone marking one of the most significant
transformations in the airline industry since this
business was founded in the early 20th century."
He went on to say, "Through a significant
investment in the airline, our employees are about to
align their interests with the interests of our public
shareholders in a plan that should assure this company's
future in the global marketplace for many years to come."
Wolf himself will be leaving the company when
the transaction closes later today, and he will be
succeeded by Gerald Greenwald, a former vice chairman of
Chrysler Corp., as chairman and chief executive officer.
Following the announcement of the shareholders
vote today, Greenwald said, "No other airline is as well-
positioned for takeoff as United: A route system that
spans five continents, an excellent fleet of aircraft, a
management team that is one of the very best in the
business -- and a name that is recognized and respected
the world over. Today's milestone puts United a step
ahead."
The coalition of employees acquiring the
company includes two major unions, the Air Line Pilots
Association and the International Association of
Machinists, and a group of management and salaried
employees.
The reduced salaries and benefits and
modifications in work rules which are estimated to have a
present value of $4.9 billion will lower the company's
unit costs significantly and establish the framework for
more effective competition vis-a-vis U.S. carriers with
lower cost structures already in place.
Meanwhile, employee ownership provides
employees with a powerful new incentive to put forth
their best efforts to meet customer needs, assure the
long-time success of the company and add value to the
price of UAL Corp. shares.
UAL and United announced previously that they
will mount an airline within an airline beginning Oct. 1
on the U.S. West Coast with 83 flights initially. It
will be characterized by high frequency service,
attractive low fares and scaled back amenities.
The company has said for some time that the
flying public is influenced by low fares much more today
than other factors in deciding whether to fly and
selecting a carrier.
As previously disclosed, existing stockholders
will receive for each share of UAL common stock one-half
share of new UAL common stock and $84.81 in cash provided
that offerings of preferred stock and two issues of debt
are consummated.
-UA-
