<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 10, 1994
REGISTRATION NO. 33-53891
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
UNITED AIR LINES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
DELAWARE 36-2675206
(I.R.S. EMPLOYER
(STATE OR OTHER IDENTIFICATION NUMBER)
JURISDICTION OF
INCORPORATION OR
ORGANIZATION)
1200 EAST ALGONQUIN ROAD
ELK GROVE TOWNSHIP, ILLINOIS 60007
(708) 952-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Copies to: Copies to:
LAWRENCE M. NAGIN, PETER ALLAN ATKINS, ROHAN S. WEERASINGHE,
ESQ. ESQ. ESQ.
UAL CORPORATION THOMAS H. KENNEDY, SHEARMAN & STERLING
P.O. BOX 66100 ESQ. 599 LEXINGTON AVENUE
CHICAGO, ILLINOIS ERIC L. COCHRAN, ESQ. NEW YORK, NEW YORK
60666 SKADDEN, ARPS, SLATE, 10022
(708) 952-4000 MEAGHER & FLOM
(NAME, ADDRESS, 919 THIRD AVENUE
INCLUDING ZIP CODE, NEW YORK, NEW YORK
AND TELEPHONE NUMBER, 10022
INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered in this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED JUNE 10, 1994
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS SUBJECT TO +
+COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO +
+BUY BE ACCEPTED PRIOR TO THE TIME A FINAL PROSPECTUS SUPPLEMENT IS DELIVERED. +
+THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS SHALL NOT +
+CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL +
+THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, +
+SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION +
+UNDER THE SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUPPLEMENT
(To Prospectus dated June 10, 1994)
$765,000,000
LOGO OF AMERICAN AIRLINES
$382,500,000 OF % SERIES A DEBENTURES DUE 2004
$382,500,000 OF % SERIES B DEBENTURES DUE 2014
-----------
INTEREST PAYABLE , AND
-----------
Interest on the % Series A Debentures due 2004 (the "Series A Debentures")
and the % Series B Debentures due 2014 (the "Series B Debentures" and,
together with the Series A Debentures, the "Debentures") of United Air Lines,
Inc. ("United") will be payable semi-annually in arrears on and of each
year, commencing , 1994. The Series A Debentures will mature on , 2004,
and the Series B Debentures will mature on , 2014. The Debentures may not be
redeemed prior to maturity and are not subject to any sinking fund.
Concurrently with the offering of the Debentures (the "United Series A
Debenture Offering" and the "United Series B Debenture Offering" and,
collectively, the "United Debt Offerings"), UAL Corporation (the "Company"),
United's corporate parent, is offering to sell (the "UAL Preferred Offering"
and, together with the United Debt Offerings, the "Offerings") 30,600,000
depositary shares (the "Depositary Shares"), each representing an interest in
$25 liquidation preference of the Company's % Series B Preferred Stock ( the
"Series B Preferred Stock"). The proceeds of the Offerings will be used to fund
a portion of the cash payment to be made to the holders of common stock of the
Company in connection with the proposed recapitalization of the Company (the
"Recapitalization"). Each of the Offerings is conditioned on, and subject to,
the consummation of the Recapitalization, which is, in turn, subject to the
vote of the Company's stockholders and to certain other conditions. See "The
Recapitalization" in the accompanying Prospectus.
After giving pro forma effect to the Recapitalization as if it had occurred
on March 31, 1994, United would have had outstanding as of such date, including
the Debentures, approximately $3.5 billion aggregate principal amount of
indebtedness ranking pari passu with the Debentures offered hereby, of which
approximately $1.7 billion would have been secured.
The Debentures have been approved for listing on the New York Stock Exchange,
subject to official notice of issuance.
FOR CERTAIN FACTORS THAT SHOULD BE CONSIDERED BEFORE INVESTING IN THE
DEBENTURES, SEE "CERTAIN RISK FACTORS" IN THE ACCOMPANYING PROSPECTUS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS OR THIS
PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) UNITED(3)
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<S> <C> <C> <C>
Per Series A Debenture...................... % % %
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Total....................................... $ $ $
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Per Series B Debenture...................... % % %
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Total....................................... $ $ $
</TABLE>
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(1) Plus accrued interest, if any, from , 1994.
(2) United has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by United estimated at $ .
-----------
The Debentures are offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters, consummation of the
Recapitalization and certain other conditions. The Underwriters reserve the
right to withdraw, cancel or modify such offers and reject orders in whole or
in part. It is expected that delivery of the Debentures will be made in New
York, New York on or about , 1994.
-----------
MERRILL LYNCH & CO.
CS FIRST BOSTON
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC
-----------
The date of this Prospectus Supplement is , 1994.
<PAGE>
[INSERT AIRPLANE PICTURE]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DEBENTURES AT
LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
S-2
<PAGE>
[INSERT INTERNATIONAL ROUTE MAP]
<PAGE>
[INSERT INTERNATIONAL ROUTE MAP]
<PAGE>
SUMMARY
The following summary should be read in conjunction with the information
appearing elsewhere in this Prospectus Supplement and the accompanying
Prospectus and is qualified in its entirety by reference thereto.
UNITED AND THE COMPANY
United is one of the largest airlines in the world as measured by operating
revenues, revenue passengers and revenue passenger miles flown. At December 31,
1993, United served 159 airports in 33 countries with a fleet of 544 jet
aircraft. United has domestic hubs at Chicago's O'Hare Airport, Denver, San
Francisco and Washington's Dulles Airport. United has a substantial presence in
the Atlantic, the Pacific and the Latin American markets with hubs at London's
Heathrow Airport and Tokyo's Narita Airport. United also conducts significant
cargo operations along its route system. United is wholly-owned by UAL
Corporation and is the Company's principal subsidiary.
THE RECAPITALIZATION
Under an Amended and Restated Agreement and Plan of Recapitalization, dated
as of March 25, 1994 (the "Plan of Recapitalization"), among the Company, the
Air Line Pilots Association, International ("ALPA"), the union representing the
pilots employed by United, and the International Association of Machinists and
Aerospace Workers (the "IAM" and, together with ALPA, the "Unions"), the union
representing the mechanics, related employees, ramp and stores employees, food
service employees, dispatchers and security officers employed by United, the
Company has agreed to provide the employees represented by the Unions, as well
as United's salaried and management employees, with a majority equity interest
in the Company in exchange for wage concessions and work-rule changes. This
transaction will occur in connection with a recapitalization of the common
stock of the Company. Such transactions are referred to collectively herein as
the "Recapitalization."
In recent years, the Company has noted a fundamental shift in consumer
behavior, with an increased focus on the price/value relationship. Travel
preference has continued to shift to low-cost travel as provided by carriers
such as Southwest Airlines Co. ("Southwest"). The Company believed that this
trend was long-term and would continue even if the weak economic conditions of
the early 1990s improved. The Company determined that its ability to be
competitive in such an environment required a substantial reduction of its
operating costs. As a result of considering the various alternatives presented
to the Company's Board of Directors over the past several years and realizing
that, in order to achieve a long-term cost reduction program, the employees of
the Company must be involved in any major restructuring of the Company, the
Company's management concluded that long-term stockholder value would be
maximized through the proposed Recapitalization.
In the Recapitalization, employee stock ownership plans (the "ESOPs") will be
created to provide United employees represented by the Unions and United's
salaried and management employees with a common equity interest in the Company
of approximately 55% (determined on the basis described in the Plan of
Recapitalization) in exchange for wage concessions and work-rule changes. The
employee interest may increase to up to approximately 63%, depending on the
average market value of the Company's common stock during the year after the
Recapitalization closes. The current stockholders of the Company will receive
the remaining approximately 45% of the common equity of the Company and, if the
Offerings are consummated, cash for their shares in the Recapitalization. The
work-rule changes effected by the Recapitalization also permit the Company to
create, and, if the Recapitalization is consummated, the Company expects to
establish, a new low-cost, short-haul "airline-within-an-airline," referred to
as "U2," to compete in domestic markets. This short-haul operation, in
combination with the wage and work-rule concessions, is expected to increase
the Company's operating earnings and cash flow from operating activities.
S-3
<PAGE>
The consummation of the Plan of Recapitalization is expected to result in
significant cost savings for the Company through employee investments made by
ALPA, the IAM and United's salaried and management employees. The basic
features of the employee investments to be implemented by amendments to ALPA's
and the IAM's respective collective bargaining agreements with the Company and
the establishment of a salaried and management employees cost reduction program
consist of reductions in wage rates (to be partially offset by a potential wage
increase in the fourth and fifth years following the Recapitalization under an
arbitrated settlement based on the Company's profitability, industry wage
trends and wages at specified comparable carriers), elimination of a five
percent pay raise for IAM employees previously scheduled for May 1, 1994,
elimination of pay raises during the first three years following the
Recapitalization (other than existing seniority and promotion increases) and
work-rule and policy changes specific to each employee group that are expected
to improve productivity and competitiveness.
ALPA's investment will continue for five years, nine months with an
additional investment applicable solely to those pilots in the U2 operation
that will remain in force for 12 years. In addition to the basic investments
outlined above, ALPA has agreed to a reduction in the Company's contribution to
its retirement plan. The IAM's investment will remain in force for six years
and the work-rule changes agreed to by the IAM include giving the Company the
ability to outsource up to 20% of maintenance work. The investment by the
salaried and management employees, to remain in force for five years, nine
months, also includes a reduction in force of 127 management positions and
work-rule changes relating to, among other things, reductions in (i) medical,
vacation and leave benefits, (ii) reimbursement for certain management
relocations and (iii) salary guarantees for part-time employees. See "Certain
Risk Factors--Uncertainty of Cost Savings and Productivity Improvements" in the
accompanying Prospectus.
The Recapitalization also contemplates a restructuring of the corporate
governance of the Company. Following the consummation of the Recapitalization,
the ESOPs will hold more than 50% of the voting power of the Company's capital
stock and such majority voting power will be preserved so long as such ESOPs
and any other employee benefit plans approved by the Company or any of its
subsidiaries hold more than 20% of the common equity of the Company which event
is referred to herein as the Sunset (as defined in the accompanying
Prospectus). In addition, subject to the rights of holders of preferred stock,
including the Series A Preferred Stock (as defined below) and the Series B
Preferred Stock to elect a total of two directors in the event of certain
dividend arrearages, following the Recapitalization the Board of Directors of
the Company will consist of 12 directors, who will include (i) five directors
(including the Chief Executive Officer and another senior executive officer of
the Company) elected by the public holders of the new common stock issued in
the Recapitalization ("New Shares"), (ii) three directors elected by employees
of United, one each by ALPA, the IAM and representatives of the salaried and
management employees and (iii) four independent directors. Following the
Recapitalization, the Company's certificate of incorporation will contain
provisions that may prevent the Company from acting on certain matters without
the consent of one or both members of the Board elected by ALPA and the IAM or
a 75% vote of the Company's voting stock.
The consummation of the Recapitalization is subject to the affirmative vote
of the holders of a majority of the Company's current common stock ("Old
Shares") outstanding on June 9, 1994, and to certain other conditions. A
meeting of the holders of the Old Shares to vote on the Plan of
Recapitalization and related matters (the "Meeting") has been scheduled for
July 12, 1994. Each of the Offerings is conditioned on, and subject to, the
consummation of the Recapitalization. It is contemplated that the
Recapitalization and the Offerings will be consummated simultaneously, as
promptly as practical following the approval of the Plan of Recapitalization
and related matters at the Meeting. The date and time when the Recapitalization
is consummated is referred to herein as the "Effective Time."
See "Recapitalization" in the accompanying Prospectus.
S-4
<PAGE>
THE OFFERING
Securities Offered.......... $382,500,000 principal amount of % Series A
Debentures due 2004 and $382,500,000 principal
amount of % Series B Debentures due 2014.
Maturity Date............... The Series A Debentures will mature on ,
2004, and the Series B Debentures will mature on
, 2014.
Interest Payment Dates...... and , commencing , 1994.
Redemption and Sinking Fund
Provisions.................
None.
Ranking.....................
The Debentures will be senior, unsecured
obligations of United, ranking pari passu with
all existing and future senior indebtedness of
United and senior to subordinated indebtedness.
After giving pro forma effect to the
Recapitalization as if it had occurred on March
31, 1994, United would have had outstanding as of
such date, including the Debentures,
approximately $3.5 billion aggregate principal
amount of indebtedness that will rank pari passu
with the Debentures offered hereby, of which
approximately $1.7 billion was secured. The
Indenture pursuant to which the Debentures will
be issued does not limit the right of United to
incur additional senior indebtedness that may
rank pari passu with the Debentures.
Use of Proceeds............. The proceeds of the Offerings will be used to
fund a portion of the cash payment to be made to
the holders of the Old Shares in connection with
the Recapitalization.
Certain Risk Factors........
For a discussion of certain factors that should
be considered in evaluating an investment in the
Debentures, see "Certain Risk Factors" in the
accompanying Prospectus.
Listing................ The Debentures have been approved for listing on
the New York Stock Exchange subject to official
notice of issuance.
S-5
<PAGE>
DESCRIPTION OF SECURITIES
The Series A Debentures and the Series B Debentures will be issued under an
Indenture dated as of July 1, 1991 between United, as issuer, and The Bank of
New York, as Trustee (the "Indenture Trustee") and an officers' certificate
that sets forth certain terms of the Debentures (collectively, the
"Indenture"). Copies of the Indenture and the related documentation have been
filed as an exhibit to the Registration Statement of which the accompanying
Prospectus is a part and are incorporated herein by reference. The summary of
terms of the Debentures contained in this Prospectus does not purport to be
complete. Where the summaries do not make a distinction between the Series A
Debentures and the Series B Debentures, such summaries refer to either series.
Whenever particular Sections or defined terms of the Indenture are referred to
herein, such sections or defined terms are incorporated herein by reference.
General
The Debentures will be issued only in fully registered form, without coupons,
in denominations of $1,000 principal amount and integral multiples thereof. The
Debentures will bear interest at the rates shown on the cover of this
prospectus. The Debentures have been approved for listing on the New York Stock
Exchange subject to official notice of issuance.
Interest on the Debentures will be paid semi-annually on each and
beginning in , 1994 to holders of record on the record date for such
payment on and , respectively, at the rates shown on the cover of
this Prospectus. The Series A Debentures will mature on , 2004. The Series
B Debentures will mature on , 2014. The Debentures will bear interest from
, 1994 or the most recent interest payment date from which interest has
been paid.
This Indenture does not contain any covenants or provisions that provide
protection to the holders of Debentures in the event of a highly leveraged
transaction or a change of control.
The Debentures will be unsecured and unsubordinated obligations of United and
will rank on a parity with all other unsecured and unsubordinated indebtedness
of United. As of March 31, 1994, United had outstanding approximately $2.7
billion aggregate principal amount of indebtedness that will rank pari passu
with the Debentures offered hereby, of which approximately $1.7 billion was
secured and approximately $1.0 billion was unsecured. The Indenture does not
limit the right of United to incur additional senior indebtedness, that may
rank pari passu with the Debentures. As of March 31, 1994, United had
outstanding approximately $3.6 billion principal amount of indebtedness and
capital lease obligations.
Redemption
The Debentures will not be subject to any sinking fund or other obligation of
United to redeem or retire the Debentures. The Debentures may not be called for
redemption prior to their respective final stated maturities. The Plan of
Recapitalization provides that if either or both series of Debentures are
issued other than pursuant to the United Debt Offerings, such series of
Debentures may be made redeemable at the option of United prior to their
respective final stated maturities if the Unions so request not less than seven
days prior to the Announcement Date.
Payment, Registration, Transfer and Exchange
Payments in respect of the Debentures will be made at the office or agency of
United maintained for that purpose as United may designate from time to time,
except that, at the option of United, interest payments, if any, on the
Debentures may be made by checks mailed by the Indenture Trustee to the holders
of Debentures entitled thereto at their registered addresses. (Sections 3.7(a)
and 9.2 of the Indenture.) Payment of any installment of interest on the
Debentures will be made to the persons in whose names such Debentures are
registered at the close of business on the regular record date for such
interest. (Sections 3.7(a) of the Indenture.)
S-6
<PAGE>
Debentures will be transferable or exchangeable at the agency of United
maintained for such purpose as designated by United from time to time.
(Sections 3.5 and 9.2 of the Indenture.) Debentures may be transferred or
exchanged without service charge, other than any tax or other governmental
charge imposed in connection therewith. (Section 3.5 of the Indenture.)
Consolidation, Merger or Sale by United
The Indenture provides that United may merge or consolidate with or into any
other corporation or sell, convey, transfer or otherwise dispose of all or
substantially all of its assets to any person, firm or corporation, if (i)(a)
in the case of a merger or consolidation, United is the surviving corporation
or (b) in the case of a merger or consolidation where United is not the
surviving corporation and in the case of such a sale, conveyance or other
disposition, the successor or acquiring corporation is a corporation organized
and existing under the laws of the United States of America or a State thereof
and such corporation expressly assumes by supplemental indenture all the
obligations of United under the Debentures and the Indenture, (ii) immediately
after giving effect to such merger or consolidation, or such sale, conveyance,
transfer or other disposition, no Default or Event of Default has occurred and
is continuing and (iii) certain other conditions are met. In the event a
successor corporation assumes the obligations of United, such successor
corporation will succeed to and be substituted for United under the Indenture
and under the Debentures and all obligations of United will terminate. (Section
7.1 of the Indenture.)
Events of Default, Notice and Certain Rights on Default
The Indenture provides that, if an Event of Default occurs with respect to
the Debentures of either series and is continuing, the Indenture Trustee for
such series or the holders of at least 25% in aggregate principal amount of all
of the outstanding Debentures of that series, by written notice to United (and
to the Indenture Trustee for such series, if notice is given by such holders of
Debentures), may declare the principal of all the Debentures of that series to
be due and payable. (Section 5.2 of the Indenture.)
Events of Default with respect to Debentures of either series are defined in
the Indenture as being: (i) default for 30 days in payment of interest on any
Debentures of that series when due, (ii) default for 10 days in payment of
principal, premium, if any, at its maturity or on redemption or otherwise, of
any Debentures of that series when due, (iii) default for 60 days after notice
to United by the Indenture Trustee for such series, or to United and the
Indenture Trustee by the holders of at least 25% in aggregate principal amount
of the Debentures of such series then outstanding, in the performance of any
other agreement in the Debentures of that series, in the Indenture or in any
supplemental indenture, (iv) default resulting in acceleration of other
indebtedness of United for borrowed money where the aggregate principal amount
so accelerated exceeds $100 million and such acceleration is not rescinded or
annulled within 10 days after the written notice thereof to United by the
Indenture Trustee or to United and the Indenture Trustee by the holders of at
least 25% in aggregate principal amount of the Debentures of such series then
outstanding, provided that such Event of Default will be cured or waived if the
default that resulted in the acceleration of such other indebtedness is cured
or waived, and (v) certain events of bankruptcy, insolvency or reorganization
of United. (Section 5.1 of the Indenture.)
An Event of Default under the Indenture with respect to the Debentures could
cause an event of default with respect to certain other existing indebtedness
of United, as described below. A payment default with respect to the Debentures
that continues to exist after the termination of grace periods and waivers
would cause an event of default under six financing leases covering six
aircraft if the Event of Default under the Indenture would have a material
adverse effect on the financial condition of United. An event of default would
also occur under these six financing leases and two other financing leases
covering four aircraft if the maturity of the Debentures was accelerated as a
result of an Event of Default and if such acceleration would have a material
adverse effect on the financial condition of United. An event of default would
occur under a ninth financing lease covering twenty-five aircraft if the
maturity of the Debentures was accelerated as a result of a payment default
under the Indenture or if the maturity of 80% of all of United's senior funded
indebtedness
S-7
<PAGE>
were accelerated as a result of any other default under the Indenture. If an
Event of Default occurred under the Indenture and the maturity of more than
$100 million principal amount of the Debentures was accelerated and not
rescinded within specified grace periods, an event of default would occur under
$1.0 billion principal amount of United's indebtedness and, in addition, United
would not be able to make new borrowings under its commercial paper facility.
There can be no assurance that United will not grant a cross-default remedy to
one or more of its creditors in the future.
The Indenture provides that the Indenture Trustee for either series of
Debentures will, within 90 days after the occurrence of a Default with respect
to Debentures of that series, give to the holder of the Debentures of that
series notice of all uncured Defaults known to it; provided that, except in the
case of default in payment on the Debentures of that series, the Indenture
Trustee may withhold the notice if and so long as a committee of its
responsible officers in good faith determines that withholding such notice is
in the interest of the holders of the Debentures of that series. (Section 6.6
of the Indenture.) "Default" means any event that is, or, after notice or
passage of time or both, would be, an Event of Default. (Section 1.1 of the
Indenture.)
The Indenture provides that the holders of a majority in aggregate principal
amount of the Debentures of each series affected (with each such series voting
as a class) may direct the time, method and place of conducting any proceeding
for any remedy available to the Indenture Trustee for such series or exercising
any trust or power conferred on such Indenture Trustee. (Section 5.8 of the
Indenture.)
The Indenture includes a covenant that United will file annually with the
Indenture Trustee a certificate as to United's compliance with all conditions
and covenants of the Indenture. (Section 9.7 of the Indenture.)
The holders of a majority in aggregate principal amount of either series of
Debentures by notice to the Indenture Trustee for such series may waive, on
behalf of the holders of all Debentures of such series, any past Default or
Event of Default with respect to that series and its consequences except a
Default or Event of Default in the payment of the principal of, premium, if
any, or interest on any Debenture and certain other defaults. (Section 5.7 of
the Indenture.)
Modification of the Indenture
The Indenture contains provisions permitting United and the Indenture Trustee
to enter into one or more supplemental indentures without the consent of the
holders of any of the Debentures (i) to evidence the succession of another
corporation to United and the assumption of the covenants of United by a
successor to United, (ii) to add to the covenants of United for the benefit of
either series of Debentures or surrender any right or power of United, (iii) to
add additional Events of Default with respect to any series, (iv) to secure the
Debentures, (v) to evidence and provide for successor Indenture Trustees, (vi)
to correct or supplement any inconsistent provisions or to make any other
provisions with respect to matters or questions arising under the Indenture,
provided that such action does not adversely affect the interests of any holder
of Debentures of any series issued under the Indenture, or (vii) to cure any
ambiguity or correct any mistake. (Section 8.1 of the Indenture.)
The Indenture also contains provisions permitting United and the Indenture
Trustee, with the consent of the holders of a majority in aggregate principal
amount of the outstanding Debentures of each series affected by a supplemental
indenture, to execute such supplemental indenture to add any provisions to or
to change or to eliminate any of the provisions of the Indenture or any
supplemental indenture or to modify the rights of the holders of Debentures of
such series, except that no such supplemental indenture may, without the
consent of the holder of each Debenture so affected, (i) change the time for
payment of principal or interest on any Debenture, (ii) reduce the principal
of, or any installment of interest on, any Debenture, (iii) reduce the amount
of premium, if any, payable upon the redemption of any Debenture, (iv) change
the coin or currency in which any Debenture or any premium or interest thereon
is payable, (v) impair the right to institute suit for the enforcement of any
payment on or with respect to any Debenture, (vi) reduce the percentage in
principal amount of the outstanding Debentures of any series the consent of
whose holders is
S-8
<PAGE>
required for modification or amendment of the Indenture or for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults, (vii) change the obligation of United to maintain an office or agency
in the places and for the purposes specified in the Indenture or (viii) modify
the provisions relating to waiver of certain defaults or any of the foregoing
provisions. (Section 8.2 of the Indenture.)
Defeasance and Covenant Defeasance
United may elect either (i) to defease and be discharged from any and all
obligations with respect to the Debentures of any series (except as described
below) ("defeasance") or (ii) to be released from its obligations with respect
to certain covenants applicable to the Debentures of any series ("covenant
defeasance"), upon the deposit with the Indenture Trustee for such series (or
other qualifying trustee), in trust for such purpose, of money and/or
Government Obligations (as defined below) that through the payment of principal
and interest in accordance with their terms will provide money in the amount
sufficient to pay the principal of, premium, if any, and interest on such
Debentures to their respective final stated maturity or redemption, as the case
may be. Upon the occurrence of a defeasance, United will be deemed to have paid
and discharged the entire indebtedness represented by such Debentures and to
have satisfied all of its other obligations under such Debentures (except for
(i) the rights of holders of such Debentures to receive, solely from the trust
funds deposited to defease such Debentures, payments in respect of the
principal of, premium, if any, and interest on such Debentures when such
payments are due and (ii) certain other obligations as provided in the
Indenture). Upon the occurrence of a covenant defeasance, United will be
released only from its obligations to comply with certain covenants contained
in the Indenture relating to such Debentures, will continue to be obligated in
all other respects under such Debentures and will continue to be contingently
liable with respect to the payment of principal, premium, if any, and interest
with respect to such Debentures.
The conditions to both defeasance and covenant defeasance are as follows: (i)
such defeasance or covenant defeasance must not result in a breach or violation
of, or constitute a Default or Event of Default under, the Indenture, or result
in a breach or violation of, or constitute a default under, any other material
agreement or instrument of United, (ii) certain bankruptcy related Defaults or
Events of Default with respect to United must not have occurred and be
continuing during the period commencing on the date of the deposit of the trust
funds to defease such Debentures and ending on the 91st day after such date,
(iii) United must deliver to the Indenture Trustee an Opinion of Counsel to the
effect that the holders of such Debentures will not recognize income, gain or
loss for Federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to Federal income tax on the same amounts and in
the same manner and at all the same times as would have been the case if such
defeasance or covenant defeasance had not occurred (such Opinion of Counsel, in
the case of defeasance, must refer to and be based upon a ruling of the IRS or
a change in applicable Federal income tax law occurring after the date of the
Indenture) and (iv) United must deliver to the Indenture Trustee an Officers'
Certificate and an Opinion of Counsel with respect to compliance with the
conditions precedent to such defeasance or covenant defeasance and with respect
to certain registration requirements under the Investment Company Act of 1940,
as amended. (Article 4 of the Indenture.) The Indenture requires that a
nationally recognized firm of independent public accountants deliver to the
Indenture Trustee a written certification as to the sufficiency of the trust
funds deposited for the defeasance or covenant defeasance of such Debentures.
The Indenture does not provide the holders of such Debentures with recourse
against such firm. In the event that Government Obligations deposited with the
Indenture Trustee for the defeasance of such Debentures decrease in value or
default subsequent to their being deposited, United will have no further
obligation, and the holders of such Debentures will have no additional recourse
against United, as a result of such decrease in value or default. As described
above, in the event of a covenant defeasance, United remains contingently
liable with respect to the payment of principal, premium, if any, and interest
with respect to such Debentures.
United may exercise its defeasance option with respect to such Debentures
notwithstanding its prior exercise of its covenant defeasance option. If United
exercises its defeasance option, payment of such Debentures may not be
accelerated because of a Default or an Event of Default. If United exercises
its
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<PAGE>
covenant defeasance option, payment of such Debentures may not be accelerated
by reason of a Default or an Event of Default with respect to the covenants to
which such covenant defeasance is applicable. However, if such acceleration
were to occur, the realizable value at the acceleration date of the money and
Government Obligations in the defeasance trust could be less than the principal
and interest then due on such Debentures, in that the required deposit in the
defeasance trust is based upon scheduled cash flow rather than market value,
which will vary depending upon interest rates and other factors.
"Government Obligations" means securities which are (i) direct obligations of
the United States, for the payment of which its full faith and credit is
pledged or (ii) obligations of a Person controlled or supervised by and acting
as an agency or instrumentality of the United States, the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States, which, in either case, are not callable or redeemable at the option of
the issuer thereof, and shall also include a depositary receipt issued by a
bank or trust company as custodian with respect to any such Government
Obligation or a specific payment of interest on or principal of any such
Government Obligation held by such custodian for the account of the holder of a
depositary receipt, provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depositary receipt from any amount received by the custodian in respect of
the Government Obligation evidenced by such depositary receipt.
The Indenture Trustee
The Bank of New York is the Indenture Trustee under the Indenture. United and
the Company also maintain banking and other commercial relationships with The
Bank of New York and its affiliates in the ordinary course of business and The
Bank of New York acts as trustee under several indentures for United and the
Company.
S-10
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), United has agreed to sell to each of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, CS First Boston Corporation, Goldman,
Sachs & Co. and Salomon Brothers Inc (the "Underwriters") and each of the
Underwriters has severally agreed to purchase the principal amount of the
Debentures set forth opposite its name below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
OF SERIES A OF SERIES B
DEBENTURES DEBENTURES
UNDERWRITER ---------------- ----------------
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith........ $ $
Incorporated
CS First Boston Corporation..................
Goldman, Sachs & Co. ........................
Salomon Brothers Inc.........................
------------ ------------
Total................................... $382,500,000 $382,500,000
============ ============
</TABLE>
In the Purchase Agreement, the several Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all the Debentures of a
series offered hereby if any of the Debentures of such series are purchased.
The offering of the Series A Debentures and the offering of the Series B
Debentures are not conditioned upon each other. In the event of default by an
Underwriter, the Purchase Agreement provides that, in certain circumstances,
purchase commitments of the nondefaulting Underwriters may be increased or the
Purchase Agreement may be terminated.
The Underwriters have advised United that they propose initially to offer the
Debentures to the public at the public offering prices set forth on the cover
page of this Prospectus Supplement, and to certain dealers at such prices less
a concession not in excess of % of the principal amount of the Series A
Debentures and % of the principal amount of the Series B Debentures. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of % of the principal amount of the Series A Debentures and % of the
principal amount of the Series B Debentures on sales to certain other dealers.
After the initial public offering, the public offering prices, concessions and
discounts may be changed.
United has agreed to indemnify the Underwriters against certain civil
liabilities which may be incurred in connection with this offering, including
certain liabilities under the Securities Act of 1933, as amended.
In the ordinary course of their respective businesses, certain of the
Underwriters or their affiliates have engaged, and may in the future engage, in
transactions with United. CS First Boston Corporation ("CS First Boston") is
acting as financial advisor to the Company, including the delivery of certain
fairness opinions, in connection with the Recapitalization. CS First Boston
will receive fees in the aggregate amount of $ for these services. The
Company has also retained Salomon Brothers Inc ("Salomon") as the deadlock
pricing advisor with respect to the mechanism for establishing the rates for
the Debentures and the Series B Preferred Stock in connection with the
Recapitalization and accordingly, Salomon may receive fees in the aggregate
amount of $ for such services.
The Debentures have been approved for listing on the New York Stock Exchange,
subject to official notice of issuance.
United and the Company have agreed that they will not, directly or
indirectly, without the prior written consent of Merrill Lynch, Pierce, Fenner
& Smith, Incorporated, offer, sell or enter into any agreement to sell in an
offering registered under the Securities Act of 1933, as amended, or pursuant
to Rule 144A thereunder, any debt securities, secured or unsecured, other than
the Debentures, prior to 45 days after the closing date of the United Debt
Offerings.
S-11
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 10, 1994
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
LOGO OF AMERICAN AIRLINES
DEBENTURES
------------
United Air Lines, Inc. ("United") may offer from time to time one or more
series of its unsecured debentures (the "Debentures") at an aggregate initial
offering price not to exceed $765,000,000. The Debentures may be offered as
separate series in amounts, at prices and on terms to be determined in light of
market conditions at the time of sale and set forth in a supplement to this
Prospectus (the "Prospectus Supplement").
The Prospectus Supplement for the Debentures will set forth the terms of each
series of Debentures, including, where applicable, the specific designation;
aggregate principal amount; authorized denominations; maturity; rate or rates
and time or times of payment of any interest; any terms for optional or
mandatory redemption or payment of additional amounts or any sinking fund
provisions; any initial public offering price; the proceeds to United and any
other specific terms in connection with the offering and sale of such
securities.
SEE "CERTAIN RISK FACTORS" FOR A DESCRIPTION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY PURCHASERS OF THE DEBENTURES.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------
The Debentures may be sold (i) through underwriting syndicates represented by
managing underwriters or by underwriters without a syndicate; (ii) through
agents designated from time to time; or (iii) directly. The names of any
underwriters or agents of United involved in the sale of the Debentures in
respect of which this Prospectus is being delivered and any applicable
commissions or discounts are set forth in the Prospectus Supplement. The net
proceeds to United from such sale are also set forth in the Prospectus
Supplement.
------------
<PAGE>
AVAILABLE INFORMATION
United is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by United with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Regional Offices of the Commission at Seven World Trade Center, 13th Floor,
New York, New York 10048 and at Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material also can be obtained
by mail from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
United has filed with the Commission a Registration Statement under the
Securities Act, with respect to the Debentures. This Prospectus does not
contain all the information set forth or incorporated by reference in the
Registration Statement and the exhibits and schedules relating thereto, certain
portions of which have been omitted as permitted by the rules and regulations
of the Commission. For further information, reference is made to the
Registration Statement and the exhibits filed or incorporated as a part
thereof, which are on file at the offices of the Commission and may be obtained
upon payment of the fee prescribed by the Commission, or may be examined
without charge at the offices of the Commission. Statements contained in this
Prospectus, or in any document incorporated in this Prospectus by reference, as
to the contents of any contract or other document referred to herein or therein
are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement or such other document, and each such statement is qualified in all
respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by United pursuant to the
Exchange Act are incorporated by reference in this Prospectus:
1. United's Annual Report on Form 10-K for the year ended December 31,
1993.
2. United's Quarterly Report on Form 10-Q for the period ended March 31,
1994, as amended.
3. United's Current Reports on Form 8-K dated March 29, 1994 (two
reports), April 21, 1994,April 28, 1994, May 3, 1994, June 3, 1994 and
June 10, 1994.
All documents and reports subsequently filed by United pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering of the Debentures shall be deemed
to be incorporated by reference in this Prospectus and to be a part hereof from
the date of filing of such documents or reports. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
UAL CORPORATION, P.O. BOX 66919, CHICAGO, ILLINOIS 60666 (TELEPHONE NUMBER
(708) 952-4000), ATTENTION: FRANCESCA M. MAHER, SECRETARY.
----------------
Like many other carriers, United overflies Cuba in order to serve other
destinations in Central and South America and the Caribbean and is required by
the Cuban government to pay fees for such overflight which United does pursuant
to a license which it has obtained from the U.S. government. This information
is accurate as of the date of this Prospectus and current information
concerning business dealings of United with the government of Cuba or with any
person or affiliate located in Cuba may be obtained from the Florida Department
of Banking and Finance, Plaza Level, The Capitol, Tallahassee, Florida 32399-
0350, telephone number (904) 488-9530.
2
<PAGE>
UNITED AND THE COMPANY
United is one of the largest airlines in the world as measured by operating
revenues, revenue passengers and revenue passenger miles flown. At December 31,
1993, United served 159 airports in 33 countries with a fleet of 544 jet
aircraft. United has domestic hubs at Chicago's O'Hare Airport, Denver, San
Francisco and Washington's Dulles Airport. United has a substantial presence in
the Atlantic, the Pacific and the Latin American markets with hubs at London's
Heathrow Airport and Tokyo's Narita Airport. United also conducts significant
cargo operations along its route system. United is a wholly-owned subsidiary of
UAL Corporation (the "Company").
COST REDUCTION INITIATIVES
During 1993, United pursued a plan to reduce costs in an effort to stem
financial losses and put United on a path to sustained profitability. A key
element of the plan was a $400 million cost-reduction program. The plan
included the furlough of 2,800 employees, elimination of 1,900 open positions
that were to be filled during the year, as well as sizable budget reductions,
consistent with safety and operational integrity, in virtually every area of
United. Additionally, more than 500 vendors agreed to decreases in their prices
for 1993, producing a savings for United of more than $100 million on an
annualized basis. United also turned to outside suppliers to handle certain
functions traditionally performed in-house. In the largest such arrangement,
United agreed to sell 16 of its 17 U.S. flight kitchens to Dobbs International
Services and Caterair International for $119 million in cash. Through seven-
year catering agreements with Dobbs and Caterair at the respective kitchens,
United estimates it will avoid capital expenditures of $70 million and realize
catering service savings of more than $320 million over the contract term.
ROUTE STRUCTURE
During the past 12 months, United has been refocusing its flying to better
take advantage of its strong route structure with the aircraft currently in its
fleet. United has taken a number of steps, including eliminating certain
unprofitable service, expanding in markets with growth potential, retiming of
domestic flights to offer better connections to international flights and
initiating marketing agreements with other carriers to feed United flights.
The strategy United adopted several years ago to focus a greater portion of
new capacity on the fast-growing and potentially more profitable international
markets continued to pay off in 1993 as overcapacity weakened the U.S. domestic
market and low-cost carriers pushed yields lower. In 1993, United operated 36%
of its total capacity in international markets, which produced 39% of its total
revenues. International capacity in 1993 rose 13% over 1992, while domestic
markets showed an 8% increase. United's traffic in international markets
increased 14% year-over-year as compared to an increase of 6% in domestic
markets. United also realigned its international flying by eliminating certain
unprofitable non-stop flights and replacing them with connecting service
through its international hubs and by adding service to other international
destinations. At year end 1993, United's international route structure included
47 destinations in 32 foreign countries.
The most sweeping changes occurred in the United States, where growing
competition from low-cost carriers prompted a restructuring of United's U.S.
route system. United built on its strengths: its well-positioned hubs in
Chicago, Denver, San Francisco and Washington, D.C. (Dulles), where United
remains the largest carrier in each location, and its long-haul flights. United
also eliminated several unprofitable routes and stations. For example, in
Washington, D.C., where most local residents prefer National Airport for East
Coast travel, United downsized its domestic north-south operations at the
Dulles hub and focused instead on creating a European gateway at that location
as well as operating domestic long-haul operations. The airline now serves 11
trans-Atlantic destinations and Mexico City from Washington. In addition, a
build-up at the Denver hub has made a significant contribution to revenue
improvement. Daily departures from Denver increased to 257 from 212 a year
earlier and flight times were modified to serve the local market better, while
a new bank of flights was created to accommodate connecting traffic. United
also increased capacity in the long-haul transcontinental markets by 11% in
1993 compared with the prior year.
3
<PAGE>
MARKETING AGREEMENTS
New marketing partnerships with other airlines in 1993 provided more
opportunities for United to serve new markets around the globe and gain
increased passenger and cargo feed without incurring the related capital
expense.
The most significant of the new marketing agreements is the global alliance
between United and Lufthansa German Airlines, announced in October 1993.
Subject to government approval, the two carriers will join forces in a number
of areas, including code-sharing, coordinated baggage handling and ground
services, shared facilities and joint promotions. Two elements of the program--
joint frequent flier program participation and reciprocal use of airport
lounges--do not require government approval and became effective in January
1994.
United currently has more than 30 marketing agreements of varying degrees,
including many with code-share provisions. In 1993 alone, United announced
code-share agreements with nine carriers in addition to Lufthansa: Aeromar, ALM
Antillean Airlines, Aloha Airlines, Emirates Airlines, Sunaire Express, Thai
Airways, TransBrasil, Trans World Express and USAir. During the year, United
also expanded its code-sharing agreements with British Midland and Ansett
Airlines.
UNITED EXPRESS
The United Express partnership remains a central component of United's
domestic U.S. service. In 1993, United saw strong growth in feeder traffic
provided through its commuter partners. The number of average daily departures
operated by the United Express carriers rose from 1,464 in 1992 to 1,775 in
1993. At year end 1993, United's six United Express partners served 189
locations throughout the United States.
FLEET
Through the addition of 43 new aircraft and the retirement of 35 older jets
in 1993, United decreased its average fleet age to 9.6 years at year end 1993
from 10.3 years at year end 1992. In 1994, United is expected to take delivery
of 18 new aircraft: 16 Airbus A320s, a technologically advanced airplane that
combines added space and passenger comfort with increased fuel efficiency and
lower maintenance costs, and 2 Boeing 747-400s. Nineteen aircraft are scheduled
for retirement in 1994. In 1995, United is scheduled to be the launch customer
for the Boeing 777, a large capacity, long-range twin engine jet.
In early 1993, United revised its capital spending plan based on reductions
in its capacity requirements for the next several years. United reached
agreement with The Boeing Company ("Boeing") to convert 49 aircraft originally
scheduled for delivery between 1993 and 1996 into options for the 1996-1999
period. Under the terms of the agreement, if United does not elect to confirm
the delivery of these option aircraft before 1998, it will forfeit significant
deposits. United also announced an agreement with Airbus Industrie ("Airbus")
to delay from 1995 and 1996 to 1997 and 1998 delivery of 14 leased A320
aircraft.
CARGO OPERATIONS
United is the world's largest carrier of air cargo among airlines without
dedicated freighter aircraft, having flown 2.0 billion cargo ton miles in 1993,
up 16% from 1992. Cargo revenues increased year-over-year to a record $962
million. Growth in 1993 was particularly strong in Pacific and Latin American
markets.
United's fleet is well-configured for cargo. The Boeing 747-400, used
extensively in trans-Pacific markets, can carry a high volume of freight, as
can the Boeing 767-300ER aircraft, which is used in European and Latin American
markets. The Boeing 777 aircraft, which is scheduled to arrive in 1995, will
have even more cargo space than the Boeing 747-400.
SERVICE
Business and international travelers are key to revenue improvement for
airlines. In 1993, United developed more programs to attract these passengers.
United expanded to eight the number of Business One
4
<PAGE>
destinations that are served from Chicago O'Hare. The service includes such
features as close-in gates at O'Hare and ticketing at the gate. United also
introduced a number of enhancements to its international First Class service
that give customers greater control over their time as they travel.
Enhancements include advance preparation of travel documents presented to
passengers upon check-in and offering passengers greater ability to choose the
timing and presentation of meal services. During 1993, United received six
awards for its inflight entertainment.
COMPUTER RESERVATIONS SYSTEM
In September 1993, the Covia and Galileo computer reservations systems
(CRS), both owned in part by United, combined to create the world's largest
CRS company, Galileo International. The merger strengthened United's worldwide
computer reservations capability and provided cost savings by eliminating
certain redundancies of the two systems.
EXECUTIVE OFFICES
The address of the principal executive offices of the Company and United is
1200 East Algonquin Road, Elk Grove Township, Illinois 60007, their telephone
number at such address is (708) 952-4000 and the mailing address of the
Company and United is P.O. Box 66919, Chicago, Illinois 60666.
THE RECAPITALIZATION
The information contained in this Prospectus with respect to the
Recapitalization (as defined below) does not purport to be complete. A copy of
the Plan of Recapitalization (as defined below) that sets forth the terms of
the Recapitalization has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part and is incorporated herein by
reference.
BACKGROUND AND PURPOSE OF THE RECAPITALIZATION
In recent years, the Company has noted the emergence of a fundamental shift
in consumer behavior, with an increased focus on the price/value relationship.
Travel preference (of both business and leisure travelers) has continued to
shift to low-cost travel as provided by carriers such as Southwest, Morris Air
and Reno Air. The Company believed that this trend was long-term and would
continue even if the weak economic conditions of the early 1990s improved. The
Company determined that its ability to be competitive in such an environment
required a substantial reduction of its operating costs.
Thus, on January 6, 1993, the Company, while recognizing that it had put in
place progressively leaner operating budgets over the prior few years,
nevertheless announced a further $400 million cost reduction program,
including the subcontracting of skycaps and certain janitorial services and
the furlough of 2,800 employees. Additionally, the Company restructured its
fleet plan and aircraft purchase commitments, converting firm orders for 49
Boeing aircraft to options, deferring acceptance of 14 Airbus aircraft and
accelerating the retirement of 25 older aircraft. The net effect of these
changes was to reduce the Company's planned capital spending through 1996 by
over $6.2 billion and reduce the size of the planned 1996 year-end fleet size
by over 85 aircraft.
The Company determined that even with these changes it would be necessary to
reduce its single largest expense--labor costs--to be competitive in the
changed environment of the 1990s. Thus, in addition to the subcontracting,
furloughs and the implementation of a 5% salary reduction program for certain
management employees, the Company requested concessions from its three
principal unions in January 1993. The Association of Flight Attendants ("AFA")
and the International Association of Machinists and Aerospace Workers (the
"IAM") rejected such request. The Air Line Pilots Association, International
("ALPA" and, together with the IAM, the "Unions") indicated that it desired to
conduct a financial review of the Company.
In light of the unwillingness of the Company's unions to participate in the
Company's cost-cutting efforts, the Company thereafter announced its intention
to undertake various other cost-cutting actions.
5
<PAGE>
On April 19, 1993, the Company's Board of Directors (the "Board") received a
letter from the United Airlines Union Coalition (the "Coalition"), a group then
composed of ALPA, the IAM and AFA, expressing concern over asset sales and
extensive restructuring. In response, the Company sent a letter to the
Coalition inviting a "shared solution" to the Company's need to reduce
operating costs. On June 2, 1993, representatives of the Company met with
representatives of the Coalition. Over the ensuing months, the Coalition
formulated several proposals that were considered by the Board. The Board
retained CS First Boston Corporation and Lazard Freres & Co. to assist it in
its evaluation of the proposals. In September 1993, AFA ceased to participate
in the negotiation, which continued with ALPA and the IAM. Discussions
concerning such proposals culminated in an Agreement in Principle, which was
executed on December 22, 1993. The definitive Agreement and Plan of
Recapitalization, dated as of March 25, 1994 among the Company, ALPA and the
IAM (as amended and restated, the "Plan of Recapitalization") was executed on
March 25, 1994. The transactions contemplated by the Plan of Recapitalization
are referred to herein as the "Recapitalization."
The purpose of the Recapitalization is to recapitalize the Company and
thereby provide the holders of shares of the Company's currently outstanding
Common Stock (the "Old Shares") with an opportunity to receive either cash or
cash, debt securities and preferred stock for a portion of their Old Shares,
while permitting the holders of Old Shares to retain, in the form of shares of
a new Common Stock to be issued in the Recapitalization (the "New Shares"), a
significant ongoing equity interest in the Company, which is expected to have a
lower cost structure and be more competitive, and to provide performance
incentives to the Company's employees by providing them with significant equity
participation in the Company through employee stock ownership plans (the
"ESOPs"). The Recapitalization is being effected at the present time because
the Board believes that it is the best available alternative to maximize value
to the Company's stockholders while achieving significant wage concessions and
work-rule changes that the Board believes are necessary to position United to
compete in the aviation marketplace.
TERMS OF THE RECAPITALIZATION
The Plan of Recapitalization provides for the reclassification of Old Shares
and other amendments of the Company's certificate of incorporation and bylaws.
On the date and at the time when the Recapitalization is consummated (the
"Effective Time"), if the offering by the Company of its Series B Preferred
Stock (the "UAL Preferred Offering") and the concurrent offering by United (the
"United Debt Offerings" and, together with the UAL Preferred Offering, the
"Offerings") of $382,500,000 of its Series A Debentures due 2004 (the "Series A
Debentures") and $382,500,000 of its Series B Debentures due 2014 (the "Series
B Debentures" and, together with the Series A Debentures, the "Debentures") are
consummated, each Old Share will be reclassified as, and converted into (i) one
half of a New Share and (ii) one one-thousandth of a share of the Company's
Series D Redeemable Preferred Stock (the "Redeemable Preferred Stock") that
will be redeemed immediately after issuance for cash in an amount equal to the
sum of (a) $25.80, (b) the proceeds (without deducting underwriting discounts
and other costs) from the sale by United of $15.55 principal amount of its
Series A Debentures and $15.55 principal amount of its Series B Debentures
pursuant to the United Debt Offerings and (c) the proceeds (without deducting
underwriting discounts and other costs) from the sale by the Company of
Depositary Shares representing an interest in $31.10 liquidation preference of
the Series B Preferred Stock pursuant to the UAL Preferred Offering. The New
Shares to be issued in the Recapitalization will represent in the aggregate
approximately 45% (determined on the basis described in the Plan of
Recapitalization) of the common equity interest in the Company, subject to
reduction to a minimum of 37% under certain circumstances. The Recapitalization
is subject to the vote of the holders of Old Shares and certain other
conditions. If the Recapitalization is approved, the Effective Time is expected
to occur promptly after the meeting (the "Meeting") at which such holders vote.
If any of the Offerings is not consummated and the Recapitalization is
approved, the securities that were subject to such Offering will be issued to
holders of Old Shares in lieu of a portion of the cash payment to be made in
connection with the Recapitalization. In that case, the aggregate amount of
Depositary Shares, Series A Debentures and/or Series B Debentures issued to
holders of Old Shares, and to holders of options and convertible securities,
could exceed the amount of such securities that would have been issued pursuant
to the Offerings.
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In addition, pursuant to the Plan of Recapitalization, the Company will issue
non-voting ESOP Convertible Preferred Stock (the "ESOP Preferred Stock") to the
trustee (the "ESOP Trustee") for the ESOPs that will be established for the
benefit of the employee groups that will be making wage, salary and benefits
investments and allowing other work-rule changes in connection with the
Recapitalization. In addition, the Company will issue to the ESOP Trustee three
classes of voting preferred stock (the "Voting Preferred Stock"). The ESOP
Preferred Stock and the Voting Preferred Stock together will represent
initially an equity interest of approximately 55% (determined on the basis
described in the Plan of Recapitalization), although the percentage may be
increased to up to approximately 63%, if the Average Closing Price (as defined)
of the New Shares during the year following the Effective Time exceeds $136 per
share. The holders of the Voting Preferred Stock will represent approximately
55% (unless the percentage is increased as provided in the prior sentence) of
the voting power of the New Shares and the Voting Preferred Stock voting
together as a single class (voting on all matters presented to holders of the
New Shares other than the election of directors) following the Recapitalization
until the Sunset.
Pursuant to the Plan of Recapitalization, the Company will also issue (a)
Class I Junior Preferred Stock ("Class I Preferred Stock") to the initial
Independent Directors (as defined below) who will vote their shares to elect
future Independent Directors, (b) Class Pilot MEC Junior Preferred Stock (the
"Class Pilot MEC Preferred Stock") to the United Airlines Pilots Master
Executive Council of ALPA (the "ALPA MEC"), which will have the right to elect
a director to the Board, (c) Class IAM Junior Preferred Stock ("Class IAM
Preferred Stock") to the IAM or a designee, which will have the right to elect
a director to the Board and (d) Class SAM Junior Preferred Stock (the "Class
SAM Preferred Stock" and, together with the Class I Preferred Stock, the Class
Pilot MEC Preferred Stock and the Class IAM Preferred Stock, the "Director
Preferred Stock") to the person nominated to serve as the salaried and
management employees' director and to an additional designated stockholder.
Until the Sunset, the Board of Directors will consist of 12 directors. Five
directors, designated the "Public Directors," will consist of three individuals
who do not have any prior or current business or professional relation with the
Company other than as a director, plus the CEO and another senior executive of
the Company. Four initial Public Directors, including the Chief Executive
Officer, will be elected at the Meeting. A fifth Public Director will be
designated after the Meeting. Future Public Directors will be elected by the
holders of the New Shares. The Voting Preferred Stock held by the ESOPs will
not vote to elect directors prior to the Sunset. Four directors, designated as
"Independent Directors," will consist of four individuals who do not have any
prior or current business or professional relationships with the Company other
than as a director and who are not officers of any labor organization. ALPA and
the IAM will have identified all the initial Independent Directors. Future
Independent Directors will be nominated by a Nominating Committee of the Board
of Directors that will consist of the Independent Directors and the Employee
Directors (as defined below). The three remaining directors, designated as
"Employee Directors," are selected respectively by ALPA, the IAM and
representatives of the salaried and management employees of United.
The Company's certificate of incorporation, as proposed to be amended in
connection with the Recapitalization (the "Restated Certificate"), provides
that, until the Sunset, certain corporate actions enumerated therein require
the consent of one or both members of the Board elected by ALPA and the IAM or
the approval of a supermajority vote of the stockholders.
The "Sunset" will occur when the ESOPs and any other employee benefit plans
sponsored by the Company or any of its subsidiaries for the benefit of its
employees own less than 20% of the common equity of the Company, which includes
(i) the common stock, (ii) securities that can be exercised for and converted
into shares of common stock, (iii) "phantom shares" of ESOP Preferred Stock
that have not been issued but have been allocated to individual accounts
("Book-Entry Shares") and (iv) other shares of ESOP Preferred Stock that are
unissued but committed to be transferred to the ESOPs, but such shares may not
include certain securities issued after the Effective Time. Following the
Sunset, the Voting Preferred Stock will cast only the number of votes that is
equal to the number of New Shares into the which the ESOP Preferred Stock is
then convertible, and nine of the 12 members of the Board of Directors will be
elected by the holders
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of the New Shares and the Voting Preferred Stock voting together as a single
class. The Employee Directors will continue to be appointed by the respective
employee representatives until occurrence of events specified in the Restated
Certificate.
EMPLOYEE INVESTMENT
The consummation of the Plan of Recapitalization is expected to result in
significant cost savings for the Company through employee investments made by
ALPA, the IAM and United's salaried and management employees.
ALPA Investment
The ALPA investment consists of savings that are system-wide in nature and
that will continue for five years, nine months, as well as an additional
investment applicable solely to those pilots in the proposed new low-cost,
short-haul "airline-within-an airline" referred to as "U2" and that will remain
in force for twelve years.
The base investment includes the following features:
.Reduction in hourly wages for all pilots of 15.7%
. Reduction in the Company contribution to the defined contribution
retirement plan from current 9% of wages (ordinary earnings,
excluding expense reimbursements) to 1% of post-transaction (reduced)
wages
.No pay raise during first three years other than existing seniority
and promotion increases
An additional investment that should assist United in competing against low-
cost carriers on short-haul routes includes:
.Further reduction of approximately 7.1% in hourly wage rates for
Boeing 737 pilots in the U2 operation
. Adjustments in work-rules for U2 pilots to increase productivity vis-
a-vis the mainline United operation
Partially offsetting these investments were changes to the following contract
features:
. Increased hourly rates for pilots flying the Airbus 320 aircraft
. Potential increase in per diem and potential increase in wages in
years 4 and 5 under an arbitrated settlement based on the Company's
profitability, industry wage trends and wages at specified comparable
carriers
In addition, pilot benefits under the Company's defined benefit pension plan,
disability plan and life insurance plan will continue to be based on pre-
transaction "book" rates without regard to the 15.7% wage rate reduction.
IAM Investment
The IAM base investment will remain in force for six years. In lieu of
creating a separate U2 workforce, the IAM made additional system-wide work-rule
changes to improve productivity and competitiveness in all areas.
The base investment includes the following features:
.Reduction in hourly wage rates for all IAM employees of 9.7%
. Elimination of the contractually provided May 1, 1994 wage increase
of 5%
.No pay raise during first three years other than existing seniority
and promotion increases
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Additional work-rule changes that will remain in place for twelve years:
. Elimination of the half-hour paid lunch period
. Elimination of allowance for paid lunch period on overtime
. Provide United with the ability to outsource up to 20% of maintenance
work
Partially offsetting these investments were:
. Potential wage increase in years 4 and 5 under an arbitrated
settlement based on the Company's profitability, industry wage trends
and wages at specified comparable carriers
. Improved severance package for IAM employees affected by the flight
kitchen sale, including reemployment incentives
. Increase in pension benefits
. Inefficiencies due to the impact of job security provisions on
functions with variable workloads
. Reimbursement for relocations caused by involuntary transfers
. Subject to certain conditions and exceptions, provide IAM
representation for ramp employees at stations with greater than 40
daily departures
Salaried and Management Investment
The salaried and management employee investment remains in force for five
years, nine months and consists of salary reductions and work-rule and policy
changes. In lieu of creating a separate U2 workforce, the salaried and
management employee investment includes the introduction of a "market-based"
new hire program.
The base investment includes the following features:
. Reduction in wage rates of 8.25%
. No pay raise during first three years other than promotion and
existing progression increases
. Reduction in force of 127 management positions
Additional work-rule changes include:
. Elimination of the half-hour paid lunch period on overtime
. Reduced eligibility for shift differential pay
. Reduction of compensation for extended medical leave
. Reduced reimbursement for certain management relocations
. Four holidays changed to "floating" status to eliminate premium pay
for such holidays worked
. Reduce salary guarantee for part-time employees
The market-based new-hire program includes the following features:
. Maximum compensation levels reduced to market rates at other
comparable employers (40-55% reduction)
. Requirement of 25% employee copayment on medical coverage
. Reductions in vacation, sick leave and dental insurance benefits
Partially offsetting these investments was:
. Potential wage increase in years 4 and 5, based on similar factors to
those for the ALPA and IAM-represented employees and taking into
account wage increases, if any, for such represented employees
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In addition, salaried and management employee benefits under the Company's
defined benefit pension plan, disability plan and life insurance plan will be
based on each employee's pre-transaction hourly rate of pay (without regard to
the 8.25% wage rate reduction) until such time as such employee's actual
hourly rate exceeds that amount or until such employee is demoted, at which
time in either case such employee's actual hourly rate will be used from that
point forward.
See "Certain Risk Factors--Uncertainty of Cost-Savings and Productivity
Improvements."
IMPLEMENTATION OF THE "AIRLINE-WITHIN-AN-AIRLINE " (U2)
Background
In recent years, low-cost carriers, especially Southwest Airlines Co., have
grown rapidly. These carriers offer the consumer air travel service with
frequent departures, minimal inflight service, and simplified fares that are
substantially below standard industry pricing. The consumer acceptance of such
carriers has been especially strong in short-haul markets (markets under 750
miles) in which consumers readily opt for reliable, low-priced air
transportation over the full service product (typically at higher prices)
traditionally offered by carriers.
Operations and Route Systems
Key operational elements of U2 are expected to be as follows:
Short-haul missions. U2 will operate within the contiguous United States in
non-stop city pairs of up to 750 nautical miles in "stage length," other than
flying between United's hubs and/or international gateway cities (except for
Los Angeles basin to San Francisco bay area service which may be flown by U2).
At least 10% of U2 flying must be in city pairs that United has not served for
24 months prior to the introduction of U2 service into that city pair.
High frequency. One of the key characteristics of an efficient short-haul
operation is high frequency scheduling within a market. United intends to
schedule U2 to average approximately ten frequencies per day in most markets.
Rapid turn-arounds. United intends to reduce aircraft turn-around time in
the U2 operation to 20 minutes as compared to United's current 40 to 45
minutes. The rapid turn-around time is expected to be achieved through product
simplification (e.g., reduced food service deliveries) and the streamlining of
customer and ramp service procedures.
Increased utilization. By combining high frequency with faster turn-arounds,
utilization of aircraft, facilities and other equipment is expected to
increase, thereby lowering unit costs. As compared with United's fleet, the
utilization goal of the U2 fleet is anticipated to improve 16% to 11.0 hours
per day from 9.5 hours per day. The increased utilization should allow more
trips to be flown by the same fleet of aircraft.
Product
U2 is expected to be marketed as a branded product of United with its own
distinct name (such as "Business One" and "Connoisseur Class" are today).
Travel between U2 and United should appear seamless to the consumer. U2
flights are expected to feed United long-haul domestic and international
flights and connect with United Express flights.
U2 is expected to offer a simplified, lower-frills product as compared to
mainline United service and will be cost competitive with other low-cost
carriers. Key product features that will differentiate U2 from the mainline
product are:
. Reduced food service
. Reduced onboard amenities
. Expedited customer airport check-in
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While the U2 product clearly should be different from mainline United, it is
also expected to be distinguishable from other low-cost carriers.
. Unlike some short-haul carriers, U2 currently plans to offer added value
to the consumer by providing seat assignments
. To help retain high yield connecting traffic to mainline United, U2
currently plans to offer first class seating
. Capitalizing on United's marketing strength and global route network, U2
consumers will be able to participate in one of the industry's highest
rated frequent flyer programs--United's Mileage Plus program. While the
program may be adjusted somewhat for U2 travel, the program's benefits
are expected to help to generate a U2 revenue premium over the
competition.
Fare Structure
In most markets in which U2 is expected to compete, fares have already been
reduced by other low-cost carriers, and United's fares have been reduced to
competitive levels. U2 intends to maintain United's current pricing practice of
matching competitors' low fares, although U2 intends to promote low fare levels
heavily. The objective in maintaining and promoting the low fares is to build
customer trust so that when they purchase a ticket on a U2 flight, they know
they are obtaining competitive value in the market and do not need to shop the
fare.
Roll-out
The Company expects that U2 will be rolled out no later than four to six
months after the Effective Time and will be implemented in the short-haul
markets as quickly as possible. It is currently expected that within five
years, U2 will operate approximately 130 aircraft and represent approximately
20% of system "block hours". Block hours is a measure of the time an aircraft
is in motion (i.e., from the time it pushes back from the gate at the departing
airport until it pulls up to the gate upon arrival). Factors affecting the rate
of roll-out include market conditions, pilot attrition, growth of the airline
and changes in the fleet plan.
Boeing 737 aircraft are expected to be utilized in the U2 operations. To
maximize fleet efficiency and to have the flexibility of swapping aircraft
between the U2 and United fleet, no changes are expected to be made to livery
or interior configuration.
See "Certain Risk Factors--Implementation of U2" for a description of certain
limitations of U2.
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CERTAIN RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered in evaluating an investment in the
Debentures.
Financial Effects of the Recapitalization.
The Recapitalization will immediately change United's capitalization to one
that is more highly leveraged. On a pro forma book basis at March 31, 1994,
United would have had approximately $3.354 billion of long-term debt and a
deficit of approximately $272 million of shareholder's equity as compared to
the approximately $2.596 billion of long-term debt and approximately $570
million of shareholder's equity that was shown on United's historical balance
sheet on such date. In addition, if the Recapitalization had occurred as of
January 1, 1993, United would have reported, on a pro forma basis, a loss from
continuing operations of approximately $8 million for the year ended December
31, 1993 and a loss from continuing operations of approximately $62 million for
the three months ended March 31, 1994 as compared to losses from continuing
operations of $17 million for the year ended December 31, 1993 and $79 million
for the three months ended March 31, 1994 that were reported for each period.
See "Unaudited Pro Forma Financial Information." Given the more leveraged
financial structure of United following the Recapitalization, certain industry
risks could have a greater adverse impact on United after the Recapitalization
than might have been the case prior to the Recapitalization.
United's earnings were inadequate to cover fixed charges by $77 million in
1993, by $694 million in 1992 and by $604 million in 1991. On a pro forma
basis, United's earnings in 1993 were inadequate to cover fixed charges by $63
million. In addition, United's earnings were inadequate to cover fixed charges
for the three month period ended March 31, 1994 by $130 million, and, on a pro
forma basis, they were inadequate by $102 million. Non-cash depreciation and
amortization are deducted in computing earnings before fixed charges. Such non-
cash charges do not significantly affect the ability of United to fund
operations, service debt, or provide funds to service the Company's preferred
stock dividends. Depreciation and amortization of United were $722 million in
1993, $695 million in 1992, $604 million in 1991 and $178 million for the three
month period ended March 31, 1994.
Governance Structure; Employee Ownership Influence
Although the Company has attempted to achieve a balanced approach to its
corporate governance structure after the Recapitalization, such structure is
very unusual in the management of a large, complex public corporation, and it
is not certain that the actual operation of the corporate governance process
will not result in disputes or inability to achieve results that are in the
best interests of the Company or its stockholders.
Following consummation of the Recapitalization and until the Sunset, the
Board will be comprised of twelve members elected as follows, (i) five Public
Directors elected by holders of the New Shares including (a) three members of
the existing Board or other individuals who previously had no material contact
with the Company other than as directors and (b) two substantially full-time
employees of the Company intended to be the CEO and an additional senior
executive of the Company, (ii) four Independent Directors elected by the
initial Independent Directors intended to be a quasi self-perpetuating body,
(iii) three Employee Directors, each representing an employee group, who are
elected or designated to election by one of the Unions or a designee thereof or
by other representatives of salaried and management employees. Generally,
approval of ordinary Board actions will require a majority vote of the votes
present at a meeting at which a quorum is present and approval of certain
extraordinary matters will require, subject to certain exceptions, approval of
either three-quarters of the Board (including the concurrence of one Union
designated Director) or three-quarters of the shares present and voting at a
stockholder meeting at which a quorum is present. In addition, certain
extraordinary matters will require approval of the Public Directors, the
Independent Directors or a majority of shares not held by the ESOPs. The
following Committees will be constituted: the Audit Committee, the Competitive
Action Plan ("CAP") Committee, the Compensation Committee, the
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Compensation Administration Committee, the Executive Committee, the Independent
Director Nomination Committee, the Labor Committee, the Outside Public Director
Nomination Committee and the Transaction Committee. Public Directors and
Independent Directors will be represented on all committees and the Employee
Directors will be represented on the Executive Committee, the CAP Committee,
the Independent Director Nomination Committee and the Compensation Committee.
Under the terms of the Restated Certificate, the participants in the ESOPs
(and in certain circumstances the holders of the capital stock that elect the
Employee Directors) will continue to hold more than 50% of the voting power of
the Company until the economic equity interest held by or credited to the ESOPs
and other employee benefit plans sponsored by the Company is less than 20% of
the common equity of the Company, all as more fully described in the Restated
Certificate. The termination of the right to exercise more than 50% of the
voting power of the Company is referred to herein as the "Sunset." Under
current actuarial assumptions, the Company estimates that this Sunset provision
will not become operative until 2016 if additional purchases are not made by
eligible employee benefit plans. However, such plans will have the right, and
may be expected, to make additional purchases, thereby delaying the occurrence
of the Sunset. In addition, the Restated Certificate contains many provisions
which may prevent the Company prior to the Sunset from taking certain specified
actions without the consent of one or both of the members of the Board elected
by ALPA and the IAM or a 75% vote of holders of New Shares and Voting Preferred
Stock.
No assurance can be given that the Company, which will be subject to
significant influence by employee groups (including through the right to voting
representation in excess of economic equity ownership, Board and Board
committee representation, the requirement of approval of certain matters by a
Union designated director or a 75% vote of the holders of the common stock and
Voting Preferred Stock, and participation by Union designated directors in the
nomination of the Independent Directors) might not take actions that are more
favorable to such employee groups than might be taken by a company that was not
subject to such influence. The corporate governance structure after the
Recapitalization will not, however, relieve the members of the Board of their
fiduciary obligations under the Delaware General Corporation Law.
Industry Risks
If the Recapitalization is accomplished, certain risks associated with the
aviation industry will continue to face the Company. Given the more leveraged
financial structure of the Company following the Recapitalization, certain of
these industry risks could have a greater adverse impact on the Company after
the Recapitalization than might have been the case prior to the
Recapitalization.
Industry Conditions and Competition. The airline industry is highly
competitive and susceptible to price discounting. United's competitors include
major domestic carriers such as American Airlines, Delta Airlines, and
Northwest Airlines, major international carriers such as British Airways and
Japan Air Lines, and domestic carriers such as Southwest, Continental and other
carriers with lower cost structures. Airline profit levels are highly sensitive
to, and during the last four years have been significantly impacted by, adverse
changes in fuel costs, average yield (fare levels) and passenger demand.
Passenger demand and yields have been adversely affected by, among other
things, the general state of the economy, the Persian Gulf War and actions
taken by carriers with respect to fares. As a result of this adverse operating
environment, from 1990 to 1993 the domestic airline industry incurred
unprecedented losses. During this period, Eastern Air Lines, Pan American World
Airways and Midway Airlines were liquidated, and Continental Airlines, America
West Airlines and Trans World Airlines filed for bankruptcy.
The emergence in recent years of several new carriers, typically with low
cost structures, has further increased the competitive pressures on the major
U.S. airlines. In some cases, the new entrants have initiated or triggered
price discounting. Aircraft, skilled labor and gates at most airports continue
to be readily available to start-up carriers. Although new entrant carriers
generally commence service with only a few city pairs and have a high rate of
failure, the commencement of service by new carriers on United's routes could
negatively impact United's operating results. In addition, certain existing
U.S. domestic carriers compete
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primarily by offering low-cost air service on route networks that do not employ
hub and spoke systems. These discount air carriers have significantly affected
the yields of major domestic carriers such as United and, in certain instances,
have made certain markets uneconomical for carriers such as United.
In the spring of 1992, American introduced a new fare structure followed by a
deeply discounted summer sale, steps that were generally matched by other U.S.
airlines (including United), resulting in substantially depressed industry
yields and significant 1992 losses at all major U.S. airlines (with one
exception). American and the rest of the domestic airline industry have
abandoned that pricing structure, and fare levels have increased in 1993 and
early 1994 from 1992 levels. Nonetheless, significant discounts continue to
exist and may be increased at any time. The introduction of broadly-available,
deeply discounted fares by a major U.S. airline would likely result in lower
yields for the entire industry and could have a material adverse effect on the
Company's operating results.
Aircraft Fuel. Since fuel costs constitute a significant portion of the
Company's operating costs (approximately 12% during 1993), significant changes
in fuel costs would materially affect the Company's operating results. Fuel
prices continue to be susceptible to, among other factors, political events,
and the Company cannot predict near- or longer-term fuel prices. In the event
of a fuel supply shortage resulting from a disruption of imports or otherwise,
higher fuel prices or curtailment of scheduled service could result. A one cent
change in the cost per gallon of fuel (based on 1993 consumption levels)
impacts operating expense by approximately $2.25 million per month.
In August 1993, the United States increased taxes on fuel, including aircraft
fuel, by 4.3c per gallon. Airlines are exempt from this tax increase until
October 1, 1995. When implemented, this new tax will increase the Company's
annual operating expenses by approximately $75 million based on United's 1993
domestic fuel consumption levels.
Regulatory Matters. In the last several years, the Federal Aviation
Administration (the "FAA") has issued a number of maintenance directives and
other regulations relating to, among other things, collision avoidance systems,
airborne windshear avoidance systems, noise abatement and increased inspection
requirements. The Company expects to continue incurring costs to comply with
the FAA's regulations.
Additional laws and regulations have been proposed from time to time that
could significantly increase the cost of airline operations by, for instance,
imposing additional requirements or restrictions on operations. Laws and
regulations have also been considered from time to time that would prohibit or
restrict the ownership and/or transfer of international airline routes or
takeoff and landing slots. Also, the award of international routes to U.S.
carriers (and their retention) is regulated by treaties and related agreements
between the United States and foreign governments, which are amended from time
to time. For example, there are significant aviation issues between the United
States and such foreign governments as Germany, Japan and the United Kingdom
that, depending on their resolution, may significantly impact the Company's
existing operations or curtail potential expansion opportunities in important
regions of the world. The Company cannot predict what laws and regulations will
be adopted or what changes to international air transportation treaties will be
effected, if any, or how they will affect United.
Uncertainty of Cost Savings and Productivity Improvements
Cost savings envisioned by the agreements with ALPA and the IAM and the
anticipated productivity increases could be difficult to achieve, and, even if
all proposed plans for employee investments are implemented, the value of the
reductions in wages and benefits and work-rule changes and anticipated
productivity increases may not be as significant as currently calculated.
Mandated job guarantees may make it difficult to achieve significant additional
productivity improvements, and, if additional reductions in wages and benefits
and work-rule changes become desirable in management's view, such reductions in
wages and benefits and work-rule changes may be more difficult to achieve in
light of the long-term nature of the revised
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collective bargaining agreement with ALPA and the IAM (the "Collective
Bargaining Agreements") that constitute elements of the Recapitalization.
There can be no assurance that the new management of the Company in the
future will not agree to further amend the Collective Bargaining Agreements
with ALPA and the IAM in a manner that reduces or eliminates the cost savings
that are the basis of the Recapitalization. However, any such amendment must be
approved by the Labor Committee of the Board (which will not include any
director designated by either of the Unions). In addition, at the end of the
period during which wage salary and benefit reductions and work- rule changes
are in effect, there can be no assurance that the Company's labor agreements
will be renegotiated in a manner that continues in subsequent periods the cost
savings that are being sought through the Recapitalization or that does not
reverse the effect of any cost savings that will have been obtained thereby.
Lack of Employee Consensus
Certain employee groups may not be in favor of the changes arising from the
Recapitalization and may react in a manner that does not facilitate achievement
of the desired results. For example, AFA has declined to participate in the
Recapitalization, certain other employees who will be participating in the wage
and benefit reductions and work-rule changes were not in favor of the
Recapitalization, and certain union organizing activity, based on opposition to
certain aspects of the Recapitalization, has occurred. This lack of consensus
may reduce the value of the increased employee commitments the Company expects
to achieve by virtue of the Recapitalization.
Management Change
The current Chairman and Chief Executive Officer of the Company, Mr. Stephen
M. Wolf, President, Mr. John C. Pope, and Executive Vice President--Corporate
Affairs and General Counsel, Mr. Lawrence M. Nagin, will retire at the
Effective Time. The new chief executive officer selected by ALPA and the IAM,
Mr. Gerald M. Greenwald, will be required to implement reductions in wages and
benefits and work-rule changes that he did not directly negotiate in an
industry in which he has not previously been engaged. In addition, it is
possible that the Company may face attrition by officers and other members of
management and that the Company's new senior management may face difficulties
in implementing strategies or attracting additional management employees. It is
expected that a Chief Operating Officer of the Company and United will not be
identified prior to the Meeting or the Effective Time. If this occurs, the
Company would expect that members of existing senior management would perform
the functions of the Chief Operating Officer after the Effective Time until
such a person is identified in accordance with the procedures specified in the
Restated Certificate.
Reduced Flexibility
The corporate governance structure and Collective Bargaining Agreements with
ALPA and the IAM may inhibit management's ability to alter strategy in a
volatile, competitive industry. Among the more significant constraints are (i)
a prohibition on domestic code sharing in excess of 1% of domestic block hours,
excluding several small existing agreements, without ALPA's consent, (ii) a no
layoff promise for all currently employed participating union employees during
the five- to six-year period during which wage, salary and benefit reductions
and work-rule changes are in effect and, for pilots, while U2 remains in
operation (which constraint is ameliorated as normal attrition reduces the
impact of the no-layoff promise), (iii) restrictions on international code
sharing, unless the Company can demonstrate that international code sharing
arrangements do not cause a reduction in international flying and as long as
the Company does not expand code sharing once the Company reduces international
flying below a certain level and (iv) an agreement not to sell the Company's
Denver pilot training facility and certain maintenance facilities. In addition,
the Restated Certificate contains restrictions on the ability of the Company
and United to sell assets and issue equity securities absent certain specified
Board or stockholder approvals. In most circumstances, the issuance of
additional equity securities would not be counted in determining whether the
Sunset has occurred.
15
<PAGE>
Limitations on asset sales and equity issuances included in the Company's
Restated Certificate might make it more difficult to raise cash, even if
management desired to do so to take advantage of a perceived opportunity.
The Company will continue in effect, or amend to include, certain provisions
of agreements with ALPA and the IAM that (i) provide certain rights in the
event of a change in control of the Company and (ii) prohibit furloughs,
within certain conditions, if the Company disposes of 25 percent or more of
its assets or assets which produce 25 percent or more of its block hours. The
revised Collective Bargaining Agreements obligate the Company to require any
carrier purchasing route authority or aircraft that produce 25 percent or more
of the Company's operating revenues or block hours to hire an appropriate
number of United employees with seniority credit.
Implementation of U2
Although the Company expects to develop U2 as an important component of its
competitive posture and has ascribed a significant portion of the value of the
Recapitalization to the ability to implement U2, no assurance can be given
that the Company will be able to do so effectively or to realize the financial
benefits expected to be received by the Company from the implementation of U2.
The success of U2 will be based not only upon the nature of the Company's
business plan but also upon the strategies and plans implemented by existing
low-cost competitors and by new entrants into the low-cost market. In
addition, even if the business concept of U2 is successful, (i) U2 will
comprise no more than 20% of United's system block hours up to two million
block hours systemwide and no more than 25% of the system block hours in
excess of two million, (ii) U2 can only operate in markets in the lower 48
states with stage lengths up to 750 nautical miles and cannot fly between
United's hub or international gateway cities except for Los Angeles basin--San
Francisco bay area service, which excludes U2 from such heavily traveled
routes as the transcontinental routes and New York/Chicago, Chicago/Denver and
Chicago/Washington Dulles, (iii) U2 cannot operate aircraft larger than a
Boeing 737-300 and (iv) for the first six years, U2 can only operate up to 90%
of monthly block hours in markets previously served (within 24 months) by
United. If United's systemwide widebody flying (i.e., flying performed in
Boeing 757 or larger aircraft) falls below (i) 95% of the widebody block hours
projected in the Company's October 1993 fleet plan for any twelve month period
between the Effective Time and 1999 or (ii) a certain minimum level for any
twelve month period between 2000 and 2006, the total flying performed in the
U2 operation must be reduced by the shortfall in widebody flying. Even if
implemented as planned, U2 will not have costs which are as low as those of
certain low-cost competitors. U2 must rely upon factors other than lowest cost
to secure market share and be successful.
Competitive Response
Even if the Company is able to achieve cost reductions and productivity
enhancements, the Company's higher cost competitors may be able to achieve
comparable agreements with their labor groups or otherwise reduce their
operating costs and the Company's low-cost competitors may modify their
operations in response to the competitive threat posed by U2 and, thus in each
case, may eliminate or reduce the competitive gain sought by the Company and
lead to reductions in fares and earnings. In this regard, for example,
Continental Airlines (which already has a low cost structure) has implemented
a low cost, short haul service which would be competitive with U2, and Delta
has announced its intent to lower its overall cost substantially. If the
Company's higher cost competitors were to achieve more significant reductions
in wages and benefits and work-rule changes than those achieved by the
Company, the Company's ability to respond to competition would be hampered by
the fixed long-term nature of the agreements that constitute elements of the
Recapitalization.
Possible Effect of Organization of Additional Employees
In the event any portion of the management and salaried employees that are
not currently represented by a union elects union representation pursuant to
the Railway Labor Act, the Company would be obligated to bargain with such
union over the terms and conditions of employment applicable to such
employees,
16
<PAGE>
including the terms, if any, of such employees' continuing participation in the
ESOPs. This obligation to bargain requires the Company to "exert every
reasonable effort" to reach an agreement but does not require it to agree to
any change or particular term or condition sought by the union. During the
period of negotiation, the Company would be entitled to maintain the then-
existing terms of such employees' participation in the ESOPs.
The ESOPs provide that if any group of employees that are not currently
represented by a union becomes covered by a new collective bargaining
agreement, such group of employees will not be covered under the ESOPs unless
the collective bargaining agreement so provides. Whether any new collective
bargaining agreement would provide for continuing participation in the ESOPs by
such group of employees is a matter that would be subject to mutual agreement
between the Company and the applicable union. The ESOPs provide, however, that
if the terms of any employee's employment no longer reflect all of the
reductions in wages and benefits and work-rule changes set forth in the Plan of
Recapitalization, then such employee shall cease to be covered by the ESOPs.
As a result, if any new collective bargaining agreement did not reflect the
reductions in wages and benefits and work-rule changes required by the Plan of
Recapitalization for particular employees, the Company could not agree, without
amending the ESOPs, to allow such employees to participate in the ESOPs. If any
currently unrepresented employees ceased to participate in the ESOPs under such
circumstances, the ESOPs provide that the unrepresented employees remaining in
the ESOPs would receive the shares previously intended for that newly-
represented group. The employment terms, except base pay, for the unrepresented
employees remaining in the ESOPs will be subject to change, at the Company's
discretion, so long as the net economic value of the unrepresented employees'
employment terms is not altered.
Tax Deductibility of Employee Stock Ownership Plan Contributions and Dividends
Although the Company has attempted to structure the ESOPs so that all amounts
contributed thereto and dividends paid with respect to the stock held
thereunder will be deductible to the Company for Federal income tax purposes,
there are no regulations governing the deductibility of dividends paid on the
ESOP Preferred Stock and there can be no assurance that one or more current or
future limitations under the Internal Revenue Code will not adversely impact
the deductibility of such amounts and dividends. The deductibility of such
amounts depends, to some extent, on the conclusions set forth in an opinion
rendered to the ESOP Trustee by its financial advisor and there can be no
assurance that the Internal Revenue Service (the "IRS") will agree with the
methodology set forth in such opinion.
Financial Reporting; Market Assessment
The accounting rules governing employers accounting for employee stock
ownership plans require that compensation expense be recorded for the ESOP
Preferred Stock "committed to be released" during an accounting period based on
the fair value of the ESOP Preferred Stock during such period. The difference
between the fair value and the initial recorded cost of the ESOP Preferred
Stock "committed to be released" is recorded as an adjustment to stockholders'
equity. The circular relationship between the employee stock ownership plan
accounting charges and the Company's stock price, coupled with the size of the
contemplated ESOPs, make future earnings difficult to forecast. In addition,
reported book earnings will be depressed in early years due to the mismatch
between the period during which wage, salary and benefit reductions and work-
rule changes are in effect (which increase earnings) of from five years, nine
months to twelve years and the shorter period of only six years over which
employee stock ownership plans accounting charges will occur.
Fraudulent Conveyance.
If a court in a lawsuit by an unpaid creditor or representative of creditors,
such as a trustee in bankruptcy, were to find that, at the time the Company
distributed to holders of Old Shares the cash that such holders are to receive
in the Recapitalization, the Company (i) was insolvent, (ii) was rendered
insolvent
17
<PAGE>
by reason of such distributions, (iii) was engaged in a business or transaction
for which the assets remaining with the Company constituted unreasonably small
capital to carry on its business or (iv) intended to incur, or believed that it
would incur, debts beyond its ability to pay as such debts matured, such court
may void the distributions to stockholders and require that such holders return
the same (or equivalent amounts) to the Company or to a fund for the benefit of
its creditors. If a court were to make similar findings about United's issuance
of the Debentures, such court could avoid United's obligations under the
Debentures or order the Debentures to be subordinated to all existing and
future indebtedness of United.
The measure of insolvency for purposes of the foregoing would vary depending
upon the law of the jurisdiction that was being applied. Generally, however,
the Company would be considered insolvent if at the time of the
Recapitalization the fair value of the Company's assets is less than the amount
of the Company's total debts and liabilities or if the Company has incurred
debt beyond its ability to repay as such debt matures.
The Board of Directors retained American Appraisal Associates, Inc. ("American
Appraisal") to advise it concerning the solvency of the Company as a result of
the Recapitalization. In the course of its review, American Appraisal valued
the assets of the Company (on a consolidated basis) and United (on a
consolidated basis), as going concerns, both immediately before and after, and
giving effect to, the Recapitalization. The valuation included the aggregate
assets of the business enterprise of each of the Company (on a consolidated
basis) and United (on a consolidated basis), or total invested capital as
represented by the total net working capital, tangible plant, property and
equipment and intangible assets of the respective business enterprises.
American Appraisal stated that it believed this to be a reasonable basis on
which to value the Company and United and that nothing has come to its
attention that caused it to believe that each of the Company (on a consolidated
basis) and United (on a consolidated basis), before and after the
Recapitalization, will not be going concerns.
In an opinion rendered to the Board of Directors, American Appraisal stated
that, based upon and subject to the conditions and assumptions contained
therein, (a) the fair value of the aggregate assets of each of the Company (on
a consolidated basis) and United (on a consolidated basis) will exceed their
total respective liabilities (including, without limitation, subordinated,
unmatured, unliquidated and contingent liabilities), (b) the present fair
salable value of the aggregate assets of each of the Company (on a consolidated
basis) and United (on a consolidated basis) will be greater than their
respective probable liabilities on their debts as such debts become absolute
and matured, (c) each of the Company (on a consolidated basis) and United (on a
consolidated basis) will be able to pay their respective debts and other
liabilities, including contingent liabilities and other commitments, as they
mature, (d) the capital remaining in each of the Company (on a consolidated
basis) and in United (on a consolidated basis) after consummation of the
Recapitalization will not be unreasonably small for the businesses in which the
Company and United are engaged, as management of the Company and United has
indicated such businesses are conducted and as management has indicated the
businesses are proposed to be conducted following the consummation of the
Recapitalization, and after giving due consideration to the prevailing
practices in the industry in which the Company and United will be engaged, (e)
the excess of the fair value of the total assets of the Company over the total
liabilities, including contingent liabilities, of the Company, is equal to or
exceeds the value of the consideration to be given to stockholders in the
Recapitalization plus the stated capital of the Company and (f) the excess of
the fair value of the total assets of United over the total liabilities,
including contingent liabilities, of United, is equal to or exceeds the value
of the stated capital of United.
USE OF PROCEEDS
The proceeds of the Offerings will be used to fund a portion of the cash
payment to be made to the holders of Old Shares in connection with the
Recapitalization. See "The Recapitalization."
18
<PAGE>
CAPITALIZATION
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 the Class 1 ESOP Preferred Stock to the ESOP Trustee and
the related charge for unearned ESOP Preferred Stock. The table should be read
in conjunction with the "Unaudited Pro Forma Financial Information" included
elsewhere in this document.
<TABLE>
<CAPTION>
MARCH 31, 1994
-----------------
(IN MILLIONS)
PRO
HISTORICAL FORMA
---------- ------
(UNAUDITED)
<S> <C> <C>
Short-term borrowings, long-
term debt maturing within one
year and current obligations $ 466 $ 466
under capital leases......... ------ ------
Long-term debt, excluding por-
tion due within one year:
Secured notes............... $1,388 $1,388
Deferred purchase certifi-
cates...................... 194 194
Debentures.................. 1,000 1,765
Promissory notes............ 29 29
Unamortized discount on (15) (22)
debt....................... ------ ------
2,596 3,354
Long-term obligations under 774 774
capital leases............... ------ ------
Total long-term debt and 3,370 4,128
capital lease obligations.. ------ ------
Shareholder's equity:
Common stock, $5 par value.. -- --
Additional capital invested. 839 91
Retained earnings (deficit)... (200) (308)
ESOP capital................ 228
Unearned ESOP shares........ (228)
Pension liability adjust-
ment....................... (53) (53)
Unearned compensation....... (14) --
Unrealized loss on invest-
ments...................... (2) (2)
------ ------
Total shareholder's equi- 570 (272)
ty....................... ------ ------
Total capitalization.... $4,406 $4,322
====== ======
</TABLE>
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
The following selected consolidated financial information has been derived
from United's consolidated financial statements, for each of the fiscal years
in the five year period ended December 31, 1993, which statements have been
audited by Arthur Andersen & Co., independent public accountants, as indicated
in their reports incorporated by reference herein. Reference is made to said
reports for the years 1993 and 1992 which include an explanatory paragraph with
respect to the changes in methods of accounting for income taxes and
postretirement benefits other than pensions as discussed in the notes to the
consolidated financial statements for such years. The consolidated financial
information for the three months ended March 31, 1994 and 1993 is unaudited but
in the opinion of management includes all adjustments necessary for a fair
presentation. The table also sets forth certain information on a pro forma
basis giving effect to the Recapitalization and the Offerings. The following
financial information should be read in conjunction with the"Unaudited Pro
Forma Financial Information" included elsewhere herein and the Consolidated
Financial Statements, the related notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in
United's Annual Report on Form 10-K for the year ended December 31, 1993, and
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994, as amended,
incorporated by reference herein, and United's Current Report on Form 8-K dated
May 3, 1994, incorporated herein by reference.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1993
PRO FORMA 1993 1992 1991 1990 1989
----------- ------- ------- ------- ------- -------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF CONSOLI-
DATED OPERATIONS DATA:
Operating revenues(a).. $13,140 $13,168 $11,688 $10,703 $10,282 $ 9,267
Earnings (loss) from
operations............ 386(b) 295 (496) (491) (41) 464
Earnings (loss) before
extraordinary item and
cumulative effect of
accounting changes.... (8)(b) (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........... (c) $12,153 $12,067 $ 9,907 $ 8,001 $ 7,217
Total long-term debt
and capital lease
obligations, including
current portion....... (c) 3,614 3,628 2,531 1,326 1,404
Shareholders' equity... (c) 674 738 1,613 1,769 1,665
OTHER DATA:
Ratio of earnings to
fixed charges......... (d) (d) (d) (d) 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>
20
<PAGE>
<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)(b) (44) (107)
Loss before extraordinary item and
cumulative effect of accounting changes... (62)(b) (79) (129)
Net Loss................................... N.A. (105) (148)
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
DATA
(at end of period):
Total assets............................... $12,101 $12,196 $12,515
Total long-term debt and capital lease
obligations, including current portion.... 4,325 3,567 3,864
Shareholders' equity....................... (272) 570 592
OTHER DATA:
Ratio of earnings to fixed charges......... (e) (e) (e)
UNITED OPERATING DATA:
Revenue passengers (millions).............. 16 16 16
Average length of a passenger trip in
miles..................................... 1,471 1,471 1,433
Revenue passenger miles (millions)......... 23,289 23,289 22,443
Available seat miles (millions)............ 35,598 35,598 35,220
Passenger load factor...................... 65.4% 65.4% 63.7%
Break even passenger load factor........... 65.8% 66.5% 66.3%
Revenue per passenger mile................. 11.9c 11.9c 12.0c
Cost per available seat mile............... 9.0c 9.0c 8.8c
Average price per gallon of jet fuel....... 58.6c 58.6c 65.9c
</TABLE>
- --------
(a) In the first quarter of 1994, United began recording certain air
transportation price adjustments, which were previously recorded as
commission expense, as adjustments to revenue. Operating revenue amounts and
certain operating statistics for periods prior to 1994 have been adjusted to
conform with the current presentation. See United's Current Report on Form 8-
K dated May 3, 1994, which is incorporated by reference herein.
(b) The earnings (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 3 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.
(c) 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.
(d) Earnings were inadequate to cover fixed charges by $77 million in 1993, by
$694 million in 1992 and by $604 million in 1991. On a pro forma basis,
earnings were inadequate to cover fixed charges by $63 million in 1993.
(e) Earnings were inadequate to cover fixed charges by $130 million and $211
million for the three month periods ended March 31, 1994 and 1993,
respectively. On a pro forma basis, earnings were inadequate to cover fixed
charges by $102 million for the three months ended March 31, 1994.
21
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
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 Class
1 ESOP Preferred Stock, (ii) the Offerings of Debentures and distribution of
proceeds to the Company, (iii) the recognition of the employee stock ownership
plan accounting charge, (iv) the reduction in salaries and related cost for
the anticipated impact of the wage and benefit reductions and certain work-
rule changes and (v) the recognition of the anticipated benefits of the
agreement to sell the U.S. flight kitchens. The unaudited Pro Forma Condensed
Statements of Consolidated Operations were prepared as if the Recapitalization
had occurred on January 1, 1993. The unaudited Pro Forma Condensed Statement
of Consolidated Financial Position was prepared as if the Recapitalization
occurred on March 31, 1994.
These statements are based on an assumed purchase price for the Class 1 ESOP
Preferred Stock at the Effective Time of $120 per share. The $120 per share
assumed purchase price of Class 1 ESOP Preferred Stock is based on an assumed
market price of a New Share at the Effective Time of $87. The assumption is
based upon (i) an assumed market price of an Old Share at the Effective Time
of approximately $131.5 per share, (ii) an assumed value of the non-New Share
portion of the Recapitalization Consideration of $88 per Old Share, and (iii)
a purchase price premium for the Class 1 ESOP Preferred Stock over the assumed
value of a New Share of 38%. The actual purchase price for the Class 1 ESOP
Preferred Stock at the Effective Time will be determined pursuant to the terms
of the purchase agreement with the ESOP Trustee, which provides for a purchase
price equal to 1.38 times the Closing Price (as defined in the ESOP Stock
Purchase Agreement) except that if the Closing Price is less than 98% of the
average of the Adjusted Old Share Price (as defined in the ESOP Purchase
Agreement) for the five trading days immediately preceding the Effective Time,
the purchase price shall be equal to the product of 1.38 and such average
price. There can be no assurance as to the actual purchase price of the Class
1 ESOP Preferred Stock; the Closing Price or the Adjusted Old Share Price.
These statements do not purport to be indicative of the financial position or
results of operations that may be obtained in the future or that would
actually have been obtained had the Recapitalization occurred on the dates
indicated.
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 the Company 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"). The ESOPs consist of a
leveraged ESOP (the "Leveraged ESOP"), a non-leveraged qualified ESOP (the
"Non-Leveraged Qualified ESOP" and, together with the Leveraged ESOP, the
"Qualified ESOP") and the supplemental ESOP (the "Supplemental ESOP"). The
ESOP Preferred Stock consists of Class 1 Convertible ESOP Preferred Stock (the
"Class 1 ESOP Preferred Stock") and Class 2 ESOP Convertible Preferred Stock
(the "Class 2 ESOP Preferred Stock"). Pursuant to the Plan of
Recapitalization, the ESOP Preferred Stock will be sold or transferred to the
ESOPs in seven transactions (referred to herein as the "ESOP Tranches") over
the 69 months following the Effective Time. 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
22
<PAGE>
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, which are incorporated by
reference herein and which include United's Consolidated Financial Statements,
the related notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and United's Current Report on
Form 8-K dated May 3, 1994, which is incorporated by reference herein.
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Operating revenues........................... $13,168(7) $(28)(1) $13,140
Operating expenses:
Salaries and related costs.................. 4,695 (428)(2)
(191)(1) 4,076
Employee stock ownership plan accounting
charge..................................... 369 (3) 369
Other....................................... 8,178(7) 131 (1) 8,309
------- ---- -------
12,873 (119) 12,754
------- ---- -------
Earnings (loss) from operations.............. 295 91 386
------- ---- -------
Other income (expense):
Interest, net............................... (221) (77)(4) (298)
Other, net.................................. (100) (100)
------- ---- -------
(321) (77) (398)
------- ---- -------
Loss from continuing operations
before income taxes......................... (26) 14 (12)
Provision (credit) for income taxes.......... (9) 5 (5) (4)
------- ---- -------
Loss from continuing operations.............. $ (17) $ 9 (6) $ (8)
======= ==== =======
</TABLE>
See accompanying notes to Pro Forma Condensed Statement of Consolidated
Operations.
23
<PAGE>
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
NOTES TO PRO FORMA CONDENSED
STATEMENT OF CONSOLIDATED OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(1) United entered into an agreement to sell its U.S. flight kitchens over a
period of months beginning in December 1993 through June 1994, and an
agreement to acquire catering services for a seven year period. This
adjustment eliminates $28 million of sales revenues and $191 million of
compensation costs recorded in 1993 relating to the U.S. flight kitchens
that were sold, and adds estimated incremental catering costs of $131
million.
(2) To adjust compensation expense for the pro forma effect of wage and
benefit reductions and certain work-rule changes resulting from the
employee investment that provide for wage and other compensation savings
during the approximately six year period beginning at the Effective Time.
The pro forma adjustment represents the estimated savings in the 12 months
assuming that such savings had commenced at the beginning of the period.
The pro forma adjustment does not include any savings related to U2.
(3) 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
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:
<TABLE>
<CAPTION>
AVERAGE ESOP ESOP ACCOUNTING
PREFERRED STOCK CHARGE*
FAIR VALUE (MILLIONS)
--------------- ---------------
<S> <C>
$110 $338
120 369
130 400
140 430
</TABLE>
24
<PAGE>
--------
*Assumes 3.07 million shares committed to be released in the pro forma
period and no shares used to satisfy dividends payable since shares are
not allocated to participants until December 31. In later years shares
will be used to satisfy dividends on allocated shares, which will reduce
the ESOP accounting charge.
The following illustrates the impact to the ESOP accounting charge if the
average value of the New Shares in the first 12 months exceeds $136 per
share.
<TABLE>
<CAPTION>
SHARES TO
BE INCREASE IN
AVERAGE AVERAGE ESOP ADDITIONAL RELEASED ESOP ACCOUNTING
NEW SHARE PREFERRED STOCK SHARES TO FOR FIRST CHARGE****
PRICE FAIR VALUE* BE ISSUED** YEAR*** (MILLIONS)
--------- --------------- ----------- --------- ---------------
<S> <C> <C> <C> <C>
$136 $168 0 0 $ 0
140 172 2,260,410 393,115 68
150 182 6,949,234 1,208,562 220
</TABLE>
--------
*Assumes a dividend premium of $32 per share.
**To achieve the maximum increase in ownership, the price of a New Share
must average at least $149.10 during the first 12 months after the
Effective Time. If the average price of a New Share is less than or
equal to $136, no additional shares of ESOP Preferred Stock will be
issued.
***The additional shares will be released in a level fashion over the 69
months of the ESOP.
****Represents the first year increase; subsequent increases are dependent
on changes in the fair value of ESOP Preferred Stock.
(4) To record interest expense of $72 million on the Series A Debentures at an
annual estimated interest rate of 9.0% and on the Series B Debentures at
an annual estimated interest rate of 9.7%, and to record amortization of
the underwriting discount. The pro forma adjustment also includes foregone
interest income due to the reduction in United's average investment
balance resulting from the transaction. For purposes of the pro forma
adjustment, the interest rates on the Debentures are based on the rates
set in the Plan of Recapitalization. The actual rates will be reset prior
to the Effective Time and the reset is limited to an additional 112.5
basis points. If the reset results in the actual rate being at the maximum
interest rate, interest expense would increase by an additional $9 million
for the year. Further, if the United Debt Offerings are not consummated
and the Unions request prior to the date on which the reset rates are
announced that the Debentures contain a call provision, the actual rates
could increase above the maximum.
The underwriting agreement for the United Debt Offerings are expected to
reflect that if either or both of such Offerings are consummated, the
interest rates may be adjusted to permit the applicable Debentures to be
sold at or closer to par, but if this is done, the principal amount of the
series of Debentures will be reduced so that the interest payable will not
exceed the maximum amount which was calculated based upon the stated
maximum interest rate. If the United Debt Offerings are not consummated,
the interest rates are subject to the stated maximum, except as described
in the preceding paragraph.
(5) 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.
(6) 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
25
<PAGE>
expense (based on an assumed Old Share price of approximately $131.5 at the
Effective Time) relating to the vesting of unvested stock options (the
"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 consideration distributed in respect of Old
Shares pursuant to the Recapitalization 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.
(7) In the first quarter of 1994, United began recording certain air
transportation price adjustments, which were previously recorded as
commission expense, as adjustments to revenue. Historical operating
revenue and expense amounts have been adjusted to conform with the current
presentation. See United's Current Report on Form 8-K dated May 3, 1994,
which is incorporated by reference herein.
26
<PAGE>
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
FOR THE THREE MONTHS MARCH 31, 1994
(IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Operating revenues........................... $3,173 $ (2)(1) $3,171
Operating expenses:
Salaries and related costs.................. 1,202 (111)(2)
(27)(1) 1,064
Employee stock ownership plan accounting
charge..................................... 86 (3) 86
Other....................................... 2,015 22 (1) 2,037
------ ----- ------
3,217 (30) 3,187
------ ----- ------
Earnings (loss) from operations.............. (44) 28 (16)
------ ----- ------
Other income (expense):
Interest, net............................... (60) (19)(4) (79)
Other, net.................................. (16) 19 (5) 3
------ ----- ------
(76) -- (76)
------ ----- ------
Loss from continuing operations
before income taxes......................... (120) 28 (92)
Provision (credit) for income taxes.......... (41) 11 (6) (30)
------ ----- ------
Loss from continuing operations.............. $ (79) $ 17 $ (62)
====== ===== ======
</TABLE>
See accompanying notes to Pro Forma Condensed Statement of Consolidated
Operations.
27
<PAGE>
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
NOTES TO PRO FORMA CONDENSED
STATEMENT OF CONSOLIDATED OPERATIONS
THREE MONTHS ENDED MARCH 31, 1994
(1) United entered into an agreement to sell its U.S. flight kitchens over a
period of months beginning in December 1993 through June 1994, and an
agreement to acquire catering services for a seven year period. This
adjustment eliminates $2 million of sales revenues and $27 million of
compensation costs recorded in the first quarter of 1994 relating to the
U.S. flight kitchens that were sold, and adds estimated incremental
catering costs of $22 million.
(2) To adjust compensation expense for the pro forma effect of wage and benefit
reductions and certain work-rule changes resulting from the employee
investment that provide for wage and other compensation savings during the
approximately six year period beginning at the Effective Time. The pro
forma adjustment represents the estimated savings in the first quarter of
1994 assuming that such savings had commenced at the beginning of the prior
year. The pro forma adjustment does not include any savings related to U2.
(3) 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:
<TABLE>
<CAPTION>
Average ESOP ESOP Accounting
Preferred Stock Charge*
Fair Value (millions)
--------------- ---------------
<S> <C>
$110 $ 79
120 86
130 93
140 100
</TABLE>
--------
* Assumes 768,000 shares committed to be released in the pro forma period
and approximately 54,000 shares used for dividends which are charged to
retained earnings. As additional shares are allocated in later years,
the employee stock ownership plan accounting charge will be reduced.
28
<PAGE>
The following illustrates the impact to the employee stock ownership plan
accounting charge for the quarter if the average value of the New Shares in
the first 12 months exceeds $136 per share.
<TABLE>
<CAPTION>
Average ESOP Shares to be Increase in
Average Preferred Additional Released ESOP Accounting
New Share Stock Fair Shares to for the Charge****
Price Value* be Issued** Quarter*** (millions)
--------- ------------ ----------- ------------ ---------------
<S> <C> <C> <C> <C>
$136 $168 0 0 $ 0
140 172 2,260,410 98,279 16
150 182 6,949,239 302,141 51
</TABLE>
--------
*Assumes a dividend premium of $32.
** To achieve the maximum increase in additional shares, the price of a
New Share must average at least $149.10 during the first 12 months
after the Effective Time. If the average price of a New Share is less
than or equal to $136, no additional shares of ESOP Preferred Stock
will be issued.
*** The additional shares will be released in a level fashion over the 69
months of the ESOP.
****Represents the increase for the quarter; subsequent increases are
dependent on changes in the fair value of the ESOP Preferred Stock.
(4) To record interest expense of $18 million on the Series A Debentures at an
annual estimated interest rate of 9.0% and on the Series B Debentures at an
annual estimated interest rate of 9.7%, and to record amortization of the
underwriting discount. The pro forma adjustment also includes foregone
interest income due to the reduction in United's average investment balance
resulting from the transaction. For purposes of the pro forma adjustment,
the interest rates on the Debentures are based on the rates set in the Plan
of Recapitalization. The actual rates will be reset prior to the Effective
Time and any upward reset is limited to an additional 112.5 basis points.
If the reset results in the actual rate being at the maximum interest rate,
interest expense would increase by an additional $2 million for the
quarter. Further, if the United Debt Offerings are not consummated and the
Unions request prior to the date on which the reset rates are announced
that the Debentures contain a call provision, the actual rates may increase
above the maximum.
(5) To reverse $19 million of nonrecurring fees and expenses relating to the
Recapitalization which were recorded in the first quarter of 1994.
(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 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.
29
<PAGE>
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
MARCH 31, 1994
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS HISTORICAL ADJUSTMENTS PRO FORMA
------ ---------- ----------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................. $ 666 $(140)(1) $
758 (3)
(765)(3)
8 (9) 527
Short-term investments..................... 542 542
Other...................................... 2,241 44 (2) 2,285
------- ----- -------
3,449 (95) 3,354
------- ----- -------
Operating property and equipment............. 12,211 12,211
Less: Accumulated depreciation
and amortization......................... (5,164) (5,164)
------- ----- -------
7,047 7,047
------- ----- -------
Other assets:
Other...................................... 1,700 1,700
------- ----- -------
$12,196 $ (95) $12,101
======= ===== =======
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Short-term borrowings, long-term debt
maturing within one year and current
obligations under capital leases.......... $ 466 $ $ 466
Other...................................... 4,473 (11)(9) 4,462
------- ----- -------
4,939 (11) 4,928
------- ----- -------
Long-term debt............................... 2,596 758 (3) 3,354
------- ----- -------
Long-term obligations under capital leases... 774 774
------- ----- -------
Other liabilities, deferred credits and
minority interest........................... 3,317 3,317
------- ----- -------
Shareholder's equity:
Common stock, $5 par value; 1,000 shares
authorized; 200 shares outstanding........ -- --
Additional capital invested................ 839 (765)(3)
13 (5)
4 (6) 91
Retained earnings (deficit)................ (200) (108)(7) (308)
ESOP capital............................... 228 (4) 228
Unearned ESOP Preferred Stock.............. (228)(4) (228)
Unearned compensation...................... (14) 14 (8) --
Pension liability adjustment .............. (53) (53)
Unrealized loss of investments............. (2) (2)
------- ----- -------
570 (842) (272)
------- ----- -------
$12,196 $ (95) $12,101
======= ===== =======
</TABLE>
See the accompanying notes to Pro Forma Condensed Statement of Consolidated
Financial Position.
30
<PAGE>
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES NOTES TO PRO FORMA CONDENSED
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
MARCH 31, 1994
(1) To record the cash impact of the estimated fees and transaction expenses,
including expenses for United, ALPA and the IAM, severance payments to
terminated officers and flight kitchen employees, and payments relating to
the employment agreement with Mr. Greenwald.
(2) To record the tax effects relating to nonrecurring charges recognized as a
result of the transaction.
(3) To record the Offerings of $382.5 million principal amount of Series A
Debentures and $382.5 million principal amount of Series B Debentures and
to record the distribution of proceeds to UAL. The Debentures are being
recorded at their face amount based on the assumption that they will be
priced to trade at par, less the underwriting discount of $7 million. The
actual rates on the Debentures will be reset prior to the Effective Time
and the Debentures are subject to a maximum interest rate of 112.5 basis
points above the rates set in the Plan of Recapitalization. The
underwriting agreements for the United Debt Offerings are expected to
provide that if either or both of the United Debt Offerings are
consummated, the interest rates on the Debentures being offered may be
adjusted in order for the Debentures to be sold at or closer to par, in
which case the principal amount of the Debentures will be reduced so that
the annual interest expense will not exceed the stated maximum which was
calculated based upon the rate cap. If either or both of the United Debt
Offerings are not consummated and the interest rate exceeds the cap, the
Debentures will be recorded at a discount.
(4) To record the ESOP capital as a result of the initial issuance of shares of
UAL's Class 1 ESOP Preferred Stock to the Leveraged ESOP for an aggregate
purchase price of $228 million and to record the related charge to unearned
ESOP Preferred Stock. The $228 million was determined based on (i)
1,899,059 shares of Class 1 ESOP Preferred Stock expected to be issued in
the first ESOP Tranche as of the Effective Time and (ii) an assumed
purchase price of $120 per share. The Company and the Unions may, prior to
the Effective Time, agree to increase or decrease the number of shares of
Class 1 ESOP Preferred Stock sold at the Effective Time. The agreement with
the ESOP Trustee provides that the number of shares of Class 1 ESOP
Preferred Stock sold at the Effective Time shall be no more than 2,088,965
and no fewer than 1,709,153, provided, however, that the number of shares
sold in the first ESOP Tranche will be adjusted if the Effective Time is
before or after July 1, 1994. In general, 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 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). 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.
31
<PAGE>
ESOP capital will also be recorded over the approximately six year investment
period as the shares of UAL's Class 2 ESOP Preferred Stock are committed to
be contributed to the Non-Leveraged Qualified ESOP and credited to employees
pursuant to the Supplemental ESOP with the offsetting entry being to
compensation expense. The number of shares of Class 2 ESOP Preferred Stock
that will be issued will be equal to 17,675,345 less the number of shares of
Class 1 ESOP Preferred Stock that will be sold to the Leveraged 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 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 ESOP. 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 ESOP. 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 ESOP consistent with the applicable provisions of
the Internal Revenue Code. To the extent the Qualified ESOP 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 account for the cashless exercise of options in the event of the
Recapitalization. (Amount of the entry is based on an assumed Old Share
price at the Effective Time of approximately $131.5 per share.)
(6) To record 25,000 restricted shares to Mr. Greenwald that will vest at the
Effective Time.
(7) Represents the offset to entries (1), (2), (5), (6), (8) and (9).
(8) To record the vesting of the unvested restricted stock as a result of the
Recapitalization.
(9) To reverse $19 million of transaction fees and expenses recorded during the
first quarter of 1994 because these expenses are included in entry (1).
32
<PAGE>
MANAGEMENT
BOARD OF DIRECTORS
General
As described above, the Plan of Recapitalization was entered into to
implement a majority employee ownership transaction, and after consummation of
the Recapitalization, the ESOPs, which were established for the benefit of
United's employees, will have a common equity interest in the Company of at
least approximately 55% (determined on the basis described in the Plan of
Recapitalization). The corporate governance structure of the Company following
the Recapitalization will feature a twelve-member Board of Directors, only
three of whom will be appointed by the Unions and other representatives of
salaried and management employees. Of the remainder, five (including the CEO
and another senior executive officer) will be selected by the holders of the
New Shares and four will be designated as Independent Directors. Except for
certain exceptions, a majority vote of the Board is required for most Board
actions. See "Certain Risk Factors--Governance Structure; Employee Ownership
Influence."
The following information concerns the persons who have agreed to serve, or
who have been nominated for election, as members of the Board following the
Effective Time. Such information includes their names, ages, the class pursuant
to which they will serve, their principal occupations for the past five years
and their directorships with other corporations. Four initial Public Directors
will be elected at the Meeting. A fifth Public Director will be elected after
the Meeting.
GERALD GREENWALD, 58 (PUBLIC DIRECTOR). Chairman, Tatra Truck Company, Czech
Republic. Mr. Greenwald served as Vice Chairman of the Chrysler Corporation
from 1989 to 1990. Prior thereto, Mr. Greenwald was employed by Chrysler for
approximately 10 years in a number of senior executive positions. In 1990, Mr.
Greenwald was selected to serve as chief executive officer of United Employee
Acquisition Corporation in connection with the proposed 1990 employee
acquisition of the Company. Following the termination of that proposed
transaction, Mr. Greenwald served as a managing director of Dillon Read & Co.
Inc. (investment banking) in 1991 and as president of Olympia & York
Developments Limited (a real estate development company that was in the process
of a bankruptcy restructuring prior to Mr. Greenwald's agreeing to serve as
president) from April 1992 until March 1993. Mr. Greenwald currently serves as
a director of Aetna Life and Casualty Company, Honeywell Inc., Reynolds Metals
Company and is a trustee of Princeton University. Mr. Greenwald also serves as
chairman of the Tatra Truck Company and has served in such capacity since March
1993. Mr. Greenwald previously served for a number of years as a director of
GPA Group PLC (international aircraft financing and leasing). Mr. Greenwald has
not previously served on the Board.
DUANE D. FITZGERALD, 54 (INDEPENDENT DIRECTOR). Chairman, President and Chief
Executive Officer, Bath Iron Works Corporation (Shipbuilding). Mr. Fitzgerald
has not previously served on the Board. Mr. Fitzgerald served as Bath Iron
Works' President and Chief Operating Officer from December 1988 until September
1991 when he was appointed to his current positions. Mr. Fitzgerald is also a
director of the Shipbuilders Council of America and a trustee of the University
of Maine System and of Boston University.
ROGER D. HALL, 55 (ALPA DIRECTOR). Chairman, United Airlines Pilots Master
Executive Council, Air Line Pilots Association, International and Captain B737-
200, United Air Lines, Inc. Captain Hall has not previously served on the
Board. Captain Hall has been Chairman of the UAL-MEC since January, 1992. He
served as ALPA First Vice President from 1987 to 1990. He has been a B737-200
Captain since 1983. Captain Hall is also an Executive Board Member and
Executive Council Member of ALPA.
RICHARD D. MCCORMICK, 53 (INDEPENDENT DIRECTOR). Chairman of the Board,
President and Chief Executive Officer of US West, Inc. (telecommunications) Mr.
McCormick has not previously served on the Board. Mr. McCormick has been
Chairman of US West since May 1992 and President and Chief Executive Officer
since 1991. He served as President and Chief Operating Officer from 1986 to
1991. Mr. McCormick is also a director of Norwest Corporation and Super Valu
Stores, Inc.
33
<PAGE>
JOHN F. MCGILLICUDDY, 63 (PUBLIC DIRECTOR). Retired Chairman and Chief
Executive Officer, Chemical Banking Corporation (banking and finance). Director
since 1984. Mr. McGillicuddy served as Chairman and Chief Executive Officer of
Chemical Banking Corporation from 1992 until his retirement in December 1992,
and of Manufacturers Hanover Corporation and Manufacturers Hanover Trust
Company from 1979 until the merger of Manufacturers Hanover Corporation and
Chemical Banking Corporation on January 1, 1992. Mr. McGillicuddy is also a
director of Chemical Banking Corporation, The Continental Corporation and USX
Corporation.
JAMES J. O'CONNOR, 57 (PUBLIC DIRECTOR). Chairman and Chief Executive
Officer, Commonwealth Edison Company (electric power utility). Director since
1984. Mr. O'Connor is also a director of American National Can Company, Corning
Incorporated, First Chicago Corporation, the Chicago Stock Exchange, Scotsman
Industries, Inc. and The Tribune Company.
JOHN PETERPAUL, 58 (IAM DIRECTOR). Retired Vice President, International
Association of Machinists and Aerospace Workers. Mr. Peterpaul has not
previously served on the Board. Mr. Peterpaul retired from the IAM in May 1994.
He is a member of the Executive Board, General Council and Management Committee
of the International Transport Workers' Federation (ITF), headquartered in
London, England. He has served as Labor Chairman of the National Transportation
Apprenticeship and Training Conference, Chairman of the Railway Labor
Executives' Association and has served on numerous other labor and government
committees including the National Commission to Ensure a Strong Competitive
Airline Industry.
PAUL E. TIERNEY, JR., 51 (PUBLIC DIRECTOR). Managing Director, Gollust,
Tierney and Oliver, Inc. (investment banking). Director since October 18, 1990.
Mr. Tierney is also Chairman of the Board of Directors of Technoserve, Inc., a
director of the Argentine Investment Fund, the Straits Corporation and the
Overseas Development Council and a Governor of the United Nations Association.
JOHN K. VAN DE KAMP, 58 (INDEPENDENT DIRECTOR). Partner, Dewey Ballantine
(law firm). He has not previously served on the Board. Mr. Van de Kamp served
as Attorney General of the State of California from 1983 until January 1991. He
is also a member of the advisory board of Falcon Classic Cable Companies, Ltd.
and a director of Lawry's Restaurants, Inc. In addition, Mr. Van de Kamp serves
on the board of directors of the following non-profit organizations: Day One,
the Eisenhower World Affairs Institute, the Los Angeles Conservation Corps, the
Planning and Conservation League and the Rockefeller Center for Social Sciences
at Dartmouth College. He is also President of the Board of Governors of the
City Club of Bunker Hill.
JOSEPH V. VITTORIA, 58 (SALARIED AND MANAGEMENT DIRECTOR). Chairman and Chief
Executive Officer, Avis, Inc. since September 1987 (automobile renting and
leasing). Mr. Vittoria has not previously served on the Board.
PAUL A. VOLCKER, 66 (INDEPENDENT DIRECTOR). Chairman, James D. Wolfensohn
Inc. (investment banking) and Frederick H. Schultz Professor of International
Economic Policy, Princeton University. Mr. Volcker has not previously served on
the Board. Mr. Volcker is also a director of Nestle S.A., Municipal Bond
Assurance Corp. (MBIA), the American Stock Exchange and Prudential Insurance
Co. of America. He is Chairman of the North American Committee of the
Trilateral Commission, the Group of 30, the Advisory Boards of the Center for
Strategic and International Studies and the Arthritis Foundation; he is co-
chairman of the Bretton Woods Committee and the United States Hong Kong
Economic Cooperation Committee. Mr. Volcker is also associated as trustee or
member of the Board of Directors with the Council on Foreign Relations, the
Aspen Institute, the Japan Society, the American Council on Germany and the
American Assembly.
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EXECUTIVE OFFICERS
Stephen M. Wolf, Chairman and Chief Executive Officer, John C. Pope,
President and Chief Operating Officer, and Lawrence M. Nagin, Executive Vice
President--Corporate Affairs and General Counsel, have agreed to retire
effective immediately before the consummation of the Recapitalization. Mr.
Greenwald will become the CEO at that time. The Restated Certificate provides
that the holders of the New Shares will have a voice in the selection of the
CEO. The Restated Certificate contemplates that the CEO will be a member of the
Board. A CEO-designate who is not elected to the Board must resign as CEO.
It is expected that a Chief Operating Officer of the Company and United will
not be identified prior to the Meeting or the Effective Time. If this occurs,
the Company would expect that members of existing senior management would
perform the functions of the Chief Operating Officer after the Effective Time
until such a person is identified in accordance with the procedures specified
in the Restated Certificate.
Following is information concerning the principal occupations for the past
five years for the other executive officers of the Company.
JOSEPH R. O'GORMAN, JR. was elected Executive Vice President of the Company
on February 28, 1991. He was elected Executive Vice President--Operations of
United on April 30, 1992. He had served as Executive Vice President--Flight
Services of United since February 25, 1991. Previously, Mr. O'Gorman served as
Executive Vice President--Operations at USAir from August 1990 until February
1991. He served as United's Senior Vice President--Maintenance Operations from
March 1988 to August 1990.
JAMES M. GUYETTE was elected Executive Vice President of the Company
effective January 28, 1988. He was elected Executive Vice President--Marketing
and Planning of United on April 30, 1992.
PAUL G. GEORGE was elected Senior Vice President--Human Resources of United
on April 11, 1988.
There are no family relationships among the executive officers of the
Company.
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DESCRIPTION OF CERTAIN TERMS OF SECURITIES
The following is a description of certain general terms and provisions of the
Debentures. The particular terms of the Debentures will be described in the
Prospectus Supplement. If so indicated in the Prospectus Supplement, the terms
of such Debentures may differ from the terms set forth below.
The Series A Debentures and the Series B Debentures will be issued under an
Indenture dated as of July 1, 1991 between United, as issuer, and The Bank of
New York, as Trustee (the "Indenture Trustee") and an officers' certificate
that sets forth certain terms of the Debentures (collectively, the
"Indenture"). Copies of the Indenture and the related documentation have been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part and are incorporated herein by reference. The summary of terms of the
Debentures contained in this Prospectus does not purport to be complete. Where
the summaries do not make a distinction between the Series A Debentures and the
Series B Debentures, such summaries refer to either series. Whenever particular
Sections or defined terms of the Indenture are referred to herein, such
sections or defined terms are incorporated herein by reference.
General
The Debentures will be issued only in fully registered form without coupons
in denominations of $1,000 principal amount and integral multiples thereof. The
Debentures will bear interest at the rates shown on the cover of this
prospectus. The Debentures have been approved for listing on the New York Stock
Exchange subject to official notice of issuance.
Interest on the Debentures will be paid semi-annually on the dates specified
in the accompanying Prospectus Supplement to holders of record on the record
dates for such payments specified in the accompanying Prospectus Supplement at
the rates shown on the cover of such Prospectus Supplement. The Series A
Debentures and the Series B Debentures will mature on the respective dates
specified in the accompanying Prospectus Supplement. The Debentures will bear
interest from a date specified in the accompanying Prospectus Supplement or the
most recent interest payment date from which interest has been paid.
The Indenture does not contain any covenant or provisions that provide
protection to the holder of Debentures in the event of a highly leveraged
transaction or a change of control.
The Debentures will be unsecured and unsubordinated obligations of United and
will rank on a parity with all other unsecured and unsubordinated indebtedness
of United. As of March 31, 1994 United had outstanding approximately $2.8
billion aggregate principal amount of indebtedness that will rank pari passu
with the Debentures offered hereby, of which approximately $1.8 billion was
secured and approximately $1.0 billion was unsecured. The Indenture does not
limit the right of United to incur additional senior indebtedness, all of which
will value pari passu with the Debentures. As of March 31, 1994, United had
outstanding approximately $3.6 billion principal amount of indebtedness and
capital lease obligations.
Redemption
The Debentures will not be subject to any sinking fund or other obligation of
United to redeem or retire the Debentures. The Debentures may not be called for
redemption prior to their respective final stated maturities. The Plan of
Recapitalization provides that if either or both series of Debentures are
issued other than pursuant to the United Debt Offerings, such series of
Debentures may be made redeemable at the option of United prior to their
respective final stated maturities if the Unions so request not less than seven
days prior to the Announcement Date.
Payment, Registration, Transfer and Exchange
Payments in respect of the Debentures will be made at the office or agency of
United maintained for that purpose as United may designate from time to time,
except that, at the option of United, interest
36
<PAGE>
payments, if any, on the Debentures may be made by checks mailed by the
Indenture Trustee to the holders of Debentures entitled thereto at their
registered addresses. (Sections 3.7(a) and 9.2 of the Indenture.) Payment of
any installment of interest on Debentures will be made to the persons in whose
names such Debentures are registered at the close of business on the regular
record date for such interest. (Sections 3.7(a) of the Indenture.)
Debentures will be transferable or exchangeable at the agency of United
maintained for such purpose as designated by United from time to time.
(Sections 3.5 and 9.2 of the Indenture.) Debentures may be transferred or
exchanged without service charge, other than any tax or other governmental
charge imposed in connection therewith. (Section 3.5 of the Indenture.)
Consolidation, Merger or Sale by United
The Indenture provides that United may merge or consolidate with or into any
other corporation or sell, convey, transfer or otherwise dispose of all or
substantially all of its assets to any person, firm or corporation, if (i)(a)
in the case of a merger or consolidation, United is the surviving corporation
or (b) in the case of a merger or consolidation where United is not the
surviving corporation and in the case of such a sale, conveyance or other
disposition, the successor or acquiring corporation is a corporation organized
and existing under the laws of the United States of America or a State thereof
and such corporation expressly assumes by supplemental indenture all the
obligations of United under the Debentures and the Indenture, (ii) immediately
after giving effect to such merger or consolidation, or such sale, conveyance,
transfer or other disposition, no Default or Event of Default has occurred and
is continuing and (iii) certain other conditions are met. In the event a
successor corporation assumes the obligations of United, such successor
corporation will succeed to and be substituted for United under the Indenture
and under the Debentures and all obligations of United will terminate.
(Section 7.1 of the Indenture.)
Events of Default, Notice and Certain Rights on Default
The Indenture provides that, if an Event of Default occurs with respect to
the Debentures of either series and is continuing, the Indenture Trustee for
such series or the holders of at least 25% in aggregate principal amount of
all of the outstanding Debentures of that series, by written notice to United
(and to the Indenture Trustee for such series, if notice is given by such
holders of Debentures), may declare the principal of all the Debentures of
that series to be due and payable. (Section 5.2 of the Indenture.)
Events of Default with respect to Debentures of either series are defined in
the Indenture as being: (i) default for 30 days in payment of interest on any
Debentures of that series when due, (ii) default for 10 days in payment of
principal, premium, if any, at its maturity or on redemption or otherwise, of
any Debentures of that series when due, (iii) default for 60 days after notice
to United by the Indenture Trustee for such series, or to United and the
Indenture Trustee by the holders of at least 25% in aggregate principal amount
of the Debentures of such series then outstanding, in the performance of any
other agreement in the Debentures of that series, in the Indenture or in any
supplemental indenture, (iv) default resulting in acceleration of other
indebtedness of United for borrowed money where the aggregate principal amount
so accelerated exceeds $100 million and such acceleration is not rescinded or
annulled within 10 days after the written notice thereof to United by the
Indenture Trustee or to United and the Indenture Trustee by the holders of at
least 25% in aggregate principal amount of the Debentures of such series then
outstanding, provided that such Event of Default will be cured or waived if
the default that resulted in the acceleration of such other indebtedness is
cured or waived, and (v) certain events of bankruptcy, insolvency or
reorganization of United. (Section 5.1 of the Indenture.) An Event of Default
under the Indenture with respect to the Debentures could cause an event of
default with respect to certain other existing indebtedness of United. A
payment default with respect to the Debentures that continues to exist after
the termination of grace periods and waivers would cause an event of default
under six financing leases covering six aircraft if the Event of Default under
the Indenture would have a material adverse effect on the financial condition
of United. An event of default would also occur under these six financing
leases and two other financing leases covering four aircraft if the maturity
of the Debentures
37
<PAGE>
was accelerated as a result of an Event of Default and such acceleration would
have a material adverse effect on the financial condition of United. An event
of default would occur under a ninth financing lease covering twenty-five
aircraft if the maturity of the Debentures was accelerated as a result of a
payment default under the Indenture or if the maturity of 80% of all of
United's senior funded indebtedness were accelerated as a result of any other
default under the Indenture. If an Event of Default occurred under the
Indenture and the maturity of more than $100 million principal amount of the
Debentures was accelerated and not rescinded within specified grace periods, an
event of default would occur under $1.0 billion principal amount of United's
indebtedness and, in addition, United would not be able to make new borrowings
under a credit agreement that is associated with its commercial paper facility.
There can be no assurance that United will not grant a cross-default remedy to
one or more of its creditors in the future.
The Indenture provides that the Indenture Trustee for either series of
Debentures will, within 90 days after the occurrence of a Default with respect
to Debentures of that series, give to the holder of the Debentures of that
series notice of all uncured Defaults known to it; provided that, except in the
case of default in payment on the Debentures of that series, the Indenture
Trustee may withhold the notice if and so long as a committee of its
responsible officers in good faith determines that withholding such notice is
in the interest of the holders of the Debentures of that series. (Section 6.6
of the Indenture.) "Default" means any event that is, or, after notice or
passage of time or both, would be, an Event of Default. (Section 1.1 of the
Indenture.)
The Indenture provides that the holders of a majority in aggregate principal
amount of the Debentures of each series affected (with each such series voting
as a class) may direct the time, method and place of conducting any proceeding
for any remedy available to the Indenture Trustee for such series or exercising
any trust or power conferred on such Indenture Trustee. (Section 5.8 of the
Indenture.)
The Indenture includes a covenant that United will file annually with the
Indenture Trustee a certificate as to United's compliance with all conditions
and covenants of the Indenture. (Section 9.7 of the Indenture.)
The holders of a majority in aggregate principal amount of either series of
Debentures by notice to the Indenture Trustee for such series may waive, on
behalf of the holders of all Debentures of such series, any past Default or
Event of Default with respect to that series and its consequences except a
Default or Event of Default in the payment of the principal of, premium, if
any, or interest on any Debenture and certain other defaults. (Section 5.7 of
the Indenture.)
Modification of the Indenture
The Indenture contains provisions permitting United and the Indenture Trustee
to enter into one or more supplemental indentures without the consent of the
holders of any of the Debentures (i) to evidence the succession of another
corporation to United and the assumption of the covenants of United by a
successor to United, (ii) to add to the covenants of United for the benefit of
either series of Debentures or surrender any right or power of United, (iii) to
add additional Events of Default with respect to any series, (iv) to secure the
Debentures, (v) to evidence and provide for successor Indenture Trustees, (vi)
to correct or supplement any inconsistent provisions or to make any other
provisions with respect to matters or questions arising under the Indenture,
provided that such action does not adversely affect the interests of any holder
of Debentures of any series issued under the Indenture, or (vii) to cure any
ambiguity or correct any mistake. (Section 8.1 of the Indenture.)
The Indenture also contains provisions permitting United and the Indenture
Trustee, with the consent of the holders of a majority in aggregate principal
amount of the outstanding Debentures of each series affected by a supplemental
indenture, to execute such supplemental indenture to add any provisions to or
to change or to eliminate any of the provisions of the Indenture or any
supplemental indenture or to modify the rights of the holders of Debentures of
such series, except that no such supplemental indenture may, without the
consent of the holder of each Debenture so affected, (i) change the time for
payment of principal or interest on any Debenture, (ii) reduce the principal
of, or any installment of interest on, any Debenture, (iii) reduce the amount
of premium, if any, payable upon the redemption of any Debenture, (iv) change
the coin
38
<PAGE>
or currency in which any Debenture or any premium or interest thereon is
payable, (v) impair the right to institute suit for the enforcement of any
payment on or with respect to any Debenture, (vi) reduce the percentage in
principal amount of the outstanding Debentures of any series the consent of
whose holders is required for modification or amendment of the Indenture or for
waiver of compliance with certain provisions of the Indenture or for waiver of
certain defaults, (vii) change the obligation of United to maintain an office
or agency in the places and for the purposes specified in the Indenture or
(viii) modify the provisions relating to waiver of certain defaults or any of
the foregoing provisions. (Section 8.2 of the Indenture.)
Defeasance and Covenant Defeasance
United may elect either (i) to defease and be discharged from any and all
obligations with respect to the Debentures of any series (except as described
below) ("defeasance") or (ii) to be released from its obligations with respect
to certain covenants applicable to the Debentures of any series ("covenant
defeasance"), upon the deposit with the Indenture Trustee for such series (or
other qualifying trustee), in trust for such purpose, of money and/or
Government Obligations that through the payment of principal and interest in
accordance with their terms will provide money in the amount sufficient to pay
the principal of, premium, if any, and interest on such Debentures to their
respective final stated maturity or redemption, as the case may be. Upon the
occurrence of a defeasance, United will be deemed to have paid and discharged
the entire indebtedness represented by such Debentures and to have satisfied
all of its other obligations under such Debentures (except for (i) the rights
of holders of such Debentures to receive, solely from the trust funds deposited
to defease such Debentures, payments in respect of the principal of, premium,
if any, and interest on such Debentures when such payments are due and (ii)
certain other obligations as provided in the Indenture). Upon the occurrence of
a covenant defeasance, United will be released only from its obligations to
comply with certain covenants contained in the Indenture relating to such
Debentures, will continue to be obligated in all other respects under such
Debentures and will continue to be contingently liable with respect to the
payment of principal, premium, if any, and interest with respect to such
Debentures.
The conditions to both defeasance and covenant defeasance are as follows: (i)
such defeasance or covenant defeasance must not result in a breach or violation
of, or constitute a Default or Event of Default under, the Indenture, or result
in a breach or violation of, or constitute a default under, any other material
agreement or instrument of United, (ii) certain bankruptcy related Defaults or
Events of Default with respect to United must not have occurred and be
continuing during the period commencing on the date of the deposit of the trust
funds to defease such Debentures and ending on the 91st day after such date,
(iii) United must deliver to the Indenture Trustee an Opinion of Counsel to the
effect that the holders of such Debentures will not recognize income, gain or
loss for Federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to Federal income tax on the same amounts and in
the same manner and at all the same times as would have been the case if such
defeasance or covenant defeasance had not occurred (such Opinion of Counsel, in
the case of defeasance, must refer to and be based upon a ruling of the IRS or
a change in applicable Federal income tax law occurring after the date of the
Indenture) and (iv) United must deliver to the Indenture Trustee an Officers'
Certificate and an Opinion of Counsel with respect to compliance with the
conditions precedent to such defeasance or covenant defeasance and with respect
to certain registration requirements under the Investment Company Act of 1940,
as amended. (Article 4 of the Indenture.) The Indenture requires that a
nationally recognized firm of independent public accountants deliver to the
Indenture Trustee a written certification as to the sufficiency of the trust
funds deposited for the defeasance or covenant defeasance of such Debentures.
The Indenture does not provide the holders of such Debentures with recourse
against such firm. In the event that Government Obligations deposited with the
Indenture Trustee for the defeasance of such Debentures decrease in value or
default subsequent to their being deposited, United will have no further
obligation, and the holders of such Debentures will have no additional recourse
against United, as a result of such decrease in value or default. As described
above, in the event of a covenant defeasance, United remains contingently
liable with respect to the payment of principal, premium, if any, and interest
with respect to such Debentures.
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United may exercise its defeasance option with respect to such Debentures
notwithstanding its prior exercise of its covenant defeasance option. If United
exercises its defeasance option, payment of such Debentures may not be
accelerated because of a Default or an Event of Default. If United exercises
its covenant defeasance option, payment of such Debentures may not be
accelerated by reason of a Default or an Event of Default with respect to the
covenants to which such covenant defeasance is applicable. However, if such
acceleration were to occur, the realizable value at the acceleration date of
the money and Government Obligations in the defeasance trust could be less than
the principal and interest then due on such Debentures, in that the required
deposit in the defeasance trust is based upon scheduled cash flow rather than
market value, which will vary depending upon interest rates and other factors.
"Government Obligations" means securities which are (i) direct obligations of
the United States, for the payment of which its full faith and credit is
pledged or (ii) obligations of a Person controlled or supervised by and acting
as an agency or instrumentality of the United States, the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States, which, in either case, are not callable or redeemable at the option of
the issuer thereof, and shall also include a depositary receipt issued by a
bank or trust company as custodian with respect to any such Government
Obligation or a specific payment of interest on or principal of any such
Government Obligation held by such custodian for the account of the holder of a
depositary receipt, provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depositary receipt from any amount received by the custodian in respect of
the Government Obligation evidenced by such depositary receipt.
The Indenture Trustee
The Bank of New York is the Indenture Trustee under the Indenture. United and
the Company also maintain banking and other commercial relationships with The
Bank of New York and its affiliates in the ordinary course of business, and The
Bank of New York acts as trustee under several indentures for United and the
Company.
PLAN OF DISTRIBUTION
United may sell Debentures in any of three ways: (i) through underwriters;
(ii) through agents; or (iii) directly to a limited number of institutional
purchasers or to a single purchaser. The Prospectus Supplement will set forth
the terms of the offering of the Debentures, including the name or names of any
underwriters, the purchase price and the proceeds to United from such sale, any
underwriting discounts and other items constituting underwriters' compensation,
any initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers, and any securities exchanges on which the
Debentures may be listed.
If underwriters are used in the sale, the Debentures will be acquired by the
underwriters for their own account and may be resold from time to time in one
or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. The
Debentures may be either offered to the public through underwriting syndicates
represented by managing underwriters or by underwriters without a syndicate.
Unless otherwise set forth in the Prospectus Supplement, the obligations of the
underwriters to purchase Debentures will be subject to certain conditions
precedent and the underwriters will be obligated to purchase all the Debentures
if any are purchased. Any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers may be changed from time to
time.
Debentures may be sold directly by United or through agents designated by
United from time to time. Any agent involved in the offer or sale of the
Debentures in respect of which this Prospectus is delivered will be named, and
any commissions payable by United to such agent will be set forth in the
Prospectus Supplement. Unless otherwise indicated in the Prospectus Supplement,
any such agent will be acting on a best efforts basis for the period of its
appointment.
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If so indicated in the Prospectus Supplement, United will authorize agents or
underwriters to solicit offers by certain types of institutions to purchase
Debentures from United at the public offering price set forth in the Prospectus
Supplement pursuant to delayed delivery contracts providing for payment and
delivery on a specified date in the future. Such contracts will be subject only
to those conditions set forth in the Prospectus Supplement, and the Prospectus
Supplement will set forth the commissions payable for solicitation of such
contracts.
Agents and underwriters may be entitled under agreements entered into with
United to indemnification by United against certain civil liabilities under the
Securities Act of 1933, as amended, or to contribution with respect to payments
which the agents or underwriters may be required to make in respect thereof.
Agents and underwriters may engage in transactions with, or perform services
for, United in the ordinary course of business.
Each series of the Debentures will be a new issue of securities with no
established trading market. Any underwriters to whom Debentures are sold by
United for public offering and sale may make a market in such Debentures, but
such underwriters will not be obligated to do so and may discontinue any market
making at any time without notice. No assurance can be given as to the
liquidity of the trading market for any Debentures.
EXPERTS
The consolidated financial statements and related schedules of United as of
December 31, 1993 and 1992 and for each of the three years in the period ended
December 31, 1993, incorporated by reference in this Prospectus and elsewhere
in the Registration Statement have been audited by Arthur Andersen & Co.,
independent public accountants, as indicated in their reports with respect
thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in giving said reports. Reference is made to
said reports which includes an explanatory paragraph with respect to the
changes in methods of accounting for income taxes and postretirement benefits
other than pensions as discussed in the notes to the consolidated financial
statements.
LEGAL OPINIONS
The validity of the Debentures will be passed upon for United by Skadden,
Arps, Slate, Meagher & Flom and for the Underwriters by Shearman & Sterling.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS SUP-
PLEMENT OR THE ACCOMPANYING PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED
BY THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY UNITED OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITA-
TION OF AN OFFER TO BUY, THE DEBENTURES IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUP-
PLEMENT AND THE ACCOMPANYING PROSPECTUS OR IN THE AFFAIRS OF UNITED SINCE THE
DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PROSPECTUS SUPPLEMENT
<S> <C>
Summary.................................................................... S-3
Description of Securities.................................................. S-6
Underwriting............................................................... S-11
PROSPECTUS
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
United And The Company..................................................... 3
The Recapitalization....................................................... 5
Certain Risk Factors....................................................... 12
Use of Proceeds............................................................ 18
Capitalization............................................................. 19
Selected Consolidated Financial and Operating Information.................. 20
Unaudited Pro Forma Financial Information.................................. 22
Management................................................................. 33
Description of Certain Terms of Securities................................. 36
Plan of Distribution....................................................... 40
Experts.................................................................... 41
Legal Opinions............................................................. 41
</TABLE>
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$765,000,000
LOGO
UNITED AIRLINES
$382,500,000
% SERIES A DEBENTURES DUE 2004
$382,500,000
% SERIES B DEBENTURES DUE 2014
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PROSPECTUS SUPPLEMENT
---------------
MERRILL LYNCH & CO.
CS FIRST BOSTON
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC
, 1994
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware empowers the
Registrant to indemnify, subject to the standards herein prescribed, any person
in connection with any action, suit or proceeding brought or threatened by
reason of the fact that such person is or was a director, officer, employee or
agent of the Registrant or was serving as such with respect to another
corporation or other entity at the request of the Registrant. Article Sixth (b)
of the Registrant's Restated Certificate of Incorporation provides that each
person who was or is made a party to (or is threatened to be made a party to)
or is otherwise involved in any action, suit or proceeding by reason of the
fact that such person is or was a director or officer of the Registrant shall
be indemnified and held harmless by the Registrant to the fullest extent
authorized by the General Corporation Law of Delaware against all expense,
liability and loss (including, without limitation, attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred by such person in connection therewith. The
rights conferred by Article Sixth (b) are contractual rights and include the
right to be paid by the Registrant the expenses incurred in defending such
action, suit or proceeding in advance of the final disposition thereof.
Article SIXTH (a) of the Registrant's Restated Certificate of Incorporation
provides that the Registrant's directors will not be personally liable to the
Registrant or its stockholders for monetary damages resulting from breaches of
their fiduciary duty as directors except for liability (a) for any breach of
the duty of loyalty to the Registrant or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the General Corporation Law
of Delaware, which makes directors liable for unlawful dividends or unlawful
stock repurchases or redemptions or (d) for any transaction from which
directors derive improper personal benefit.
The Registrant maintains directors and officers liability insurance covering
all directors and officers of the Registrants against claims arising out of the
performance of their duties.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Purchase Agreement
2.1 Amended and Restated Agreement and Plan of Recapitalization dated as
of March 25, 1994, among UAL, Air Line Pilots Association,
International and the International Association of Machinists and
Aerospace Workers, including all schedules and exhibits thereto
(filed as Exhibit A to Exhibit 10.1 to UAL's Form 8-K dated June 2,
1994 and incorporated herein by reference).
2.2 Letter agreement dated as of March 25, 1994, among UAL, Air Line
Pilots Association, International UAL-MEC and the International
Association of Machinists and Aerospace Workers (filed as Exhibit
10.2 to UAL's Form 8-K dated March 28, 1994 and incorporated herein
by reference.
2.3 Letter agreement dated as of March 25, 1994, between UAL and State
Street Bank and Trust Company (filed as Exhibit 10.3 to UAL's Form
8-K dated March 28, 1994 and incorporated herein by reference).
4.1 Indenture dated as of July 1, 1991 between United and The Bank of
New York providing for the Issuance of Senior Debt Securities in
Series (filed as Exhibit 4(a) to United's Registration Statement on
Form S-3 (No. 33-57192) and incorporated herein by reference).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.2 Form of Officer's Certificate relating to United's Series A
Debentures due 2004 and Series B Debentures due 2014 (filed as
Exhibit D to Exhibit 10.1 of UAL's Form 8-K dated June 2, 1994
and incorporated herein by reference).
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom as to the legality
of the Securities dated as of June 10, 1994.
12.1 United's Calculation of Pro Forma Ratio of Earnings to Fixed
Charges.
23.1 Consent of Arthur Andersen & Co. dated as of June 10, 1994.
+23.2 Consent of KPMG Peat Marwick dated as of May 26, 1994.
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom, included as part
of Exhibit 5.1.
+23.4 Consent of John F. McGillicuddy.
+23.5 Consent of James J. O'Connor.
+23.6 Consent of Paul E. Tierney.
+23.7 Consent of Gerald Greenwald.
+23.8 Consent of Duane D. Fitzgerald.
+23.9 Consent of Richard D. McCormick.
+23.10 Consent of John K. Van de Kamp.
+23.11 Consent of Paul A. Volcker.
+23.12 Consent of Joseph V. Vittoria.
23.13 Consent of John Peterpaul.
+23.14 Consent of Roger D. Hall.
+23.15 Consent of American Appraisal Associates, Inc.
25.1 Form of T-1 Statement of Eligibility under the Trust Indenture Act
of 1939 of The Bank of New York with respect to the Series A
Debentures (filed as Exhibit 25.1 to Amendment No. 2 to UAL's and
United's Registration Statement on Form S-4 (No. 33-53107) and
incorporated herein by reference).
25.2 Form of T-1 Statement of Eligibility under the Trust Indenture Act
of 1939 of The Bank of New York with respect to the Series B
Debentures (filed as Exhibit 25.2 to Amendment No. 2 to UAL's and
United's Registration Statement on Form S-4 (No. 33-53107) and
incorporated herein by reference).
99.1 Opinion of American Appraisal Associates, Inc. dated as of March
14, 1994 (filed as schedule 5.9 to Exhibit 10.1 to UAL's Form 8-K
dated March 28, 1994 and incorporated herein by reference).
</TABLE>
+ Previously filed.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
II-2
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN ELK GROVE TOWNSHIP, ILLINOIS, ON THE
10 DAY OF JUNE, 1994.
United Air Lines, Inc.
/s/ John C. Pope
By___________________________________
JOHN C. POPE PRESIDENT AND CHIEF
OPERATING OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES NOTED AND
ON THE DATES INDICATED.
SIGNATURE TITLE DATE
Director, and
* Chairman and Chief June 10, 1994
- ------------------------------------- Executive Officer
STEPHEN M. WOLF (principal
executive officer)
/s/ John C. Pope Director, President
- ------------------------------------- and Chief Operating June 10, 1994
JOHN C. POPE Officer (principal
financial officer)
Director, and
* Executive Vice June 10, 1994
- ------------------------------------- President--
LAWRENCE M. NAGIN Corporate Affairs
and General Counsel
Director, and
* Executive Vice June 10, 1994
- ------------------------------------- President--
JAMES M. GUYETTE Marketing and
Planning
Director, and Senior
* Vice President-- June 10, 1994
- ------------------------------------- Human Resources
PAUL G. GEORGE
Director, and
* Executive Vice June 10, 1994
- ------------------------------------- President--
JOSEPH R. O'GORMAN, JR. Operations
Vice President--
* Corporate June 10, 1994
- ------------------------------------- Development and
FREDERIC F. BRACE Controller
(principal
accounting officer)
/s/ John C. Pope
*By_____________________________
JOHN C. POPE (ATTORNEY-IN-FACT)
II-4
<PAGE>
GRAPHICS APPENDIX LIST
PAGE WHERE
GRAPHIC
APPEARS DESCRIPTION OF GRAPHIC OR CROSS REFERENCE
- --------------------------------------------------------------------------------
STX]2 Picture of United Airlines Airplane.
- --------------------------------------------------------------------------------
GATE]1-2 United Airlines International route map.
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.1 Purchase Agreement
2.1 Amended and Restated Agreement and Plan of Recapitalization
dated as of March 25, 1994, among UAL, Air Line Pilots
Association, International and the International Association
of Machinists and Aerospace Workers, including all schedules
and exhibits thereto (filed as Exhibit A to Exhibit 10.1 to
UAL's Form 8-K dated June 2, 1994 and incorporated herein by
reference).
2.2 Letter agreement dated as of March 25, 1994, among UAL, Air
Line Pilots Association, International UAL-MEC and the
International Association of Machinists and Aerospace Workers
(filed as Exhibit 10.2 to UAL's Form 8-K dated March 28, 1994
and incorporated herein by reference).
2.3 Letter agreement dated as of March 25, 1994, between UAL and
State Street Bank and Trust Company (filed as Exhibit 10.3 to
UAL's Form 8-K dated March 28, 1994 and incorporated herein by
reference).
4.1 Indenture dated as of July 1, 1991 between United and The Bank
of New York providing for the Issuance of Senior Debt
Securities in Series (filed as Exhibit 4(a) to United's
Registration Statement on Form S-3 (No. 33-57192) and
incorporated herein by reference).
4.2 Form of Officers' Certificate relating to United's Series A
Debentures due 2004 and Series B Debentures due 2014 (filed as
Exhibit D to Exhibit 10.1 of UAL's Form 8-K dated June 2, 1994
and incorporated herein by reference).
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom as to the
legality of the Securities dated as of June 10, 1994.
12.1 United's Calculation of Pro Forma Ratio of Earnings to Fixed
Charges.
23.1 Consent of Arthur Andersen & Co. dated as of June 10, 1994.
+23.2 Consent of KPMG Peat Marwick dated as of May 26, 1994.
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom, included as
part of Exhibit 5.1.
+23.4 Consent of John F. McGillicuddy.
+23.5 Consent of James T. O'Connor.
+23.6 Consent of Paul E. Tierney.
+23.7 Consent of Gerald Greenwald.
+23.8 Consent of Duane D. Fitzgerald.
+23.9 Consent of Richard D. McCormick.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
+23.10 Consent of John K. Van de Kamp.
+23.11 Consent of Paul A. Volcker.
+23.12 Consent of Joseph V. Vittoria.
23.13 Consent of John Peterpaul.
+23.14 Consent of Roger D. Hall
+23.15 Consent of American Appraisal Associates, Inc.
25.1 Form of T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of The Bank of New York with respect to the Series
A Debentures (filed as Exhibit 25.1 to Amendment No. 2 to
UAL's and United's Registration Statement on Form S-4 (No. 33-
53107) and incorporated herein by reference).
25.2 Form of T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of The Bank of New York with respect to the Series
B Debentures (filed as Exhibit 25.2 to Amendment No. 2 to
UAL's and United's Registration Statement on Form S-4 (No. 33-
53107) and incorporated herein by reference).
99.1 Opinion of American Appraisal Associates, Inc. dated as of
March 14, 1994 (filed as Schedule 5.9 to Exhibit 10.1 to UAL's
Form 8-K dated March 28, 1994 and incorporated herein by
reference).
</TABLE>
- --------
+ Previously filed.
<PAGE>
EXHIBIT 1.1
================================================================================
UNITED AIR LINES, INC.
(a Delaware corporation)
___% Series A Debentures due 2004
___% Series B Debentures due 2014
PURCHASE AGREEMENT
------------------
Dated: ________________, 1994
================================================================================
<PAGE>
UNITED AIR LINES, INC.
___% Series A Debentures due 2004
___% Series B Debentures due 2014
PURCHASE AGREEMENT
------------------
_____________, 1994
MERRILL LYNCH & CO.
/Merrill Lynch, Pierce, Fenner & Smith Incorporated/
CS FIRST BOSTON CORPORATION
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC
As Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1209
United Air Lines, Inc., a Delaware corporation (the "Company"), may
issue and sell its debentures (the "Debentures") under the Registration
Statement referred to below. The Debentures will be issued under an Indenture
dated as of July 1, 1991 (the "Indenture") between the Company and The Bank of
New York, as Trustee (the "Trustee"). The Debentures are more fully described
in the Prospectus referred to below.
The Company hereby proposes to issue and sell to the underwriters named in
Schedule I, for whom you are acting as representatives, $_______ principal
amount of its ___% Series A Debentures due 2004 (the "Series A Debentures") and
$_______ principal amount of its ___% Series B Debentures due 2014 (the "Series
B Debentures", collectively with the Series A Debentures, the "Offered
Securities").
<PAGE>
2
As used herein, unless the context otherwise requires, the term
"Underwriters" shall mean the firm or firms named as Underwriters in Schedule I.
The Offered Securities are to be sold to each Underwriter, acting severally and
not jointly, in such amounts as are set forth in Schedule I hereto opposite the
name of such Underwriter.
You have advised us that you and the other Underwriters, acting
severally and not jointly, desire to purchase the Offered Securities and that
you have been authorized by the other Underwriters to execute this Agreement and
the Price Determination Agreement referred to below on their behalf.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (Registration
No. 33- ) relating to the Debentures (including the Offered Securities),
including a prospectus and preliminary prospectus supplement, and the offering
thereof in accordance with Rule 415 under the Securities Act of 1933, as amended
(the "1933 Act"). Such registration statement has been declared effective by
the Commission. As provided in Section 3(a), a prospectus supplement reflecting
certain additional terms of the Offered Securities, the terms of the offering
thereof and the other matters set forth therein has been prepared and will be
filed pursuant to Rule 424 under the 1933 Act. Such prospectus supplement, in
the form first filed on or after the date hereof pursuant to Rule 424, is herein
referred to as the "Prospectus Supplement". Such registration statement, as
amended at the date hereof, including the exhibits thereto and the documents
incorporated by reference therein, is herein called the "Registration
Statement", and the basic prospectus included therein relating to all offerings
of equity securities under the Registration Statement, as supplemented by the
Prospectus Supplement, is herein called the "Prospectus", except that, if such
basic prospectus is amended or supplemented on or prior to the date on which the
Prospectus Supplement is first filed pursuant to Rule 424, the term "Prospectus"
shall refer to the basic prospectus as so amended or supplemented and as
supplemented by the Prospectus Supplement, in either case including the
documents filed by the Company with the Commission pursuant to the Securities
Exchange Act of 1934, as amended (the "1934 Act"), that are incorporated by
reference therein.
Section 1. REPRESENTATIONS AND WARRANTIES. (a) The Company
------------------------------
represents and warrants to and agrees with each Underwriter that:
(i) On the original effective date of the Registration Statement
and on the effective date of the most recent post-effective amendment
thereto, if any, the Registration Statement complied in all material
respects with the requirements of the 1933 Act and the rules and
regulations of the Commission thereunder (the "1933 Act Regulations"), the
Trust Indenture Act of 1939, as amended (the "1939 Act"), and the rules and
regulations of the Commission under the 1939 Act (the "1939 Act
Regulations") and did not contain an untrue statement of a material fact or
omit to
<PAGE>
3
state a material fact required to be stated therein or necessary to make
the statements therein not misleading; on the date hereof and at the
Closing Time (as defined below), the Registration Statement, and any
amendments thereof, and the Prospectus, and any amendments thereof and
supplements thereto, comply and will comply in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations, the 1939 Act
and the 1939 Act Regulations, and none of such documents includes or will
include an untrue statement of a material fact or omits or will omit to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the Company
-------- -------
makes no representations or warranties as to statements or omissions made
in reliance upon and in conformity with information furnished in writing to
the Company by or on behalf of any Underwriter, through you, expressly for
use in the Registration Statement or the Prospectus. At the Closing Time,
the Designated Indenture (as defined below) will comply in all material
respects with the requirements of the 1939 Act and the 1939 Act
Regulations.
(ii) The documents incorporated by reference in the Prospectus
pursuant to Item 12 of Form S-3, at the time they were filed or last
amended with the Commission, complied in all material respects with the
requirements of the Securities Exchange Act of 1934, as amended (the "1934
Act"), and the rules and regulations of the Commission thereunder (the
"1934 Act Regulations") and, when read together and with other information
in the Prospectus, do not and will not, on the date hereof and at the
Closing Time, contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order
to make the statements therein not misleading.
(iii) Arthur Andersen & Co., who are reporting upon the audited
financial statements and the financial statement schedules included or
incorporated by reference in the Registration Statement, are independent
public accountants as required by the 1933 Act and the 1933 Act
Regulations.
(iv) This Agreement has been duly authorized, executed and
delivered by the Company.
(v) The consolidated financial statements included or incorporated
by reference in the Registration Statement present fairly the consolidated
financial position of the Company and its consolidated subsidiaries as of
the dates indicated and the consolidated results of operations and cash
flows and changes in financial position of the Company and its consolidated
subsidiaries for the periods specified. Except as stated therein, such
financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved. The financial statement schedules included in the
Registration Statement present fairly the information required to be stated
therein. The selected
<PAGE>
4
financial data included in the Prospectus present fairly the information
shown therein and have been compiled on a basis consistent with that of the
audited consolidated financial statements included or incorporated by
reference in the Registration Statement. The pro forma financial
statements and other pro forma financial information included or
incorporated by reference in the Prospectus present fairly the information
shown therein, have been prepared in accordance with the Commission's rules
and guidelines with respect to pro forma financial statements, have been
properly compiled on the pro forma bases described therein, and, in the
opinion of the Company, the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect
to the transactions or circumstances referred to therein. The "forward
looking statements" (as such term is defined in Rule 175 of the Commission)
comprising a part of the Prospectus have been made on a reasonable basis
and in good faith.
(vi) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware with corporate
power and authority under such laws to own, lease and operate its
properties and conduct its business as described in the Prospectus and to
perform its obligations under this Agreement; and the Company is duly
qualified to transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or leases property of
a nature, or transacts business of a type, that would make such
qualification necessary, except to the extent that the failure to so
qualify or be in good standing would not have a material adverse effect on
the Company and its subsidiaries, considered as one enterprise.
(vii) The Company is an "air carrier" and a "citizen of the United
States" within the meaning of the Federal Aviation Act of 1958, as amended,
and is "an air carrier operating under a certificate of convenience and
necessity issued by the Department of Transportation" within the meaning of
11 U.S.C. (S) 1110. All of the outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
non-assessable and are owned by UAL Corporation ("UAL"), directly, free and
clear of any pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind.
(viii) The Indenture, each supplement thereto to the date hereof and
the supplement thereto or board resolution or officers' certificate setting
forth the terms of the Offered Securities (the Indenture, as so
supplemented by such supplement or supplements or board resolution or
officers' certificate, being herein referred to as the "Designated
Indenture"), have been duly authorized by the Company. The Indenture as
executed is or will be substantially in the form filed as an exhibit to the
Registration Statement. The Designated Indenture, when duly executed and
delivered (to the extent required by the Indenture) by the Company and the
Trustee, will
<PAGE>
5
constitute a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as enforcement
thereof may be subject to (A) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally, and (B) general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity
or at law); and the Designated Indenture conforms in all material respects
to the description thereof contained in the Prospectus.
(ix) When executed, authenticated, issued and delivered in the
manner provided for in the Designated Indenture and sold and paid for as
provided herein, the Offered Securities will constitute valid and binding
obligations of the Company entitled to the benefits of the Designated
Indenture and enforceable against the Company in accordance with their
terms, except as enforcement thereof may be subject to (A) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (B) general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law); and the Offered Securities will conform in
all material respects to the description thereof contained in the
Prospectus.
(x) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein or contemplated thereby, there has not been (A) any material
adverse change in the condition (financial or otherwise), earnings or
business affairs of the Company and its subsidiaries, considered as one
enterprise, whether or not arising in the ordinary course of business, or
(B) any transaction entered into by the Company or any subsidiary, other
than in the ordinary course of business, that is material to the Company
and its subsidiaries, considered as one enterprise.
(xi) Neither the Company nor UAL is in default in the performance
or observance of any obligation, agreement, covenant or condition contained
in any contract, indenture, mortgage, loan agreement, note, lease or other
agreement or instrument to which it is a party or by which it may be bound
or to which any of its properties may be subject, except for such defaults
that would not have a material adverse effect on the condition (financial
or otherwise), earnings or business affairs of the Company and its
subsidiaries, considered as one enterprise.
(xii) Except as disclosed in the Prospectus, there is no action,
suit or proceeding before or by any government, governmental
instrumentality or court, domestic or foreign, now pending or, to the
knowledge of the Company, threatened against or affecting the Company or
UAL that is required to be disclosed in the Prospectus or that could
reasonably be expected to result in any material adverse change in the
condition (financial or otherwise), earnings or business affairs of the
<PAGE>
6
Company and its subsidiaries, considered as one enterprise, or that could
reasonably be expected to materially and adversely affect the properties or
assets of the Company and its subsidiaries, considered as one enterprise,
or that could reasonably be expected to materially and adversely affect the
consummation of the transactions contemplated in this Agreement and the
Deposit Agreement and in the Registration Statement; the aggregate of all
pending legal or governmental proceedings that are not disclosed in the
Prospectus to which the Company or UAL is a party or which affect any of
their respective properties, including ordinary routine litigation
incidental to their business, would not reasonably be expected to have a
material adverse effect on the condition (financial or otherwise), earnings
or business affairs of the Company and its subsidiaries, considered as one
enterprise.
(xiii) There are no contracts or documents of a character required
to be described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement that are not described and
filed as required.
(xiv) The execution and delivery by the Company of this Agreement
and the Designated Indenture, the consummation by the Company of all the
transactions contemplated herein and therein and in the Registration
Statement, the compliance by the Company with the terms hereof and thereof,
and the issuance, sale and delivery of the Offered Securities, have been
duly authorized by all necessary corporate action on the part of the
Company and do not and will not result in any violation of the charter or
by-laws of the Company or UAL, and do not and will not conflict with, or
result in a breach of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or UAL under (A)
any indenture, mortgage, loan agreement, note, lease or other agreement or
instrument to which the Company or UAL is a party or by which either may be
bound or to which any of their properties may be subject (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that
would not have a material adverse effect on the condition (financial or
otherwise), earnings or business affairs of the Company and its
subsidiaries, considered as one enterprise) or (B) any existing applicable
law, rule, regulation, judgment, order or decree of any government,
governmental instrumentality or court, domestic or foreign, having
jurisdiction over the Company or UAL or any of their respective properties.
(xv) The Securities conform as to legal matters in all material
respects to the description thereof contained in the Prospectus.
(xvi) All of the outstanding shares of capital stock of the Company
have been and all the shares of capital stock of the Company outstanding
immediately after the consummation of the Recapitalization (as defined in
the Prospectus) will be duly
<PAGE>
7
authorized and validly issued, and are or will be, as the case may be,
fully paid and non-assessable; no holder thereof is or will be subject to
personal liability by reason of being such a holder; and none of the
outstanding shares of capital stock was issued in violation of the
preemptive rights of any stockholder of the Company. All corporate action
required to be taken for the sale of the Offered Securities has been
validly and sufficiently taken.
(xvii) No authorization, approval, consent or license of any
government, governmental instrumentality or court, domestic or foreign
(other than under the 1933 Act and the securities or blue sky laws of the
various states and of any foreign country or jurisdiction and the rules of
any exchange on which the Offered Securities may be listed), is required
for the sale of the Offered Securities hereunder or the consummation of the
transactions contemplated by this Agreement and in the Registration
Statement.
(xviii) The Indenture has been duly authorized, executed and
delivered by the Company and the Trustee and constitutes a valid and
binding obligation of the Company; and the Indenture conforms in all
material respects to the description thereof contained in the Prospectus.
(xix) The Company had at the date indicated a duly authorized and
outstanding capitalization as set forth in the Prospectus in the column
entitled "Historical" under the caption "Capitalization".
(xx) Contributions made by the Company or any of its affiliates to
the UAL Corporation Employee Stock Ownership Plan (the "ESOP") and,
assuming that the Company has sufficient "earnings and profits" (within the
meaning of Section 316 of the Internal Revenue Code of 1986, as amended
(the "Code")), dividends paid on the shares of ESOP Preferred Stock (as
defined in the Prospectus) acquired by the ESOP in the first ESOP Tranche
(as defined in the Prospectus) or any subsequent ESOP Tranche that are used
to pay principal or interest on the initial ESOP promissory note or any
subsequent promissory note will be deductible under Section 404 of the
Code.
(xxi) None of the transactions described in the Proxy
Statement/Joint Prospectus dated ____, 1994, incorporated by reference in
the Prospectus, under the heading "The Plan of Recapitalization - -
Establishment of ESOPs" will constitute a material violation of or result
in any material liability under the Code or the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
[Additional representations and warranties to be agreed upon,
including certain relating to ESOP matters.]
<PAGE>
8
(b) Any certificate signed by any officer of the Company or any
subsidiary and delivered to you or to counsel for the Underwriters in connection
with the offering of the Offered Securities shall be deemed a representation and
warranty by the Company to each Underwriter as to the matters covered thereby.
(c) The Company has complied and, until the distribution of the
Offered Securities is completed, will comply with all of the provisions of
Florida H.B. 1771, codified as Section 517.075 of the Florida statutes, and all
regulations promulgated thereunder relating to issuers doing business with Cuba.
Section 2. PURCHASE AND SALE. (a) On the basis of the
-----------------
representations and warranties herein contained (except as may be otherwise
specified in Schedule II) and subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter
agrees, severally and not jointly, to purchase from the Company, at the purchase
price to the Underwriters set forth in Schedule II, the principal amount of
Offered Securities set forth opposite the name of such Underwriter in Schedule
I.
(b) Payment of the purchase price for, and delivery of the
Offered Securities shall be made at the offices of Shearman & Sterling, 599
Lexington Avenue, New York, New York 10022, or at such other place as shall be
agreed upon by the Company and you, at 10:00 A.M. on the date as shall be agreed
upon by the Company and the Underwriters, or as shall otherwise be provided in
Section 10 (such date and time of payment and delivery being herein called the
"Closing Time"). Payment shall be made to the Company by certified or official
bank check or checks in New York Clearing House or similar next day funds
payable to the order of the Company, against delivery to you for the respective
accounts of the several Underwriters of the Receipts for the Offered Securities
to be purchased by them. In the event that the Offered Securities are delivered
to you on the scheduled closing date but after the deadline established by the
Depository Trust Company for crediting the Offered Securities to the accounts of
the several Underwriters, the Company shall pay to you the cost of funds
incurred by you.
(c) The Offered Securities shall be in such denominations and
registered in such names as you may request in writing at least two full
business days before the Closing Time. The Offered Securities will be made
available in New York City for examination and packaging by you not later than
10:00 A.M. on the business day prior to the Closing Time.
Section 3. CERTAIN COVENANTS OF THE COMPANY. The Company covenants
--------------------------------
with each Underwriter as follows:
(a) If reasonably requested by you in connection with the offering of
the Offered Securities, the Company will prepare a preliminary prospectus
supplement containing such information as you and the Company deem
appropriate, and,
<PAGE>
9
immediately following the execution of this Agreement, the Company will
prepare a Prospectus Supplement that complies with the 1933 Act and the
1933 Act Regulation and that sets forth the amount of the Offered
Securities and their terms, the name of each Underwriter participating in
the offering and the amount of the Offered Securities that each severally
has agreed to purchase, the name of each Underwriter, if any, acting as
representative of the Underwriters in connection with the offering, the
price at which the Offered Securities are to be purchased by the
Underwriters from the Company, any initial public offering price and any
selling concession and reallowance, and such other information as you and
the Company deem appropriate in connection with the offering of the Offered
Securities. The Company will promptly transmit copies of the Prospectus
Supplement to the Commission for filing pursuant to Rule 424 under the 1933
Act and will furnish to the Underwriters as many copies of any preliminary
prospectus supplement and the Prospectus as you shall reasonably request.
(b) If at any time when a prospectus is required by the 1933 Act to
be delivered in connection with sales of the Offered Securities any event
shall occur or condition exist as a result of which it is necessary, in the
reasonable opinion of counsel for the Underwriters or counsel for the
Company, to amend the Registration Statement or amend or supplement the
Prospectus in order that the Prospectus will not include an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the reasonable opinion of either such counsel, at
any such time to amend the Registration Statement or amend or supplement
the Prospectus in order to comply with the requirements of the 1933 Act or
the 1933 Act Regulations, the Company will promptly prepare and file with
the Commission, subject to Section 3(d), such amendment or supplement as
may be necessary to correct such untrue statement or omission or to make
the Registration Statement or the Prospectus comply with such requirements
and furnish you such number of copies as you may reasonably request. If
agreed by you, such updating may be done by means of the filing of one or
more documents under the 1934 Act which are incorporated by reference in
the Prospectus.
(c) During the period when a prospectus is required by the 1933 Act
to be delivered in connection with sales of the Offered Securities, the
Company will, subject to Section 3(d), file promptly all documents required
to be filed with the Commission pursuant to Section 13, 14 or 15(d) of the
1934 Act.
(d) During the period when a prospectus is required by the 1933 Act
to be delivered in connection with sales of the Offered Securities, the
Company will inform you of its intention to file any amendment to the
Registration Statement, any supplement to the Prospectus or any document
that would as a result thereof be
<PAGE>
10
incorporated by reference in the Prospectus; will furnish you with copies
of any such amendment, supplement or other document a reasonable time in
advance of filing; and will not file any such amendment, supplement or
other document in a form to which you or your counsel shall reasonably
object; provided that the requirements of this paragraph shall not apply to
--------
the Company's Annual Report on Form 10-K, its Quarterly Reports on Form 10-
Q or its Current Reports on Form 8-K so long as the Company shall furnish
you and your counsel with copies of such documents on or prior to the date
of filing thereof with the Commission.
(e) During the period when a prospectus is required by the 1933 Act
to be delivered in connection with the sales of the Offered Securities, the
Company will notify you immediately (i) of the effectiveness of any
amendment to the Registration Statement, (ii) of the transmittal to the
Commission for filing of any supplement to the Prospectus or any document
that would as a result thereof be incorporated by reference in the
Prospectus, (iii) of the receipt of any comments from the Commission with
respect to the Registration Statement, the Prospectus or the Prospectus
Supplement, (iv) of any request by the Commission for any amendment to the
Registration Statement or any supplement to the Prospectus or for
additional information relating thereto or to any document incorporated by
reference in the Prospectus and (v) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement,
of the suspension of the qualification of the Offered Securities for
offering or sale in any jurisdiction, or of the institution or threatening
of any proceeding for any of such purposes. The Company will use every
reasonable effort to prevent the issuance of any such stop order or of any
order suspending such qualification and, if any such order is issued, to
obtain the lifting thereof at the earliest possible moment.
(f) The Company has furnished or will furnish to you three signed and
as many conformed copies of the Registration Statement (as originally
filed) and of all amendments thereto, whether filed before or after the
Registration Statement became effective, as many copies of all exhibits and
documents filed therewith or incorporated by reference therein pursuant to
Item 12 of Form S-3 under the 1933 Act (through the end of the period when
a prospectus is required by the 1933 Act to be delivered in connection with
sales of the Offered Securities) and one signed and as many conformed
copies of all consents and certificates of experts, as you may reasonably
request, and if requested by your has furnished or will furnish to you, for
each of the Underwriters, one conformed copy of the Registration Statement
(as originally filed) and of each amendment thereto (including documents
incorporated by reference into the Prospectus but without exhibits).
(g) The Company will deliver to each Underwriter without charge, from
time to time, as many copies of each preliminary prospectus or prospectus
supplement
<PAGE>
11
as such Underwriter may reasonably request, and the Company hereby consents
to the use of such copies for purposes permitted by the 1933 Act.
(h) The Company will use its best efforts, in cooperation with you,
to qualify the Offered Securities for offering and sale under the
applicable securities laws of such states and other jurisdictions as you
may designate and to maintain such qualifications in effect for so long as
required for the distribution of such Offered Securities; provided,
--------
however, that the Company shall not be obligated to file any general
-------
consent to service of process or to qualify as a foreign corporation or as
a dealer in securities in any jurisdiction in which it is not so qualified
or to subject itself to taxation in respect of doing business in any
jurisdiction in which it is not otherwise so subject. The Company will use
its reasonable efforts to file such statements and reports as may be
required by the laws of each jurisdiction in which the Offered Securities
have been qualified as above provided. The Company will also supply you
with such information as is necessary for the determination of the legality
of the Offered Securities for investment under the laws of such
jurisdictions as you may reasonably request.
(i) The Company will make generally available to its security holders
as soon as practicable, but not later than 45 days after the close of the
period covered thereby (90 days if the period covered corresponds to a
fiscal year of the Company), an earnings statement of the Company (in form
complying with the provisions of Rule 158 of the 1933 Act Regulations),
covering (i) a period of 12 months beginning after the effective date of
the Registration Statement and any post-effective amendment thereof but not
later than the first day of the Company's fiscal quarter next following
such effective date and (ii) a period of 12 months beginning after the date
of this Agreement but not later than the first day of the Company's fiscal
quarter next following the date of this Agreement.
(j) The Company will use its reasonable best efforts to cause the
Offered Securities to be duly authorized for listing on the New York Stock
Exchange and to be registered under the 1934 Act.
(k) For a period of five years after the Closing Time, the Company
will make available upon request to each Underwriter, copies of all annual
reports, quarterly reports and current reports filed with the Commission on
Forms 10-K, 10-Q and 8-K, or such other similar forms as may be designated
by the Commission, and such other documents, reports and information as
shall be furnished by the Company or United to holders of Offered
Securities or to their security holders generally.
(l) Between the date hereof and [90] days after the Closing Time, the
Company will not without the prior written consent of Merrill Lynch,
Pierce, Fenner
<PAGE>
12
& Smith, Incorporated directly or indirectly, offer, sell or enter into any
agreement to sell any securities other than the Offered Securities and the
securities to be offered as part of the Recapitalization as described in
the Prospectus.
(m) The Company will use the net proceeds received by it from the
sale of the Offered Securities in the manner specified in the Prospectus
under the caption "Use of Proceeds". In the event that the net proceeds
from the sale of the Offered Securities are not immediately distributed to
the holders of the Old Shares (as defined in the Prospectus), the Company
shall deposit such proceeds with ___________ to be held in trust for and
subsequently distributed to the holders of the Old Shares.
Section 4. PAYMENT OF EXPENSES. The Company will pay and bear all
-------------------
costs and expenses incident to the performance of its obligations under this
Agreement, including (a) the preparation, printing and filing of the
Registration Statement, as originally filed and as amended, the preliminary
prospectuses and the Prospectus and any amendments or supplements thereto, and
the cost of furnishing copies thereof to the Underwriters, (b) the preparation
and printing of this Agreement, the Designated Indenture, the Offered
Securities, the Blue Sky Survey and the legal investment survey, (c) the
delivery of the Offered Securities to the Underwriters, (d) the fees and
disbursements of the Company's counsel and accountants, (e) the qualification of
the Offered Securities under the applicable securities laws in accordance with
Section 3(g) including filing fees and fees and disbursements of counsel for the
Underwriters in connection therewith and in connection with the Blue Sky Survey
and the legal investment survey, (f) any fees charged by rating agencies for
rating the Offered Securities, (g) the fees and expenses of the Trustee,
including the fees and disbursements of counsel for the Trustee, in connection
with the Designated Indenture and the Offered Securities, and (h) the listing of
Offered Securities on the New York Stock Exchange or any other exchange or
exchanges.
If this Agreement is terminated by you in accordance with the
provisions of Section 5 or 9(a)(i), the Company shall reimburse the Underwriters
for all their reasonable out-of-pocket expenses, including the fees and
disbursements of counsel for the Underwriters.
Section 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. Except as
---------------------------------------
provided in Schedule II, the obligations of the several Underwriters to purchase
and pay for the Offered Securities that they have agreed to purchase pursuant to
this Agreement are subject to the accuracy of the representations and warranties
of the Company contained herein or in certificates of any officer of the Company
or any subsidiary delivered pursuant to the provisions hereof, to the
performance by the Company of its obligations hereunder, and to the following
further conditions:
(a) At the Closing Time, no stop order suspending the effectiveness
of the Registration Statement shall have been issued under the 1933 Act and
no proceedings
<PAGE>
13
for that purpose shall have been instituted or shall be pending or, to your
knowledge or the knowledge of the Company, shall be contemplated by the
Commission, and any request on the part of the Commission for additional
information shall have been complied with to the reasonable satisfaction of
counsel for the Underwriters.
(b) At the Closing Time, you shall have received the following signed
opinions of counsel, each dated as of the Closing Time, together with
signed or reproduced copies of such opinions for each of the other
Underwriters, in form and substance reasonably satisfactory to the
Underwriters and counsel for the Underwriters.
(i) An opinion of Skadden, Arps, Slate, Meagher & Flom as
counsel for the Company, substantially to the effect set forth in
Exhibit A hereto; and
(ii) An opinion of the General Counsel of the Company,
substantially to the effect set forth in Exhibit B hereto.
(c) At the Closing Time, you shall have received the favorable
opinion of Shearman & Sterling, counsel for the Underwriters, dated as of
the Closing Time, together with signed or reproduced copies of such opinion
for each of the other Underwriters, to the effect that the opinions
delivered pursuant to Section 5(b) appear on their face to be appropriately
responsive to the requirements of this Agreement except, specifying the
same, to the extent waived by you, and with respect to the incorporation
and legal existence of the Company, the Offered Securities, this Agreement,
the Indenture, the Registration Statement, the Prospectus, the documents
incorporated by reference and such other related matters as you may
require. In giving such opinion, such counsel may rely, as to all matters
governed by the laws of jurisdictions other than the law of the State of
New York, the federal law of the United States and the General Corporation
Law of the State of Delaware, upon the opinions of counsel satisfactory to
you. Such counsel may also state that, insofar as such opinion involves
factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and certificates of public
officials.
(d) At the Closing Time, (i) the Registration Statement and the
Prospectus, as they may then be amended or supplemented, shall contain all
statements that are required to be stated therein under the 1933 Act and
the 1933 Act Regulations and in all material respects shall conform to the
requirements of the 1933 Act and the 1933 Act Regulations and the 1939 Act
and the 1939 Act Regulations, and neither the Registration Statement nor
the Prospectus, as they may then be amended or supplemented, shall contain
an untrue statement of a material fact or omit to state a
<PAGE>
14
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) there shall not have been, since
the respective dates as of which information is given in the Registration
Statement, any material adverse change in the condition (financial or
otherwise), earnings, business affairs or business prospects of the Company
and its subsidiaries, considered as one enterprise, whether or not arising
in the ordinary course of business, (iii) no action, suit or proceeding
shall be pending or, to the knowledge of the Company, threatened against
the Company or any subsidiary that would be required to be set forth in the
Prospectus other than as set forth therein and no proceedings shall be
pending or, to the knowledge of the Company, threatened against the Company
or any subsidiary before or by any government, governmental instrumentality
or court, domestic or foreign, that could result in any material adverse
change in the condition (financial or otherwise), earnings, business
affairs or business prospects of the Company and its subsidiaries,
considered as one enterprise, other than as set forth in the Prospectus,
(iv) the Company shall have complied with all agreements and satisfied all
conditions on its part to be performed and satisfied at or prior to the
Closing Time and to the effective time of the Recapitalization and (vi) the
other representations and warranties of the Company set forth in Section
1(a) shall be accurate as though expressly made at and as of the Closing
Time. At the Closing Time, you shall have received a certificate of the
President or a Senior or Executive Vice President or the Treasurer, and the
Senior Vice President - Finance of United, or other senior officers of the
Company approved by you, dated as of the Closing Time, to such effect.
(e) At the Closing Time, all conditions to the Recapitalization
specified in the Amended and Restated Agreement and Plan of
Recapitalization dated as of March 25, 1994, (the "Agreement and Plan of
Recapitalization") among the Company, Air Line Pilots Association,
International and International Association of Machinists and Aerospace
Workers shall have been satisfied. The transactions contemplated in the
Agreement and Plan of Recapitalization shall have been duly authorized by
the Company or UAL, as the case may be; all of the necessary consents to
consummate such transactions shall have been obtained, except where the
failure to obtain such consents would not have a material adverse effect on
such transactions; there shall not be any violation on the part of the
Company or UAL or its subsidiaries of any of the terms of such consents
that could reasonably be expected to materially and adversely affect the
consummation of such transactions; and there shall not be any pending or
threatened legal or governmental proceedings with respect to any consents
or the transactions contemplated in the Prospectus that could reasonably be
expected to materially and adversely affect such transactions. The Company
shall have provided to you and Shearman & Sterling as counsel for the
Underwriters copies of all documents with respect to the consummation of
such transactions and copies of such other documents as you or Shearman &
Sterling may reasonably request.
<PAGE>
15
(f) UAL shall have sent, or given irrevocable instructions to First
Chicago Trust Company of New York, as exchange agent, to send to
shareholders of UAL an irrevocable notice of redemption of the Series E
Redeemable Preferred Stock in exchange for the Proceeds Recapitalization
Consideration (as defined in the Agreement and Plan of Recapitalization).
(g) At the Closing Time, the Restated Certificate of Incorporation of
UAL, in the proposed form previously furnished to you, shall have been duly
filed with the Secretary of State of Delaware and with all other offices
where such filing is required.
(h) UAL shall have issued, in accordance with the provisions of
Section 1.6 of the Agreement and Plan of Recapitalization, the Initial
Shares, one share of each of the Class Pilot MEC Preferred, Call IAM
Preferred, Class P Voting Preferred, Class M Voting Preferred and Class S
Voting Preferred, three shares of Class SAM Preferred and one share of the
Class I Preferred to each of the initial Independent Directors (all as
defined in the Agreement and Plan of Recapitalization).
(i) You shall have received a solvency letter from American Appraisal
Associates, Inc. addressed to the Board of Directors of UAL and to you, in
substantially similar form to the letter set forth in Schedule 5.9 to the
Agreement and Plan of Recapitalization.
(j) You shall have received the letter or letters specified in
Sections 1 and 2 of Schedule III at the date hereof and the letter
specified in Section 3 of Schedule III at the Closing Time.
(k) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Time, there shall not have been any downgrading, nor
any notice given to the Company or UAL or any public notice given, in
either case by a rating agency described below, of any intended or
potential downgrading or of a possible change that does not indicate the
direction of the possible change, in the rating accorded any of the
Company's or UAL's securities, including the Offered Securities, by any
"nationally recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the 1933 Act.
(l) The Company shall have furnished to you and counsel for the
Underwriters, in form and substance satisfactory to you and to them, such
other documents, certificates and opinions as such counsel may reasonably
request for the purpose of enabling such counsel to pass upon the matters
referred to in Section 5(c) and in order to evidence the accuracy and
completeness of any of the representations, warranties or statements, the
performance of any covenant by the Company
<PAGE>
16
theretofore to be performed, or the compliance with any of the conditions
in this Agreement.
(m) The Offered Securities shall have been duly authorized for
listing by the New York Stock Exchange subject only to notice of issuance.
If any of the conditions specified in this Section 5 shall not have
been fulfilled when and as required by this Agreement to be fulfilled, this
Agreement may be terminated by you on notice to the Company at any time at or
prior to the Closing Time, and such termination shall be without liability of
any party to any other party, except as provided in Section 4. Notwithstanding
any such termination, the provisions of Sections 6, 7 and 8 shall remain in
effect.
Section 6. INDEMNIFICATION. (a) The Company agrees to indemnify and
---------------
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred (including fees and disbursements of counsel chosen
by you except as otherwise specifically provided in Section 6(c)), arising
out of an untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or any amendment thereto) and all
documents incorporated therein by reference pursuant to Item 12 of Form S-3
under the 1933 Act, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein not misleading or arising out of an untrue statement or
alleged untrue statement of a material fact included in any preliminary
prospectus or the Prospectus or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred (including fees and disbursements of counsel chosen
by you except as otherwise specifically provided in Section 6(c)), to the
extent of the aggregate amount paid in settlement of any litigation, or
investigation or proceeding by any governmental agency or body, commenced
or threatened, or of any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission, if
such settlement is effected with the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including fees and disbursements of counsel chosen by you except as
otherwise specifically provided in Section 6(c)), reasonably incurred in
investigating, preparing or defending against any
<PAGE>
17
litigation, or investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under
subparagraph (i) or (ii) above;
provided, however, that this indemnity does not apply to any loss, liability,
- -------- -------
claim, damage or expense to the extent arising out of an untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by an Underwriter
through you expressly for use in the Registration Statement (or any amendment
thereto), including any preliminary prospectus or the Prospectus.
The foregoing indemnity with respect to any untrue statement contained
in or omission from a preliminary prospectus shall not inure to the benefit of
any Underwriter (or any person controlling such Underwriter) from whom the
person asserting any such loss, liability, claim, damage or expense purchased
any of the Offered Securities that are the subject thereof if the Company shall
sustain the burden of proving that such person was not sent or given a copy of
the Prospectus (or the Prospectus as amended or supplemented) (in each case
exclusive of the documents from which information is incorporated by reference)
at or prior to the written confirmation of the sale of such Offered Securities
to such person and the untrue statement contained in or omission from such
preliminary prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented).
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act, against any and all loss, liability, claim,
damage and expense described in the indemnity contained in Section 6(a), as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto) or any preliminary prospectus or the Prospectus in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter through you expressly for use in the Registration Statement (or any
amendment thereto) or such preliminary prospectus or the Prospectus.
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve it from any liability which it may have otherwise than
on account of this indemnity agreement. An indemnifying party may participate
at its own expense in the defense of such action. If it so elects within a
reasonable time after receipt of such notice, an indemnifying party, jointly
with any other indemnifying parties receiving such notice, may assume the
defense of such action with counsel chosen by it and approved by the indemnified
parties defendant in such action,
<PAGE>
18
provided that, if such indemnified party or parties reasonably determine that
there may be legal defenses available to them which are different from or in
addition to those available to such indemnifying party or parties and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them, then such indemnifying
party or parties shall not be entitled to assume such defense. If the
indemnifying party or parties are not entitled to assume the defense of such
action as a result of the proviso to the preceding sentence, counsel for the
indemnifying party or parties shall be entitled to conduct the defense of such
indemnifying party or parties and counsel for the indemnified party or parties
shall be entitled to conduct the defense of such indemnified party or parties.
If an indemnifying party assumes the defense of such action, the indemnifying
parties shall not be liable for any fees and expenses of counsel for the
indemnified parties incurred thereafter in connection with such action. In no
event shall the indemnifying party or parties be liable for the fees and
expenses of more than one counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
Section 7. CONTRIBUTION. In order to provide for just and equitable
------------
contribution in circumstances under which the indemnity provided for in Section
6 is for any reason held to be unenforceable by the indemnified parties although
applicable in accordance with its terms, the Company and the Underwriters shall
contribute to the aggregate losses, liabilities, claims, damages and expenses of
the nature contemplated by such indemnity incurred by the Company and one or
more of the Underwriters, as incurred, in such proportions that the Underwriters
are responsible for that portion represented by the percentage that the
underwriting discount hereunder with respect to the offering of the Offered
Securities bears to the initial public offering price of the Offered Securities,
and the Company is responsible for the balance; provided, however, that no
-------- -------
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. For purposes of this Section,
each person, if any, who controls an Underwriter within the meaning of Section
15 of the 1933 Act shall have the same rights to contribution as such
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act shall have the same
rights to contribution as the Company.
Section 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
-----------------------------------------------------
DELIVERY. The representations, warranties, indemnities, agreements and other
- --------
statements of
<PAGE>
19
the Company or its officers set forth in or made pursuant to this Agreement will
remain operative and in full force and effect regardless of any investigation
made by or on behalf of the Company or any Underwriter or controlling person and
will survive delivery of and payment for the Offered Securities.
Section 9. TERMINATION OF AGREEMENT. (a) You may terminate this
------------------------
Agreement, by notice to the Company, at any time at or prior to the Closing Time
(i) if there has been, since the respective dates as of which information is
given in the Registration Statement, any material adverse change in the
condition (financial or otherwise), earnings, business affairs or business
prospects of the Company and its subsidiaries, considered as one enterprise,
whether or not arising in the ordinary course of business, or (ii) if there has
occurred any material adverse change in the financial markets, or any outbreak
of hostilities or escalation thereof or other calamity or crisis the effect of
which is such as to make it, in your reasonable judgment, impracticable to
market the Offered Securities or enforce contracts for the sale of the Offered
Securities or (iii) if trading in any securities of the Company or United has
been suspended by the Commission, by the National Association of Securities
Dealers, Inc., or on any exchange or generally in the over-the-counter market,
or if trading generally on the New York Stock Exchange or in the over-the-
counter market has been suspended or materially limited, or minimum or maximum
prices for trading have been fixed, or maximum ranges for prices for securities
have been required, by such exchange or by order of the Commission, the National
Association of Securities Dealers, Inc. or any other governmental authority or
(iv) if a banking moratorium has been declared by federal, New York or Illinois
authorities.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party, except
to the extent provided in Section 4. Notwithstanding any such termination, the
provisions of Sections 6, 7 and 8 shall remain in effect.
(c) This Agreement may also terminate pursuant to the provisions of
Section 5, with the effect stated in such Section.
Section 10. DEFAULT. If one or more of the Underwriters shall fail
-------
at the Closing Time to purchase the Offered Securities that it or they are
obligated to purchase (the "Defaulted Offered Securities"), you shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other underwriters, to purchase all, but not
less than all, of the Defaulted Offered Securities in such amounts as may be
agreed upon and upon the terms herein set forth; if, however, you have not
completed such arrangements within such 24-hour period, then:
(a) if the aggregate amount of Defaulted Offered Securities does not
exceed 10% of the aggregate amount of the Offered Securities to be
purchased pursuant to
<PAGE>
20
this Agreement, the non-defaulting Underwriters shall be obligated to
purchase the full amount thereof in the proportions that the respective
aggregate principal amount of Offered Securities set forth opposite their
names in Schedule I, or
(b) if the aggregate amount of Defaulted Offered Securities exceeds
10% of the aggregate amount of the Offered Securities to be purchased
pursuant to this Agreement, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default that does not result in a termination
of this Agreement, either you or the Company shall have the right to postpone
the Closing Time for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements. As used herein, the term "Underwriter" includes any
person substituted for an Underwriter under this Section.
Section 11. NOTICES. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if delivered,
mailed or transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed as set forth in Schedule I. Notices to the
Company shall be directed to it by mail at United Air Lines, Inc., P.O. Box
66100, Chicago, Illinois 60666, attention of ____________________ , with a copy
to UAL, at the same address, attention of Senior Vice President-Finance.
Section 12. PARTIES. The agreement herein set forth is made solely
-------
for the benefit of the several Underwriters, the Company and, to the extent
expressed, any person controlling the Company or any of the Underwriters, and
the directors of the Company, its officers who have signed the Registration
Statement, and their respective executors, administrators, successors and
assigns and, subject to the provisions of Section 10, no other person shall
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser, as such purchaser,
from any Underwriter of the Offered Securities. If there are two or more
Underwriters, all of their obligations hereunder are several and not joint.
Section 13. GOVERNING LAW AND TIME. This Agreement shall be governed
----------------------
by the internal laws of the State of New York. Specified times of day refer to
New York City time.
<PAGE>
21
Section 14. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts and when a counterpart has been executed by each party, all
such counterparts taken together shall constitute one and the same agreement.
--------------------
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement between the Company and each
Underwriter in accordance with its terms.
Very truly yours,
UNITED AIR LINES, INC.
By:__________________________
Name:
Title:
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO
/Merrill Lynch, Pierce, Fenner & Smith Incorporated/
CS FIRST BOSTON CORPORATION
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC.
By: MERRILL LYNCH & CO.
/Merrill Lynch, Pierce, Fenner & Smith Incorporated/
By _______________________________
Name:
Title:
Investment Banking Group
For themselves and as Representatives
- -------------------------------------
of the other Underwriters named in Schedule I.
- ----------------------------------------------
<PAGE>
EXHIBIT A
---------
(i) The Designated Indenture has been duly authorized, executed and
delivered by the Company and has been qualified under the Trust Indenture
Act (provided that in rendering such opinion, such counsel may state that
they relied solely upon the oral advice of the staff of the Commission to
the effect that the Designated Indenture has become qualified); the Offered
Securities delivered on such Closing Date have been duly authorized by
requisite corporate action on the part of the Company and the Designated
Indenture (assuming due authorization, execution and delivery by the
Trustee) and the Offered Securities constitute valid and binding
obligations of the Company enforceable in accordance with their terms,
except that such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally or general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or
at law.
(ii) The Offered Securities and the Designated Indenture conform as
to legal matters in all material respects to the descriptions thereof in
the Prospectus; the issuance of the Offered Securities is not subject to
preemptive rights on the date hereof; and the Offered Securities have been
duly executed, authenticated, issued and delivered.
(iii) The Registration Statement has become effective under the 1933
Act; any required filing of the Prospectus or any supplement thereto
pursuant to Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); and, to the best of counsel's knowledge,
no stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been instituted or
are pending or contemplated. In rendering such opinion, in the event that
no written order has been issued by the Commission, such counsel may state
they relied solely on the oral advice of the staff of the Commission to the
effect that the Registration Statement has become effective.
(iv) The Registration Statement, as of the date it became effective,
and the Prospectus, as of the date of the Agreement, including each
document incorporated by reference pursuant to Item 12 of Form S-3 when
such incorporated document was filed or became effective, or if any such
incorporated document was amended, when such amendment was filed or became
effective, appear on their face to be appropriately responsive in all
material respects to the 1933 Act and the 1933 Act Regulations and the Form
T-1 appears on its face to be appropriately responsive in all material
respects to the requirements of the 1939 Act and the rules and regulations
of the Commission under the 1939 Act (the "1939 Act Regulations), except
that such counsel need not express an opinion as to the financial
statements and schedules and other financial data included or incorporated
by reference therein.
<PAGE>
A-2
(v) The statements in the Prospectus under the caption "Description of
Securities" and in the Prospectus Supplement under the caption "Description
of Securities" insofar as they purport to summarize certain provisions of
documents specifically referenced to therein, are in all material respects
accurate summaries of such provisions.
(vi) All of the outstanding shares of capital stock of the Company
have been and all the shares of capital stock of the Company outstanding
immediately after the consummation of the Recapitalization (as defined in
the Prospectus) will be duly authorized and validly issued, and are or will
be, as the case may be, fully paid and non-assessable; no holder thereof is
or will be subject to personal liability by reason of being such a holder;
and none of the outstanding shares of capital stock was issued in violation
of the preemptive rights of any stockholder of the Company. All corporate
action required to be taken for the sale of the Offered Securities has been
validly and sufficiently taken.
(vii) No authorization, approval, consent or license of any
government, governmental instrumentality or court, domestic or foreign
(other than under the 1933 Act, the 1939 Act and the securities or blue sky
laws of the various states and of any foreign country or jurisdiction and
the rules of any exchange on which the Offered Securities may be listed),
is required for the authorization, issuance, sale and delivery of the
Offered Securities by the Company, or the consummation of the transactions
contemplated by the Purchase Agreement.
(viii) The Purchase Agreement has been duly authorized, executed
and delivered by the Company.
(viii) The Indenture has been duly authorized, executed and
delivered by the Company and the Trustee and constitutes a valid and
binding obligation of the Company; and the Indenture conforms in all
material respects to the description thereof contained in the Prospectus.
(ix) The transactions contemplated in the Prospectus under the
heading "The Recapitalization", have been duly authorized by the Company or
UAL; all of the necessary consents to consummate such transactions have
been obtained, except where the failure to obtain such consents would not
have a material adverse effect on the consummation of the Recapitalization
as described in the Prospectus; to the knowledge of such counsel, there has
not been any violation on the part of the Company or UAL of any of the
terms of such consents which violation would materially and adversely
affect the consummation of the Recapitalization as described in the
Prospectus; and there is no pending or, to the knowledge of such counsel,
threatened legal or governmental proceedings with respect to any of the
consents or the transactions
<PAGE>
A-3
contemplated in the Prospectus under the captions "The Recapitalization"
and "Use of Proceeds" that, if the subject of an unfavorable decision,
ruling or finding, would have a material adverse effect on the consummation
of the Recapitalization as described in the Prospectus.
(x) No facts have come to the attention of such counsel that have
led them to believe that the ESOP Information (as defined below), as of the
date of the Purchase Agreement and the date of such opinion, contained or
contain an untrue statement of a material fact with respect to the Proposed
Employee Transaction or omitted or omits to state a material fact necessary
to make the statements therein with respect to the Proposed Employee
Transaction, in light of the circumstances under which they were made, not
misleading; it being understood, however, that such counsel need express no
opinion or belief with respect to (i) any portion of the Prospectus other
than the ESOP Information or (ii) the financial statements, schedules and
other financial data (including financial projections and other forward
looking financial data) included in or excluded from the ESOP Information.
ESOP Information shall mean (a)(i) sections of the Annual Report on
Form 10-K of United for the fiscal year ended December 31, 1993, filed on
March 14, 1994 (the "United 10-K") entitled "Proposed Employee Investment
Transaction" under Item 1 of the United 10-K, the last paragraph under
"Employees-Labor Matters" under Item 1 of the United 10-K and "Proposed
Employee Investment Transaction" under Item 7 of the United 10-K, (ii)
sections of the Quarterly Report on Form 10-Q of United for the period
ended March 31, 1994, and the corresponding sections of the Form 10-Q/A for
the same period (together, the "United 10-Q"), entitled "Proposed Employee
Investment Transaction" under Item 2 of the United 10-Q, the last paragraph
under "Liquidity and Capital Resources" under Item 2 of the United 10-Q,
and the third paragraph under "Results of Operations" under Item 2 of the
United 10-Q, (iii) the Current Reports on Form 8-K of United dated February
3, 1994, March 25, 1994, and March 25, 1994 and [(iv) the Supplemental
Disclosure,] which are incorporated by reference into the Prospectus, and
(b) the information in the Prospectus appearing under the heading "The
Recapitalization".
"Proposed Employee Transaction" means a proposed transaction, in
connection with UAL's Agreement and Plan of Recapitalization, dated as of
March 25, 1994, as amended and restated as of May __, 1994, with the Air
Line Pilots Association, International and the International Association of
Machinists and Aerospace Workers, pursuant to which it is proposed that
trusts for the benefit of certain employees of UAL will acquire a majority
interest in UAL in exchange for wage concessions and work rule changes and
the existing holders of common stock of UAL, pursuant to a reclassification
of such stock, will retain in the aggregate a 45% equity interest in
<PAGE>
A-4
UAL (subject to reduction to 37%) and will also receive cash, debt and
preferred stock.
[ADDITIONAL OPINIONS AS TO ESOP MATTERS TO BE AGREED UPON]
In addition, counsel shall state that they have participated in
conferences with officers and other representatives of the Company, counsel
employed by the Company, representatives of the independent public
accountants for the Company, representatives of the Underwriters and
counsel for the Underwriters, at which conferences the contents of the
Registration Statement and Prospectus and related matters were discussed
and, although such counsel are not passing upon, and do not assume any
responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus except
as set forth in paragraph (iii) above and have not made any independent
check or verification thereof, on the basis of the foregoing, no facts have
come to such counsel's attention that lead them to believe that either the
Registration Statement (including documents incorporated by reference
therein pursuant to Item 12 of Form S-3) at the time such Registration
Statement became effective, or if an amendment to the Registration
Statement has been filed with the Commission subsequent to the
effectiveness of the Registration Statement, then at the time such
amendment became effective, contained an untrue statement of a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or the Prospectus (including documents incorporated
by reference therein pursuant to Item 12 of Form S-3) or any amendment or
supplement thereto, at the time the Prospectus Supplement was issued, at
the time any such amended or supplemented Prospectus was issued, on the
date hereof or at the Closing Time contained or contains an untrue
statement of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
except that such counsel need express no opinion with respect to the
financial statements, schedules and other financial data included or
incorporated by reference in the Registration Statement or the Prospectus
or with respect to the Form T-1.
<PAGE>
EXHIBIT B
---------
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware with corporate
power and authority under such laws to own, lease and operate its
properties and conduct its business as described in the Prospectus and to
perform its obligations under the Purchase Agreement; and the Company is
duly qualified to transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or leases property of
a nature, or transacts business of a type, that would make such
qualification necessary, except to the extent that the failure to so
qualify or be in good standing would not have a material adverse effect on
the Company and its subsidiaries, considered as one enterprise.
(ii) The Company is an "air carrier" and a "citizen of the United
States" within the meaning of the Federal Aviation Act of 1958, as amended,
and is "an air carrier operating under a certificate of convenience and
necessity issued by the "Department of Transportation" within the meaning
of 11 U.S.C. (S) 1110. All of the outstanding shares of capital stock of
the Company have been duly authorized and validly issued and are fully paid
and non-assessable and are owned by UAL, directly, free and clear of any
pledge, lien, security interest, charge, claim, equity or encumbrance of
any kind.
(iii) To such counsel's knowledge, there are no statutes or
regulations, or any pending or threatened legal or governmental proceedings
required to be disclosed in the Prospectus that are not disclosed as
required, nor any contracts or documents of a character required to be
described or offered to in the Registration Statement or the Prospectus or
to be filed as exhibits to the Registration Statement that are not
described, referred to or filed as required, except that such counsel need
not express an opinion as to the financial statements and schedules and
other financial data included or incorporated by reference in the
Registration Statement or the Prospectus.
(iv) The descriptions in the Prospectus of the statutes,
regulations, legal or governmental proceedings, contracts and other
documents therein described are accurate in all material respects and
fairly summarize the information required to be shown.
(v) To such counsel's knowledge, neither the Company nor UAL is in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other agreement or instrument to which it is a
party or by which it may be bound or to which any of its properties may be
subject, except for such defaults that would not have a material adverse
effect on the condition (financial or otherwise), earnings or business
affairs of the Company and its subsidiaries, considered as one enterprise.
<PAGE>
B-2
(vi) The execution and delivery by the Company of the Purchase
Agreement and the Designated Indenture, the consummation by the Company and
UAL of all the transactions contemplated herein, therein and in the
Registration Statement under the captions "The Recapitalization" and "Use
of Proceeds" in the Prospectus, the compliance by the Company with the
terms of the Purchase Agreement and the Designated Indenture, and the
issuance, sale and delivery of the Offered Securities have been duly
authorized by all necessary corporate action on the part of the Company and
do not and will not result in any violation of the charter or by-laws of
the Company or UAL, and do not and will not conflict with, or result in a
breach of any of the terms or provisions of, or constitute a default under,
or result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or UAL under (A) any indenture,
mortgage, loan agreement, note, lease or other agreement or instrument to
which the Company or UAL is a party or by which either may be bound or to
which any of their properties may be subject (except for such conflicts,
breaches or defaults or liens, charges or encumbrances that would not have
a material adverse effect on the condition (financial or otherwise),
earnings or business affairs of the Company and its subsidiaries,
considered as one enterprise) or (B) any existing applicable law, rule,
regulation, judgment, order or decree of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or UAL or any of their respective properties.
(viii) The documents incorporated by reference in the Prospectus,
as of the dates they were filed or last filed with the Commission, complied
as to form in all material respects with the requirements of the 1934 Act
and the 1934 Act Regulations, except that such counsel need not express an
opinion as to the financial statements and schedules and other financial
data included or incorporated by reference in the Prospectus.
In addition, such counsel shall state that such counsel or lawyers on
his staff have participated in the preparation of the Registration
Statement, the Prospectus and the documents incorporated by reference
therein and nothing has come to such counsel's attention that leads him to
believe that either the Registration Statement (including the documents
incorporated by reference therein pursuant to Item 12 of Form S-3) at the
time such Registration Statement became effective, or if an amendment to
the Registration Statement or an Annual Report on Form 10-K has been filed
with the Commission subsequent to the effectiveness of the Registration
Statement, then at the time such amendment became effective or at the time
of the most recent such filing, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or the Prospectus
(including the documents incorporated by reference therein pursuant to Item
12 of Form S-3) or any amendment or supplement
<PAGE>
B-3
thereto, at the time the Prospectus Supplement was issued, at the time any
such amended or supplemented Prospectus was issued, on the date hereof or
at the Closing Time contained or contains an untrue statement of a material
fact or omitted or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that such
counsel need express no opinion with respect to the financial statements,
schedules and other financial data included or incorporated by reference in
the Registration Statement or Prospectus or with respect to the Form T-1.
<PAGE>
SCHEDULE I
To Purchase Agreement Dated ______________
UNITED AIR LINES, INC.
___% Series A Debentures due 2004
___% Series B Debentures due 2014
Principal Amount Principal Amount
of ___% Series A of ___% Series B
Underwriters Debentures due 2004 Debentures due 2004
- ------------ ------------------- -------------------
MERRILL LYNCH & CO.
/Merrill Lynch, Pierve,
Fenner & Smith Incorporated/
CS FIRST BOSTON CORPORATION
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC.
Total:
Notices to Underwriters:
All notices hereunder to any Underwriter shall be addressed to it: c/o
Merrill Lynch & Co., Merrill Lynch World Headquarters, North Tower, World
Financial Center, New York, New York 10281-1201.
<PAGE>
SCHEDULE II
To Purchase Agreement Dated __________
UNITED AIRLINES, INC.
[Title of Securities]
Principal amount to be issued: $
Current ratings:
Interest rate: , payable:
Date of maturity:
Initial public offering price: % of the principal amount plus accrued
interest from (payable in next day funds).
Closing date, time and location:
Delayed delivery contracts: [Authorized] [Not authorized]
[Delivery date:
Minimum principal amount per contract:
Minimum aggregate principal amount:
Maximum aggregate principal amount:
Fee: %]
<PAGE>
SCHEDULE III
To Purchase Agreement Dated _______________
MATTERS TO BE COVERED BY LETTER OR LETTERS OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTS
Arthur Andersen & Co. shall have furnished to you the following letter
or letters (in each case in form and substance satisfactory to you):
(1) At the date hereof, a letter dated as of such date (the "Initial
Letter" to the effect that:
(a) They are independent public accountants with respect to the
Company and its subsidiaries within the meaning of the 1933 Act and
the 1933 Act Regulations.
(b) In their opinion, the audited consolidated financial
statements and supporting schedules of the Company and its
subsidiaries examined by them and included or incorporated by
reference in the Registration Statement comply as to form in all
material respects with the applicable accounting requirements of the
1933 Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act
Regulations with respect to registration statements on Form S-3.
(c) Such letter shall further state that, in addition to their
examinations, inspections, inquiries and other procedures referred to
therein, they have performed such other procedures, specified by you,
not constituting an audit, as they have agreed to perform and report
on with respect to certain amounts, percentages, numerical data and
other financial information appearing or incorporated by reference in
the Registration Statement and have compared certain of such amounts,
percentages, numerical data and financial information with, and have
found such items to be in agreement with or derived from, the detailed
accounting records of the Company and its subsidiaries.
(2) At the date hereof, a letter or letters, if any, dated as of such
date, each to the effect that:
(a) On the basis of procedures (but not an examination in
accordance with generally accepted auditing standards) consisting of:
<PAGE>
2
(i) a reading of the minutes of all meetings of the
stockholders and directors of the Company, United Air Lines,
Inc., and its subsidiaries and the minutes of meetings of
committees of the Boards of Directors of the Company and its
subsidiaries from the date of the latest audited consolidated
financial statements of the Company and its subsidiaries;
(ii) a reading of the unaudited consolidated financial
statements of the Company and its subsidiaries included or
incorporated by reference in the quarterly report on Form 10-Q
for the quarter ended March 31, 1994:
(iii) inquiries of certain officials of the Company and its
subsidiaries responsible for financial and accounting matters as
to (A) whether the unaudited consolidated financial statements
referred to in (ii) above comply as to form in all material
respects with the applicable accounting requirements of the 1934
Act and the 1934 Act Regulations with respect to Form 10-Q and
(B) whether such unaudited consolidated financial statements are
in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the
audited consolidated financial statements referred to above; and
(iv) performing the procedures specified by the American
Institute of Certified Public Accountants ("AICPA") for a review
of interim financial information as described in SAS No. 71 [and
SAS No. 72], Interim Financial Information, on the unaudited
consolidated financial statements referred to in (ii) above;
nothing came to their attention that caused them to believe that the
unaudited consolidated financial statements included or incorporated by
reference in such quarterly report on Form 10-Q do not comply as to form in
all material respects with the applicable accounting requirements of the
1934 Act and the 1934 Act Regulations with respect to Form 10-Q, or that
such unaudited consolidated financial statements are not in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of audited consolidated financial statements referred
to above, except as disclosed in the notes to such unaudited consolidated
financial statements.
(b) Such letter shall further state that, in addition to their
examinations, inspections, inquiries and other procedures referred to
therein, they have performed such other procedures, specified by you, not
constituting an audit, as they have agreed
<PAGE>
3
to perform and report on with respect to certain amounts, percentages,
numerical data and other financial information in the Form 10-Q and have
compared certain of such amounts, percentages, numerical data and financial
information with, and have found such items to be in agreement with or
derived from, the detailed accounting records of the Company and its
subsidiaries.
(c) Such letter shall further state that they are unable to and do
not express any opinion on the Pro Forma Consolidated Income Statements and
Balance Sheets (the "Pro Forma Statements") included in the Registration
Statement or on the pro forma adjustments applied to the historical amounts
included in such statements; however, for purposes of such letter they
have:
(A) read the Pro Forma Statements;
(B) performed the procedures specified by the AICPA for a
review of pro forma financial information as described in [SAS
No. 72], on the Pro Forma Statements;
(C) made inquiries of certain officials of the Company who
have responsibility for financial and accounting matters about
the basis for their determination of the pro forma adjustments
and whether the Pro Forma Statements above comply in form in all
material respects with the applicable accounting requirements of
Rule 11-02 of Regulation S-X; and
(D) proved the arithmetic accuracy of the application of
the pro forma adjustments to the historical amounts in the Pro
Forma Statements; and
(3) At the Closing Time, a letter dated the Closing Time (the "Closing
Letter"), to the effect that:
(a) They reaffirm as of the date of the Closing Letter (and as though
made on the date of the Closing Letter) all statements made in the Initial
Letter, if any, except that the inquiries and procedures specified therein
shall have been carried out to a specified date not more than five days
prior to the date of the Closing Letter.
(b) On the basis of the inquiries and procedures referred to in
Section 2(b) of Schedule III (but carried out to the specified date
referred to in Section 3(a) of Schedule III), nothing came to their
attention that caused them to believe that, from
<PAGE>
4
the date of the latest balance sheet of the Company and its subsidiaries
included or incorporated by reference in the Prospectus to such specified
date, there was:
(i) any increase in consolidated long-term debt of the
Company and its subsidiaries or any increase in the consolidated
net current liabilities or decrease in consolidated common
stockholder's equity of the Company and its subsidiaries;
(ii) any decreases from the date of such latest balance
sheet to such specified date in consolidated revenues or net
income of the Company and its subsidiaries, as compared with the
corresponding period of the preceding year, except in all
instances for changes or decreases that the Prospectus discloses
have occurred or may occur or that are described in the Closing
Letter [or that there was any change in the capital stock or long
term debt of the Company and its Subsidiaries consolidated or any
decrease in consolidated net current assets or net assets as
compared with the amounts shown in the latest balance sheet
included in the Registration Statement, except in each case for
changes, decreases or increases that the Registration Statement
discloses have occurred or may occur.]
(c) They are unable to and do not express any opinion on the Pro
Forma Statements included in the Registration Statement or on the pro
forma adjustments applied to the historical amounts included in such
statements; however, for purposes of such letter they have:
(A) read the Pro Forma Statements;
(B) performed the procedures specified by the AICPA for a
review of pro forma financial information as described in [SAS
No. 72], on the Pro Forma Statement;
(C) made inquiries of certain officials of the Company who
have responsibility for financial and accounting matters about
the basis for their determination of the pro forma adjustments
and whether the Pro Forma Statements above comply in form in all
material respects with the applicable accounting requirements of
Rule 11-02 of Regulation S-X; and
(D) proved the arithmetic accuracy of the application of
the pro forma adjustments to the historical amounts in the Pro
Forma Statements; and
<PAGE>
5
on the basis of such procedures, and such other inquiries and
procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that the Pro Forma Statements
included in the Registration Statement do not comply in form in all
material respects with the applicable requirements of Rule 11-02 of
Regulation S-X and that the pro forma adjustments have not been
properly applied to the historical amounts in the compilation of such
statements.
(d) In addition to their examinations, inspections, inquiries and
other procedures referred to therein, they have performed such other
specified procedures, not constituting an audit, with respect to
certain amounts, percentages, numerical data and other financial
information in the Registration Statement, the Prospectus and the
exhibits to the Registration Statement or in the documents
incorporated by reference in the Prospectus, which have previously
been specified by you and which shall be specified in such letter and
have compared certain of such amounts, percentages, numerical data and
financial information with, and have found such items to be in
agreement with, the accounting and financial records of the Company.
<PAGE>
Exhibit 5.1
June 10, 1994
United Air Lines, Inc.
1200 East Algonquin Road
Elk Grove Township, IL 60007
Re: United Air Lines, Inc. Series A Debentures
due 2004 and United Air Lines, Inc. Series B
Debentures due 2014
--------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to United Air Lines, Inc., a Delaware
corporation ("United"), in connection with the Registration Statement, as
amended through the date hereof, on Form S-3 (the "United Form S-3")
(Registration No. 33-53891) filed by United with the Securities and Exchange
Commission (the "Commission") pursuant to which United proposes to offer up to
$382,500,000 principal amount of its Series A Debentures due 2004 (the "Series A
Debentures") and up to $382,500,000 principal amount of its Series B Debentures
due 2014 (the "Series B Debentures" and, together with the Series A Debentures,
the "Debentures") to be issued under the Indenture dated as of July 1, 1991
between United, as issuer, and The Bank of New York, as Trustee (the "Inden-
ture"), and the United Officers' Certificate (the "Officers' Certificate"), to
be delivered to the Trustee, that defines the terms of the Debentures. The
Debentures may be issued in conjunction with the proposed recapitalization (the
"Recapitalization") of UAL Corporation, a Delaware corporation ("UAL"), pursuant
to terms and conditions of the Amended and Restated Agreement and Plan of
Recapitalization, dated as of March 25, 1994, as amended pursuant to the First
Amendment of the Agreement and Plan of Recapitalization, dated as of June 2,
1994 (as so
<PAGE>
United Air Lines, Inc.
June 10, 1994
Page 2
amended, the "Plan of Recapitalization") among, UAL, the Air Line Pilots
Association, International and the International Association of Machinists and
Aerospace Workers and the issuance of the Debentures is conditioned upon
consummation of the Recapitalization.
This opinion is delivered in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Securities Act of 1933 (the "1933 Act").
In connection with this opinion, we have examined and are familiar
with originals or copies, certified or otherwise identified to our satisfaction,
of (i) the United Form S-3, (ii) the Plan of Recapitalization, (iii) the
Restated Certificate of Incorporation of United as certified by the Secretary of
State of the State of Delaware (the "United Restated Certificate") and the
Bylaws of United, (iv) the proposed amendment to the United Restated Certificate
(the "Proposed Amendment to the United Restated Certificate"), (v) the Indenture
and the Officers' Certificate, (vi) resolutions adopted to date by the Board of
Directors of United relating to the Indenture, the Officers' Certificate and the
Debentures, (vii) the form of the purchase agreement that may be entered into
between United and one or more underwriters to be named therein in connection
with the underwriting of the Debentures (the "Debentures Purchase Agreement"),
(viii) the forms of the respective Debentures and (ix) such other documents as
we have deemed necessary or appropriate as the basis for this opinion.
In our examination, we have assumed the genuineness of all
signatures, the legal capacity of all natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such copies. We have further assumed that
United has been duly organized and is validly existing and in good standing
under the laws of the State of Delaware. As to any facts material to this
opinion which we did not independently establish or verify, we have
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United Air Lines, Inc.
June 10, 1994
Page 3
relied upon statements or representations of officers and other representatives
of United and others.
Members of our firm are admitted to the Bar in the States of Delaware
and New York and we express no opinion as to the laws of any other jurisdiction
except the laws of the United States of America to the extent specifically
referred to herein.
This opinion is being furnished in connection with the United Form S-3
and assumes that the underwritten offering of the Debentures pursuant to the
United Form S-3 will be consummated and that such securities will not be issued
otherwise as contemplated by the Plan of Recapitalization.
We express no opinion herein as to whether the Debentures or the
Indenture, any of the transactions contemplated thereby or by the
Recapitalization or the financing of the Recapitalization, or the use of
proceeds from the sale of the Debentures may constitute a fraudulent conveyance
or what effect a finding to that effect would have on the validity or
enforceability of the Debentures or the Indenture.
Based upon the foregoing and subject to the qualifications set forth
below, we are of the opinion that:
With respect to the Series A Debentures and the Series B Debentures,
when (i) the United Form S-3, as finally amended (including all necessary post-
effective amendments), has become effective, (ii) the Board of Directors of
United, including any appropriate committee appointed thereby, and appropriate
officers of United have taken all necessary corporate action to approve the Plan
of Recapitalization and all the transactions contemplated thereby including the
issuance and terms of the Debentures and related matters, (iii) the Indenture
has been qualified under the Trust Indenture Act of 1939, as amended, (iv) the
Officers' Certificate has been duly authorized, executed and delivered by United
to the
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United Air Lines, Inc.
June 10, 1994
Page 4
Trustee, (v) the shareholders of UAL have approved the Recapitalization and
related matters and the other conditions of the Plan of Recapitalization are
satisfied or waived, (vi) the terms of the Debentures and their issuance and
sale have been duly established in conformity with the Plan of Recapitalization,
the Indenture and the Officers' Certificate so as not to violate any applicable
law, the United Restated Certificate, the Proposed Amendment to the United
Restated Certificate or the Bylaws of United or result in a default under or
breach of any agreement or instrument binding upon United and so as to comply
with any requirement or restriction imposed by any court or governmental body
having jurisdiction over United and (vii) the Debentures have been duly executed
and authenticated in accordance with the provisions of the Indenture and the
Officers' Certificate and duly delivered against payment therefor in the manner
provided in the Indenture, the Officers' Certificate, the Form S-4, the Plan of
Recapitalization and the Debentures Purchase Agreement, the Debentures will be,
valid and binding obligations of United enforceable against United in
accordance with their respective terms, except to the extent that enforcement
thereof may be limited by (1) bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
generally and (2) by general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
We hereby consent to the use of this opinion as an exhibit to United
Form S-3 and to the reference to our firm under the heading "Legal Opinions" in
United Form
S-3. In giving such consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the 1933 Act.
Very truly yours,
Skadden, Arps, Slate
Meagher & Flom
<PAGE>
EXHIBIT 12.1
UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
CALCULATION OF PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
TWELVE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1993 MARCH 31, 1994
------------------- ------------------
<S> <C> <C>
Earnings:
Earnings (loss) before income taxes... $ (12) $(92)
Fixed charges, from below............. 1,145 272
Interest capitalized.................. (51) (10)
------ ----
Earnings............................ $1,082 $170
====== ====
Fixed Charges:
Interest expense...................... $ 420 $ 99
Portion of rental expense
representative of the interest
factor............................... 725 173
------ ----
Fixed charges....................... $1,145 $272
====== ====
Pro forma ratio of earnings to fixed
charges................................ (a) (a)
====== ====
</TABLE>
- --------
(a) Earnings were inadequate to cover fixed charges by $63 million for the
twelve months ended December 31, 1993 and $102 million for the three months
ended March 31, 1994.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated February 23, 1994,
included in the United Air Lines, Inc. Form 10-K for the year ended December
31, 1993, and to all references to our firm included in this registration
statement.
Arthur Andersen & Co.
Chicago, Illinois
June 10, 1994
<PAGE>
EXHIBIT 23.13
CONSENT
I consent to being named in the registration statements and amendments
thereto being filed with the Securities and Exchange Commission by UAL
Corporation and United Air Lines, Inc. in connection with the Employee
Investment Transaction as a person about to become a director of UAL
Corporation.
/s/ John Peterpaul
____________________________________
John Peterpaul
Dated: May 26, 1994
