<PAGE> 1
Filed pursuant to
PROSPECTUS Rule 424(b)(4) under
Registration Statement
$552,433,000 number 333-47479.
UNITED AIRLINES LOGO
Offer to Exchange Enhanced Pass Through Certificates,
Series 1997-1A and Series 1997-1B,
which have been registered under the Securities Act of 1933, as amended
for any and all outstanding Enhanced Pass Through Certificates,
Series 1997-1A and Series 1997-1B
The Exchange Offer will expire at 5:00 p.m., New York City time,
on June 5, 1998 (as such date may be extended, the "Expiration Date").
------------------------
Enhanced Pass Through Certificates, Series 1997-1A and Enhanced Pass Through
Certificates, Series 1997-1B (collectively, the "New Certificates"), which have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement of which this Prospectus is a part,
are hereby offered, upon the terms and subject to the conditions set forth in
this Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal" and, together with this Prospectus, the "Exchange Offer"), in
exchange for an equal principal amount of outstanding Enhanced Pass Through
Certificates, Series 1997-1A (the "Old Class A Certificates") and Enhanced Pass
Through Certificates, Series 1997-1B (the "Old Class B Certificates" and,
together with the Old Class A Certificates, the "Old Certificates"). The New
Certificates offered hereby, the Old Certificates and the other Enhanced Pass
Through Certificates, Series 1997-1 are collectively referred to herein as the
"Certificates."
Any and all Old Certificates that are validly tendered and not withdrawn on
or prior to 5:00 p.m., New York City time, on the Expiration Date will be
accepted for exchange. Tenders of Old Certificates may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange
Offer is not conditioned upon any minimum principal amount of Old Certificates
being tendered for exchange. However, the Exchange Offer is subject to certain
customary conditions and to the terms and provisions of the Registration Rights
Agreement. Old Certificates may be tendered only in integral multiples of
$1,000. See "The Exchange Offer."
The New Certificates will be entitled to the benefits of the same Pass
Through Trust Agreements (as defined herein) that govern the Old Certificates
and that will govern the New Certificates. The New Certificates will have terms
identical in all material respects to the Old Certificates except that the New
Certificates will not contain terms with respect to transfer restrictions or
interest rate increases as described herein and the New Certificates will be
available only in book-entry form. See "The Exchange Offer" and "Description of
New Certificates."
Each Certificate represents a fractional undivided interest in one of the
four United Airlines 1997-1 Pass Through Trusts (the "Class A Trust," the "Class
B Trust," the "Class C Trust" and the "Class D Trust") formed pursuant to a pass
through trust agreement between United Air Lines, Inc. ("United" or the
"Company") and First Security Bank, National Association (the "Trustee"), as
trustee (the "Basic Pass Through Trust Agreement"), and four separate
supplements thereto (each, a "Trust Supplement" and, together with the Basic
Pass Through Trust Agreement, collectively, the "Pass Through Trust Agreements")
relating to such Trusts between the Company and the Trustee, as trustee under
each Trust. Pursuant to an intercreditor agreement, (i) the Certificates of the
Class B Trust are subordinated in right of payment to the Certificates of the
Class A Trust, (ii) the Certificates of the Class C Trust are subordinated in
right of payment to the Certificates of the Class B Trust and (iii) the
Certificates of the Class D Trust are subordinated in right of payment to the
Certificates of the Class C Trust. Payments of interest applicable to the
Certificates issued by the Class A Trust and the Class B Trust are in each case
supported by two separate liquidity facilities for the benefit of the holders of
such Certificates, such facilities provided by Kreditanstalt fur Wiederaufbau
(the "Primary Liquidity Provider") and Credit Suisse Financial Products (the
"Above-Cap Liquidity
(continued on the following page)
------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 27 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
------------------------
THE CERTIFICATES 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.
------------------------
<TABLE>
<CAPTION>
OFFERED
PASS THROUGH FINAL EXPECTED
CERTIFICATES PRINCIPAL AMOUNT INTEREST RATE DISTRIBUTION DATE
- ---------------------------- ---------------- ------------------------ -----------------
<S> <C> <C> <C>
Three-Month LIBOR +
1997-1A..................... $445,826,000 0.22% December 2, 2002
Three-Month LIBOR +
1997-1B..................... $106,607,000 0.325% December 2, 2002
-----------------
Total................... $552,433,000
=================
</TABLE>
------------------------
The date of this Prospectus is May 5, 1998
<PAGE> 2
(continued from cover page)
Provider"), which together are in an amount sufficient to pay interest on such
Certificates at the applicable interest rate for each such Trust on up to six
consecutive quarterly distribution dates.
The property of the Trusts includes, among other things, equipment notes
(the "Equipment Notes") issued (i) on a recourse basis by United in connection
with ten separate debt financings, each secured by one of two Boeing 747-422
aircraft, four Airbus A320-232 aircraft, three Boeing 777-222 aircraft or one
Boeing 777-222IGW aircraft owned by United (collectively, the "Owned Aircraft")
and (ii) on a nonrecourse basis by the trustees of separate owner trusts (each,
an "Owner Trustee") in connection with four separate leveraged lease
transactions to refinance the current indebtedness of such Owner Trustees,
originally incurred to finance the purchase of four Boeing 737-322 aircraft that
have been leased to United (collectively, the "Leased Aircraft" and, together
with the Owned Aircraft, the "Aircraft"). The Equipment Notes in respect of each
Owned Aircraft have been issued in three series (the "Series A Equipment Notes,"
the "Series B Equipment Notes" and the "Series C Equipment Notes"), and the
Equipment Notes in respect of each Leased Aircraft have been issued in four
series (the "Series A Equipment Notes," the "Series B Equipment Notes," the
"Series C Equipment Notes" and the "Series D Equipment Notes" and each a
"Series"). Each Trust has purchased the corresponding series of the Equipment
Notes issued with respect to each of the Aircraft such that all of the Equipment
Notes held in each Trust have an interest rate corresponding to the interest
rate applicable to the Certificates issued by such Trust. The Equipment Notes
issued with respect to each Aircraft are secured by a security interest in such
Aircraft and, in the case of each Leased Aircraft, are also secured by an
assignment of the lease relating thereto, including the right to receive rentals
payable with respect to such Leased Aircraft from United. The maturity date of
the Equipment Notes relating to the Leased Aircraft acquired by each Trust will
occur after December 2, 2002, which is the "Final Expected Distribution Date"
applicable to the Certificates issued by each such Trust. As a result, on the
Final Expected Distribution Date the installments of principal then due and
payable on the Equipment Notes will be insufficient to pay the final expected
distribution on the related Certificates. Under the Note Purchase Agreement, the
applicable Trustees will obtain the funds to pay the final expected distribution
on the Certificates on the Final Expected Distribution Date from the payment by
United at maturity in full of the principal and accrued interest on the
Equipment Notes issued with respect to the Owned Aircraft and by selling, or
permitting the refinancing of, the Equipment Notes issued with respect to the
Leased Aircraft for an amount equal to the principal thereof plus accrued
interest thereon. The maturity date of the Equipment Notes relating to the Owned
Aircraft is the Final Expected Distribution Date of the Certificates.
All of the Equipment Notes held in each Trust accrue interest at the
applicable rate per annum for such Trust, payable on March 2, June 2, September
2 and December 2 of each year, commencing March 2, 1998. Such interest will be
passed through to Certificateholders of such Trust on each such date, in each
case subject to the Intercreditor Agreement. See "Description of the New
Certificates -- General" and "-- Payments and Distributions."
Scheduled principal payments on the Equipment Notes held in each Trust will
be passed through to the Certificateholders of each such Trust on any of March
2, June 2, September 2 and December 2 of specified years, commencing on March 2,
1998, in accordance with the principal repayment schedule set forth below under
"Description of the New Certificates -- Pool Factors" and "Description of the
Equipment Notes -- Principal and Interest Payments," in each case subject to the
Intercreditor Agreement.
Each Class of New Certificates will be represented by one or more permanent
global Certificates in fully registered form, which will be deposited with the
Trustee as custodian for, and registered in the name of a nominee of, DTC.
Beneficial interests in the permanent global Certificates will be shown on, and
transfers thereof will be effected through, records maintained by DTC and its
participants.
The New Certificates are being offered hereby in order to satisfy certain
obligations of United contained in the Registration Rights Agreement. United is
making the Exchange Offer in reliance on the position of the staff of the
Securities and Exchange Commission (the "Commission") as set forth in certain
interpretive letters addressed to third parties in other transactions. However,
United has not sought its own interpretive letter and there can be no assurance
that the staff of the Commission would make a similar determination with respect
to the Exchange Offer as it has in such interpretive letters to third parties.
Based on these interpretations by the staff of the Commission, United believes
that New Certificates issued pursuant to the Exchange Offer to a holder in
exchange for Old Certificates may be offered for resale, resold and otherwise
transferred by a holder (other than (i) a broker-dealer who purchased Old
Certificates directly from United for resale pursuant to Rule 144A under the
Securities Act ("Rule 144A") or any other available exemption under the
Securities Act, (ii) an "affiliate" of United within the meaning of Rule 405
under the Securities Act, or (iii) a broker-dealer who acquired the Old
Certificates as a result of market-making or other trading activities), without
further compliance with the registration and prospectus delivery provisions of
the Securities Act; provided, that such holder is acquiring the New Certificates
in the ordinary course of business and is not participating, and
2
<PAGE> 3
has no arrangement or understanding with any person to participate, in a
distribution (within the meaning of the Securities Act) of the New Certificates.
Holders wishing to accept the Exchange Offer must represent to United, as
required by the Registration Rights Agreement, that such conditions have been
met. Any holder of Old Certificates who is not able to rely on the
interpretations of the staff of the Commission set forth in the above-mentioned
interpretive letters must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or other transfer
of such Old Certificates unless such sale is made pursuant to an exemption from
such requirements. See "The Exchange Offer -- General."
Each broker-dealer that receives New Certificates for its own account
pursuant to the Exchange Offer (a "Participating Broker-Dealer") must
acknowledge that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Certificates. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of New Certificates received in
exchange for Old Certificates where such Old Certificates were acquired by such
Participating Broker-Dealer for its own account as a result of market-making or
other trading activities. Subject to certain provisions set forth in the
Registration Rights Agreement, United has agreed that this Prospectus may be
used by a Participating Broker-Dealer in connection with resales of such New
Certificates. See "Plan of Distribution."
United will not receive any proceeds from this offering, but, pursuant to
the Registration Rights Agreement, United will bear certain registration
expenses. No underwriter is being utilized in connection with the Exchange
Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL UNITED ACCEPT SURRENDERS
FOR EXCHANGE FROM, HOLDERS OF OLD CERTIFICATES IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD CERTIFICATES ARE URGED TO READ THIS PROSPECTUS AND
THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER
THEIR OLD CERTIFICATES PURSUANT TO THE EXCHANGE OFFER.
Prior to the Exchange Offer, there has been no public market for the
Certificates. If such market were to develop, the New Certificates could trade
at prices that may be higher or lower than their principal amount. Neither
United nor any Trust has applied or intends to apply for listing of the New
Certificates on any national securities exchange or otherwise. One or more of
Morgan Stanley & Co. Incorporated ("Morgan Stanley"), BT Alex. Brown
Incorporated, Citicorp Securities, Inc., Credit Suisse First Boston Corporation,
and Merrill Lynch, Pierce, Fenner & Smith (collectively, the "Class A Initial
Purchasers") have previously made a market in the Old Class A Certificates.
United has been advised that one or more of the Class A Initial Purchasers
presently intend to make a market in the Class A Certificates, as permitted by
applicable laws and regulations, after consummation of the Exchange Offer. None
of the Class A Initial Purchasers is obligated, however, to make a market in the
Old Certificates or the New Certificates. Any such market making activity by a
Class A Initial Purchaser may be discontinued at any time without notice at the
sole discretion of such Class A Initial Purchaser. There can be no assurance as
to the liquidity of the public market for the Certificates or that any active
public market for the Certificates will develop or continue. If an active public
market does not develop or continue, the market prices and liquidity of the
Certificates may be adversely affected. See "Risk Factors -- Absence of an
Established Market for the Certificates."
3
<PAGE> 4
AVAILABLE INFORMATION
United is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Commission. Such reports
and other information concerning United may be inspected and copied at the
public reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, as well as the Regional
Offices of the Commission at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and Seven World Trade Center, Suite 1300, New
York, New York 10048. Copies of such information can be obtained by mail from
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
information may also be accessed electronically by means of the Commission's
home page on the World Wide Web located at http://www.sec.gov.
This Prospectus constitutes a part of a registration statement on Form S-4
(together with all amendments and exhibits, the "Registration Statement") filed
by United with the Commission, through the Electronic Data Gathering, Analysis
and Retrieval System, under the Securities Act, with respect to the New
Certificates offered hereby. This Prospectus omits certain of the information
contained in the Registration Statement, and reference is hereby made to the
Registration Statement for further information with respect to United and the
securities offered hereby. Although statements concerning and summaries of
certain documents are included herein, reference is made to the copy of such
document filed as an exhibit to the Registration Statement or otherwise filed
with the Commission. These documents may be inspected without charge at the
Office of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies may be obtained at fees and charges prescribed by the
Commission.
REPORTS TO CERTIFICATEHOLDERS
First Security Bank, National Association, in its capacity as Trustee under
each of the Trusts, will provide the Certificateholders of each Trust certain
periodic reports concerning the distributions made from such Trust. See
"Description of New Certificates -- Reports to Certificateholders." Such reports
will not constitute financial statements prepared in accordance with generally
accepted accounting principles.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
United's Annual Report on Form 10-K for the fiscal year ended December 31,
1997 (Commission File No. 33-21220) has been filed with the Commission pursuant
to the Exchange Act and is incorporated into this Prospectus by reference and
made a part hereof.
All documents filed by United pursuant to Sections 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 Certificates offered hereby, shall be deemed
to be incorporated in this Prospectus by reference and to be a part hereof from
the date of filing of such documents. 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 that 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 WITHOUT CHARGE TO
ANY PERSON TO WHOM A PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST OF
SUCH PERSON, FROM UNITED AIR LINES, INC., P.O. BOX 66100, CHICAGO, ILLINOIS
60666, ATTENTION: FRANCESCA M. MAHER, SECRETARY, TELEPHONE (847) 700-4000. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE NOT
LATER THAN FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION DATE.
4
<PAGE> 5
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified in
its entirety by the detailed information appearing elsewhere in this Prospectus.
Certain capitalized terms used herein are defined elsewhere in this Prospectus
on the pages indicated in the "Index of Terms" attached as Appendix I.
THE EXCHANGE OFFER
Registration Rights
Agreement..................... The Old Class A Certificates were issued on
December 23, 1997 (the "Issuance Date") to
the Class A Initial Purchasers. The Class A
Initial Purchasers placed the Old Class A
Certificates with institutional investors.
The Old Class B Certificates were issued on
the Issuance Date to Kreditanstalt fur
Wiederaufbau (the "Class B Initial Purchaser"
and together with the Class A Initial
Purchasers, the "Initial Purchasers"). In
connection therewith, United, the Trustee
under the Class A Trust and the Class B Trust
and the Initial Purchasers entered into a
Registration Rights Agreement (the
"Registration Rights Agreement") providing,
among other things, for the Exchange Offer.
The Exchange Offer............ New Certificates are being offered in exchange
for an equal principal amount of Old
Certificates. The issuance of the New
Certificates is intended to satisfy
obligations of United contained in the
Registration Rights Agreement. As of the date
of this Prospectus, $445,826,000 aggregate
principal amount of the Old Class A
Certificates and $106,607,000 aggregate
principal amount of the Old Class B
Certificates are outstanding. Old
Certificates may be tendered only in integral
multiples of $1,000. See "The Exchange
Offer -- General."
Resale of New Certificates.... United is making the Exchange Offer in reliance
on the position of the staff of the
Securities and Exchange Commission (the
"Commission") as set forth in certain
interpretive letters addressed to third
parties in other transactions. However,
United has not sought its own interpretive
letter and there can be no assurance that the
staff of the Commission would make a similar
determination with respect to the Exchange
Offer as it has in such interpretive letters
to third parties. Based on these
interpretations by the staff of the
Commission, United believes that New
Certificates issued pursuant to the Exchange
Offer to a holder in exchange for Old
Certificates may be offered for resale,
resold and otherwise transferred by a holder
(other than (i) a broker-dealer who purchased
Old Certificates directly from United for
resale pursuant to Rule 144A or any other
available exemption under the Securities Act,
(ii) an "affiliate" of United within the
meaning of Rule 405 under the Securities Act,
or (iii) a broker-dealer who acquired the Old
Certificates as a result of market-making or
other trading activities), without further
compliance with the registration and
prospectus delivery provisions of the
Securities Act; provided, that such holder is
acquiring the New Certificates in the
ordinary course of business and is not
participating, and has no arrangement or
understanding with any person to participate,
in a distribution (within the meaning of the
Securities Act) of the New Certificates.
Holders wishing to accept the Exchange Offer
must represent to United, as required by the
Registration Rights Agreement, that such
conditions have been met. Any holder of Old
Certificates who is not able to rely on the
interpretations of the staff of the
Commission set forth in
5
<PAGE> 6
the above-mentioned interpretive letters must
comply with the registration and prospectus
delivery requirements of the Securities Act
in connection with any sale or other transfer
of such Old Certificates unless such sale is
made pursuant to an exemption from such
requirements. See "The Exchange Offer --
General."
Each broker-dealer that receives New
Certificates for its own account pursuant to
the Exchange Offer (a "Participating
Broker-Dealer") must acknowledge that it will
deliver a prospectus meeting the requirements
of the Securities Act in connection with any
resale of such New Certificates. The Letter
of Transmittal states that by so
acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit
that it is an "underwriter" within the
meaning of the Securities Act. This
Prospectus, as it may be amended or
supplemented from time to time, may be used
by a Participating Broker-Dealer in
connection with resales of New Certificates
received in exchange for Old Certificates
where such Old Certificates were acquired by
such Participating Broker-Dealer for its own
account as a result of market-making or other
trading activities. Subject to certain
provisions set forth in the Registration
Rights Agreement, United has agreed that this
Prospectus may be used by a Participating
Broker-Dealer in connection with resales of
such New Certificates. See "Plan of
Distribution."
Consequences of Failure to
Exchange Old Certificates..... Upon consummation of the Exchange Offer,
subject to certain exceptions, holders of Old
Certificates who do not exchange their Old
Certificates for New Certificates in the
Exchange Offer will no longer be entitled to
registration rights and will not be able to
offer or sell their Old Certificates, unless
such Old Certificates are subsequently
registered under the Securities Act (which,
subject to certain limited exceptions, United
will have no obligation to do), except
pursuant to an exemption from, or in a
transaction not subject to, the Securities
Act and applicable state securities laws. See
"Risk Factors -- Consequences of Failure to
Exchange" and "The Exchange Offer."
Expiration Date............... 5:00 p.m., New York City time, on June 5, 1998
(30 calendar days following the commencement
of the Exchange Offer), unless the Exchange
Offer is extended, in which case the term
"Expiration Date" means the latest date and
time to which the Exchange Offer is extended.
Interest on the New
Certificates.................. The New Certificates will accrue interest at
the applicable per annum rate for such New
Certificates set forth on the cover page of
this Prospectus, from the most recent date to
which interest has been paid on the Old
Certificates or, if no interest has been
paid, from the Issuance Date.
Conditions to the Exchange
Offer......................... The Exchange Offer is not conditioned upon any
minimum principal amount of Old Certificates
being tendered for exchange. However, the
Exchange Offer is subject to certain
customary conditions, which may be waived by
the Company. See "The Exchange Offer --
Conditions." Except for the requirements of
applicable federal and state securities laws,
there are no federal or state regulatory
requirements to be complied with or obtained
by the Company in connection with the
Exchange Offer.
6
<PAGE> 7
Procedures for Tendering Old
Certificates................ Each holder of Old Certificates wishing to
accept the Exchange Offer must transmit a
properly completed and duly executed Letter
of Transmittal, or a facsimile thereof (or,
in the case of a book-entry transfer, an
Agent's Message in lieu of such Letter of
Transmittal), together with the Old
Certificates to be exchanged and any other
required documentation to the Exchange Agent
at the address set forth herein or effect a
tender of Old Certificates pursuant to the
procedures for book-entry transfer as
provided for herein. See "The Exchange Offer
-- Procedures for Tendering" and "--
Book-Entry Transfer."
Guaranteed Delivery
Procedures.................... Holders of Old Certificates who wish to tender
their Old Certificates and whose Old
Certificates are not immediately available or
who cannot deliver their Old Certificates and
a properly completed Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent prior to
the Expiration Date may tender their Old
Certificates according to the guaranteed
delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal Rights............. Tenders of Old Certificates may be withdrawn at
any time prior to 5:00 p.m., New York City
time, on the Expiration Date. To withdraw a
tender of Old Certificates, a written or
facsimile transmission notice of withdrawal
must be received by the Exchange Agent at its
address set forth herein under "The Exchange
Offer -- Exchange Agent" prior to 5:00 p.m.,
New York City time, on the Expiration Date.
Acceptance of Old Certificates
and Delivery of New
Certificates................ Subject to certain conditions, any and all Old
Certificates which are properly tendered in
the Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date will
be accepted for exchange. The New
Certificates issued pursuant to the Exchange
Offer will be delivered promptly following
the Expiration Date. See "The Exchange
Offer."
Certain Tax Considerations.... The exchange of New Certificates for Old
Certificates will not be a sale or exchange
or otherwise a taxable event for Federal
income tax purposes. See "Federal Income Tax
Consequences."
Exchange Agent................ First Security Bank, National Association is
serving as exchange agent (the "Exchange
Agent") in connection with the Exchange
Offer.
Fees and Expenses............. All expenses incident to United's consummation
of the Exchange Offer and compliance with the
Registration Rights Agreement will be borne
by United. See "The Exchange Offer -- Fees
and Expenses."
Use of Proceeds............... There will be no cash proceeds payable to
United from the issuance of the New
Certificates pursuant to the Exchange Offer.
The proceeds from the sale of the Old
Certificates issued by each Trust were used
to purchase the Series A and Series B
Equipment Notes issued by (a) the related
Owner Trustees in connection with the
refinancing of the indebtedness originally
incurred by such Owner Trustees to finance
the purchase of each of the Leased Aircraft
and (b) United in connection with the debt
financings secured by the Owned Aircraft.
7
<PAGE> 8
TERMS OF CERTIFICATES
The Exchange Offer relates to the exchange of up to $445,826,000 aggregate
principal amount of Old Class A Certificates and $106,607,000 aggregate
principal amount of Old Class B Certificates. The New Certificates will be
entitled to the benefits of and will be governed by the same Pass Through Trust
Agreements that govern the Old Certificates. The form and terms of the New
Certificates are the same in all material respects as the form and terms of the
Old Certificates, except that the New Certificates do not provide for interest
rate increases relating to failure to implement the Exchange Offer and will not
bear legends restricting transfer.
Trusts........................ Each of the United Airlines 1997-1A Pass
Through Trust, the United Airlines 1997-1B
Pass Through Trust, the United Airlines
1997-1C Pass Through Trust and the United
Airlines 1997-1D Pass Through Trust
(collectively, with any additional trusts of
the same Class, a "Trust") has been formed
pursuant to one of the four separate Trust
Supplements to the Basic Pass Through Trust
Agreement entered into between the Company
and First Security Bank, National
Association, as trustee under each Trust
(each, together with the Basic Pass Through
Trust Agreement, a "Pass Through Trust
Agreement"). Each Trust is a separate entity.
Certificates Offered.......... The Certificates issued by each Trust represent
fractional undivided interests in such Trust.
The Certificates issued by the Class A Trust,
the Class B Trust, the Class C Trust and the
Class D Trust are referred to herein as the
"Class A Certificates" the "Class B
Certificates," the "Class C Certificates" and
the "Class D Certificates," respectively.
Subordination Agent........... First Security Bank, National Association, as
subordination agent under the Intercreditor
Agreement (the "Subordination Agent").
Trust Property................ The property of each Trust (the "Trust
Property") includes (i) Equipment Notes
issued (a) on a recourse basis by United in
connection with ten separate debt financings,
each secured by one of the Owned Aircraft and
(b) on a nonrecourse basis by the Owner
Trustees in connection with four separate
leveraged lease transactions to refinance the
current indebtedness of such Owner Trustees,
originally incurred to finance the purchase
of the Leased Aircraft leased by the related
Owner Trustee to United; (ii) the rights of
each such Trust under the Intercreditor
Agreement, the Registration Rights Agreement
and the Note Purchase Agreement (including
all monies receivable in respect of such
rights); (iii) for the Class A Trust and the
Class B Trust, all monies receivable by the
Subordination Agent under the Liquidity
Facilities for such Trust; and (iv) funds
from time to time deposited with the Trustee
in accounts relating to each such Trust.
The Equipment Notes with respect to each Owned
Aircraft have been issued in three Series
under an Indenture (each, an "Owned Aircraft
Indenture") between United and the Indenture
Trustee thereunder (the "Owned Aircraft
Indenture Trustee"). The Equipment Notes with
respect to each Leased Aircraft have been
issued in four Series under an Indenture
(each, a "Leased Aircraft Indenture" and,
collectively with the Owned Aircraft
Indentures, the "Indentures") between the
applicable Owner Trustee and the Indenture
Trustee thereunder
8
<PAGE> 9
(the "Leased Aircraft Indenture Trustees"
and, collectively with the Owned Aircraft
Indenture Trustees, the "Indenture
Trustees").
Each Trust has acquired those Equipment Notes
having an interest rate equal to the interest
rate applicable to the Certificates issued by
such Trust. The Equipment Notes have been
purchased from United, in the case of the
Equipment Notes relating to the Owned
Aircraft, and from the applicable Owner
Trustee in the case of the Equipment Notes
relating to the Leased Aircraft, in each case
pursuant to a Note Purchase Agreement (the
"Note Purchase Agreement") between United,
the Owner Trustees, the Trustees under the
Pass Through Trust Agreements, the
Subordination Agent and the Indenture
Trustees. The aggregate original principal
amount of the Equipment Notes held in each
Trust is the same as the aggregate original
face amount of the Certificates issued by
such Trust.
The maturity date of the Equipment Notes
relating to the Leased Aircraft acquired by
each Trust will occur after the Final
Expected Distribution Date applicable to the
Certificates issued by such Trust. As a
result, on the Final Expected Distribution
Date the installments of principal and
interest then due and payable on the
Equipment Notes will be insufficient to pay
the final expected distribution of principal
on the related Certificates. Under the Note
Purchase Agreement, the applicable Trustees
will obtain the funds to pay the final
expected distribution on the Certificates on
the Final Expected Distribution Date from the
payment in full by United at maturity of the
principal and accrued interest on the
Equipment Notes issued with respect to the
Owned Aircraft and by selling, or permitting
the refinancing of, the Equipment Notes
issued with respect to the Leased Aircraft
for an amount equal to the principal thereof
plus accrued interest thereon. The maturity
date of the Equipment Notes relating to the
Owned Aircraft is the Final Expected
Distribution Date of the Certificates.
9
<PAGE> 10
SUMMARY OF TERMS OF CERTIFICATES
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Aggregate Face Amount......... $445,826,000 $106,607,000 $110,000,000 $11,423,182
Initial Loan to Aircraft Value
(cumulative)(1)............. 46.0% 57.0% 68.3% 82.3%
Expected Principal
Distribution Window (in
years)...................... 0.2-4.9 0.2-4.9 0.2-4.9 0.2-4.9
Initial Average Life (in
years)...................... 4.6 4.7 4.7 3.8
Regular Distribution Dates.... March 2, March 2, March 2, March 2,
June 2, June 2, June 2, June 2,
September 2 & September 2 & September 2 & September 2 &
December 2 December 2 December 2 December 2
Final Expected Distribution
Date........................ December 2, 2002 December 2, 2002 December 2, 2002 December 2, 2002
Final Maturity Date........... March 2, 2004 March 2, 2004 December 2, 2002 December 2, 2002
Minimum Denomination.......... $100,000 $100,000 $100,000 $100,000
sec. 1110 Protection(2)....... Yes Yes Yes Yes
Liquidity Facility Coverage... 6 quarterly 6 quarterly None None
interest interest
payments payments
Primary Liquidity Facility
Maximum Commitment Amount at
December 23, 1997(3)........ $70,071,917 $16,881,773 None None
</TABLE>
- -------------------------
(1) Assumes an aggregate appraised Aircraft value of $969,193,333, as of
November 6, 1997.
(2) The benefits of Section 1110 of the U.S. Bankruptcy Code are available to
each Owned Aircraft Indenture Trustee as secured party under the related
Owned Aircraft Indenture and to each Leased Aircraft Indenture Trustee as
assignee of the related Owner Trustee's rights under the related Lease.
(3) For the Class A and Class B Certificates, the Maximum Commitment Amount of
the Primary Liquidity Facilities covers six consecutive quarterly interest
payments (without regard to any future payments of principal applicable to
such Certificates) up to the Capped Interest Rate. In the aggregate for the
Class A and Class B Certificates, the initial Maximum Commitment Amount of
the Primary Liquidity Facilities is $86,953,690. The amount of the Above-Cap
Liquidity Facility is such amount as is sufficient, after payment of amounts
payable under the Primary Liquidity Facility, to pay interest on the Class A
and Class B Certificates at the then applicable interest rates thereon for
six consecutive quarterly interest payments. The Above-Cap Liquidity
Provider has no rights to indemnity or reimbursement under the Operative
Agreements.
10
<PAGE> 11
EQUIPMENT NOTES AND THE AIRCRAFT
Set forth below is certain information about the Equipment Notes held in
the Trusts and the Aircraft directly or indirectly securing such Equipment
Notes:
<TABLE>
<CAPTION>
OUTSTANDING
PRINCIPAL
AIRCRAFT AMOUNT OF
REGISTRATION AIRCRAFT DELIVERY EQUIPMENT NOTE EQUIPMENT APPRAISED
NUMBER AIRCRAFT TYPE DATE MATURITY DATE NOTES VALUE
- ------------ ------------------ ------------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
N193UA ........ Boeing 747-422 August 1996 December 2002 $ 82,857,000 $141,220,000
N194UA ........ Boeing 747-422 September 1996 December 2002 98,854,000 141,220,000
N433UA ........ Airbus A320-232 June 1996 December 2002 26,460,000 37,800,000
N434UA ........ Airbus A320-232 June 1996 December 2002 26,460,000 37,800,000
N435UA ........ Airbus A320-232 September 1996 December 2002 26,775,000 38,250,000
N436UA ........ Airbus A320-232 December 1996 December 2002 27,055,000 38,650,000
N776UA ........ Boeing 777-222 April 1996 December 2002 73,500,000 105,000,000
N778UA ........ Boeing 777-222 July 1996 December 2002 74,281,000 106,116,667
N780UA ........ Boeing 777-222 August 1996 December 2002 74,421,000 106,316,667
N786UA ........ Boeing 777-222IGW April 1997 December 2002 86,758,000 123,940,000
N202UA ........ Boeing 737-322 October 1990 December 2015 19,108,399 23,170,000
N203UA ........ Boeing 737-322 October 1990 December 2015 19,109,192 23,170,000
N398UA ........ Boeing 737-322 September 1990 December 2015 19,109,192 23,370,000
N399UA ........ Boeing 737-322 October 1990 December 2015 19,108,399 23,170,000
------------ ------------
$673,856,182 $969,193,333
============ ============
</TABLE>
The appraised value of each Aircraft set forth above is based upon the
lesser of the average and median base value of such Aircraft as appraised by
three independent appraisal and consulting firms: Aircraft Information Services,
Inc. ("AISI"), BK Associates, Inc. ("BK") and AvSolutions Inc. ("AvSolutions")
(collectively, the "Appraisers") as of November 6, 1997. See "Risk Factors --
Appraisals and Realizable Value of Aircraft" and "Description of the Aircraft
and the Appraisals."
LOAN TO AIRCRAFT VALUE RATIOS
The following table sets forth loan to Aircraft value ratios ("LTVs") for
each Class of Certificates as of the Issuance Date and the Regular Distribution
Dates specified therein. The LTVs for each Class of Certificates were obtained
for each such Regular Distribution Date by dividing (i) the expected Pool
Balance of such Class of Certificates together in each case with the expected
Pool Balance of all other Classes of Certificates senior in right of payment to
such Class of Certificates under the Intercreditor Agreement determined after
giving effect to the distributions expected to be made on such Regular
Distribution Date, by (ii) the assumed value of all of the Aircraft (the
"Assumed Aggregate Aircraft Value") on such Regular Distribution Date based on
the assumptions set forth below.
The table is based on the assumption that the value of each Aircraft
included in the Assumed Aggregate Aircraft Value opposite December 23, 1997
depreciates by approximately 2% of the initial appraised value per year through
the fifteenth year after the year of delivery of such Aircraft, by approximately
4% of the initial appraised value per year for the next five years and by
approximately 6% of the initial appraised value per year thereafter. Other rates
or methods of depreciation would result in materially different LTVs, and no
assurance can be given (i) that the depreciation rates and method assumed for
the purpose of the table are the ones most likely to occur or (ii) as to the
actual future value of any Aircraft. Although the table is compiled on an
aggregate basis, it should be noted that, because the Equipment Notes relating
to any particular Aircraft are not cross-collateralized with respect to any
other Aircraft, the excess proceeds realized from the disposition of any
particular Aircraft would not be available to offset shortfalls on the Equipment
Notes relating to any other Aircraft. Therefore, upon the occurrence of an event
of default under an Indenture (an "Indenture Default"),
11
<PAGE> 12
even if the Aircraft as a group could be sold for more than the total amounts
payable in respect of all of the outstanding Equipment Notes, if certain
Aircraft were sold for less than the total amount payable in respect of the
related Equipment Notes, there would not be sufficient proceeds to pay all
Classes of Certificates in full. See "Description of the Equipment Notes -- Loan
to Aircraft Value Ratios of Equipment Notes" for additional information
regarding LTVs for the Equipment Notes issued in respect of each Aircraft that
may be more relevant in a default situation than the aggregate values shown in
the following table. Thus, the table below should not be considered a forecast
or prediction of expected or likely LTVs but simply a mathematical calculation
based on one set of assumptions.
<TABLE>
<CAPTION>
ASSUMED CLASS A CLASS A CLASS B CLASS B
AGGREGATE CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
DATE AIRCRAFT VALUE(1) POOL BALANCE LTV POOL BALANCE LTV
---- ----------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
December 23, 1997............. $969,193,333 $445,826,000 46.0% $106,607,000 57.0%
December 2, 1998.............. 949,199,976 431,441,817 45.5 103,989,479 56.4
December 2, 1999.............. 929,206,618 417,800,428 45.0 101,982,014 55.9
December 2, 2000.............. 909,213,260 404,159,040 44.5 99,834,174 55.4
December 2, 2001.............. 889,219,902 390,517,652 43.9 97,634,905 54.9
December 2, 2002.............. 869,226,544 0 NA 0 NA
</TABLE>
<TABLE>
<CAPTION>
ASSUMED CLASS C CLASS C CLASS D CLASS D
AGGREGATE CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
DATE AIRCRAFT VALUE(1) POOL BALANCE LTV POOL BALANCE LTV
---- ----------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
December 23, 1997.............. $969,193,333 $110,000,000 68.3% $11,423,182 82.3%
December 2, 1998............... 949,199,976 107,809,018 67.8 10,476,668 80.3
December 2, 1999............... 929,206,618 105,392,741 67.3 9,110,081 79.0
December 2, 2000............... 909,213,260 103,116,840 66.8 7,567,869 77.4
December 2, 2001............... 889,219,902 100,892,369 66.2 5,826,516 75.6
December 2, 2002............... 869,226,544 0 NA 0 NA
</TABLE>
- -------------------------
(1) The Assumed Aggregate Aircraft Value set forth opposite December 23, 1997
(but not the Assumed Aggregate Aircraft Values for subsequent dates) was
determined based upon the lesser of the average and median base value of all
Aircraft as appraised by the Appraisers as of November 6, 1997. See
"Description of the Aircraft and the Appraisals." No assurance can be given
that such value represents the realizable value of any Aircraft. See "Risk
Factors -- Appraisals and Realizable Value of Aircraft" and "Description of
the Aircraft and the Appraisals."
12
<PAGE> 13
<PAGE> 14
CASH FLOW STRUCTURE
Set forth below is a diagram illustrating the structure for the offering of
the Certificates and certain cash flows.
[Diagram omitted, which shows that United will pay lease rental payments
assigned by lessors on Leased Aircraft and mortgage payments on Owned Aircraft
to the Indenture Trustees for the Leased and Owned Aircraft. From such payments,
the Indenture Trustees will make Equipment Note payments on the Series A
Equipment Notes, the Series B Equipment Notes, the Series C Equipment Notes and
the Series D Equipment Notes with respect to all Aircraft to the Subordination
Agent and will, in the case of the Leased Aircraft, pay any excess rent to the
lessors for the Leased Aircraft. From such Equipment Note payments, the
Subordination Agent will reimburse the Primary Liquidity Provider with respect
to any prior advance and will then pay Principal, any Additional Payments and
interest to the Pass Through Trustee for each Trust, who will distribute such
Principal, Additional Payments and interest to the Certificateholders of such
Trust. The Subordination Agent may also receive advances, if any, from the
Liquidity Providers.]
13
<PAGE> 15
THE NEW CERTIFICATES
Certificates:
(a) Denominations; Book-Entry
Certificates............. The New Certificates of each Trust will be
issued in minimum denominations of $100,000
and in integral multiples of $1,000 in excess
thereof. The New Certificates of each Trust
will be issued in fully registered form only
and will be registered in the name of Cede &
Co. ("Cede"), as the nominee of The
Depository Trust Company ("DTC"). No person
acquiring an interest in the New Certificates
will be entitled to receive a definitive
certificate representing such person's
interest in the Trust, unless definitive
certificates are issued, which will only
occur under limited circumstances. See
"Description of the New Certificates --
General" and "-- Book-Entry; Delivery and
Form."
(b) Regular Distribution
Dates......................... March 2, June 2, September 2 and December 2,
commencing on March 2, 1998 (each, a "Regular
Distribution Date").
(c) Special Distribution
Dates......................... Any Business Day on which a Special Payment is
to be distributed (each, a "Special
Distribution Date").
(d) Record Dates.............. The fifteenth day preceding a Regular
Distribution Date or a Special Distribution
Date (each, a "Record Date").
(e) Interest.................. Interest applicable to the Class A Certificates
and the Class B Certificates will be payable
at a floating rate equal to Three-Month LIBOR
plus the spread for the corresponding Class
of Certificates set forth on the cover page
of this Prospectus.
For a description of the interest payments on
the Equipment Notes, which will be
distributed to the holders of Certificates,
see "-- Equipment Notes: (a) Interest" below.
(f) Distributions............. All payments of principal and interest received
by the Trustee on the Equipment Notes held in
each Trust will be distributed by the Trustee
to the holders of the Certificates (the
"Certificateholders") of such Trust on the
Regular Distribution Dates referred to above,
subject to the provisions of the
Intercreditor Agreement. Payments of interest
on the Equipment Notes held in each Trust
will be distributed by the Trustee to the
Certificateholders of such Trust on the
Regular Distribution Dates, commencing on
March 2, 1998. Payments of principal on the
Equipment Notes held in each Trust are
scheduled to be received in specified amounts
by the Trustee of such Trust on any of March
2, June 2, September 2 or December 2 of
specified years, commencing on March 2, 1998,
and to be distributed to the
Certificateholders of such Trust on the
corresponding Regular Distribution Date,
subject to the provisions of the
Intercreditor Agreement. Payments of
principal, any Additional Payment and
interest resulting from the early redemption
or purchase (if any) of the Equipment Notes
held in any Trust will be distributed on a
Special Distribution Date after not less than
25 nor more than 60 days' notice from the
Trustee to the Subordination Agent, subject
to the provisions of the Intercreditor
Agreement. For a discussion of distributions
upon an Indenture Default, see "Description
of the New Certificates -- Indenture Defaults
and Certain Rights Upon an Indenture
Default."
14
<PAGE> 16
(g) Events of Default......... "PTC Events of Default" are the failure to pay
within ten Business Days of the due date
thereof (i) the outstanding Pool Balance of
the applicable Class of Certificates on the
Final Maturity Date for such Class or (ii)
interest due on such Certificates on any
Regular Distribution Date (unless, in the
case of the Class A or Class B Certificates,
the Subordination Agent has made an Interest
Drawing, or a withdrawal from a Cash Account,
with respect thereto in an amount sufficient
to pay such interest and has distributed such
amount to the Certificateholders entitled
thereto). A PTC Event of Default with respect
to the most senior Class of Certificates
resulting from an Indenture Default under all
Indentures will constitute a Triggering
Event. The "Final Maturity Date" for each of
the Class A and Class B Certificates is March
2, 2004 and the "Final Maturity Date" for
each of the Class C and Class D Certificates
is December 2, 2002. Any failure to make
expected principal distributions on any Class
of Certificates on any Regular Distribution
Date (other than on the Final Maturity Date)
will not constitute a PTC Event of Default
with respect to such Certificates.
(h) Purchase Rights of
Certificateholders....... Upon the occurrence and during the continuation
of a Triggering Event, (i) the Class B
Certificateholders will have the right to
purchase, at any time, all but not less than
all of the Class A Certificates, (ii) the
Class C Certificateholders will have the
right to purchase, at any time, all but not
less than all of the Class A Certificates and
the Class B Certificates and (iii) the Class
D Certificateholders will have the right to
purchase all but not less than all of the
Class A Certificates, the Class B
Certificates and the Class C Certificates, in
each case at a purchase price equal to the
Pool Balance of the relevant Class or Classes
of Certificates plus accrued and unpaid
interest thereon to the date of purchase,
without any Additional Payment, but including
any other amounts due to the
Certificateholders of such Class or Classes.
"Triggering Event" means (a) the occurrence of
an Indenture Default under all Indentures
resulting in a PTC Event of Default with
respect to the most senior Class of
Certificates then outstanding, (b) the
acceleration of all of the outstanding
Equipment Notes or (c) certain bankruptcy or
insolvency events involving United.
Equipment Notes:
(a) Interest:
General.................. Interest on the Equipment Notes is payable on
March 2, June 2, September 2 and December 2
of each year, commencing on March 2, 1998.
Interest payments will be passed through to
Certificateholders of each Trust on each
Regular Distribution Date until the Final
Expected Distribution Date for such
Certificates, in each case subject to the
Intercreditor Agreement. Interest is
calculated on the basis of the actual number
of days elapsed over a 360-day year. See
"Description of the Equipment Notes --
Principal and Interest Payments."
The initial interest rates for each Series of
Equipment Notes is set forth below under "--
Interest Rates." The interest rates on each
Series of Equipment Notes relating to the
Leased Aircraft
15
<PAGE> 17
will reset on the Final Expected Distribution
Date as set forth below under "-- Interest
Rate Reset on Expected Final Distribution
Date." The interest rates for the Equipment
Notes are also subject to change under
certain circumstances described in "Exchange
Offer -- General."
Interest Rates........... The Series A and Series B Equipment Notes held
in each Trust will accrue interest at a
floating rate equal to Three-Month LIBOR plus
the spread for the corresponding Class of
Certificates set forth on the cover page of
this Prospectus. The Series C and Series D
Equipment Notes held in each Trust will also
accrue interest at a specified floating
interest rate.
Interest Rate Reset on
Final Expected Distribution
Date.................... The interest rate on each Series of Equipment
Notes relating to the Leased Aircraft will be
reset on the Final Expected Distribution
Date. No later than 60 days prior to the
Final Expected Distribution Date, United will
cause the Trustee to hire (and, if United
does not so cause the Trustee, the Trustee
will, no later than 30 days prior to the
Final Expected Distribution Payment, hire) an
independent investment banker (the "Reset
Agent") of recognized national standing
(which may be an Initial Purchaser) to
determine the interest rate on each Series of
the Equipment Notes relating to the Leased
Aircraft, which interest rate, in the good
faith determination of the Reset Agent, after
consideration of the then current rates for
pass through certificates of United and other
comparable equipment lessees having similar
tenor, rating and other pricing terms, will
enable each such Series of Equipment Notes to
be sold at 100% of the principal amount
thereof on the Final Expected Distribution
Date. The Reset Agent will, for such
reasonable fee payable by the Trust as is
mutually agreed by the Trustee and the Reset
Agent, use its best efforts to sell any such
Equipment Notes with such new interest rates
on the Final Expected Distribution Date or as
promptly as practicable thereafter.
No beneficial owner of any Certificates will
have any rights or claims under the Note
Purchase Agreement or against United or the
Reset Agent as a result of the Reset Agent
not providing a reset interest rate, the
Reset Agent not selling such Certificates or
United not purchasing such Certificates.
(b) Principal................. Scheduled principal payments on the Equipment
Notes held in each Trust will be passed
through to the Certificateholders of each
such Trust on one or more Regular
Distribution Dates in specified years,
commencing on March 2, 1998, in accordance
with the principal repayment schedule set
forth below under "Description of the New
Certificates -- Pool Factors" and
"Description of the Equipment Notes --
Principal and Interest Payments," in each
case subject to the Intercreditor Agreement.
(c) Redemption and Purchase:
Mandatory Redemption Upon
Event of Loss........... If an Event of Loss occurs with respect to any
Aircraft and such Aircraft is not replaced by
United under the related Lease (in the case
of the Leased Aircraft) or under the related
Owned Aircraft Indenture (in the case of the
Owned Aircraft), the Equipment Notes issued
with respect to such Aircraft will be
redeemed in whole, in each case at a price
equal to the aggregate
16
<PAGE> 18
unpaid principal thereof, together with Break
Amount, if any, and accrued interest thereon
to, but not including, the date of
redemption.
Optional Redemption or
Purchase or
Refinancing............. United or its designee may, at its option (or
the Owner Trustee will, pursuant to the
applicable Indenture), redeem, purchase or
refinance, in the case of the Owned Aircraft,
or purchase, in the case of the Leased
Aircraft, (i) the Equipment Notes of a Series
with respect to one or more Aircraft or (ii)
in whole, the Equipment Notes related to one
or more Aircraft; provided, however, that,
other than as set forth in "Description of
the Equipment Notes -- Redemption," the
Series C Equipment Notes may not be redeemed
before December 2, 2002.
The Series A Equipment Notes may be redeemed or
purchased, in each case described above, at a
price equal to the aggregate unpaid principal
amount of such Equipment Notes, together with
any Additional Payment and accrued interest
thereon to, but not including, the date of
redemption or purchase. "Additional Payment"
means a payment of Make-Whole Amount and/or
Break Amount, if any.
Optional Purchase by
Owner Trustee or Owner
Participant............. If, with respect to the Leased Aircraft, (i)
one or more Lease Events of Default have
occurred and are continuing for a period of
120 days or more and no Indenture Event of
Default (other than arising out of such Lease
Event(s) of Default) has occurred and is
continuing, (ii) the Equipment Notes with
respect to such Leased Aircraft have become
due and payable, (iii) the applicable Owner
Participant has received notice from the
applicable Indenture Trustee that it intends
to foreclose the lien of the applicable
Indenture or (iv) the Indenture Trustee has
elected to exercise remedies under the
applicable Indenture, then in each case the
Equipment Notes issued with respect to such
Leased Aircraft, upon 26 days' prior
irrevocable notice to the Indenture Trustee,
may be purchased by the Owner Trustee or the
Owner Participants on the applicable purchase
date at a price equal to the aggregate unpaid
principal thereof, together with Break
Amount, if any, and accrued interest thereon
to, but not including, the purchase date.
(d) Maturity of Equipment
Notes; Final Distribution of
Certificates............. The maturity date of the Equipment Notes
relating to the Owned Aircraft acquired by
each Trust is December 2, 2002, which is the
Final Expected Distribution Date of the
Certificates issued by such Trust.
The maturity date of the Equipment Notes issued
with respect to the Leased Aircraft acquired
by each Trust will occur after the Final
Expected Distribution Date applicable to the
Certificates to be issued by such Trust. As a
result, on the Final Expected Distribution
Date the installments of principal and
interest then due and payable on the
Equipment Notes will be insufficient to pay
the final expected distribution on the
related Certificates. Under the Note Purchase
Agreement, the applicable Trustees will
obtain the funds to pay the final expected
distribution on the Certificates on the Final
Expected Distribution Date from the payment
by United in full, at maturity of the
principal and accrued interest on the
Equipment Notes issued with respect to
17
<PAGE> 19
the Owned Aircraft and by selling, or
permitting the refinancing of, the Equipment
Notes issued with respect to the Leased
Aircraft for an amount equal to the principal
thereof plus accrued interest thereon.
On the Final Expected Distribution Date, United
or its designee may purchase the Equipment
Notes relating to the Leased Aircraft from
the Trustees for an amount equal to the
principal thereof plus accrued interest
thereon, or United may arrange for the
purchase of the Equipment Notes by a third
party for an amount equal to the principal
amount thereof plus accrued interest thereon.
Whether or not United purchases or refinances
the Equipment Notes relating to the Leased
Aircraft, the interest rates on each Series
of Equipment Notes relating to the Leased
Aircraft that remains outstanding on or after
the Final Expected Distribution Date will be
reset on the Final Expected Distribution Date
as set forth under "(a) Interest: Interest
Rate Reset on Final Expected Distribution
Date" above.
(e) Security.................. The Equipment Notes issued with respect to each
Aircraft are secured by a security interest
in the related Aircraft. In the case of each
Leased Aircraft, the related Equipment Notes
are also secured by an assignment to the
related Leased Aircraft Indenture Trustee of
certain of the related Owner Trustee's rights
under the Lease with respect to such Leased
Aircraft, including the right to receive
specified payments of rent thereunder. The
Equipment Notes are not cross-collateralized
and, consequently, the Equipment Notes issued
in respect of any one Aircraft are not
secured by any of the other Aircraft or, in
the case of the Leased Aircraft, the Leases
related thereto. There are no cross-default
provisions in the Indentures or, in the case
of the Leased Aircraft, in the Leases.
Consequently, events resulting in an
Indenture Default under any particular
Indenture may or may not result in an
Indenture Default occurring under any other
Indenture, and, in the case of the Leased
Aircraft, a Lease Event of Default under any
particular Lease will not constitute a Lease
Event of Default under any other Lease. If
the Equipment Notes issued with respect to
one or more Aircraft are in default and the
Equipment Notes issued with respect to the
remaining Aircraft are not in default, no
remedies will be exercisable under the
Indentures with respect to such remaining
Aircraft. See "Description of the Equipment
Notes -- Security" and "-- Indenture
Defaults, Notice and Waiver."
Although the Equipment Notes issued with
respect to the Leased Aircraft are not direct
obligations of, or guaranteed by, United, the
amounts unconditionally payable by United
will be at least sufficient to pay in full
when due all amounts payable on the Equipment
Notes issued with respect to the Leased
Aircraft held by the Trusts on each Regular
Distribution Date. The Equipment Notes issued
with respect to the Owned Aircraft will be
direct obligations of United. See
"Description of the Equipment Notes --
General."
(f) Section 1110 Protection... Vedder, Price, Kaufman & Kammholz, special
counsel to United, has advised: (i) each
Leased Aircraft Indenture Trustee that the
related Owner Trustee, as lessor under the
related Lease, and such Leased Aircraft
Indenture Trustee, as assignee of such Owner
Trustee's rights under such Lease pursuant to
the related
18
<PAGE> 20
Leased Aircraft Indenture, is entitled to the
benefits of Section 1110 of the U.S.
Bankruptcy Code with respect to the related
airframe and engines and (ii) each Owned
Aircraft Indenture Trustee that it is
entitled to the benefits of Section 1110 of
the U.S. Bankruptcy Code with respect to the
related airframe and engines as secured party
under the related Owned Aircraft Indenture.
See "Description of the Equipment Notes --
Remedies" for a description of that opinion
and certain assumptions contained therein.
(g) Ranking................... Series B Equipment Notes issued in respect of
any Aircraft are subordinated in right of
payment to Series A Equipment Notes issued in
respect of such Aircraft. Series C Equipment
Notes issued in respect to such Aircraft are
subordinated in right of payment to such
Series B Equipment Notes. Series D Equipment
Notes issued in respect of such Aircraft are
subordinated in right of payment to such
Series C Equipment Notes. Other than in
connection with any redemption, purchase or
refinancing of a Series of Equipment Notes
relating to the Owned Aircraft or a purchase
of a Series of Equipment Notes relating to
the Leased Aircraft, on each Regular
Distribution Date, (i) payments of interest
and principal due on Series A Equipment Notes
issued in respect of any Aircraft will be
made prior to payments of interest and
principal due on Series B Equipment Notes
issued in respect of such Aircraft, (ii)
payments of interest and principal due on
such Series B Equipment Notes will be made
prior to payments of interest and principal
due on Series C Equipment Notes issued in
respect of such Aircraft and (iii) payments
of interest and principal due on such Series
C Equipment Notes will be made prior to
payments of interest and principal due on
Series D Equipment Notes issued in respect of
such Aircraft.
Liquidity Facilities:
(a) Primary Liquidity
Facilities.................... The Subordination Agent and the Primary
Liquidity Provider have entered into
revolving credit agreements (each, a "Primary
Liquidity Facility") with respect to the
Class A Trust and the Class B Trust. Under
each Primary Liquidity Facility, the Primary
Liquidity Provider will, if necessary, make
advances ("Interest Drawings") in an
aggregate amount that will be sufficient to
pay interest on the Class A or Class B
Certificates, as the case may be, on up to
six consecutive Regular Distribution Dates
(without regard to any expected future
payments of principal on such Certificates)
at the Current Interest Rate; provided,
however, that the maximum amount available to
be drawn under such Primary Liquidity
Facility on any Regular Distribution Date to
fund any shortfall of interest on such
Certificates may not exceed an amount equal
to 1/6 of the Maximum Commitment Amount
(determined using the Capped Interest Rate
defined below) of such Primary Liquidity
Facility. The "Current Interest Rate" is
defined in the Intercreditor Agreement to
mean, with respect to Class A or Class B
Certificates, its respective interest rate
for an interest period (plus an additional
margin specified by the Registration Rights
Agreement, if applicable) (the "Stated
Interest Rate"). Initially, the "Maximum
Commitment Amount" available under the
Primary Liquidity Facilities for the Class A
Certificates and the Class B Certificates is
$70,071,917 and
19
<PAGE> 21
$16,881,773, respectively, and, thereafter,
the "Maximum Commitment Amount" available
under each Primary Liquidity Facility will
equal the product of (x) 1.5, multiplied by
(y) the Capped Interest Rate, multiplied by
(z) the Pool Balance of the related Class of
Certificates. An Interest Drawing under the
relevant Primary Liquidity Facility will be
made on the second Business Day after any
Regular Distribution Date if, after giving
effect to the subordination provisions of the
Intercreditor Agreement, there are
insufficient funds available to the
Subordination Agent to pay interest on any
Class A or Class B Certificates. The Primary
Liquidity Facility for either the Class A or
Class B Certificates does not provide for
drawings thereunder to pay for principal of
or any Additional Payment on the Certificates
of such Class, any interest on the
Certificates of such Class in excess of
10.04% (or, if within 180 days after the
Closing Date a Registration Event has not
occurred, for the period from July 1, 1998
through the date on which a Registration
Event occurs, 9.57%) (the "Capped LIBOR")
plus the applicable spread (in aggregate, the
"Capped Interest Rate"), or principal of, any
Additional Payment or interest on the
Certificates of any other Class.
Upon each Interest Drawing under any Primary
Liquidity Facility, the Subordination Agent
will be obligated to reimburse (to the extent
that the Subordination Agent has available
funds therefor) the Primary Liquidity
Provider for the amount of such drawing. Such
reimbursement obligation and any other
amounts owing to the Primary Liquidity
Provider under each Primary Liquidity
Facility or certain other agreements (the
"Liquidity Obligations") will rank senior to
the Certificates in right of payment. Upon
reimbursement in full of the Interest
Drawings, together with any accrued interest
thereon, under any Primary Liquidity
Facility, the amount available under such
Primary Liquidity Facility will be reinstated
to the then Maximum Commitment Amount of such
Primary Liquidity Facility. Such available
amount will not be so reinstated if (i) a
Triggering Event has occurred and is
continuing and (ii) less than 65% of the
aggregate outstanding principal amount of all
Equipment Notes are Performing Equipment
Notes.
"Performing Equipment Note" means an Equipment
Note with respect to which no payment default
has occurred and is continuing; provided,
however, that in the event of a bankruptcy
proceeding involving United under the U.S.
Bankruptcy Code, (i) any payment default
existing during the 60-day period under
Section 1110(a)(1)(A) of the U.S. Bankruptcy
Code (or such longer period as may apply
under Section 1110(b) of the U.S. Bankruptcy
Code) (the "Section 1110 Period") will not be
taken into consideration, unless during the
Section 1110 Period the trustee in such
proceeding or United does not agree to
perform its obligations under the Lease
related to such Equipment Note (in the case
of a Leased Aircraft) or under the Owned
Aircraft Indenture (in the case of the Owned
Aircraft) and (ii) any payment default
occurring after the date of the order of
relief in such proceeding will not be taken
into consideration if such payment default is
cured under Section 1110(a)(1)(B) of the U.S.
Bankruptcy Code
20
<PAGE> 22
before the later of 30 days after the date of
such default or the expiration of the Section
1110 Period.
If at any time the short-term unsecured debt
rating of any Primary Liquidity Provider
issued by either Moody's Investors Service,
Inc. ("Moody's") or Standard & Poor's Ratings
Services ("Standard & Poor's," and together
with Moody's, the "Rating Agencies") (or the
long-term unsecured debt rating issued by
such Rating Agency if there is no such
short-term rating for any Primary Liquidity
Provider) is lower than the applicable
Threshold Rating, the Primary Liquidity
Facility for each Class of Certificates will
be required to be replaced by another similar
facility to be provided by one or more
financial institutions having such unsecured
debt ratings issued by both Rating Agencies
which are equal to or higher than the
Threshold Rating, provided that the
commitment percentage of each financial
institution will be the same for the
replacement Class A facility and the
replacement Class B facility. If the Primary
Liquidity Facilities are not replaced within
30 days after notice of the downgrading, each
Primary Liquidity Facility will be drawn in
full (the "Downgrade Drawing") and the
proceeds will be deposited into a cash
collateral account (the "Cash Collateral
Account") for the related Class of
Certificates and used for the same purposes
and under the same circumstances, and subject
to the same conditions, as cash payments of
Interest Drawings under such Primary
Liquidity Facility would be used.
Upon receipt by the Subordination Agent of a
Termination Notice with respect to any
Primary Liquidity Facility from the Primary
Liquidity Provider (given as described in
"Description of the Liquidity Facilities --
Liquidity Events of Default"), the
Subordination Agent will request a final
drawing (the "Final Drawing") under such
Primary Liquidity Facility in an amount equal
to all available and undrawn amounts
thereunder and will hold the proceeds thereof
in the Cash Collateral Account for the
related Trust as cash collateral to be used
for the same purposes and under the same
circumstances, and subject to the same
conditions, as cash payments of Interest
Drawings under such Primary Liquidity
Facility would be used.
United may, at its option, subject to certain
conditions, arrange for replacement
facilities to replace the Primary Liquidity
Facilities, provided that the initial Primary
Liquidity Provider will only be replaced (A)
if replacement will reduce or eliminate
certain indemnity payments or obligations
that would constitute an economic hardship to
United or (B) after a Downgrade Drawing. If a
replacement facility is provided at any time
after a Downgrade Drawing under the related
Primary Liquidity Facility, the funds on
deposit in the applicable Cash Collateral
Account will be returned to the Primary
Liquidity Provider being replaced.
Notwithstanding the subordination provisions of
the Intercreditor Agreement, the holders of
the Class A and Class B Certificates will be
entitled to receive and retain the proceeds
of drawings under the applicable Primary
Liquidity Facility. See "Description of the
Liquidity Facilities -- Primary Liquidity
Facilities."
21
<PAGE> 23
(b) Above-Cap Liquidity
Facility...................... The Subordination Agent and the Above-Cap
Liquidity Provider will enter into
irrevocable interest rate cap agreements
(each, an "Above-Cap Liquidity Facility" and,
together with the Primary Liquidity
Facilities, the "Liquidity Facilities") with
respect to the Class A Trust and the Class B
Trust. Under each Above-Cap Liquidity
Facility, the Above-Cap Liquidity Provider
will, if necessary, make payments (if then
effective Three-Month LIBOR exceeds Capped
LIBOR) in an amount not to exceed the product
of (x) the difference between Three-Month
LIBOR and Capped LIBOR, multiplied by (y) the
Pool Balance of the related Class of
Certificates, multiplied by (z) actual days
elapsed in the applicable interest period
divided by 360 ("Above-Cap Interest
Payments"), which payments, in the aggregate
with the required amount of Interest Drawings
under the Primary Liquidity Facilities, will
be sufficient to pay interest on the Class A
Certificates or Class B Certificates, as the
case may be, on up to six consecutive Regular
Distribution Dates (without regard to any
expected future payments of principal on such
Certificates). An Above-Cap Interest Payment
under the relevant Above-Cap Liquidity
Facility will be made on the second Business
Day after any Regular Distribution Date if,
after giving effect to the subordination
provisions of the Intercreditor Agreement and
the Interest Drawing to be made on the
relevant Primary Liquidity Facility or
withdrawals from the related Cash Collateral
Account, there are insufficient funds
available to the Subordination Agent to pay
interest on any Class A or Class B
Certificates. The Above-Cap Liquidity
Provider under the Above-Cap Liquidity
Facility for the Class A or Class B
Certificates will be required to pay amounts
to the Subordination Agent only at such times
as Interest Drawings are payable and the
required amounts thereof are insufficient
under the Primary Liquidity Facility or
withdrawals are made from the related Cash
Collateral Account and such withdrawals are
insufficient. The Above-Cap Liquidity
Facility for either the Class A Certificates
or Class B Certificates does not provide for
payments thereunder to pay for principal of,
or any Additional Payment on, the
Certificates of such Class or principal of,
or any Additional Payment or interest on, the
Certificates of any other Class.
If at any time the short-term unsecured debt
rating of the Above-Cap Liquidity Provider
issued by any Rating Agency (or the long-term
unsecured debt rating issued by such Rating
Agency if there is no such short-term rating
for any Above-Cap Liquidity Provider) is
lower than the applicable Threshold Rating,
the Above-Cap Liquidity Facility for each
Class of Certificates will be required to be
replaced by another similar facility to be
provided by one or more financial
institutions having such unsecured debt
ratings issued by both Rating Agencies which
are equal to or higher than the Threshold
Rating; provided that the commitment
percentage of each financial institution will
be the same for the replacement Class A
facility and the replacement Class B
facility. If the Above-Cap Liquidity Facility
is not
22
<PAGE> 24
replaced within 30 days after notice by the
Above-Cap Liquidity Provider of the
downgrading, the Above-Cap Liquidity Provider
will transfer the Above-Cap Liquidity
Facility to an affiliate, reasonably
acceptable to the Rating Agencies, that is
eligible to become a debtor under the United
States Bankruptcy Code, and such affiliate
will post collateral to the Subordination
Agent for deposit into an account ("Above-Cap
Account;" and together with the Cash
Collateral Account, the "Cash Accounts") for
the benefit of the related Class of
Certificates an amount in cash equal to the
product of (x) a fraction, the numerator of
which is an amount equal to the difference
between (A) 18 and (B) three times the number
of unreimbursed Interest Drawings under the
Primary Liquidity Facility, and the
denominator of which is 12, multiplied by (y)
the greater of (A) 12.29% per annum minus
Capped LIBOR and (B) the effective Three-
Month LIBOR on such 30th day minus Capped
LIBOR, multiplied by (z) the Pool Balance of
the applicable Class of Certificates (the
"Above-Cap Collateral Amount"), and used for
the same purposes and under the same
circumstances, and subject to the same
conditions, as cash payments of Above-Cap
Interest Payments under the Above-Cap
Liquidity Facility would be used. Cash
deposited into the account will be invested
in U.S. government or agency securities. On
each Regular Distribution Date, the amount in
the account will be increased or decreased so
that on such Regular Distribution Date an
amount equal to the Above-Cap Collateral
Amount is deposited and available in the
account. If the replacement obligation
described in the first sentence of this
paragraph is not met, as an alternative to
the collateralization mechanism described
above, the Above-Cap Liquidity Provider may
provide such other assurances of
creditworthiness as will maintain the then
current ratings of the Class A and Class B
Certificates by the Rating Agencies.
Notwithstanding the subordination provisions
of the Intercreditor Agreement, the holders
of the Class A and Class B Certificates will
be entitled to receive and retain the
proceeds of payments under the applicable
Above-Cap Liquidity Facility. See
"Description of the Liquidity Facilities --
Above-Cap Liquidity Facility."
(c) Primary Liquidity
Provider...................... Kreditanstalt fur Wiederaufbau is a corporation
organized under the public law of the Federal
Republic of Germany. The Primary Liquidity
Provider provides two separate Primary
Liquidity Facilities: one for the benefit of
the holders of Class A Certificates and the
other for the benefit of the holders of Class
B Certificates.
(d) Above-Cap Liquidity
Provider...................... The Above-Cap Liquidity Provider is Credit
Suisse Financial Products which is an
unlimited company incorporated in England and
an authorized institution under the Banking
Act of 1987 of the United Kingdom.
<TABLE>
<CAPTION>
STANDARD &
MOODY'S POOR'S
------- ----------
<S> <C> <C> <C>
(e) Threshold Rating of Liquidity Providers.......... Short-term P-1 A-1+
Long-term Aa3 AA-
</TABLE>
23
<PAGE> 25
Intercreditor Agreement....... The Trustees under the Pass Through Trusts, the
Liquidity Providers and the Subordination
Agent have entered into an agreement (the
"Intercreditor Agreement"), which provides as
follows:
(a) Subordination............. (i) All payments made in respect of the
Equipment Notes and certain other payments
will be made to the Subordination Agent,
which will distribute such payments in
accordance with the provisions of paragraphs
(ii) and (iii) below.
(ii) On any Regular Distribution Date or
Special Distribution Date (each, a
"Distribution Date"), so long as no
Triggering Event has occurred (whether or not
continuing), all payments received by the
Subordination Agent in respect of the
Equipment Notes and certain other payments
will be distributed in the order of priority
described in "Description of the
Intercreditor Agreement -- Priority of
Distributions."
(iii) Upon the occurrence of a Triggering Event
and at all times thereafter, the
Subordination Agent will distribute all funds
in the order of priority described in
"Description of the Intercreditor Agreement
-- Priority of Distributions."
(b) Intercreditor Rights...... Pursuant to the Intercreditor Agreement, the
Trustees and the Primary Liquidity Providers
have agreed that, with respect to any
Indenture at any given time, the Indenture
Trustee will be directed (a) in taking, or
refraining from taking, any action thereunder
or under the related Equipment Notes by the
holders of at least a majority of the
outstanding principal amount of the Equipment
Notes issued thereunder as long as no
Indenture Default has occurred and is
continuing thereunder and (b) subject to
certain conditions, in taking, or refraining
from taking, any action under such Indenture
or with respect to such Equipment Notes,
including exercising remedies thereunder
(including acceleration of such Equipment
Notes or foreclosing the lien on the Aircraft
securing such Equipment Notes) by the
Controlling Party insofar as an Indenture
Default thereunder has occurred and is
continuing.
"Controlling Party" with respect to any
Indenture means: (w) the Trustee acting on
behalf of holders of Class A Certificates;
(x) upon payment of Final Distributions to
the holders of Class A Certificates, the
Trustee acting on behalf of the holders of
Class B Certificates; (y) upon payment of
Final Distributions to the holders of Class A
and Class B Certificates, the Trustee acting
on behalf of the holders of Class C
Certificates; and (z) upon payment of Final
Distributions to the holders of Class A,
Class B and Class C Certificates, the Trustee
acting on behalf of holders of the Class D
Certificates. See "Description of the
Certificates -- Indenture Defaults and
Certain Rights Upon an Indenture Default" for
a description of the rights of the
Certificateholders of Trusts of each Class to
direct the Trustee. Notwithstanding the
foregoing, at any time after 18 months from
the earliest to occur of (x) the date on
which the Remaining Commitment Amount (as
defined in the Intercreditor Agreement) under
any Primary Liquidity Facility is and remains
zero
24
<PAGE> 26
(for any reason other than a Downgrade
Drawing), (y) the date on which a Final
Drawing has been made under any Primary
Liquidity Facility and remains unreimbursed
and (z) the date on which all Equipment Notes
have been accelerated, the Primary Liquidity
Provider has the right to become the
Controlling Party with respect to such
Indenture; provided, however, that if there
is more than one Primary Liquidity Provider,
the Primary Liquidity Providers holding more
than 50% of the unreimbursed Liquidity
Obligations will have such right. For
purposes of giving effect to the foregoing,
the Trustee (other than as the Controlling
Party) has irrevocably agreed (and the
Certificateholders, other than the
Certificateholders represented by the
Controlling Party, have been deemed to have
agreed by virtue of their purchase of
Certificates) that the Subordination Agent,
as record holder of the Equipment Notes, will
exercise its voting rights in respect of the
Equipment Notes as directed by the
Controlling Party. For a description of
certain limitations on the Controlling
Party's rights to exercise remedies, see
"Description of the Equipment Notes --
Remedies."
"Final Distributions" means, with respect to
the Certificates of any Trust or Trusts of
the same Class on any Distribution Date, the
sum of (x) accrued and unpaid interest on
such Certificates and (y) the Pool Balance of
such Certificates as of the preceding
Distribution Date. Any unpaid Additional
Payment will be added to such Final
Distributions.
Upon the occurrence and during the continuation
of an Indenture Default under any Indenture,
the Controlling Party may, among other
things, direct the Subordination Agent, which
will in turn direct the Indenture Trustee, to
accelerate and sell all (but not less than
all) of the Equipment Notes issued under such
Indenture to any person, subject to the
provisions of the next paragraph below. The
proceeds of such sale will be distributed
pursuant to the provisions of the
Intercreditor Agreement.
Subject to the rights of any Owner Trustee or
Owner Participant, so long as any
Certificates are outstanding, during nine
months after the earlier of (x) the
acceleration of the Equipment Notes under any
Indenture or (y) the bankruptcy or insolvency
of United, without the consent of the
Trustee, (a) no Aircraft subject to the lien
of any Indenture or such Equipment Notes may
be sold if the net proceeds from such sale
would be less than the aggregate outstanding
principal amount of the Equipment Notes
related to such Aircraft, plus accrued
interest thereon, and (b) with respect to any
Leased Aircraft, the amount and payment dates
of rentals payable by United under the Lease
for such Leased Aircraft may not be adjusted,
if, as a result of such adjustment, the
discounted present value of all such rentals
would be less than 75% of the discounted
present value of the rentals payable by
United under such Lease before giving effect
to such adjustment, in each case, using the
weighted average interest rate of the
Equipment Notes issued under such Indenture
as the discount rate.
25
<PAGE> 27
Method of Distribution........ The persons in whose names the Certificates are
registered will be treated as the owners of
such Certificates for the purpose of
receiving payments of principal of and
interest on such Certificates and for all
other purposes whatsoever. Therefore, none of
the Trustees, United, the Indenture Trustees,
the Liquidity Providers, the Owner
Participants or the Owner Trustees has any
direct responsibility or liability for
distributions or payments to owners of
beneficial interests in the Certificates (the
"Certificate Owners"). Distributions by the
Trustee in respect of Certificates registered
in the name of Cede, as nominee of DTC,
including the final distribution of principal
with respect to such Certificates of any
Trust, will be made in same-day funds to DTC.
DTC will in turn make distributions in
same-day funds to those participants in DTC
who are credited with ownership of such
Certificates ("DTC Participants") in amounts
proportionate to the amount of each such DTC
Participant's respective holdings of
beneficial interests in such Certificates.
Corresponding payments by the DTC
Participants to beneficial owners of such
Certificates will be the responsibility of
such DTC Participants and will be made in
accordance with customary industry practices.
The final distribution with respect to the
Certificates of any Trust will be made only
upon surrender and presentation thereof to
the Trustee. See "Description of the New
Certificates -- Book-Entry; Delivery and
Form."
Trustee....................... First Security Bank, National Association acts
as Trustee and as paying agent and registrar
for the Certificates of each Trust. First
Security Bank, National Association also acts
as Indenture Trustee, as paying agent and
registrar for each Series of Equipment Notes
and as Subordination Agent under the
Intercreditor Agreement.
Federal Income Tax
Consequences.................. The exchange of New Certificates for Old
Certificates will not be a sale or exchange
or otherwise taxable event for Federal income
tax purposes.
ERISA Considerations.......... In general, employee benefit plans subject to
Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
or Section 4975 of the Internal Revenue Code
of 1986, as amended (the "Code") (or entities
which may be deemed to hold the assets of any
such plan) (collectively, "Plans") will be
eligible to purchase the Certificates if the
conditions of one or more administrative
class exemptions are satisfied. By its
acceptance of a Certificate, each
Certificateholder will be deemed to have
represented and warranted that either (i) no
Plan assets have been used to purchase such
Certificate or (ii) the purchase and holding
of such Certificate is exempt from the
prohibited transaction restrictions of ERISA
and Section 4975 of the Code pursuant to an
administrative class exemption. See "ERISA
Considerations" and "Transfer Restrictions."
Each Plan fiduciary (and each fiduciary for a
governmental or church plan subject to rules
similar to those imposed on Plans under
ERISA) should consult with its legal advisor
concerning an investment in any of the
Certificates.
26
<PAGE> 28
RISK FACTORS
HOLDERS OF OLD CERTIFICATES SHOULD CAREFULLY REVIEW THE INFORMATION
CONTAINED ELSEWHERE IN THIS PROSPECTUS AND OTHER PUBLICLY AVAILABLE INFORMATION
REGARDING UNITED AND SHOULD PARTICULARLY CONSIDER THE FOLLOWING MATTERS BEFORE
TENDERING THEIR OLD CERTIFICATES IN THE EXCHANGE OFFER. THE RISK FACTORS SET
FORTH BELOW (OTHER THAN "-- CONSEQUENCES OF FAILURE TO EXCHANGE") ARE GENERALLY
APPLICABLE TO THE OLD CERTIFICATES AS WELL AS THE NEW CERTIFICATES.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Certificates who do not exchange their Old Certificates for
New Certificates pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Old Certificates as set forth in the legend
thereon as a consequence of the issuance of the Old Certificates pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Old Certificates may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. United does not currently anticipate that it will register the Old
Certificates under the Securities Act. To the extent that Old Certificates are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Old Certificates could be adversely affected.
APPRAISALS AND REALIZABLE VALUE OF AIRCRAFT
The proceeds realized upon a sale of any Aircraft may be less than the
appraised value thereof. Appraisals in respect of the Aircraft (without physical
inspection thereof) have been prepared by AISI, BK and AvSolutions. Such
appraisals are based on varying assumptions and methodologies, which differ
among the Appraisers. The Appraisers have delivered letters summarizing their
respective reports, copies of which are annexed to this Prospectus as Appendix
II. See "Description of the Aircraft and the Appraisals." The appraised value of
each Aircraft and, accordingly, the initial aggregate Aircraft value as referred
to herein, is based upon the lesser of the average and median base values of
such Aircraft as appraised by the Appraisers and projected as of the scheduled
delivery month of such Aircraft. Such aggregate appraised values also assume
depreciation of approximately 2% of the initial appraised value per year through
the fifteenth year after the date of delivery of such Aircraft, by approximately
4% of the initial appraised value per year for the next five years and by
approximately 6% of the initial appraised value per year thereafter, although no
assurance can be given as to the actual market value rate of depreciation, which
may differ from such rates during such period. Appraisals that are based on
different assumptions and methodologies may result in valuations that are
materially different from those contained in the appraisals of the Appraisers.
An appraisal is only an estimate of value and should not be relied upon as a
measure of realizable value. The value of the Aircraft in the event of the
exercise of remedies under the applicable Indenture will depend on market and
economic conditions, the supply of aircraft, the availability of buyers, the
condition of the Aircraft and other factors. Accordingly, there can be no
assurance that the proceeds realized upon any such exercise of remedies with
respect to the Equipment Notes and the Aircraft pursuant to the applicable Pass
Through Trust Agreement and the applicable Indenture would be sufficient to
satisfy in full payments due on the Certificates.
PRIORITY OF DISTRIBUTIONS; SUBORDINATION
Certain provisions of the Intercreditor Agreement, which provide for the
subordination of the Class B Certificates to the Class A Certificates, the
subordination of the Class C Certificates to the Class B Certificates and the
subordination of the Class D Certificates to the Class C Certificates, may
result in the holders of the subordinated Classes of Certificates receiving less
than the full amount due to them after the occurrence of a payment default under
any Equipment Note or a Triggering Event, even if all of the Equipment Notes
eventually are paid in full. Pursuant to the Intercreditor Agreement to which
the Trustees, the Subordination Agent and the Liquidity Providers will be
parties, on each Distribution Date, all payments received by the Subordination
Agent will be distributed in the order of priority described in "Description of
27
<PAGE> 29
the Intercreditor Agreement -- Priority of Distributions" depending on, among
other things, whether or not a Triggering Event has occurred.
The priority of distributions after a payment default under any Equipment
Note or a Triggering Event will have the effect in certain circumstances of
requiring the distribution to more senior Classes of Certificates of payments
received in respect of one or more junior Series of Equipment Notes. If this
occurs, interest accruing on the remaining Equipment Notes will in the aggregate
be less than interest accruing on the remaining Certificates because such
Certificates include a relatively greater proportion of junior Classes with
relatively higher interest rates. As a result of this possible interest
shortfall, the holders of one or more junior Classes of Certificates may not
receive the full amount due them after a payment default under any Equipment
Note even if all Equipment Notes are eventually paid in full.
CONTROL OVER COLLATERAL; SALE OF COLLATERAL
The Certificateholders have certain limitations on their ability to sell or
otherwise control the collateral of the Trusts as described below. Pursuant to
the Intercreditor Agreement, the Trustees and the Primary Liquidity Providers
have agreed that, with respect to any Indenture at any given time, the Indenture
Trustee will be directed (a) in taking, or refraining from taking, any action
thereunder by a Majority in Interest of Noteholders (as defined in such
Indenture) so long as no Indenture Default has occurred and is continuing
thereunder and (b) subject to certain conditions, in exercising remedies
thereunder (including acceleration of such Equipment Notes or foreclosing the
lien on the Aircraft securing such Equipment Notes) insofar as an Indenture
Default has occurred and is continuing, by the Controlling Party. See
"Description of the Certificates -- Indenture Defaults and Certain Rights Upon
an Indenture Default" for a description of the rights of the Certificateholders
of each Trust to direct the respective Trustees. Notwithstanding the foregoing,
at any time after 18 months from the earlier to occur of (x) the date on which
the Remaining Commitment Amount under any Primary Liquidity Facility is and
remains zero (for any reason other than a Downgrade Drawing), (y) the date on
which a Final Drawing has been made under any Primary Liquidity Facility and (z)
the date on which all Equipment Notes have been accelerated, the Primary
Liquidity Provider has the right to elect to become the Controlling Party with
respect to such Indenture; provided, however, that if there is more than one
Primary Liquidity Provider, the Primary Liquidity Providers holding in excess of
50% of unreimbursed Liquidity Obligations will have such right. For purposes of
giving effect to the foregoing, the Trustees (other than the Controlling Party)
will irrevocably agree (and the Certificateholders, other than the
Certificateholders represented by the Controlling Party, will be deemed to agree
by virtue of their purchase of Certificates) that the Subordination Agent, as
record holder of the Equipment Notes, will exercise its voting rights in respect
of the Equipment Notes as directed by the Controlling Party. For a description
of certain limitations on the Controlling Party's rights to exercise remedies,
see "Description of the Equipment Notes -- Remedies."
Upon the occurrence and during the continuation of any Indenture Default
under any Indenture, the Controlling Party may, among other things, direct the
Subordination Agent, which will in turn direct the Indenture Trustee, to
accelerate and, subject to the provisions of the following sentence, sell all
(but not less than all) of the Equipment Notes issued under such Indenture to
any person. Subject to the rights of any Owner Trustee or the Owner Participant,
so long as any Certificates are outstanding, during the nine months after the
earlier of (x) the acceleration of the Equipment Notes under any Indenture or
(y) the bankruptcy or insolvency of United, without the consent of the Trustee,
(a) no Aircraft subject to the lien of any Indenture or such Equipment Notes may
be sold if the net proceeds from such sale would be less than the aggregate
outstanding principal amount of the Equipment Notes related to such Aircraft,
plus accrued interest thereon, and (b) with respect to any Leased Aircraft, the
amount and payment dates of rentals payable by United under the Lease for such
Leased Aircraft may not be adjusted if, as a result of such adjustment, the
discounted present value of all such rentals would be less than 75% of the
discounted present value of the rentals payable by United under such Lease
before giving effect to such adjustment, in each case, using the weighted
average interest rate of the Equipment Notes issued under such Indenture as the
discount rate. The market for Equipment Notes at the time of the existence of
any Indenture Default may be very limited, and there can be no assurance as to
the price at which they could be sold. If the Controlling Party sells any such
28
<PAGE> 30
Equipment Notes for less than their outstanding principal amount, certain
Certificateholders will receive a smaller amount of principal distributions than
anticipated and will not have any claim for the shortfall against United, any
Owner Trustee, any Owner Participant or any Trustee.
The Equipment Notes are not cross-collateralized and, thus, proceeds from
the sale of an Aircraft in excess of the amounts due on Equipment Notes related
to such Aircraft will not be available to cover losses, if any, on any other
Equipment Notes.
PURCHASE OR REFINANCING OF EQUIPMENT NOTES RELATING TO THE LEASED AIRCRAFT ON
THE FINAL EXPECTED DISTRIBUTION DATE
The Final Expected Distribution Date on the Certificates is scheduled to
occur prior to the maturity date of the Equipment Notes relating to the Leased
Aircraft. On the Final Expected Distribution Date, the installments of principal
and interest then due and payable on the Equipment Notes relating to the Leased
Aircraft, together with the principal and interest due on the Equipment Notes
relating to the Owned Aircraft, will be insufficient to pay the final expected
distribution of principal on the Certificates. Under the Note Purchase
Agreement, the applicable Trustees will obtain the funds to pay the final
expected distribution on the Certificates on the Final Expected Distribution
Date from the payment by United in full at maturity of the principal and accrued
interest on the Equipment Notes issued with respect to the Owned Aircraft and by
selling, or permitting the refinancing of, the Equipment Notes issued with
respect to the Leased Aircraft for an amount equal to the principal thereof plus
accrued interest thereon.
On the Final Expected Distribution Date, United or its designee may
purchase the Equipment Notes relating to the Leased Aircraft from the Trustees
for an amount equal to the principal thereof plus accrued interest thereon, or
United may arrange for the purchase of the Equipment Notes by a third party for
an amount equal to the principal amount thereof plus accrued interest thereon.
Whether or not United purchases or refinances the Equipment Notes relating
to the Leased Aircraft in full on the Final Expected Distribution Date, the
interest rates on each Series of Equipment Notes relating to the Leased Aircraft
that remains outstanding on or after the Final Expected Distribution Date will
be reset to the interest rate that, in the good faith determination of the Reset
Agent after consideration of the then current rates for pass through
certificates of United and other comparable equipment lessees having similar
tenor, rating and other pricing terms, will enable each such Series of Equipment
Notes to be sold at 100% of the principal amount thereof on the Final Expected
Distribution Date.
Neither the failure of United to purchase or refinance the Equipment Notes
relating to the Leased Aircraft nor the failure of the Reset Agent to set a rate
that results in a sale of such Equipment Notes will constitute an Indenture
Default. Consequently, Leased Aircraft Indenture Trustees will not be entitled
to exercise remedies against the Leased Aircraft, including repossession of the
Leased Aircraft pursuant to Section 1110, or accelerate the Equipment Notes
relating to the Leased Aircraft solely as a result of the failure by United to
purchase or refinance the Equipment Notes relating to the Leased Aircraft on or
prior to the Final Expected Distribution Date. While the Trustee will be
obligated to sell the Equipment Notes issued with respect to the Leased Aircraft
at par (and to reset the interest rate on such Equipment Notes to enable such
sale), the market for Equipment Notes at such time may be very limited and there
can be no assurance such sale will occur or that such sale will occur in a
timely manner.
ABSENCE OF AN ESTABLISHED MARKET FOR THE CERTIFICATES
There can be no assurance as to the liquidity of the public market for the
Certificates or that any active public market for the Certificates will develop.
Prior to the Exchange Offer, there was no public market for the Certificates and
neither United nor any Trust intends to apply for listing of the Certificates on
any securities exchange or for quotation of the Certificates on The Nasdaq Stock
Market's National Market or otherwise. United has been advised by the Class A
Initial Purchasers that one or more of them presently intend to make a market in
the Class A Certificates, as permitted by applicable laws and regulations, after
consummation of the Exchange Offer. None of the Initial Purchasers is obligated,
however, to make a market in the Old Certificates or the New Certificates and
any such market-making activity may be discontinued at any time without notice
at the sole discretion of each Class A Initial Purchaser. If an active public
market does not develop, the market price and liquidity of the Certificates may
be adversely affected.
29
<PAGE> 31
USE OF PROCEEDS
There will be no cash proceeds payable to United from the issuance of the
New Certificates pursuant to the Exchange Offer. The proceeds from the sale of
the Old Class A Certificates and the Old Class B Certificates were used to
purchase the Series A and Series B Equipment Notes, respectively, issued by (a)
the related Owner Trustees in connection with the refinancing of the
indebtedness originally incurred by such Owner Trustees to finance the purchase
of each of the Leased Aircraft and (b) United in connection with the debt
financings secured by the Owned Aircraft.
THE EXCHANGE OFFER
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and reference is made to the
provisions of the Registration Rights Agreement, which has been filed as an
exhibit to the Registration Statement and a copy of which is available as set
forth under the heading "Available Information."
GENERAL
In connection with the issuance of the Old Certificates, pursuant to a
Purchase Agreement dated as of December 18, 1997, between United and the Class A
Initial Purchasers, and pursuant to a Purchase Agreement dated as of December
23, 1997, between United and the Class B Initial Purchaser, the Class A Initial
Purchasers and the Class B Initial Purchaser and their respective assignees
became entitled to the benefits of the Registration Rights Agreement.
Under the Registration Rights Agreement, United is obligated to use its
best efforts to (i) file the Registration Statement of which this Prospectus is
a part for a registered exchange offer with respect to an issue of new
certificates identical in all material respects to the Old Certificates within
90 days after December 23, 1997 (the "Issuance Date"), (ii) cause the
Registration Statement to become effective under the Securities Act within 150
days after the Issuance Date, (iii) cause the Registration Statement to remain
effective until the closing of the Exchange Offer and (iv) consummate the
Exchange Offer within 180 calendar days after the Issuance Date. United will
keep the Exchange Offer open for a period of not less than 30 calendar days. The
Exchange Offer being made hereby, if commenced and consummated within the time
periods described in this paragraph, will satisfy those requirements under the
Registration Rights Agreement.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal (which together constitute the Exchange Offer),
all Old Certificates validly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date will be accepted for exchange. New
Certificates of the same class will be issued in exchange for an equal face
amount of outstanding Old Certificates accepted in the Exchange Offer. Old
Certificates may be tendered only in integral multiples of $1,000. This
Prospectus, together with the Letter of Transmittal, is being sent to all
registered holders of the Old Certificates as of May 6, 1998. The Exchange Offer
is not conditioned upon any minimum principal amount of Old Certificates being
tendered for exchange. However, the obligation to accept Old Certificates for
exchange pursuant to the Exchange Offer is subject to certain conditions as set
forth herein under "-- Conditions."
Old Certificates will be deemed to have been accepted as validly tendered
when, as and if the Trustee has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Certificates for the purposes of receiving the New Certificates and
delivering New Certificates to such holders.
The New Certificates are being offered hereby in order to satisfy certain
obligations of United contained in the Registration Rights Agreement. United is
making the Exchange Offer in reliance on the position of the staff of the
Securities and Exchange Commission (the "Commission") as set forth in certain
interpretive letters addressed to third parties in other transactions. However,
United has not sought its own interpretive letter and there can be no assurance
that the staff of the Commission would make a similar determination with respect
to the Exchange Offer as it has in such interpretive letters to third parties.
Based on these interpretations by the staff of the Commission, United believes
that New Certificates issued pursuant to the Exchange Offer to a holder in
exchange for Old Certificates may be offered for resale, resold and otherwise
30
<PAGE> 32
transferred by a holder (other than (i) a broker-dealer who purchased Old
Certificates directly from United for resale pursuant to Rule 144A or any other
available exemption under the Securities Act, (ii) an "affiliate" of United
within the meaning of Rule 405 under the Securities Act, or (iii) a
broker-dealer who acquired the Old Certificates as a result of market-making or
other trading activities), without further compliance with the registration and
prospectus delivery provisions of the Securities Act; provided, that such holder
is acquiring the New Certificates in the ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of the
New Certificates. Holders wishing to accept the Exchange Offer must represent to
United, as required by the Registration Rights Agreement, that such conditions
have been met. Any holder of Old Certificates who is not able to rely on the
interpretations of the staff of the Commission set forth in the above-mentioned
interpretive letters must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or other transfer
of such Old Certificates unless such sale is made pursuant to an exemption from
such requirements.
Each broker-dealer that receives New Certificates for its own account
pursuant to the Exchange Offer (a "Participating Broker Dealer") must
acknowledge that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Certificates. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of New Certificates received in
exchange for Old Certificates where such Old Certificates were acquired by such
Participating Broker-Dealer for its own account as a result of market-making or
other trading activities. Subject to certain provisions set forth in the
Registration Rights Agreement, United has agreed that this Prospectus may be
used by a Participating Broker-Dealer in connection with resales of such New
Certificates. See "Plan of Distribution."
If any changes in law or the applicable interpretations of the staff of the
Commission do not permit United to effect the Exchange Offer, if the
Registration Statement is not declared effective within 150 days after the
Issuance Date under certain circumstances or the Exchange Offer is not
consummated within 180 days after the Issuance Date under certain other
circumstances, at the request of a holder not eligible to participate in the
Exchange Offer or under certain other circumstances described in the
Registration Rights Agreement, United will, in lieu of effecting the
registration of the New Certificates pursuant to the Registration Statement and
at no cost to the holders of Old Certificates, (a) as promptly as practicable
file with the Commission a shelf registration statement (the "Shelf Registration
Statement") covering resales of the Old Certificates, (b) use its best efforts
to cause the Shelf Registration Statement to be declared effective under the
Securities Act by the 180th calendar day after the Issuance Date and (c) use its
best efforts to keep effective the Shelf Registration Statement for a period of
two years after its effective date (or for such shorter period as shall end when
all of the Old Certificates covered by the Shelf Registration Statement have
been sold pursuant thereto or may be freely sold pursuant to Rule 144 under the
Securities Act).
If neither the consummation of the Exchange Offer nor the declaration by
the Commission of the Shelf Registration Statement to be effective (each, a
"Registration Event") occurs on or prior to the 180th calendar day following the
Issuance Date, the interest rate per annum borne by the Equipment Notes will be
increased by 0.50% from and including July 1, 1998 to but excluding the date on
which a Registration Event occurs. If the Shelf Registration Statement ceases to
be effective at any time during the period specified by the Registration Rights
Agreement for more than 60 days, whether or not consecutive, during any 12-month
period, the interest rate per annum borne by the Equipment Notes will be
increased by 0.50% from the 61st day of the applicable 12-month period such
Shelf Registration Statement ceases to be effective until such time as the Shelf
Registration Statement again becomes effective (or, if earlier, the end of such
period specified by the Registration Rights Agreement).
Upon consummation of the Exchange Offer, subject to certain exceptions,
holders of Old Certificates who do not exchange their Old Certificates for New
Certificates in the Exchange Offer will no longer be entitled to registration
rights and will not be able to offer or sell their Old Certificates, unless such
Old Certificates are subsequently registered under the Securities Act (which,
subject to certain limited exceptions,
31
<PAGE> 33
United will have no obligation to do), except pursuant to an exemption from, or
in a transaction not subject to, the Securities Act and applicable state
securities laws. See "Risk Factors -- Consequences of Failure to Exchange."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The term "Expiration Date" means June 5, 1998 (30 calendar days following
the commencement of the Exchange Offer), unless United, in its sole discretion,
extends the Exchange Offer, in which case the term "Expiration Date" means the
latest date to which the Exchange Offer is extended. Notwithstanding any
extension of the Exchange Offer, if the Exchange Offer is not consummated by
June 21, 1998, the interest rate borne by the Equipment Notes is subject to
increase. See "-- General."
In order to extend the Expiration Date, United will notify the Exchange
Agent of any extension by oral or written notice and will mail to the record
holders of Old Certificates an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that United is extending the
Exchange Offer for a specified period of time.
United reserves the right (i) to delay acceptance of any Old Certificates,
to extend the Exchange Offer or to terminate the Exchange Offer and not permit
acceptance of Old Certificates not previously accepted if any of the conditions
set forth herein under "-- Conditions" have occurred and not have been waived by
United, by giving oral or written notice of such delay, extension or termination
to the Exchange Agent, or (ii) to amend the terms of the Exchange Offer in any
manner deemed by it to be advantageous to the holders of the Old Certificates.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
Exchange Agent. If the Exchange Offer is amended in a manner determined by
United to constitute a material change, United will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of the Old
Certificates of such amendment.
Without limiting the manner in which United may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, United has no obligation to publish, advertise or otherwise communicate
any such public announcement, other than by making a timely release to an
appropriate news agency.
INTEREST ON THE NEW CERTIFICATES
The New Certificates will accrue interest at the applicable per annum rate
for such Trust set forth on the cover page of this Prospectus, from the most
recent date to which interest has been paid on the Old Certificates or, if no
interest has been paid, from the Issuance Date. Interest on the New Certificates
is payable on March 2, June 2, September 2 and December 2 of each year
commencing upon the consummation of the Exchange Offer, subject to the terms of
the Intercreditor Agreement.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must transmit a properly
completed and duly executed Letter of Transmittal, or a facsimile thereof,
together with any other documents required by such Letter of Transmittal, or (in
the case of a book-entry transfer) an Agent's Message in lieu of such Letter of
Transmittal, to the Exchange Agent at the address set forth below under
" -- Exchange Agent" prior to 5:00 p.m, New York City time, on the Expiration
Date. In addition, either (i) certificates for such Old Certificates must be
received by the Exchange Agent along with the Letter of Transmittal, (ii) a
timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of
such Old Certificates, if such procedure is available, into the Exchange Agent's
account at The Depository Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date with the Letter of
Transmittal or Agent's Message in lieu of such Letter of Transmittal or (iii)
the holder must comply with the guaranteed delivery procedures described below.
The term "Agent's Message" means a message, transmitted by the Book-entry
Transfer Facility to and received by the Exchange Agent and forming a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the tendering participant, which
acknowledgment states that
32
<PAGE> 34
such participant has received and agrees to be bound by, and makes the
representations and warranties contained in, the Letter of Transmittal and that
the Company may enforce such Letter of Transmittal against such participant. THE
METHOD OF DELIVERY OF OLD CERTIFICATES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD CERTIFICATES
SHOULD BE SENT TO UNITED. Delivery of all documents must be made to the Exchange
Agent at its address set forth below. Holders may also request their respective
brokers, dealers, commercial banks, trust companies or nominees to effect such
tender for such holders.
The tender by a holder of Old Certificates will constitute an agreement
between such holder and United in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Only a holder of Old Certificates may tender such Old Certificates in the
Exchange Offer. The term "holder" with respect to the Exchange Offer means any
person in whose name Old Certificates are registered on the books of United or
any other person who has obtained a properly completed bond power from the
registered holder.
Any beneficial owner whose Old Certificates are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Old Certificates, either
make appropriate arrangements to register ownership of the Old Certificates in
such owner's name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the meaning of Rule
17Ad-15 under the Exchange Act (each, an "Eligible Institution") unless the Old
Certificates tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Certificates listed therein, such Old Certificates
must be endorsed or accompanied by bond powers and a proxy which authorizes such
person to tender the Old Certificates on behalf of the registered holder, in
each case as the name of the registered holder or holders appears on the Old
Certificates.
If the Letter of Transmittal or any Old Certificates or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by
United, evidence satisfactory to United of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and withdrawal of the tendered Old Certificates will be determined by
United in its sole discretion, which determination will be final and binding.
United reserves the absolute right to reject any and all Old Certificates not
properly tendered or any Old Certificates the acceptance of which would, in the
opinion of counsel for United, be unlawful. United also reserves the absolute
right to waive any irregularities or conditions of tender as to particular Old
Certificates. United's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Old Certificates must be cured within such time as
United shall determine. Neither United, the Exchange Agent nor any other person
will be under any duty to give notification of defects or irregularities with
respect to tenders of Old Certificates, nor will any of them incur
33
<PAGE> 35
any liability for failure to give such notification. Tenders of Old Certificates
will not be deemed to have been made until such irregularities have been cured
or waived. Any Old Certificates received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost to such holder by the Exchange
Agent to the tendering holders of Old Certificates, unless otherwise provided in
the Letter of Transmittal, as soon as practicable following the Expiration Date.
In addition, United reserves the right in its sole discretion, subject to
the provisions of the Pass Through Trust Agreements, to (i) purchase or make
offers for any Old Certificates that remain outstanding subsequent to the
Expiration Date or, as set forth under "-- Conditions," to terminate the
Exchange Offer in accordance with the terms of the Registration Rights Agreement
and (ii) to the extent permitted by applicable law, purchase Old Certificates in
the open market, in privately negotiated transactions or otherwise. The terms of
any such purchases or offers could differ from the terms of the Exchange Offer.
ACCEPTANCE OF OLD CERTIFICATES FOR EXCHANGE; DELIVERY OF NEW CERTIFICATES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
all Old Certificates properly tendered will be accepted, promptly after the
Expiration Date, and the New Certificates will be issued promptly after
acceptance of the Old Certificates. See "-- Conditions" below. For purposes of
the Exchange Offer, Old Certificates will be deemed to have been accepted for
exchange when, as and if United has given oral or written notice thereof to the
Exchange Agent.
In all cases, issuance of New Certificates for Old Certificates that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of (i) certificates for such Old
Certificates or a timely Book-Entry Confirmation of such Old Certificates into
the Exchange Agent's account at the Book-Entry Transfer Facility, (ii) a
properly completed and duly executed Letter of Transmittal or an Agent's Message
in lieu thereof and (iii) all other required documents. If any tendered Old
Certificates are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer or if Old Certificates are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted or
nonexchanged Old Certificates will be returned without expense to the tendering
holder thereof (or, in the case of Old Certificates tendered by book-entry
transfer procedures described below, such nonexchanged Old Certificates will be
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Certificates at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Certificates by causing
the Book-Entry Transfer Facility to transfer such Old Certificates into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Certificates may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof
with any required signature guarantees or an Agent's Message in lieu thereof,
together with any other required documents, must, in any case, be transmitted to
and received by the Exchange Agent at one of the addresses set forth below under
"-- Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Certificates desires to tender such Old
Certificates, and the Old Certificates are not immediately available, or time
will not permit such holder's Old Certificates or other required documents to
reach the Exchange Agent before the Expiration Date, or the procedures for book-
entry transfer cannot be completed on a timely basis, a tender may be effected
if (i) the tender is made through an Eligible Institution, (ii) prior to the
Expiration Date, the Exchange Agent receives from such Eligible Institution a
properly completed and duly executed notice of guaranteed delivery,
substantially in the form provided by United (a "Notice of Guaranteed Delivery")
(by facsimile transmission, mail or hand
34
<PAGE> 36
delivery), setting forth the name and address of the holder of Old Certificates
and the amount of Old Certificates tendered, stating that the tender is being
made thereby and guaranteeing that within three New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of Guaranteed Delivery,
the certificates for all physically tendered Old Certificates, in proper form
for transfer, or a Book-Entry Confirmation, as the case may be, together with a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof or an Agent's Message in lieu thereof), with any required signature
guarantees and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent and (iii) the
certificates for all physically tendered Old Certificates, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, together with a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof or an Agent's Message in lieu thereof), with any required signature
guarantees and all other documents required by the Letter of Transmittal are
received by the Exchange Agent within three NYSE trading days after the date of
execution of the Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of Old Certificates may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date at the address set forth below under "-- Exchange Agent." Any
such notice of withdrawal must specify the name of the person having tendered
the Old Certificates to be withdrawn, identify the Old Certificates to be
withdrawn (including the principal amount of such Old Certificates) and (where
certificates for Old Certificates have been transmitted) specify the name in
which such Old Certificates are registered, if different from that of the
withdrawing holder. If certificates for Old Certificates have been delivered or
otherwise identified to the Exchange Agent, then, prior to the release of such
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Old Certificates have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Old Certificates and otherwise comply with the
procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
United, whose determination will be final and binding on all parties. Any Old
Certificates so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Old Certificates which have
been tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Certificates tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Certificates will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Certificates) as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Certificates may be retendered by
following one of the procedures described under "-- Procedures for Tendering"
and "-- Book-Entry Transfer" above at any time on or prior to the Expiration
Date.
CONDITIONS
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, United will not be required to accept for
exchange, or to exchange, any Old Certificates for any New Certificates, and, as
described below, may terminate the Exchange Offer (whether or not any Old
Certificates have theretofore been accepted for exchange) or may waive any
conditions to or amend the Exchange Offer, if any of the following conditions
have occurred or exists or have not been satisfied:
(i) the due tendering of Old Certificates in accordance with the
Exchange Offer;
(ii) the Exchange Offer, or the making of any exchange by a holder,
violates any applicable law, statute, rule, regulation or any applicable
interpretation of the staff of the Commission;
35
<PAGE> 37
(iii) any law, statute, rule, regulation or interpretation by the
staff of the Commission is proposed, adopted or enacted that, in the
reasonable judgment of United, might materially impair the ability of
United to proceed with the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to United; or
(iv) each holder of Old Certificates exchanged in the Exchange Offer
shall have made certain customary representations, including
representations that, among other things, (i) the holder is not an
"affiliate" of United as defined in Rule 405 of the Securities Act, (ii)
the holder is not a broker-dealer that acquired Old Certificates directly
from United in order to resell them pursuant to Rule 144A of the Securities
Act or any other available exemption under the Securities Act, (iii) the
holder will acquire New Certificates in the ordinary course of business and
(iv) that the holder is not participating, and does not intend to
participate, and has no arrangement or understanding with any person to
participate, in the distribution of the New Certificates.
If United determines in its sole and absolute discretion that any of the
foregoing events or conditions has occurred or exists or has not been satisfied,
United may, subject to applicable law, (i) terminate the Exchange Offer (whether
or not any Old Certificates have theretofore been accepted for exchange), (ii)
extend the Exchange Offer and retain all Old Certificates tendered prior to the
expiration of the Exchange Offer subject, however, to the rights of holders to
withdraw such Old Certificates or (iii) waive any such condition or otherwise
amend the terms of the Exchange Offer in any respect. If such waiver or
amendment constitutes a material change to the Exchange Offer, United will
promptly disclose such waiver or amendment by means of a prospectus supplement
that will be distributed to the registered holders of the Old Certificates, and
United will extend the Exchange Offer to the extent required by Rule 14e-1 under
the Exchange Act.
The foregoing conditions are for the sole benefit of United and may be
waived by United in whole or in part at any time and from time to time in its
sole discretion. The failure by United at any time to exercise any of the
foregoing rights shall not be deemed a waiver of such rights and each such right
shall be deemed an ongoing right which may be asserted at any time and from time
to time. Any determination by United concerning the events described above will
be final and binding upon all parties.
In addition, United will not accept for exchange any Old Certificates
tendered, and no New Certificates will be issued in exchange for any such Old
Certificates, if at such time any stop order shall be threatened or in effect
with respect to the Registration Statement of which this Prospectus constitutes
a part or the qualification of the Pass Through Trust Agreements under the Trust
Indenture Act of 1939 (the "Trust Indenture Act").
EXCHANGE AGENT
First Security Bank, National Association has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance and requests
for additional copies of this Prospectus or the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
By Hand, Mail or Overnight Delivery:
First Security Bank, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Department
Facsimile Transmission:
(801) 246-5053
Confirm by Telephone:
(801) 246-5657
Dianne Diaz
36
<PAGE> 38
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by United. The principal solicitation for tenders pursuant to the Exchange
Offer is being made by mail. However, additional solicitations may be made by
telegraph, telephone, telecopy, electronic mail or in person by officers and
regular employees of United.
United will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. United will, however, pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. United may also pay brokerage houses and other custodians, nominees
and fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of the Prospectus and related documents to the beneficial
owners of the Old Certificates, and in handling or forwarding tenders for
exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by United, including fees and expenses of the Exchange Agent and Trustee
and accounting, legal, printing and related fees and expenses.
United will pay all transfer taxes, if any, applicable to the exchange of
Old Certificates pursuant to the Exchange Offer. If, however, certificates
representing New Certificates or Old Certificates for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered holder
of the Old Certificates tendered, or if tendered Old Certificates are registered
in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Old Certificates pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
MISCELLANEOUS
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Old Certificates are urged
to consult their financial and tax advisors in making their own decisions on
what action to take.
United may in the future seek to acquire untendered Old Certificates, to
the extent permitted by applicable law, in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. United has no
present plans to acquire any Old Certificates that are not tendered in the
Exchange Offer or to file a registration statement to permit resales of any
untendered Old Certificates.
SUMMARY OF NEW CERTIFICATES AND CERTAIN AGREEMENTS
The summaries of agreements set forth in "Description of the New
Certificates," "Description of the Liquidity Facilities" and "Description of the
Equipment Notes" below describe the terms of the New Certificates, the Equipment
Notes, the Trusts, the Pass Through Trust Agreements, the Liquidity Facilities,
the Intercreditor Agreement and certain other agreements related to the
foregoing. The summaries do not purport to be complete and are qualified in
their entirety by reference to all of the provisions of the New Certificates,
the Equipment Notes, the Leases, the Indentures, the Participation Agreements,
the Pass Through Trust Agreements, the Liquidity Facilities, the Intercreditor
Agreement, the Note Purchase Agreement and the Registration Rights Agreement
(the "Operative Agreements"), which have been filed as exhibits to the
Registration Statement and copies of which are available as set forth under the
heading "Available Information." Except as otherwise indicated, the following
summaries relate to each of the Trusts and the Certificates issued by each
Trust. Citations appearing below in parentheses relate to the relevant sections
of the Basic Pass Through Trust Agreement unless otherwise indicated. Copies of
the Operative Agreements are available from the Trustee.
37
<PAGE> 39
DESCRIPTION OF THE NEW CERTIFICATES
GENERAL
The New Certificates of each Trust will be issued in fully registered form
only. Each New Certificate will represent a fractional undivided interest in the
Trust created by the Trust Supplement pursuant to which such New Certificate is
issued. The Trust Property of each Trust consists of: (i) the Equipment Notes
held in such Trust, all monies at any time paid thereon and all monies due and
to become due thereunder; (ii) the rights of such Trust under the Intercreditor
Agreement, the Registration Rights Agreement and the Note Purchase Agreement
(including all monies receivable in respect of such rights); (iii) in the case
of the Class A and Class B Trusts, all monies receivable by the Subordination
Agent under the Liquidity Facilities for such Trust; and (iv) funds from time to
time deposited with the Trustee in accounts relating to such Trust. The New
Certificates represent pro rata shares of the Equipment Notes and property held
in the related Trust and will be issued only in minimum denominations of
$100,000 and integral multiples of $1,000 in excess thereof. (Section 3.01(b))
The Certificates issued by the Class C Trust were initially acquired by
Kreditanstalt fur Wiederaufbau, and the Certificates issued by the Class D Trust
were initially acquired by an affiliate of United.
The Certificates represent interests in the respective Trusts and all
payments and distributions thereon will be made only from the Trust Property.
(Sections 3.01(a) and 3.11) The Certificates do not represent an interest in or
an obligation of United, the Trustees, the Liquidity Providers, any of the
Indenture Trustees or Owner Trustees in their individual capacities, any Owner
Participant, or any affiliate of any thereof. The existence of each Trust will
not limit the liability that Certificateholders of such Trust would otherwise
incur if such holders owned directly the corresponding Equipment Notes or
incurred directly the obligations of such Trust.
SUBORDINATION
Pursuant to the Intercreditor Agreement to which the Trusts, the
Subordination Agent and the Liquidity Providers are parties, on each
Distribution Date all payments received by the Subordination Agent will be
distributed in the order of priority described below in "Description of the
Intercreditor Agreement -- Priority of Distributions."
The priority of distributions after a payment default under any Equipment
Note will have the effect in certain circumstances of requiring the distribution
to more senior Classes of Certificates of payments received in respect of one or
more junior Series of Equipment Notes. If this occurs, interest accruing on the
remaining Equipment Notes will in the aggregate be less than interest accruing
on the remaining Certificates because such Certificates include a relatively
greater proportion of junior Classes with relatively higher interest rates. As a
result of this possible interest shortfall, the holders of one or more junior
Classes of Certificates may not receive the full amount due them after a payment
default under any Equipment Note even if all Equipment Notes are eventually paid
in full.
PAYMENTS AND DISTRIBUTIONS
Payments of principal, any Additional Payments and interest with respect to
the Equipment Notes or other Trust Property held in each Trust will be
distributed by the Trustee to Certificateholders of such Trust on the date
receipt of such payment is confirmed, except in the case of certain types of
Special Payments (as defined herein).
Interest applicable to the Class A and Class B Certificates will be payable
at a floating rate equal to Three-Month LIBOR plus the spread for the Class A
and Class B Certificates, respectively, set forth on the cover page of this
Prospectus.
Interest on the Equipment Notes is payable on March 2, June 2, September 2
and December 2 of each year, commencing on March 2, 1998. These interest
payments will be passed through to Certificateholders of each Trust on each
Regular Distribution Date until the Final Expected Distribution Date for such
Certificates,
38
<PAGE> 40
in each case subject to the Intercreditor Agreement. Interest is calculated on
the basis of the actual number of days elapsed over a 360-day year.
"Three-Month LIBOR" means, with respect to each interest period beginning
on and including a Regular Distribution Date and ending on but excluding the
next Regular Distribution Date, the interest rate per annum (calculated on the
basis of a 360-day year and actual days elapsed) at which deposits in U.S.
Dollars are offered to prime banks in the London interbank market as indicated
on display page 3750 (British Bankers Association-LIBOR) of the Dow Jones
Markets Service (or such other page as may replace such display page 3750 for
the purpose of displaying London interbank offered rates for Dollar deposits),
or if not so indicated, the average (rounded upwards to the nearest 1/100%), as
determined by the Calculation Agent, of such rates as indicated on the Reuters
Screen LIBO Page (or such other page as may replace such Reuters Screen LIBO
Page for the purpose of displaying London interbank offering rates for Dollar
deposits) or, if neither such alternative is indicated, the average (rounded
upwards to the nearest 1/100%), as determined by the Calculation Agent, of such
rates offered by the London Reference Banks to prime banks in the London
interbank market, in each case at or about 11:00 a.m. (London time) on the LIBOR
Business Day that is two LIBOR Business Days prior to the first day of such
interest period (the "Three Month LIBOR Reference Date") for deposits for a
period of three months in an amount substantially equal to the principal amount
of the Equipment Notes then outstanding. For the purposes of this paragraph, the
"London Reference Banks" means the principal London offices of National
Westminster Bank Plc, Barclays Bank Plc and Bayerische Landesbank Girozentrale,
or such other bank or banks as may from time to time be agreed to by the Company
and the Calculation Agent. The Calculation Agent will, if necessary, request
that each of the London Reference Banks provide a quotation of its rate. If at
least two such quotations are provided, the rate will be the average of the
quotations (rounded upwards to the nearest 1/100%). If no such quotation can be
obtained, the rate will be Three-Month LIBOR for the immediately preceding
interest period. The "Calculation Agent" with respect to any Indenture is the
applicable Indenture Trustee.
"LIBOR Business Day" means any day other than a Saturday or Sunday or any
other day on which banks are required or authorized to close in New York, New
York or London, England.
The interest rate applicable to each Class of Certificates is subject to
change to the same extent as the interest rate for the corresponding Series of
Equipment Notes (see "Description of the Equipment Notes -- Principal and
Interest Payments") and under certain circumstances described in "Exchange Offer
- --General."
Payments of interest on the Class A and Class B Certificates are supported
by two separate Liquidity Facilities provided by Kreditanstalt fur Wiederaufbau
(the "Primary Liquidity Provider") and Credit Suisse Financial Products (the
"Above-Cap Liquidity Provider") (each of the Primary Liquidity Provider and the
Above-Cap Liquidity Provider being a "Liquidity Provider") for the benefit of
the holders of such Certificates in an aggregate amount sufficient to pay
interest thereon on up to six consecutive Regular Distribution Dates.
Notwithstanding the subordination provisions of the Intercreditor Agreement, the
holders of the Class A and Class B Certificates will be entitled to receive and
retain the proceeds of drawings under the Liquidity Facilities for such Trust.
See "Description of the Liquidity Facilities."
Payments of principal on the Equipment Notes held in each Trust are
scheduled to be received in specified amounts by the Trustee of such Trust on
any of March 2, June 2, September 2 or December 2 of specified years depending
upon the terms of the Equipment Notes held in such Trust, commencing on March 2,
1998. Scheduled payments of interest and principal on the Equipment Notes are
referred to herein as "Scheduled Payments." Each of March 2, June 2, September 2
and December 2 of each year are referred to herein as a "Regular Distribution
Date." See "Description of the Equipment Notes -- Principal and Interest
Payments." The Final Maturity Date for each of the Class A and Class B
Certificates is March 2, 2004, and the Final Maturity Date for the Class C and
Class D Certificates is December 2, 2002.
39
<PAGE> 41
The Scheduled Payments of principal on the Equipment Notes held in each
Trust are set forth in the following table, along with the corresponding
scheduled distributions of principal of such Trust.
<TABLE>
<CAPTION>
1997-1A TRUST 1997-1B TRUST
---------------------------- ----------------------------
INSTALLMENTS DISTRIBUTIONS INSTALLMENTS DISTRIBUTIONS
OF PRINCIPAL ON PASS OF PRINCIPAL ON PASS
OF EQUIPMENT THROUGH OF EQUIPMENT THROUGH
DATE NOTES CERTIFICATES NOTES CERTIFICATES
---- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
March 2, 1998............................ $ 415,900 $ 415,900 $ 385,563 $ 385,563
June 2, 1998............................. 10,062,730 10,062,730 1,874,904 1,874,904
September 2, 1998........................ 327,095 327,095 0 0
December 2, 1998......................... 3,578,458 3,578,458 357,054 357,054
June 2, 1999............................. 10,062,730 10,062,730 1,874,904 1,874,904
December 2, 1999......................... 3,578,659 3,578,659 132,560 132,560
June 2, 2000............................. 10,062,730 10,062,730 1,874,904 1,874,904
December 2, 2000......................... 3,578,658 3,578,658 272,936 272,936
June 2, 2001............................. 10,062,730 10,062,730 1,874,904 1,874,904
December 2, 2001......................... 3,578,658 3,578,658 324,365 324,365
June 2, 2002............................. 10,062,730 10,062,730 1,874,904 1,874,904
December 2, 2002......................... 343,441,714 380,454,922 86,909,019 95,760,001
December 2, 2003......................... 993,599 0 237,600 0
December 2, 2004......................... 993,600 0 237,600 0
December 2, 2005......................... 1,737,194 0 560,860 0
December 2, 2006......................... 1,987,202 0 329,756 0
December 2, 2007......................... 1,987,199 0 475,199 0
December 2, 2008......................... 1,987,199 0 475,199 0
December 2, 2009......................... 1,987,202 0 895,592 0
December 2, 2010......................... 2,730,794 0 865,335 0
December 2, 2011......................... 2,980,802 0 80,089 0
December 2, 2012......................... 3,354,296 0 339,305 0
December 2, 2013......................... 2,607,305 0 1,402,015 0
December 2, 2014......................... 3,573,444 0 2,429,133 0
December 2, 2015......................... 10,093,372 0 523,299 0
------------ ------------ ------------ ------------
$445,826,000 $445,826,000 $106,607,000 $106,607,000
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
1997-1C TRUST 1997-1D TRUST
---------------------------- ----------------------------
INSTALLMENTS DISTRIBUTIONS INSTALLMENTS DISTRIBUTIONS
OF PRINCIPAL ON PASS OF PRINCIPAL ON PASS
OF EQUIPMENT THROUGH OF EQUIPMENT THROUGH
DATE NOTES CERTIFICATES NOTES CERTIFICATES
---- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
March 2, 1998............................ $ 0 $ 0 $ 514,352 $ 514,352
June 2, 1998............................. 1,841,130 1,841,130 0 0
December 2, 1998......................... 349,852 349,852 432,161 432,161
June 2, 1999............................. 1,841,130 1,841,130 0 0
December 2, 1999......................... 575,147 575,147 1,366,587 1,366,587
June 2, 2000............................. 1,841,130 1,841,130 0 0
December 2, 2000......................... 434,770 434,770 1,542,212 1,542,212
June 2, 2001............................. 1,841,130 1,841,130 0 0
December 2, 2001......................... 383,341 383,341 1,741,353 1,741,353
June 2, 2002............................. 1,841,130 1,841,130 0 0
December 2, 2002......................... 88,590,986 99,051,239 1,944,865 5,826,516
December 2, 2003......................... 280,800 0 2,157,978 0
December 2, 2004......................... 1,151,107 0 1,513,776 0
December 2, 2005......................... 1,848,223 0 0 0
December 2, 2007......................... 731,826 0 0 0
December 2, 2008......................... 1,244,732 0 0 0
December 2, 2009......................... 1,217,541 0 0 0
December 2, 2010......................... 153,675 0 0 0
December 2, 2012......................... 247,803 0 0 0
December 2, 2013......................... 1,653,367 0 209,896 0
December 2, 2014......................... 1,931,179 0 0 0
------------ ------------ ------------ ------------
$110,000,000 $110,000,000 $ 11,423,182 $ 11,423,182
============ ============ ============ ============
</TABLE>
40
<PAGE> 42
The Trustee of each Trust will distribute, subject to the Intercreditor
Agreement, on each Regular Distribution Date to the Certificateholders of such
Trust all Scheduled Payments, the receipt of which has been confirmed by the
Trustee on such Regular Distribution Date. Each Certificateholder of each Trust
will be entitled to receive a pro rata share of any distribution in respect of
Scheduled Payments of principal and interest made on the Equipment Notes held in
such Trust. Each such distribution of Scheduled Payments will be made by the
Trustee of each Trust to the Certificateholders of record of such Trust on the
Record Date applicable to such Scheduled Payment subject to certain exceptions.
(Section 4.02(a)) If a Scheduled Payment is not received by the Trustee on a
Regular Distribution Date but is received within five days thereafter, it will
be distributed to such holders of record on the date received. If it is received
after such five-day period, it will be treated as a Special Payment and
distributed as described below.
Any payment in respect of, or any proceeds of, any Equipment Note or the
Indenture Estate under (and as defined in) each Indenture (other than a
Scheduled Payment) (each, a "Special Payment") will be distributed on, in the
case of an early redemption or a purchase of all or any series of the Equipment
Notes relating to one or more Aircraft, the date of such early redemption or
purchase (which will be a Business Day), and otherwise on the Business Day
specified for distribution of such Special Payment pursuant to a notice
delivered by the Trustee as soon as practicable after the Trustee has received
funds for such Special Payment, in each case subject to the Intercreditor
Agreement. The Trustee will mail notice to the Certificateholders of the
applicable Trust not less than 20 days prior to the Special Distribution Date on
which any Special Payment is scheduled to be distributed by the Trustee stating
such anticipated Special Distribution Date. (Section 4.02(c)) Each distribution
of a Special Payment, other than a final distribution, on a Special Distribution
Date for any Trust will be made by the Trustee to the Certificateholders of
record of such Trust on the Record Date applicable to such Special Payment. See
"-- Indenture Defaults and Certain Rights Upon an Indenture Default" and
"Description of the Equipment Notes -- Redemption."
The Basic Pass Through Trust Agreement requires that the Trustee establish
and maintain, for the related Trust and for the benefit of the
Certificateholders of such Trust, one or more non-interest bearing accounts (the
"Certificate Account") for the deposit of payments representing Scheduled
Payments on the Equipment Notes held in such Trust. The Basic Pass Through Trust
Agreement also requires that the Trustee establish and maintain, for the related
Trust and for the benefit of the Certificateholders of such Trust, one or more
accounts (the "Special Payments Account") for the deposit of payments
representing Special Payments, which account will be non-interest bearing except
in certain circumstances where the Trustee may invest amounts in such account in
certain permitted investments. Pursuant to the terms of the Basic Pass Through
Trust Agreement, the Trustee is required to deposit any Scheduled Payments
relating to the applicable Trust received by it in the Certificate Account of
such Trust and to deposit any Special Payments so received by it in the Special
Payments Account of such Trust. (Sections 4.01 and 4.04) All amounts so
deposited will be distributed by the Trustee on a Regular Distribution Date or a
Special Distribution Date, as appropriate. (Section 4.02)
Distributions by the Trustee from the Certificate Account or the Special
Payments Account of each Trust on a Regular Distribution Date or a Special
Distribution Date in respect of Certificates issued by such Trust in definitive
form will be made to each Certificateholder of record of such Certificates on
the applicable Record Date. (Section 4.02) The final distribution for each
Trust, however, will be made only upon presentation and surrender of the
Certificates for such Trust at the office or agency of the Trustee specified in
the notice given by the Trustee of such final distribution. The Trustee will
mail such notice of the final distribution to the Certificateholders of such
Trust, specifying the date set for such final distribution and the amount of
such distribution. (Section 11.01) See "-- Termination of the Trusts" below.
Distributions in respect of Certificates issued in global form will be made as
described in "-- Book Entry; Delivery and Form" below.
If any Regular Distribution Date or Special Distribution Date is not a
Business Day, distributions scheduled to be made on such Regular Distribution
Date or Special Distribution Date will be made on the next Business Day with
additional interest at the interest rate then applicable to the Certificates.
41
<PAGE> 43
"Business Day" means any day (x) other than a Saturday or Sunday or a day
on which commercial banks are required or authorized to close in Chicago,
Illinois, New York, New York, Frankfurt, Germany or the city and state in which
any Trustee, the Subordination Agent or any Indenture Trustee maintains its
corporate trust office or receives and disburses funds, and (y) on which
dealings are carried on in the London interbank market.
POOL FACTORS
Unless there has been an early redemption, purchase or a default in the
payment of principal or interest in respect of one or more issues of the
Equipment Notes held in a Trust, as described in "-- Indenture Defaults and
Certain Rights Upon an Indenture Default" and "Description of the Equipment
Notes -- Redemption," the Pool Factor with respect to each Trust will decline in
proportion to the scheduled repayments of principal on the Equipment Notes held
in such Trust as described below in "Description of the Equipment Notes --
General." In the event of such redemption, purchase or default, the Pool Factor
and the Pool Balance of each Trust so affected will be recomputed after giving
effect thereto and notice thereof will be mailed to the Certificateholders of
such Trust. Each Trust will have a separate Pool Factor.
The "Pool Balance" for each Trust or for the Certificates issued by any
Trust indicates, as of any date, the original aggregate face amount of the
Certificates of such Trust less the aggregate amount of all payments made in
respect of the Certificates of such Trust other than payments made in respect of
interest or any Additional Payment thereon or reimbursement of any costs and
expenses in connection therewith. The Pool Balance for each Trust as of any
Regular Distribution Date or Special Distribution Date will be computed after
giving effect to the payment of principal, if any, on the Equipment Notes or
other Trust Property held in such Trust and the distribution thereof to be made
on that date.
The "Pool Factor" for the Certificates issued pursuant to any Trust as of
any date is the quotient (rounded to the seventh decimal place) computed by
dividing (i) the Pool Balance by (ii) the original aggregate face amount of the
Certificates of such Trust. The Pool Factor for each Trust as of any Regular
Distribution Date or Special Distribution Date will be computed after giving
effect to the payment of principal, if any, on the Equipment Notes or other
Trust Property held in such Trust and the distribution thereof to be made on
that date. Assuming that no early redemption or purchase, or default, in respect
of any Equipment Notes has occurred, the Pool Factor for each Trust will be
1.0000000 on the date of issuance of the Certificates. Thereafter, the Pool
Factor for each Trust will decline as described herein to reflect reductions in
the Pool Balance of such Trust. The amount of a Certificateholder's pro rata
share of the Pool Balance of a Trust can be determined by multiplying the par
value of the holder's Certificate of such Trust by the Pool Factor for such
Trust as of the applicable Regular Distribution Date or Special Distribution
Date. Notice of the Pool Factor and the Pool Balance for each Trust will be
mailed to Certificateholders of such Trust on each Regular Distribution Date and
Special Distribution Date.
<TABLE>
<CAPTION>
1997-1A TRUST 1997-1A TRUST 1997-1B TRUST 1997-1B TRUST
SCHEDULED PAYMENTS EXPECTED SCHEDULED PAYMENTS EXPECTED
DATE OF PRINCIPAL POOL FACTOR OF PRINCIPAL POOL FACTOR
---- ------------------ ------------- ------------------ -------------
<S> <C> <C> <C> <C>
March 2, 1998........................ $ 415,900 0.9990671 $ 385,563 0.9963833
June 2, 1998......................... 10,062,730 0.9764961 1,874,904 0.9787963
September 2, 1998.................... 327,095 0.9757625 0 0.9787963
December 2, 1998..................... 3,578,458 0.9677359 357,054 0.9754470
June 2, 1999......................... 10,062,730 0.9451649 1,874,904 0.9578599
December 2, 1999..................... 3,578,659 0.9371379 132,560 0.9566165
June 2, 2000......................... 10,062,730 0.9145669 1,874,904 0.9390294
December 2, 2000..................... 3,578,658 0.9065399 272,936 0.9364692
June 2, 2001......................... 10,062,730 0.8839689 1,874,904 0.9188822
December 2, 2001..................... 3,578,658 0.8759419 324,365 0.9158395
June 2, 2002......................... 10,062,730 0.8533709 1,874,904 0.8982525
December 2, 2002..................... 380,454,922 0.0000000 95,760,001 0.0000000
</TABLE>
42
<PAGE> 44
REPORTS TO CERTIFICATEHOLDERS
On each Regular Distribution Date and Special Distribution Date with
respect to a class of Certificates, the applicable Trustee will include with
each distribution of a Scheduled Payment or Special Payment, respectively, to
Certificateholders of the related Class a statement, giving effect to such
distribution to be made on such Regular Distribution Date or Special
Distribution Date, setting forth the following information (per $1,000 aggregate
principal amount of Certificate for such Class, as to (i) and (ii) below):
(i) the amount of such distribution allocable to principal and the
amount allocable to any Additional Payments;
(ii) the amount of such distribution allocable to interest; and
(iii) the Pool Balance and the Pool Factor. (Section 4.03)
With respect to the Certificates registered in the name of Cede & Co., as
nominee for DTC, on the Record Date prior to each Distribution Date, the
applicable Trustee will request from DTC a securities position listing setting
forth the names of all DTC Participants reflected on DTC's books as holding
interests in the Certificates on such Record Date. On each Distribution Date,
the applicable Trustee will mail to each such DTC Participant the statement
described above and will make available additional copies as requested by such
DTC Participant for forwarding to holders of Certificates. (Section 4.03(a))
In addition, within a reasonable period of time after the end of each
calendar year, the applicable Trustee will prepare for each Certificateholder of
each Trust at any time during the preceding calendar year a report containing
the sum of the amounts determined pursuant to clauses (i) and (ii) above with
respect to the related Trust for such calendar year or, or if such person was a
Certificateholder during only a portion of such calendar year, for the
applicable portion of such calendar year, and such other items as are readily
available to such Trustee and which a Certificateholder shall reasonably request
as necessary for the purpose of such Certificateholder's preparation of its
federal income tax returns. (Section 4.03(b)) Such report and such items will be
prepared on the basis of information supplied to the applicable Trustee by the
DTC Participants and will be delivered by such Trustee to such DTC Participants
to be available for forwarding by such DTC Participants to Certificate Owners in
the manner described above. (Section 4.03)
With respect to the Certificates issued in definitive form, the applicable
Trustee will prepare and deliver the information described above to each
Certificateholder of record of each Trust as the name of such Certificateholder
appears on the records of the registrar of the Certificates.
INDENTURE DEFAULTS AND CERTAIN RIGHTS UPON AN INDENTURE DEFAULT
An "Indenture Default" will, with respect to the Leased Aircraft
Indentures, include an event of default under the related Lease (a "Lease Event
of Default"). (Leased Aircraft Indentures, Section 8.01(e)) Since the Equipment
Notes issued under an Indenture may be held in more than one Trust, a continuing
Indenture Default under such Indenture would affect the Equipment Notes held by
each such Trust. There are no cross-default provisions in the Indentures or,
with respect to the Leased Aircraft, in the Leases. Consequently, events
resulting in an Indenture Default under any particular Indenture may or may not
result in an Indenture Default under any other Indenture, and, with respect to
the Leased Aircraft, a Lease Event of Default under any particular Lease will
not constitute a Lease Event of Default under any other Lease. If an Indenture
Default occurs in fewer than all of the Indentures, notwithstanding the
treatment of Equipment Notes issued under any Indenture under which an Indenture
Default has occurred, payments of principal and interest on the Equipment Notes
issued pursuant to Indentures with respect to which an Indenture Default has not
occurred will continue to be distributed to the holders of the Certificates as
originally scheduled, subject to the Intercreditor Agreement. See "Description
of the Intercreditor Agreement -- Priority of Distributions."
With respect to each Leased Aircraft, the applicable Owner Trustee and
Owner Participant will, under the related Leased Aircraft Indenture, have the
right under certain circumstances to cure Indenture Defaults that result from
the occurrence of a Lease Event of Default under the related Lease. If the Owner
Trustee or
43
<PAGE> 45
the Owner Participant exercises any such cure right, the Indenture Default will
be deemed to have been cured. (Leased Aircraft Indentures, Section 8.03(e))
If the same institution acts as Trustee of multiple Trusts, in the absence
of instructions from the Certificateholders of any such Trust, such Trustee
could be faced with a potential conflict of interest upon an Indenture Default.
In such event, such Trustee may resign as Trustee of one or all such Trusts, and
a successor trustee would be appointed in accordance with the terms of the Basic
Pass Through Trust Agreement.
Upon the occurrence and continuation of any Indenture Default under any
Indenture, the Controlling Party may accelerate and sell all (but not less than
all) of the Equipment Notes issued under such Indenture to any person, subject
to certain limitations. (Intercreditor Agreement, Section 4.1) The proceeds of
such sale will be distributed pursuant to the provisions of the Intercreditor
Agreement. Any proceeds received by the applicable Trustee upon any such sale
will be deposited in the applicable Special Payments Account and shall be
distributed to the Certificateholders of such Trust on a Special Distribution
Date. (Sections 4.01(b) and 4.02(b)) The market for Equipment Notes at the time
of the existence of any Indenture Default may be very limited and there can be
no assurance as to the price at which they could be sold. If such Trustee sells
any such Equipment Notes for less than their outstanding principal amount, the
Certificateholders will receive a smaller amount of principal distributions than
anticipated and will not have any claim for the shortfall against United, any
Liquidity Provider, any Owner Trustee, any Owner Participant or any Trustee.
Any amount, other than Scheduled Payments, distributed to the Trustee of
any Trust by the Subordination Agent on account of the Equipment Notes or other
Trust Property held in such Trust following an Indenture Default under any
Indenture will be deposited in the Special Payments Account for such Trust and
will be distributed to the Certificateholders of such Trust on a Special
Distribution Date. (Sections 4.01(b) and 4.02(b)) In addition, if, following an
Indenture Default under any Leased Aircraft Indenture, the applicable Owner
Trustee or Owner Participant exercises its option to redeem or purchase the
outstanding Equipment Notes issued under such Leased Aircraft Indenture, the
price paid by such Owner Trustee for the Equipment Notes issued under such
Leased Aircraft Indenture and distributed to such Trust by the Subordination
Agent will be deposited in the Special Payments Account for such Trust and will
be distributed to the Certificateholders of such Trust on a Special Distribution
Date. (Sections 4.01 and 4.02)
Any funds representing payments received with respect to any defaulted
Equipment Notes held in a Trust, or the proceeds from the sale of any Equipment
Notes held by the Trustee in the Special Payments Account for such Trust will,
to the extent practicable, be invested and reinvested by such Trustee in certain
permitted investments pending the distribution of such funds on a Special
Distribution Date. (Section 4.04) Such permitted investments are defined as
obligations of the United States or agencies or instrumentalities thereof the
payment of which is backed by the full faith and credit of the United States and
which mature in not more than 60 days or such lesser time as is required for the
distribution of any such funds on a Special Distribution Date. (Section 1.01)
The Basic Pass Through Trust Agreement provides that the Trustee of the
related Trust will, within 90 days after the occurrence of any Indenture
Default, give to the Company, any related Owner Trustees, the related Owner
Participants, the related Indenture Trustees and the Certificateholders of such
Trust notice, transmitted by mail, of such default with respect to such Trust
known to it; provided that, except in the case of default in the payment of
principal, any Additional Payments or interest on any of the Equipment Notes,
the applicable Trustee shall be protected in withholding such notice if it in
good faith determines that the withholding of such notice is in the interests of
such Certificateholders. (Section 7.02)
The Basic Pass Through Trust Agreement contains a provision stating that
the Trustee of the related Trust will be under no obligation to exercise any of
its rights or powers under the Basic Pass Through Trust Agreement or the Trust
Supplements at the request of any holders of Certificates issued thereunder
unless there has been offered to such Trustee indemnification satisfactory to
it. (Section 7.03(e))
Subject to the Intercreditor Agreement, the holders of the Certificates of
the Trusts of each class evidencing fractional undivided interests aggregating
not less than a majority in interest of the Trusts of the same class may, on
behalf of the holders of all the Certificates of such Trusts, waive any past
default under the
44
<PAGE> 46
Basic Pass Through Trust Agreement or under the related Trust Supplements with
respect to such Trusts or, if the Trustee of such Trusts is the Controlling
Party, may direct such Trustee to instruct the applicable Indenture Trustee to
waive any past Indenture Default with respect to such Trusts and thereby annul
any direction given by such holders or such Trustee to such Indenture Trustee
with respect thereto, except a default (i) in the deposit of any Scheduled
Payment or Special Payment or in the distribution thereof, (ii) in payment of
the principal, any Additional Payments or interest with respect to any of the
Equipment Notes held in such Trust and (iii) in respect of any covenant or
provision of the Basic Pass Through Trust Agreement that cannot be modified or
amended without the consent of each Certificateholder of such Trusts affected
thereby. (Section 6.04) Each Indenture provides that, with certain exceptions
and subject to the terms of the Intercreditor Agreement, the holders of the
majority in aggregate unpaid principal amount of the Equipment Notes issued
thereunder may on behalf of all such holders waive any past default or Indenture
Default thereunder. (Leased Aircraft Indentures, Section 8.05; Owned Aircraft
Indentures, Section 8.04) Notwithstanding the foregoing provisions of this
paragraph, however, pursuant to the Intercreditor Agreement, only the
Controlling Party is entitled to waive any such past default or Indenture
Default.
PURCHASE RIGHTS OF CERTIFICATEHOLDERS
Upon the occurrence and during the continuation of a Triggering Event, (i)
the Class B Certificateholders will have the right to purchase all, but not less
than all, of the Class A Certificates, (ii) the Class C Certificateholders will
have the right to purchase all, but not less than all, of the Class A
Certificates and the Class B Certificates and (iii) the Class D
Certificateholders will have the right to purchase all, but not less than all,
of the Class A Certificates, the Class B Certificates and the Class C
Certificates, in each case at a purchase price equal to the Pool Balance of the
relevant Class or Classes of Certificates, plus accrued and unpaid interest
thereon to the date of purchase, without any Additional Payments, but including
any other amounts due to the Certificateholders of such Class or Classes.
(Section 6.01(b))
PTC EVENT OF DEFAULT
A PTC Event of Default is defined under the Intercreditor Agreement as the
failure to pay within 10 Business Days of the due date thereof: (i) the
outstanding Pool Balance of the applicable Class of Certificates on the Final
Maturity Date or (ii) interest due on such Certificates on any Distribution Date
(unless the Subordination Agent has made an Interest Drawing, or a withdrawal
from a Cash Account, with respect thereto in an amount sufficient to pay such
interest and has distributed such amount to the Certificateholders entitled
thereto). (Intercreditor Agreement, Section 1.1) Any failure to make expected
principal distributions on any Class of Certificates on any Regular Distribution
Date (other than the Final Maturity Date) will not constitute a PTC Event of
Default with respect to such Certificates. A PTC Event of Default with respect
to the most senior Class of Certificates resulting from an Indenture Default
under all Indentures will constitute a Triggering Event.
MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
United is prohibited from consolidating with or merging into any other
corporation or transferring substantially all of its assets as an entirety to
any other corporation unless: (i) the surviving successor or transferee
corporation shall (a) be a "citizen of the United States" as defined in Section
40102(a)(15) of Title 49 of the United States Code, as amended, relating to
aviation (the "Aviation Act"), (b) be a U.S. certificated air carrier and (c)
expressly assume all of the obligations of United contained in the Basic Pass
Through Trust Agreement, the Note Purchase Agreement, the Indentures, the
Participation Agreements and the Leases; (ii) in the case of the Leased
Aircraft, immediately after giving effect to such transactions, no Lease Event
of Default has occurred and is continuing; and (iii) United has delivered a
certificate and an opinion or opinions of counsel indicating that such
transaction complies with such conditions. (Leased Aircraft Participation
Agreements, Section 8(s); Owned Aircraft Participation Agreements, Section 6(d))
The Basic Pass Through Trust Agreement and the Indentures do not contain
any covenants or provisions that may afford the applicable Trustee or
Certificateholders protection in the event of a highly leveraged
45
<PAGE> 47
transaction, including transactions effected by management or affiliates, which
may or may not result in a change in control of United.
MODIFICATIONS OF THE BASIC PASS THROUGH TRUST AGREEMENT AND CERTAIN OTHER
AGREEMENTS
The Basic Pass Through Trust Agreement contains provisions permitting the
execution of supplemental trust agreements, without the consent of the holders
of any Class of the Certificates of the Trusts, (i) to provide for the formation
of a Trust, the issuance of a Class of Certificates and other matters
contemplated by the Basic Pass Through Trust Agreement, (ii) to evidence the
succession of another corporation to United and the assumption by such
corporation of United's covenants under the Basic Pass Through Trust Agreement,
(iii) to add to the covenants of United for the benefit of holders of such
Certificates or to surrender any right or power in the Basic Pass Through Trust
Agreement conferred upon United, (iv) to correct or supplement any defective or
inconsistent provision of, or to cure any ambiguity or correct any mistake in,
the Basic Pass Through Trust Agreement, the Intercreditor Agreement or the
Liquidity Facilities, (v) to modify any other provisions with respect to matters
or questions arising under the Basic Pass Through Trust Agreement, the
Intercreditor Agreement, the Note Purchase Agreement or the Liquidity
Facilities, provided such action does not materially adversely affect the
interests of the holders of such Certificates, (vi) to modify, eliminate or add
provisions necessary to continue the qualification of the Basic Pass Through
Trust Agreement under the Trust Indenture Act, and to modify or add to the Basic
Pass Through Trust Agreement such other provisions as may be expressly permitted
by the Trust Indenture Act, (vii) to provide for a successor Trustee under the
Basic Pass Through Trust Agreement or to add to or change any provision of the
Basic Pass Through Trust Agreement as shall be necessary to facilitate the
administration of the trusts by more than one Trustee, (viii) to modify or
eliminate provisions relating to the transfer or exchange of Exchange
Certificates or the Initial Certificates upon consummation of the Exchange Offer
or effectiveness of the Registration Statement, and (ix) to comply with any
requirement of the Commission, any applicable law, rules or regulations of any
exchange or quotation system on which the Certificates of any Class are listed
or of any regulatory body. (Section 9.01)
In addition, with respect to each Trust and the Class of Certificates
relating thereto and with the consent of the holders of the Certificates of the
related Trust evidencing fractional undivided interests aggregating not less
than a majority in interest of such Trust, United may (with the consent of the
applicable Owner Trustee, if any, which consent may not be unreasonably
withheld) and the Trustee will, subject to the provisions of the Basic Pass
Through Trust Agreement, enter into supplemental trust agreements adding any
provisions to or changing or eliminating any of the provisions of the Basic Pass
Through Trust Agreement, the Intercreditor Agreement, the Primary Liquidity
Facility, the Registration Rights Agreement or the Note Purchase Agreement;
provided, however, that no such supplemental agreement will, without the consent
of the holder of each outstanding Certificate so affected thereby, (a) reduce in
any manner the amount of, or delay the timing of, any receipt by the Trustee of
payments on the Equipment Notes held in such Trust or distributions in respect
of any Certificate related to such Trust, or change the date of payment on any
Certificate or place of any payment where, or the coin or currency in which, any
Certificate is payable, or impair the right of any Certificateholder of such
Trust to institute suit for the enforcement of any such payment when due, (b)
permit the disposition of any Equipment Note held in such Trust, except as
provided in the Basic Pass Through Trust Agreement or the Note Purchase
Agreement, or otherwise deprive such Certificateholder of the benefit of the
ownership of the applicable Equipment Notes, (c) alter the priority of
distributions specified in the Intercreditor Agreement, (d) reduce the
percentage of the aggregate fractional undivided interests of such Trust which
is required for any such supplemental agreement or reduce such percentage
required for any waiver provided for in the Basic Pass Through Trust Agreement,
or (e) amend provisions of the Intercreditor Agreement relating to priority of
distribution in a manner that has a material adverse effect on the
Certificateholders. (Section 9.02)
TERMINATION OF THE TRUSTS
In respect of each Trust created by the Basic Pass Through Trust Agreement
as supplemented by a related Trust Supplement, the obligations of United and the
applicable Trustee with respect to a Trust will
46
<PAGE> 48
terminate upon the distribution to Certificateholders of such Trust and such
Trustee of all amounts required to be distributed to them pursuant to the Basic
Pass Through Trust Agreement and the Trust Supplement and the disposition of all
property held in such Trust. The applicable Trustee will send to each
Certificateholder of record of such Trust notice of the termination of such
Trust, the amount of the proposed final payment and the proposed date for the
distribution of such final payment for such Trust. The final distribution to any
Certificateholder of such Trust will be made only upon surrender of such
Certificateholder's Certificates at the office or agency of the applicable
Trustee specified in such notice of termination. (Section 11.01)
THE TRUSTEES
The Trustee for each Trust is First Security Bank, National Association.
With certain exceptions, the Trustees make no representations as to the
validity or sufficiency of the Basic Pass Through Trust Agreement or the Trust
Supplements, the Certificates of any class, the Note Purchase Agreement, the
Equipment Notes, the Intercreditor Agreement, the Registration Rights Agreement,
the Indentures, the Leases, the Participation Agreements or other related
documents. (Sections 7.04 and 7.15) The Trustee of any Trust will not be liable,
with respect to the Certificates of such Trust, for any action taken or omitted
to be taken by it in good faith in accordance with the direction of the holders
of a majority in principal amount of outstanding Certificates of such Trust.
(Section 7.03(h)) Subject to certain provisions, the Trustees are under no
obligation to exercise any of their rights or powers under the Basic Pass
Through Trust Agreement or the Trust Supplements at the request of any holders
of Certificates issued thereunder unless there shall have been offered to the
Trustees indemnity satisfactory to them. (Section 7.03(e)) The Basic Pass
Through Trust Agreement provides that the Trustees in their individual or any
other capacity may acquire and hold Certificates issued thereunder and, subject
to certain conditions, may otherwise deal with United, any Owner Trustee or the
Indenture Trustees with the same rights they would have if they were not the
Trustees. (Section 7.05)
Any Trustee may resign with respect to any or all of the Trusts of which it
is the Trustee at any time, in which event United will be obligated to appoint a
successor trustee, which successor trustee shall be a financial institution that
is unaffiliated with and independent of United. Once appointed, such successor
trustee may not be removed except with the consent of the holders of a majority
of the principal amount of the Certificates or as otherwise provided below. If
any Trustee ceases to be eligible to continue as Trustee with respect to a Trust
or becomes incapable of acting as Trustee or becomes insolvent, United may
remove such Trustee, or any holder of the Certificates of such Trust for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of such Trustee and
the appointment of a successor trustee of such Trust. Any resignation or removal
of the Trustee with respect to a Trust and appointment of a successor trustee
for such Trust does not become effective until acceptance of the appointment by
the successor trustee. (Sections 7.09 and 7.10)
The Basic Pass Through Trust Agreement provides that United will pay, or
cause to be paid, the applicable Trustee's reasonable fees and expenses.
(Section 7.07)
BOOK-ENTRY; DELIVERY AND FORM
The New Certificates of each Trust will be represented by one or more
permanent global Certificates, in definitive, fully registered form without
interest coupons (the "Global Certificates"), to be deposited with the Trustee
as custodian for DTC and registered in the name of Cede & Co., as nominee of
DTC. (Section 3.01(c))
DTC has advised United as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "clearing agency" registered pursuant to the provision of Section 17A
of the Exchange Act. DTC was created to hold securities for its participants and
facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include
47
<PAGE> 49
securities brokers and dealers, banks, trust companies and clearing corporations
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Ownership of beneficial interests in the Global Certificates will be
limited to persons who have accounts with DTC ("participants") or persons who
hold interests through participants. Ownership of beneficial interests in the
Global Certificates will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants). The laws of some states require
that certain purchasers of securities take physical delivery of such securities.
Such limits and such laws may limit the market for beneficial interests in the
Global Certificates. Qualified institutional buyers may hold their interests in
the Global Certificates directly through DTC if they are participants in such
system, or indirectly through organizations that are participants in such
system.
So long as DTC or its nominee is the registered owner or holder of the
Global Certificates, DTC or such nominee, as the case may be, will be considered
the sole record owner or holder of the Certificates represented by such Global
Certificates for all purposes under the Basic Pass Through Trust Agreement. No
beneficial owners of an interest in the Global Certificates will be able to
transfer that interest except in accordance with DTC's applicable procedures, in
addition to those provided for under the Basic Pass Through Trust Agreement and,
if applicable, Euroclear or Cedel.
Payments of the principal of, any Additional Payments and interest on the
Global Certificates will be made to DTC or its nominee, as the case may be, as
the registered owner thereof. Neither United, the Trustee nor any paying agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Certificates or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
United expects that DTC or its nominee, upon receipt of any payment of
principal, any Additional Payments or interest in respect of the Global
Certificates will credit participants' accounts with payments in amounts
proportionate to their respective beneficial ownership interests in the
principal amount of such Global Certificates, as shown on the records of DTC or
its nominee. United also expects that payments by participants to owners of
beneficial interests in such Global Certificates held through such participants
will be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers registered in the names
of nominees for such customers. Such payments will be the responsibility of such
participants.
Neither United nor the Trustee will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Certificates and a successor depositary is not appointed within 90
days, the Trusts will issue Definitive Certificates in exchange for the Global
Certificates, which, in the case of Certificates issued in exchange for the
Global Certificates will bear the legend referred to under the heading "Transfer
Restrictions."
48
<PAGE> 50
DESCRIPTION OF THE LIQUIDITY FACILITIES
PRIMARY LIQUIDITY FACILITIES
GENERAL
With respect to the Certificates of the Class A Trusts and the Class B
Trusts, the Subordination Agent has entered into two separate Primary Liquidity
Facilities with the Primary Liquidity Provider pursuant to which the Primary
Liquidity Provider will, if necessary, make advances ("Interest Drawings") to
the Subordination Agent to pay interest on such Certificates subject to certain
limitations. The Primary Liquidity Facility for the Trusts of any Class is
intended to enhance the likelihood of timely receipt by the Certificateholders
of such Trusts of the interest payable on the Certificates of such Trusts at the
Current Interest Rate therefor (not to exceed the Capped Interest Rate) on up to
six consecutive quarterly Regular Distribution Dates.
DRAWINGS
Initially, the Maximum Commitment Amount available under the Primary
Liquidity Facilities for the Class A Trusts and the Class B Trusts is
$70,071,917 and $16,881,773, respectively, and, thereafter, the Maximum
Commitment Amount available under each Primary Liquidity Facility will equal the
product of (x) 1.5, multiplied by (y) the Capped Interest Rate, multiplied by
(z) the Pool Balance of the related Class of Certificates. Except as otherwise
provided below, the Primary Liquidity Facility for the Trusts of each Class will
enable the Subordination Agent to make Interest Drawings thereunder after any
Regular Distribution Date to pay interest then due and payable on the
Certificates of such Trusts at the Current Interest Rate to the extent that the
amount, if any, available to the Subordination Agent on such Regular
Distribution Date is not sufficient to pay such interest; provided, however,
that the maximum amount available to be drawn under such Primary Liquidity
Facility on any Regular Distribution Date to fund any shortfall of interest on
such Certificates may not exceed an amount equal to 1/6 of the Maximum
Commitment Amount (determined using the Capped Interest Rate) of such Primary
Liquidity Facility. (Liquidity Facilities, Section 2.02; Intercreditor
Agreement, Section 3.6(a)) The Primary Liquidity Facility for any Trust does not
provide for drawings thereunder to pay for principal of or any Additional
Payment on the Certificates of such Trust or any interest on the Certificates of
such Trust in excess of the Capped Interest Rate for such Trust or more than six
quarterly installments of interest thereon or principal of, any Additional
Payments or interest on the Certificates of any Trust of any other Class.
Each payment by the Primary Liquidity Provider under each Primary Liquidity
Facility reduces the amount available to be drawn under such Primary Liquidity
Facility, subject to reinstatement as hereinafter described. With respect to any
Interest Drawing under the Primary Liquidity Facility for the Trusts of any
Class, upon repayment to each Primary Liquidity Provider in full of the amount
of any Interest Drawing, together with accrued interest thereon, the amount
available to be drawn will be reinstated by the amount of such repaid Interest
Drawing; provided, however, that such Primary Liquidity Facility may not be so
reinstated at any time (i) a Triggering Event has occurred and is continuing and
(ii) less than 65% of the then aggregate outstanding principal amount of all
Equipment Notes are Performing Equipment Notes. (Primary Liquidity Facility,
Section 2.02(a); Intercreditor Agreement, Section 3.6(g)) With respect to any
other drawings under such Primary Liquidity Facility, amounts available to be
drawn thereunder are not subject to reinstatement.
If at any time the short-term unsecured debt rating of the Primary
Liquidity Provider issued by any Rating Agency (or the long-term unsecured debt
rating issued by such Rating Agency if there is no such short-term rating for
any Primary Liquidity Provider) is lower than the applicable Threshold Rating,
each Primary Liquidity Facility must be replaced by a Replacement Primary
Liquidity Facility (as defined below). If such Primary Liquidity Facility is not
replaced with a Replacement Primary Liquidity Facility within 30 days after
notice of the downgrading and as otherwise provided in the Intercreditor
Agreement, the Subordination Agent will request the Downgrade Drawing in an
amount equal to all available and undrawn amounts thereunder and will hold the
proceeds thereof in the Cash Collateral Account for such Trust as cash
collateral to be used for the same purposes and under the same circumstances as
cash payments of Interest
49
<PAGE> 51
Drawings under such Primary Liquidity Facility would be used. (Liquidity
Facilities, Section 2.02(b); Intercreditor Agreement, Section 3.6(c))
A "Replacement Primary Liquidity Facility" for any Primary Liquidity
Facility means an irrevocable revolving credit facility issued by one or more
replacement Primary Liquidity Providers for the same term as the Primary
Liquidity Facility being replaced in substantially the form of the replaced
Primary Liquidity Facility, including reinstatement provisions, or in such other
form (which may include a letter of credit) as will permit the Rating Agencies
to confirm in writing their respective ratings then in effect for each class of
Certificates (before downgrading of such ratings, if any, as a result of the
downgrading of the Primary Liquidity Provider), in a face amount equal to the
Maximum Commitment Amount for such Primary Liquidity Facility and issued by a
replacement Primary Liquidity Provider; provided that (i) upon the replacement
of the Primary Liquidity Facility for any class of Certificates, the Primary
Liquidity Facility for the other class of Certificates will also be replaced by
the same replacement Primary Liquidity Providers as provided above and (ii) the
commitment percentage of each replacement Primary Liquidity Provider will be the
same for each Primary Liquidity Facility. (Intercreditor Agreement, Section 1.1)
"Threshold Rating" means: (i) the short-term unsecured debt rating of "P-1"
by Moody's and "A-1+" by Standard & Poor's and (ii) for any Person which does
not have a published short-term unsecured debt rating from each Rating Agency,
the long-term unsecured debt rating of "Aa3" by Moody's and "AA-" by Standard &
Poor's. (Intercreditor Agreement, Section 1.1)
The Primary Liquidity Facility for each class provides that the Primary
Liquidity Provider's obligations thereunder will terminate on the making of any
Downgrade Drawing or a Final Drawing or on the earliest of: (i) March 2, 2004;
(ii) the date on which the Subordination Agent delivers to the Primary Liquidity
Provider a certification that all of the Certificates of such class have been
paid in full; (iii) the date the Subordination Agent delivers to the Primary
Liquidity Provider a certification that a Replacement Primary Liquidity Facility
has been substituted for such Primary Liquidity Facility; (iv) the fifth
Business Day following receipt by the Subordination Agent of a Termination
Notice from the Liquidity Provider (see "-- Liquidity Events of Default"); and
(v) the date on which no amount is or may (including by reason of reinstatement)
become available for drawing under such Primary Liquidity Facility. (Liquidity
Facilities, Section 2.04(b))
United may, at its option, subject to certain conditions, arrange for
replacement facilities at any time to replace the Primary Liquidity Facilities,
provided that the initial Primary Liquidity Provider will only be replaced (A)
if replacement will reduce or eliminate certain indemnity payments or
obligations that would constitute an economic hardship to United or (B) after a
Downgrade Drawing. If a replacement facility is provided at any time after a
Downgrade Drawing under the related Primary Liquidity Facility, the funds on
deposit in the applicable Cash Collateral Account will be returned to the
Primary Liquidity Provider being replaced. (Intercreditor Agreement, Section
3.6(e))
The Intercreditor Agreement provides that, upon receipt by the
Subordination Agent of a Termination Notice with respect to any Primary
Liquidity Facility from the Primary Liquidity Provider (given as described in
"-- Liquidity Events of Default"), the Subordination Agent will request a final
drawing (the "Final Drawing") under such Primary Liquidity Facility in an amount
equal to all available and undrawn amounts thereunder and will hold the proceeds
thereof in the Cash Collateral Account for the related Trust as cash collateral
to be used for the same purposes and under the same circumstances, and subject
to the same conditions, as cash payments of Interest Drawings under such Primary
Liquidity Facility would be used. (Liquidity Facilities, Section 2.02(c);
Intercreditor Agreement, Section 3.6(i))
Drawings under any Primary Liquidity Facility will be made on the second
Business Day after any Regular Distribution Date by delivery by the
Subordination Agent of a certificate in the form required by such Primary
Liquidity Facility. Upon receipt of such a certificate, the Liquidity Provider
is obligated to make payment of the drawing requested thereby in immediately
available funds. (Liquidity Facilities, Section 2.02(d)) Upon payment by the
Liquidity Provider of the amount specified in any drawing under any Primary
Liquidity Facility, the Liquidity Provider will be fully discharged of its
obligations under such Primary Liquidity Facility with respect to such drawing
and will not thereafter be obligated to make any further payments under such
Primary Liquidity Facility in respect of such drawing to the Subordination Agent
50
<PAGE> 52
or any other person or entity who makes a demand for payment in respect of
interest on the related Certificates. (Liquidity Facilities, Section 2.02(e))
REIMBURSEMENT OF DRAWINGS
Amounts drawn under any Primary Liquidity Facility by reason of an Interest
Drawing, the Final Drawing or an Applied Downgrade Advance (as defined in the
Liquidity Facilities) will be immediately due and payable, together with
interest on the amount of such drawing at a rate equal to, in the case of a
LIBOR advance, the applicable LIBOR plus 1.00% per annum or, in the case of a
Base Rate advance, the applicable Base Rate plus 1.00% per annum; provided that
the Subordination Agent will be obligated to reimburse such amounts only to the
extent that the Subordination Agent has available funds therefor. (Liquidity
Facilities, Sections 2.05 and 3.07)
"Base Rate" means a fluctuating interest rate per annum in effect from time
to time, which rate per annum will at all times be equal to: (a) the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or if such rate is not so published for
any day that is a Business Day, the average of the quotations for such day for
such transactions received by the Liquidity Provider from three Federal funds
brokers of recognized standing selected by it, plus (b) 1/4 of one percent.
The amount drawn under the Primary Liquidity Facility for the Trusts of any
class by reason of a Downgrade Drawing (other than an Applied Downgrade Advance)
will be treated as follows: (i) such amount will be released on any Regular
Distribution Date to the Liquidity Providers to the extent that such amount
exceeds the Maximum Commitment Amount minus any unreimbursed Interest Drawings
under such Primary Liquidity Facility; (ii) any portion of such amount withdrawn
from the Cash Collateral Account for such Certificates to pay interest on such
Certificates will be treated in the same way as Interest Drawings; and (iii) the
balance of such amount will be invested in Eligible Investments. The Downgrade
Drawing under any Primary Liquidity Facility will bear interest at a rate equal
to the investment earnings on amounts on deposit in the Cash Collateral Account.
(Liquidity Facilities, Sections 2.06 and 3.07)
LIQUIDITY EVENTS OF DEFAULT
Events of Default under each Primary Liquidity Facility (each, a "Liquidity
Event of Default") consist of: (i) the acceleration of all the Equipment Notes;
and (ii) certain bankruptcy or similar events involving United. (Primary
Liquidity Facilities, Section 1.01)
If (i) any Liquidity Event of Default occurs under any Primary Liquidity
Facility and (ii) less than 65% of the aggregate outstanding principal amount of
all Equipment Notes are Performing Equipment Notes, the Liquidity Provider may,
in its discretion, give a notice of termination of the related Primary Liquidity
Facility and accelerate the reimbursement obligations thereunder (a "Termination
Notice") the effect of which will be to cause: (i) such Primary Liquidity
Facility to expire on the fifth Business Day after the date on which such
Termination Notice is received by the Subordination Agent, (ii) the
Subordination Agent to promptly request, and the Liquidity Providers to promptly
make, a Final Drawing, (iii) any Drawing remaining unreimbursed as of the date
of termination to be automatically converted into a Final Drawing under such
Primary Liquidity Facility for purposes of determining the applicable interest
rate payable thereon, and (iv) all amounts owing to the Liquidity Provider to
become immediately due and payable. (Liquidity Facilities, Section 6.01)
Notwithstanding the foregoing, the Subordination Agent will be obligated to pay
amounts owing to the Liquidity Providers only to the extent of funds available
therefor after giving effect to the payments in accordance with the provisions
set forth under "Description of the Intercreditor Agreement -- Priority of
Distributions". (Liquidity Facilities, Section 2.09) Upon the circumstances
described below under "Description of the Intercreditor Agreement --
Intercreditor Rights," the Liquidity Providers may become the Controlling Party
with respect to the exercise of remedies under the Indentures. (Intercreditor
Agreement, Section 2.6(c))
51
<PAGE> 53
ABOVE-CAP LIQUIDITY FACILITY
The Subordination Agent and the Above-Cap Liquidity Provider have entered
into irrevocable interest rate cap agreements (each, an "Above-Cap Liquidity
Facility" and, together with the Primary Liquidity Facilities, the "Liquidity
Facilities") with respect to the Class A Trust and the Class B Trust. Under each
Above-Cap Liquidity Facility, the Above-Cap Liquidity Provider will, if
necessary, make payments (if then effective Three-Month LIBOR exceeds Capped
LIBOR) in an amount not to exceed the product of (x) the difference between
Three-Month LIBOR and Capped LIBOR, multiplied by (y) the Pool Balance of the
related Class of Certificates, multiplied by (z) actual days elapsed in the
applicable interest period divided by 360 ("Above-Cap Interest Payments"), which
payments, in the aggregate with the required amount of Interest Drawings under
the Primary Liquidity Facilities and withdrawals from the related Cash
Collateral Account, will be sufficient to pay interest on the Class A or Class B
Certificates, as the case may be, on up to six consecutive Regular Distribution
Dates (without regard to any expected future payments of principal on such
Certificates). An Above-Cap Interest Payment under the relevant Above-Cap
Liquidity Facility will be made on the second Business Day after any Regular
Distribution Date if, after giving effect to the subordination provisions of the
Intercreditor Agreement and the Interest Drawing to be made on the relevant
Primary Liquidity Facility and withdrawals from the related Cash Collateral
Account, there are insufficient funds available to the Subordination Agent to
pay interest on any Class A or Class B Certificates. The Above-Cap Liquidity
Provider under the Above-Cap Liquidity Facility for the Class A Certificates or
the Class B Certificates will only be required to pay amounts to the
Subordination Agent at such times as Interest Drawings are payable and the
required amounts thereof are insufficient under the Primary Liquidity Facilities
or withdrawals are made from the related Cash Collateral Accounts and such
withdrawals are insufficient. The Above-Cap Liquidity Facility for either the
Class A Certificates or the Class B Certificates does not provide for payments
thereunder to pay for principal of, or any Additional Payment on, the
Certificates of such Class or principal of, or any Additional Payment or
interest on the Certificates of any other Class.
If at any time the short-term unsecured debt rating of the Above-Cap
Liquidity Provider issued by any Rating Agency (or the long-term unsecured debt
rating issued by such Rating Agency if there is no such short-term rating for
any Above-Cap Liquidity Provider) is lower than the applicable Threshold Rating,
the Above-Cap Liquidity Facility for each Class of Certificates will be required
to be replaced by another similar facility to be provided by one or more
financial institutions having such unsecured debt ratings issued by both Rating
Agencies which are equal to or higher than the Threshold Rating, provided that
the commitment percentage of each financial institution will be the same for the
replacement Class A facility and the replacement Class B facility. If the
Above-Cap Liquidity Facility is not replaced within 30 days after notice by the
Above-Cap Liquidity Provider of the downgrading, the Above-Cap Liquidity
Provider will transfer the Above-Cap Liquidity Facility to an affiliate,
reasonably acceptable to the Rating Agencies, that is eligible to become a
debtor under the United States Bankruptcy Code, and such affiliate will post
collateral to the Subordination Agent for deposit into an account for the
benefit of the related Class of Certificates an amount in cash equal to the
product of (x) a fraction, the numerator of which is an amount equal to the
difference between (A) 18 and (B) three times the number of unreimbursed
Interest Drawings under the Primary Liquidity Facility, and the denominator of
which is 12, multiplied by (y) the greater of (A) 12.29% per annum minus Capped
LIBOR and (B) the effective Three-Month LIBOR on such 30th day minus Capped
LIBOR, multiplied by (z) the Pool Balance of the applicable Class of
Certificates (the "Above-Cap Collateral Amount"), and used for the same purposes
and under the same circumstances, and subject to the same conditions, as cash
payments of Above-Cap Interest Payments under the Above-Cap Liquidity Facility
would be used. Cash deposited into the account will be invested in U.S.
government or agency securities. On each Regular Distribution Date, the amount
in the account will be increased or decreased so that on such Regular
Distribution Date an amount equal to the Above-Cap Collateral Amount is
deposited and available in the account. If the replacement obligation described
in the first sentence of this paragraph is not met, as an alternative to the
collateralization mechanism described above, the Above-Cap Liquidity Provider
may provide such other assurances of creditworthiness as will maintain the then
current ratings of the Class A and Class B Certificates by the Rating Agencies.
52
<PAGE> 54
Notwithstanding the subordination provisions of the Intercreditor
Agreement, the holders of the Class A and Class B Certificates are entitled to
receive and retain the proceeds of payments under the applicable Above-Cap
Liquidity Facility.
The Above-Cap Liquidity Provider does not have any rights to indemnity or
reimbursement under the Operative Agreements.
LIQUIDITY PROVIDERS
Primary Liquidity Provider
The Primary Liquidity Provider is Kreditanstalt fur Wiederaufbau, which is
a corporation organized under the public law of the Federal Republic of Germany.
The Primary Liquidity Provider has not been involved in the preparation of, and
has not prepared, this Prospectus and is not responsible for any of its contents
except for the information provided under "Primary Liquidity Provider."
Above-Cap Liquidity Provider
The Above-Cap Liquidity Provider is Credit Suisse Financial Products which
is an unlimited company incorporated in England and an authorized institution
under the Banking Act of 1987 of the United Kingdom. The Above-Cap Liquidity
Provider has not been involved in the preparation of, and has not prepared, this
Prospectus and is not responsible for any of its contents except for the
information provided under "Above-Cap Liquidity Provider."
DESCRIPTION OF THE INTERCREDITOR AGREEMENT
INTERCREDITOR RIGHTS
Controlling Party
Pursuant to the Intercreditor Agreement, the Trustees, the Primary
Liquidity Providers, the Above-Cap Liquidity Provider and the Subordination
Agent have agreed that, with respect to any Indenture at any given time, the
Indenture Trustee will be directed (a) in taking, or refraining from taking, any
action thereunder or under the related Equipment Notes by the holders of at
least a majority of the outstanding principal amount of the Equipment Notes
issued thereunder (provided that, for so long as the Subordination Agent is the
registered holder of the Equipment Notes, the Subordination Agent shall act with
respect to this clause (a) in accordance with the directions of the Trustees),
so long as no Indenture Default shall have occurred and be continuing thereunder
and (b) after the occurrence and during the continuance of an Indenture Default
thereunder, in taking, or refraining from taking, any action thereunder,
including exercising remedies thereunder (including acceleration of such
Equipment Notes or foreclosing the lien on the Aircraft securing such Equipment
Notes), by the Controlling Party, subject to the limitations described below.
See "Description of the Certificates -- Indenture Defaults and Certain Rights
Upon an Indenture Default" for a description of the rights of the
Certificateholders of each Trust to direct the Trustee. For purposes of giving
effect to the foregoing, the Trustee (other than as the Controlling Party) have
irrevocably agreed (and the Certificateholders, other than the
Certificateholders represented by the Controlling Party, will be deemed to agree
by virtue of their purchase of Certificates) that the Subordination Agent, as
record holder of the Equipment Notes, will exercise its voting rights as
directed by the Controlling Party. Notwithstanding the foregoing, at any time
after 18 months from the earliest to occur of (x) the date on which the
Remaining Commitment Amount (as defined in the Liquidity Facilities) is and
remains zero (for any reason other than a Downgrade Drawing), (y) the date on
which a Final Drawing shall have been made and remains unreimbursed and (z) the
date on which all Equipment Notes shall have been accelerated, the Primary
Liquidity Providers holding more than 50% of unreimbursed liquidity obligations
payable under the Liquidity Facilities will have the right to elect to become
the Controlling Party with respect to such Indenture. (Intercreditor Agreement,
Section 2.6) For a description of certain limitations on the Controlling Party's
rights to exercise remedies, see "Description of the Equipment Notes --
Remedies."
53
<PAGE> 55
Sale of Equipment Notes or Aircraft
Upon the occurrence and during the continuation of an Indenture Default
under any Indenture, the Controlling Party may, among other things, direct the
Subordination Agent, which in turn will direct the Indenture Trustee, to
accelerate and, subject to the provisions of the immediately following sentence,
sell all (but not less than all) of the Equipment Notes issued under such
Indenture to any person. Subject to the rights of any Owner Trustee or Owner
Participant, so long as any Certificates are outstanding, during nine months
after the earlier of (x) the acceleration of the Equipment Notes under any
Indenture or (y) the bankruptcy or insolvency of United, without the consent of
the Trustee, (a) no Aircraft subject to the lien of any Indenture or such
Equipment Notes may be sold, if the net proceeds from such sale would be less
than the aggregate outstanding principal amount of such Equipment Notes, plus
accrued interest thereon, and (b) with respect to any Leased Aircraft, the
amount and payment dates of rentals payable by United under the Lease for such
Leased Aircraft may not be adjusted, if, as a result of such adjustment, the
discounted present value of all such rentals would be less than 75% of the
discounted present value of the rentals payable by United under such Lease
before giving effect to such adjustment, in each case, using the weighted
average interest rate of the Equipment Notes issued under such Indenture as the
discount rate.
The Subordination Agent may from time to time during the continuance of an
Indenture Default (and before the occurrence of a Triggering Event) commission
Appraisals with respect to all Aircraft at the request of the Controlling Party.
(Intercreditor Agreement, Section 4.1)
PRIORITY OF DISTRIBUTIONS
So long as no Triggering Event has occurred, the payments in respect of the
Equipment Notes and certain other payments received on any Distribution Date
will be promptly distributed by the Subordination Agent on such Distribution
Date in the following order of priority:
first, such amount as will be required to pay all unpaid Liquidity
Obligations (other than any interest accrued thereon on the principal
amount of any Interest Drawing) owed to each Primary Liquidity Provider
will be distributed to the Primary Liquidity Providers (the "Liquidity
Expenses");
second, such amount as will be required to pay the aggregate amount of
interest accrued on all Liquidity Obligations will be distributed to the
Primary Liquidity Providers;
third, such amount as will be required (A) if any Cash Collateral
Account had been previously funded as provided in Section 3.6(f) of the
Intercreditor Agreement, to fund such Cash Collateral Account up to the
Maximum Commitment Amount applicable to the related Primary Liquidity
Facility will be deposited in such Cash Collateral Account, (B) if any
Primary Liquidity Facility becomes a Downgraded Facility at a time when
unreimbursed Interest Drawings under such Primary Liquidity Facility have
reduced the Remaining Commitment Amount thereunder to zero, to fund the
relevant Cash Collateral Account up to the Maximum Commitment Amount
applicable to such Primary Liquidity Facility will be deposited in such
Cash Collateral Account and (C) if, with respect to any particular Primary
Liquidity Facility, neither subclause (A) nor subclause (B) of this clause
"third" are applicable, to pay or reimburse the Primary Liquidity Provider
in respect of such Primary Liquidity Facility, in each case in an amount
equal to the amount of all Liquidity Obligations then due under such
Primary Liquidity Facility (other than amounts payable pursuant to clause
"first," "second" or "third") will be distributed to such Primary Liquidity
Provider;
fourth, if, with respect to any particular Primary Liquidity Facility,
either subclause (A) or (B) of clause "third" above is applicable, then the
Primary Liquidity Provider with respect to such Primary Liquidity Facility
will be paid the excess of (x) the aggregate outstanding amount of
unreimbursed Drawings (whether or not then due) under such Primary
Liquidity Facility over (y) the Maximum Commitment Amount applicable to
such Primary Liquidity Facility;
fifth, such amount as will be required to pay Expected Distributions
to the holders of the Class A Certificates will be distributed to the
Trustee;
54
<PAGE> 56
sixth, such amount as will be required to pay Expected Distributions
to the holders of the Class B Certificates will be distributed to the
Trustee;
seventh, such amount as will be required to pay Expected Distributions
to the holders of the Class C Certificates will be distributed to the
Trustee;
eighth, such amount as will be required to pay Expected Distributions
to the holders of the Class D Certificates will be distributed to the
Trustee;
ninth, such amount as will be required to pay the aggregate unpaid
amount of fees and expenses to the Subordination Agent and the Trustee will
be distributed to the Subordination Agent and the Trustee; and
tenth, the balance, if any, remaining will be distributed to United.
"Expected Distributions" means, with respect to the Certificates of any
Trust on any Distribution Date (the "Current Distribution Date") the sum of (x)
accrued and unpaid interest on such Certificates and (y) the difference between
(A) the Pool Balance of such Certificates as of the preceding Distribution Date
and (B) the Pool Balance of such Certificates as of the Current Distribution
Date, calculated on the basis that the principal of the Equipment Notes held in
such Trust has been paid when due (whether at stated maturity, upon redemption,
prepayment or acceleration or otherwise) and such payments have been distributed
to the holders of such Certificates.
So long as no Triggering Event has occurred (whether or not continuing),
the Subordination Agent will make distributions of amounts on deposit on account
of the redemption, purchase or refinancing of all of the Equipment Notes issued
pursuant to an Indenture on the Special Distribution Date in the following order
of priority:
first, such amount as will be required to pay (A) all accrued and
unpaid Liquidity Expenses then in arrears plus (B) the product of (x) the
aggregate amount of all accrued and unpaid Liquidity Expenses not in
arrears multiplied by (y) a fraction, the numerator of which is the
aggregate outstanding principal amount of Equipment Notes being redeemed,
purchased, prepaid or refinanced and the denominator of which is the
aggregate outstanding principal amount of all Equipment Notes, will be
distributed to the Primary Liquidity Providers;
second, such amount as will be required to pay (A) all accrued and
unpaid interest then in arrears on all Liquidity Obligations plus (B) the
product of (x) the aggregate amount of all accrued and unpaid interest on
all Liquidity Obligations not in arrears multiplied by (y) a fraction, the
numerator of which is the aggregate outstanding principal amount of
Equipment Notes being redeemed, purchased, prepaid or refinanced and the
denominator of which is the aggregate outstanding principal amount of all
Equipment Notes, will be distributed to the Primary Liquidity Providers;
third, such amount as will be required (A) if any Cash Collateral
Account had been previously funded as provided in Section 3.6(f) of the
Intercreditor Agreement, to fund such Cash Collateral Account up to the
Maximum Commitment Amount applicable to the related Primary Liquidity
Facility will be deposited in such Cash Collateral Account, (B) if any
Primary Liquidity Facility becomes a Downgraded Facility at a time when
unreimbursed Interest Drawings under such Primary Liquidity Facility have
reduced the Remaining Commitment Amount thereunder to zero, to fund the
relevant Cash Collateral Account up to the Maximum Commitment Amount
applicable to such Primary Liquidity Facility will be deposited in such
Cash Collateral Account and (C) if, with respect to any particular Primary
Liquidity Facility, neither subclause (A) nor subclause (B) of this clause
"third" are applicable, to pay or reimburse the Primary Liquidity Provider
in respect of such Primary Liquidity Facility, in each case in an amount
equal to the amount of any unreimbursed Interest Drawings under the Primary
Liquidity Facilities will be distributed to the Primary Liquidity
Providers;
fourth, if either subclause (A) or (B) of clause "third" above is
applicable, then the Primary Liquidity Provider will be paid the excess of
(x) the aggregate outstanding amount of unreimbursed
55
<PAGE> 57
Advances under such Primary Liquidity Facility over (y) the Maximum
Commitment Amount applicable to such Primary Liquidity Facility;
fifth, such amount as will be required to pay Expected Distributions
to the holders of Class A Certificates will be distributed to the Trustee;
sixth, such amount as will be required to pay Expected Distributions
to the holders of Class B Certificates will be distributed to the Trustee;
seventh, such amount as will be required to pay Expected Distributions
to the holders of Class C Certificates will be distributed to the Trustee;
eighth, such amount as will be required to pay Expected Distributions
to the holders of Class D Certificates will be distributed to the Trustee;
and
ninth, the balance, if any, will be distributed to United.
Subject to the terms of the Intercreditor Agreement, upon the occurrence of
a Triggering Event and at all times thereafter, all funds received by the
Subordination Agent in respect of the Equipment Notes and certain other payments
will be promptly distributed by the Subordination Agent in the following order
of priority:
first, such amount as will be required to pay to the Subordination
Agent, any Trustee, any Certificateholder and any Primary Liquidity
Provider certain out-of-pocket costs and expenses actually incurred by the
Subordination Agent or any Trustee or to reimburse any Certificateholder or
any Primary Liquidity Provider in respect of payments made to the
Subordination Agent or any Trustee in connection with the protection or
realization of the value of the Equipment Notes or any Trust Indenture
estate (collectively, the "Administration Expenses");
second, such amount as will be required to pay to each Primary
Liquidity Provider the Liquidity Expenses;
third, such amount as will be required to pay to each Primary
Liquidity Provider interest accrued on the Liquidity Obligations;
fourth, such amount as will be required (A) if any Cash Collateral
Account had been previously funded as provided in Section 3.6(f) of the
Intercreditor Agreement unless (i) a Performing Note Deficiency exists and
a Triggering Event has occurred and is continuing with respect to the
relevant Liquidity Facility or (ii) a Final Drawing will have occurred with
respect to the relevant Primary Liquidity Facility, to fund such Cash
Collateral Account up to the Maximum Commitment Amount applicable to the
related Primary Liquidity Facility will be deposited in such Cash
Collateral Account, (B) if any Primary Liquidity Facility becomes a
Downgraded Facility at a time when unreimbursed LP Interest Drawings under
such Primary Liquidity Facility have reduced the Remaining Commitment
Amount thereunder to zero unless (i) a Performing Note Deficiency exists
and a Triggering Event has occurred and is continuing with respect to the
relevant Liquidity Facility or (ii) a Final Drawing will have occurred with
respect to the relevant Primary Liquidity Facility, to fund the relevant
Cash Collateral Account up to the Maximum Commitment Amount applicable to
such Primary Liquidity Facility will be deposited in such Cash Collateral
Account and (C) if, with respect to any particular Primary Liquidity
Facility, neither subclause (A) nor subclause (B) of this clause "fourth"
is applicable, to pay or reimburse the Primary Liquidity Provider in
respect of such Primary Liquidity Facility, in each case in an amount equal
to the amount of all Liquidity Obligations, whether or not then due under
such Primary Liquidity Facility (other than amounts payable pursuant to
clause "first," "second" or "third" under such Primary Liquidity Facility;
fifth, if, with respect to any particular Primary Liquidity Facility,
either subclause (A) or (B) of clause "fourth" above is applicable, then
the Primary Liquidity Provider with respect to such Primary Liquidity
Facility will be paid the excess of (x) the aggregate outstanding amount of
unreimbursed Advances (whether or not then due) under such Primary
Liquidity Facility over (y) the Maximum Commitment Amount applicable to
such Primary Liquidity Facility;
56
<PAGE> 58
sixth, such amount as will be required to pay to the Subordination
Agent, any Trustee or any Certificateholder certain fees, taxes, charges
and other amounts payable;
seventh, such amount as will be required to pay Adjusted Expected
Distributions on the Class A Certificates will be distributed to the
Trustee;
eighth, such amount as will be required to pay Adjusted Expected
Distributions on the Class B Certificates will be distributed to the
Trustee;
ninth, such amount as will be required to pay Adjusted Expected
Distributions on the Class C Certificates will be distributed to the
Trustee;
tenth, such amount as will be required to pay Adjusted Expected
Distributions on the Class D Certificates will be distributed to the
Trustee; and
eleventh, the balance, if any, remaining thereafter will be
distributed to United.
"Adjusted Expected Distributions" means, with respect to the Certificates
of any Trust on any Current Distribution Date, the sum of (x) accrued and unpaid
interest on such Certificates and (y) the greater of:
(A) the difference between (x) the Pool Balance of such Certificates
as of the preceding Distribution Date and (y) the Pool Balance of such
Certificates as of the Current Distribution Date calculated on the basis
that (i) the principal of the Equipment Notes other than Performing
Equipment Notes (the "Non-Performing Equipment Notes") held in such Trust
has been paid in full and such payments have been distributed to the
holders of such Certificates and (ii) the principal of the Performing
Equipment Notes has been paid when due (but without giving effect to any
acceleration of Performing Equipment Notes) and such payments have been
distributed to the holders of such Certificates, and
(B) the amount of the excess, if any, of (i) the Pool Balance of such
Class of Certificates as of the preceding Distribution Date, over (ii) the
Aggregate LTV Collateral Amount for such Class of Certificates for the
Current Distribution Date;
provided that, until the date of the initial LTV Appraisals, clause (B) will not
apply.
"Aggregate LTV Collateral Amount" for any Class of Certificates for any
Distribution Date means the sum of the applicable LTV Collateral Amounts for all
Aircraft, minus the Pool Balance for each Class of Certificates, if any, senior
to such Class, after giving effect to any distribution of principal on such
Distribution Date on such senior Class or Classes.
"LTV Collateral Amount" of any Aircraft for any Class of Certificates
means, as of any Distribution Date, the lesser of (i) the LTV Ratio for such
Class of Certificates multiplied by the Appraised Current Market Value of such
Aircraft and (ii) the outstanding principal amount of the Equipment Notes
secured by such Aircraft after giving effect to any principal payments of such
Equipment Notes on or before such Distribution Date.
"LTV Ratio" means for the Class A Certificates 46.0%, for the Class B
Certificates 57.0%, for the Class C Certificates 68.3% and for the Class D
Certificates 82.3%.
"Appraised Current Market Value" of any Aircraft means the lower of the
average and the median of the most recent three Appraisals of such Aircraft.
After a Triggering Event occurs and any Equipment Note becomes a Non-Performing
Equipment Note, the Subordination Agent will obtain Appraisals for all of the
Aircraft (the "LTV Appraisals") as soon as practicable and additional LTV
Appraisals on or prior to each anniversary of the date of such initial LTV
Appraisals; provided that if the Controlling Party reasonably objects to the
appraised value of the Aircraft shown in such Appraisals, the Controlling Party
will have the right to obtain or cause to be obtained substitute LTV Appraisals
(including LTV Appraisals based upon physical inspection of the Aircraft).
Certain amounts payable to the Trustees, the Subordination Agent and the
Liquidity Provider, including fees and expenses of the Trustees and the
Subordination Agent and indemnification obligations of United, are
57
<PAGE> 59
not entitled to the benefits of the lien of the Indentures. Consequently, if a
default occurs in the payment of any such amounts, and to the extent that such
amounts are distributed to any such party in accordance with the priorities of
distribution described above, the holders of one or more junior Classes of
Certificates may not receive the full amount due them even if all Equipment
Notes are eventually paid in full, and any unpaid amounts will be unsecured
claims against United.
Interest Drawings under the Primary Liquidity Facility and withdrawals from
the Cash Collateral Account, in each case in respect of interest on the
Certificates of the Class A and Class B Trusts, will be distributed to the
Trustee for such Trust, notwithstanding the priority of distributions set forth
in the Intercreditor Agreement and otherwise described herein. All amounts on
deposit in the Cash Collateral Account for any Trust which are in excess of the
Required Amount and all investment earnings on such amounts on deposit in the
Cash Collateral Account will be paid to the Liquidity Provider.
VOTING OF EQUIPMENT NOTES
If the Subordination Agent, as the registered holder of any Equipment Note,
receives a request for its consent to any amendment, modification or waiver
under such Equipment Note or the related Indenture (or, if applicable, the
Lease, the Participation Agreement or other related document), (i) if no
Indenture Default has occurred and is continuing, the Subordination Agent will
request instructions from the applicable Trustee and the consent of each Primary
Liquidity Provider (which consent will not be unreasonably withheld or delayed)
and will vote or consent in accordance with the vote of the Trustee and the
instructions of the Primary Liquidity Provider and (ii) if any Indenture Default
(which, in the case of an Indenture pertaining to a Leased Aircraft, has not
been cured by the Owner Trustee or the Owner Participant under such Indenture)
has occurred and is continuing with respect to such Indenture, the Subordination
Agent will exercise its voting rights as directed by the Controlling Party.
(Intercreditor Agreement, Section 9.1(b))
THE SUBORDINATION AGENT
First Security Bank, National Association is the Subordination Agent under
the Intercreditor Agreement. United and its affiliates may from time to time
enter into banking and trustee relationships with the Subordination Agent and
its affiliates. The Subordination Agent's address is First Security Bank,
National Association, 79 South Main Street, Salt Lake City, Utah 84111,
Attention: Corporate Trust Administration.
The Subordination Agent may resign at any time, in which event a successor
Subordination Agent will be appointed as provided in the Intercreditor
Agreement. The Controlling Party may remove the Subordination Agent for cause as
provided in the Intercreditor Agreement. In such circumstances, a successor
Subordination Agent will be appointed as provided in the Intercreditor
Agreement. Any resignation or removal of the Subordination Agent does not become
effective until acceptance of the appointment by the successor Subordination
Agent. No appointment of a successor Subordination Agent will be effective
unless and until Moody's and Standard & Poor's deliver a ratings confirmation.
(Intercreditor Agreement, Section 8.1)
DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS
THE AIRCRAFT
The Aircraft are comprised of 14 Aircraft as follows: two Boeing 747-422s,
four Airbus A320-232s, three Boeing 777-222s, one Boeing 777-222IGW and four
Boeing 737-322s. The Aircraft are designed to be in compliance with Stage III
noise level standards, which constitute the most restrictive regulatory
standards currently in effect in the United States for aircraft noise abatement.
The table below sets forth certain additional information for the Aircraft.
58
<PAGE> 60
<TABLE>
<CAPTION>
AIRCRAFT APPRAISED VALUE
REGISTRATION AIRCRAFT ENGINE DELIVERY --------------------------------------------
NUMBER TYPE TYPE DATE AISI BK AVSOLUTIONS
------------ ------------------ ------------ -------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
N193UA Boeing 747-422 PW4056 August 1996 $ 142,760,000 $138,100,000 $142,800,000
N194UA Boeing 747-422 PW4056 September 1996 142,760,000 138,100,000 142,800,000
N433UA Airbus A320-232 IAE2527-A5 June 1996 41,340,000 37,800,000 37,000,000
N434UA Airbus A320-232 IAE2527-A5 June 1996 41,340,000 37,800,000 37,000,000
N435UA Airbus A320-232 IAE2527-A5 September 1996 41,340,000 38,250,000 37,500,000
N436UA Airbus A320-232 IAE2527-A5 December 1996 41,340,000 38,650,000 38,100,000
N776UA Boeing 777-222 PW4077 April 1996 112,250,000 105,000,000 99,100,000
N778UA Boeing 777-222 PW4077 July 1996 112,250,000 107,000,000 99,100,000
N780UA Boeing 777-222 PW4077 August 1996 112,250,000 107,000,000 99,700,000
N786UA Boeing 777-222 IGW PW4090 April 1997 123,940,000 121,000,000 128,600,000
N202UA Boeing 737-322 CFM56-3B1 October 1990 23,170,000 25,300,000 22,900,000
N203UA Boeing 737-322 CFM56-3B1 October 1990 23,170,000 25,300,000 22,900,000
N398UA Boeing 737-322 CFM56-3B1/C1 September 1990 23,370,000 25,300,000 22,700,000
N399UA Boeing 737-322 CFM56-3B1 October 1990 23,170,000 25,300,000 22,900,000
-------------- ------------ ------------
$1,004,450,000 $969,900,000 $953,100,000
============== ============ ============
</TABLE>
APPRAISED VALUE
The appraised values set forth in the foregoing chart were determined by
the following three independent aircraft appraisal and consulting firms: AISI,
BK and AvSolutions. Each Appraiser was asked to provide its opinion as to the
fair market value of each Aircraft as of November 6, 1997. As part of this
process, all three Appraisers performed "desk-top" appraisals without any
physical inspection of the Aircraft. The Appraisers have delivered letters
summarizing their respective appraisals, copies of which are annexed to this
Prospectus as Appendix II. See "Risk Factors -- Appraisals and Realizable Value
of Aircraft."
An appraisal is only an estimate of value and should not be relied upon as
a measure of realizable value; the proceeds realized upon a sale of any Aircraft
may be less than the appraised value thereof. The value of the Aircraft in the
event of the exercise of remedies under the applicable Indenture will depend on
market and economic conditions, the availability of buyers, the condition of the
Aircraft and other similar factors. Accordingly, there can be no assurance that
the proceeds realized upon any such exercise with respect to the Equipment Notes
and the Aircraft pursuant to the applicable Indenture would be as appraised or
sufficient to satisfy in full payments due on the Equipment Notes issued
thereunder. See "Risk Factors -- Appraisals and Realizable Value of Aircraft."
DESCRIPTION OF THE EQUIPMENT NOTES
GENERAL
The Equipment Notes have been issued in three Series (in the case of
Equipment Notes relating to the Owned Aircraft) or four Series (in the case of
the Equipment Notes relating to the Leased Aircraft) with respect to each
Aircraft. The Equipment Notes with respect to each Leased Aircraft have been
issued under a separate Leased Aircraft Indenture between State Street Bank and
Trust Company of Connecticut, National Association, as Owner Trustee of a trust
for the benefit of the Owner Participant who is the beneficial owner of such
Aircraft (the "Owner Participant"), and First Security Bank, National
Association, as Leased Aircraft Indenture Trustee. The Equipment Notes with
respect to each Owned Aircraft have been issued under a separate Owned Aircraft
Indenture between United and First Security Bank, National Association, as Owned
Aircraft Indenture Trustee.
The related Owner Trustee leases each Leased Aircraft to United pursuant to
a separate Lease between such Owner Trustee and United with respect to such
Leased Aircraft. Under each Lease, United is obligated to make or cause to be
made rental and other payments to the related Leased Aircraft Indenture Trustee
on behalf of the related Owner Trustee, which rental and other payments will be
at least sufficient to pay in full
59
<PAGE> 61
when due all payments required to be made on the Equipment Notes issued with
respect to such Leased Aircraft.
The Equipment Notes issued with respect to the Leased Aircraft are not,
however, direct obligations of, or guaranteed by, United. United's rental
obligations under each Lease and United's obligations under the Equipment Notes
issued with respect to the Owned Aircraft are general obligations of United.
A financial institution is currently the Owner Participant with respect to
the four leveraged leases for the Leased Aircraft. The Owner Participant has the
right to sell, assign or otherwise transfer its interests as Owner Participant
in any or all of such leveraged leases, subject to the terms and conditions of
the relevant Participation Agreement and related documents.
NOTE PURCHASE AGREEMENT
Each Trust has acquired those Equipment Notes having an interest rate equal
to the interest rate applicable to the Certificates issued by such Trust. The
Equipment Notes were purchased from United, in the case of the Equipment Notes
relating to the Owned Aircraft, and from the applicable Owner Trustee in the
case of the Equipment Notes relating to the Leased Aircraft, in each case
pursuant to a Note Purchase Agreement (the "Note Purchase Agreement") between
United, the Owner Trustees, the Subordination Agent, the Indenture Trustees and
the Trustees under the Pass Through Trust Agreements.
SUBORDINATION
Series B Equipment Notes issued in respect of any Aircraft are subordinated
in right of payment to Series A Equipment Notes issued in respect of such
Aircraft. Series C Equipment Notes issued in respect of such Aircraft are
subordinated in right of payment to such Series B Equipment Notes. Series D
Equipment Notes issued in respect of such Aircraft are subordinated in right of
payment to such Series C Equipment Notes. On each scheduled payment date, unless
a particular Series of Equipment Notes is being purchased or redeemed, (i)
payments of interest and principal due on Series A Equipment Notes issued in
respect of any Aircraft will be made prior to payments of interest and principal
due on Series B Equipment Notes issued in respect of such Aircraft, (ii)
payments of interest and principal due on such Series B Equipment Notes will be
made prior to payments of interest and principal due on Series C Equipment Notes
issued in respect of such Aircraft and (iii) payments of interest and principal
due on such Series C Equipment Notes will be made prior to payments of interest
and principal due on Series D Equipment Notes issued in respect of such
Aircraft.
PRINCIPAL AND INTEREST PAYMENTS
Interest on the Series A Equipment Notes and the Series B Equipment Notes
held in each Trust will be payable at a floating interest rate equal to
Three-Month LIBOR plus the spread for the corresponding class of Certificates
set forth on the cover page of this Prospectus. The Series C and Series D
Equipment Notes held in each Trust are also payable at a floating interest rate.
Interest on the Equipment Notes is payable on March 2, June 2, September 2
and December 2 of each year, commencing on March 2, 1998. Interest payments will
be passed through to Certificateholders of each Trust on each Regular
Distribution Date until the Final Expected Distribution Date for such
Certificates, in each case subject to the Intercreditor Agreement. Interest is
calculated on the basis of the actual number of days elapsed over a 360-day
year.
The interest rate on each Series of Equipment Notes relating to the Leased
Aircraft will be reset on the Final Expected Distribution Date by the Reset
Agents as described in "-- Interest Rate Reset on Final Expected Distribution
Date" below. In addition, the interest rates for the Equipment Notes are subject
to change under certain circumstances described in "Exchange Offer -- General."
60
<PAGE> 62
The aggregate original principal amounts of the Equipment Notes issued with
respect to each Aircraft, as such Equipment Notes are held in each of the
Trusts, are as follows:
<TABLE>
<CAPTION>
TRUST TRUST TRUST TRUST
AIRCRAFT 1997-1A 1997-1B 1997-1C 1997-1D
REGISTRATION AIRCRAFT EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT
NUMBER TYPE NOTES NOTES NOTES NOTES TOTAL
- ------------ ------------------ ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
N193UA Boeing 747-422 $ 64,961,000 $ 15,534,000 $ 2,362,000 $ 0 $ 82,857,000
N194UA Boeing 747-422 64,961,000 15,534,000 18,359,000 0 98,854,000
N433UA Airbus A320-232 17,388,000 4,158,000 4,914,000 0 26,460,000
N434UA Airbus A320-232 17,388,000 4,158,000 4,914,000 0 26,460,000
N435UA Airbus A320-232 17,595,000 4,207,000 4,973,000 0 26,775,000
N436UA Airbus A320-232 17,779,000 4,251,000 5,025,000 0 27,055,000
N776UA Boeing 777-222 48,300,000 11,550,000 13,650,000 0 73,500,000
N778UA Boeing 777-222 48,813,000 11,673,000 13,795,000 0 74,281,000
N780UA Boeing 777-222 48,905,000 11,695,000 13,821,000 0 74,421,000
N786UA Boeing 777-222 IGW 57,012,000 13,633,000 16,113,000 0 86,758,000
N202UA Boeing 737-322 10,658,000 2,548,000 3,012,000 2,890,399 19,108,399
N203UA Boeing 737-322 10,658,000 2,548,000 3,012,000 2,891,192 19,109,192
N398UA Boeing 737-322 10,750,000 2,570,000 3,038,000 2,751,192 19,109,192
N399UA... Boeing 737-322 10,658,000 2,548,000 3,012,000 2,890,399 19,108,399
------------ ------------ ------------ ----------- ------------
$445,826,000 $106,607,000 $110,000,000 $11,423,182 $673,856,182
============ ============ ============ =========== ============
</TABLE>
Scheduled principal payments on the Equipment Notes held in each Trust will
be passed through to the Certificateholders of each such Trust on one or more
Regular Distribution Dates in specified years, commencing on March 2, 1998, in
accordance with the principal repayment schedule as set forth in Appendix III.
An "Additional Payment" means a payment of Make-Whole Amount and/or Break
Amount, if any.
The "Make-Whole Amount," with respect to the Series A Equipment Notes and
the Series B Equipment Notes to be redeemed or purchased on any redemption or
purchase date will be an amount which an independent investment banking
institution of national standing selected by United (or, following the
occurrence and during the continuance of an Indenture Default, the applicable
Indenture Trustee) determines to be equal to the excess of (i) the sum of the
present values, discounted to such redemption or purchase date, of all the
remaining scheduled payments of principal and interest, using then effective
Three-Month LIBOR plus the applicable margin for all remaining interest
payments, payable between such redemption date and the Final Expected
Distribution Date (assuming, in the case of the Equipment Notes issued with
respect to the Leased Aircraft, that all principal thereof payable after the
Final Expected Distribution Date is payable on the Final Expected Distribution
Date), discounted quarterly on each Regular Distribution Date, using then
effective Three-Month LIBOR less 0.05% as the discount rate over (ii) the
aggregate unpaid principal amount of such Equipment Notes plus accrued but
unpaid interest on such Equipment Notes; provided, however, that no Make-Whole
Amount will be payable with respect to the Series A Equipment Notes or the
Series B Equipment Notes redeemed or purchased (i) upon the occurrence of one of
the events specified under "Description of the Equipment Notes -- Redemption --
Optional Purchase by Owner Trustee or Owner Participant" with respect to the
Leased Aircraft, or (ii) upon an Event of Loss with respect to an Aircraft if
United has elected not to replace such Aircraft under the applicable Lease
(Indentures, Sections 6.01 and 8.03).
"Break Amount" means, as of any date of payment, redemption or acceleration
for any Series of Equipment Notes (the "Applicable Date"), an amount determined
by the Calculation Agent on the date that is two LIBOR Business Days prior to
the Applicable Date pursuant to the formula set forth below.
61
<PAGE> 63
The Break Amount is calculated as follows:
Break Amount = Z-Y
Where:
X = with respect to any applicable interest period, the sum of (i) the
amount of the outstanding principal amount for such Series of Equipment
Notes as of the first day of the then applicable interest period plus
(ii) interest payable thereon during such entire interest period at
then effective Three-Month LIBOR.
Y = X, discounted to present value from the last day of the then applicable
interest period to the Applicable Date, using then effective
Three-Month LIBOR as the discount rate.
Z = X, discounted to present value from the last day of the then applicable
interest period to the Applicable Date, using a rate equal to the
applicable London interbank offered rate for a period commencing on the
Applicable Date and ending on the last day of the then applicable
interest period, determined by the Calculation Agent as of two LIBOR
Business Days prior to the Applicable Date as the discount rate.
No Break Amount is payable (x) if the Break Amount, as calculated pursuant
to the formula set forth above, is equal to or less than zero or (y) on or in
respect of any Applicable Date that is a Regular Distribution Date.
INTEREST RATE RESET ON FINAL EXPECTED DISTRIBUTION DATE
No later than 60 days prior to the Final Expected Distribution Date, United
will cause the Trustee to hire (and, if United does not so cause the Trustee,
the Trustee will, no later than 30 days prior to the Final Expected Distribution
Payment, hire) an independent investment banker (the "Reset Agent") of
recognized national standing (which may be an Initial Purchaser) to determine
the interest rate on each Series of the Equipment Notes relating to the Leased
Aircraft to an interest rate that, in the good faith determination of the Reset
Agent, after consideration of the then current rates for pass through
certificates of United and other comparable equipment lessees having similar
tenor, rating and other pricing terms, will enable each such Series of Equipment
Notes to be sold at 100% of the principal amount thereof on the Final Expected
Distribution Date. The Reset Agent will, for such reasonable fee payable by the
Trust as is mutually agreed by the Trustee and the Reset Agent, use its best
efforts to sell any such Equipment Notes with such new interest rates on the
Final Expected Distribution Date or as promptly as practicable thereafter.
No beneficial owner of any Certificates will have any rights or claims
under the Note Purchase Agreement or against United or the Reset Agent as a
result of the Reset Agent not providing a reset interest rate, the Reset Agent
not selling such Certificates or United not purchasing such Certificates.
REDEMPTION
Mandatory Redemption Upon Event of Loss
If an Event of Loss occurs with respect to any Aircraft and such Aircraft
is not replaced by United under the related Lease (in the case of the Leased
Aircraft) or under the related Owned Aircraft Indenture (in the case of the
Owned Aircraft), the Equipment Notes issued with respect to such Aircraft will
be redeemed in whole, in each case at a price equal to the aggregate unpaid
principal amount thereof, together with Additional Payments and accrued interest
thereon to, but not including, the date of redemption. (Indentures, Section
6.01(a))
Optional Redemption, Purchase or Refinancing by United
United or its designee may, at its option (or the Owner Trustee will,
pursuant to the applicable Indenture), redeem, purchase or refinance, in the
case of the Owned Aircraft, or purchase, in the case of the Leased Aircraft, (i)
the Equipment Notes of a Series with respect to one or more Aircraft, or (ii)
all
62
<PAGE> 64
Equipment Notes related to one or more Aircraft; provided, however, that, other
than as set forth in "-- Mandatory Redemption Upon Event of Loss" and "--
Redemption Related to Lease Terminations," the Series C Equipment Notes may not
be redeemed before December 2, 2002. (Owned Aircraft Indentures, Section
6.01(b); Note Purchase Agreement, Section 2(a))
The Series A and Series B Equipment Notes may be redeemed or purchased, in
each case as described above, at a price equal to the aggregate unpaid principal
amount of such Equipment Notes, together with any Additional Payment and accrued
interest thereon to, but not including, the date of redemption or purchase.
(Owned Aircraft Indentures, Section 6.01(b); Leased Aircraft Indentures, Section
6.02)
Redemption Related to Lease Terminations
If, with respect to the Leased Aircraft, United exercises its right to
terminate a Lease under Section 9(b) of such Lease or its purchase option under
Section 19(b) of such Lease, the Series A and Series B Equipment Notes relating
to the related Leased Aircraft will be redeemed, in whole, at a price equal to
the aggregate unpaid principal amount thereof, together with any Additional
Payment and accrued interest thereon to, but not including, the date of
redemption. (Leased Aircraft Indentures, Sections 6.01(b) and 6.02)
Optional Purchase by Owner Trustee or Owner Participant
If, with respect to the Leased Aircraft, (i) one or more Lease Events of
Default have occurred and are continuing for a period of 120 days or more and no
Indenture Event of Default (other than arising out of such Lease Event(s) of
Default) has occurred and is continuing, (ii) the Equipment Notes issued with
respect to such Leased Aircraft have become due and payable, (iii) the
applicable Owner Participant has received notice from the applicable Indenture
Trustee that it intends to foreclose the lien of the applicable Indenture or
(iv) the Indenture Trustee has elected to exercise remedies under the applicable
Indenture, then in each case the Equipment Notes issued with respect to such
Leased Aircraft may, upon 26 days' prior irrevocable notice to the Indenture
Trustee, be purchased by the Owner Trustee or the Owner Participants on the
applicable purchase date at a price equal to the aggregate unpaid principal
thereof, together with Break Amount, if any, and accrued interest thereon to,
but not including, the purchase date. (Leased Aircraft Indentures, Sections
6.01(b) and 8.03(e)(ii))
NOTICE OF REDEMPTION
Notice of redemption or purchase of the Equipment Notes relating to the
Leased Aircraft and the Owned Aircraft must be mailed to holders of such
Equipment Notes not less than 26 nor more than 60 days prior to the applicable
redemption date. Such notice will be irrevocable in the case of a redemption of
the Equipment Notes relating to the Owned Aircraft and become irrevocable 26
days prior to the applicable redemption date in the case of redemption of the
Equipment Notes relating to the Leased Aircraft; provided that in connection
with a redemption related to United's exercise of its option to terminate the
Leases relating to the Leased Aircraft, such notice will be revocable and will
be deemed revoked in the event such Lease does not terminate on the related
lease termination date. (Leased Aircraft Indentures, Section 6.03; Owned
Aircraft Indentures, Section 6.02)
MATURITY OF EQUIPMENT NOTES; FINAL DISTRIBUTION OF CERTIFICATES
The maturity date of the Equipment Notes relating to the Leased Aircraft
acquired by each Trust will occur after the Final Expected Distribution Date
applicable to the Certificates to be issued by such Trust. As a result, on the
Final Expected Distribution Date, the installments of principal and interest
then due and payable on the Equipment Notes will be insufficient to pay the
final expected distribution on the related Certificates. Under the Note Purchase
Agreement, the applicable Trustees will obtain the funds to pay the final
expected distribution on the Certificates on the Final Expected Distribution
Date from the payment by United at maturity in full of the principal and accrued
interest on the Equipment Notes issued with respect to the Owned Aircraft and by
selling, or permitting the refinancing of, the Equipment Notes issued with
respect to
63
<PAGE> 65
the Leased Aircraft for an amount equal to the principal thereof plus accrued
interest thereon. The maturity date of the Equipment Notes relating to the Owned
Aircraft is the Final Expected Distribution Date.
On the Final Expected Distribution Date, United or its designee may
purchase the Equipment Notes relating to the Leased Aircraft from the Trustees
for an amount sufficient to pay the Certificates in full, or United may arrange
for the purchase of the Equipment Notes by a third party for an amount equal to
the principal amount thereof plus accrued interest thereon. The interest rates
on each Series of Equipment Notes relating to the Leased Aircraft that remains
outstanding on or after the Final Expected Distribution Date will be reset on
the Final Expected Distribution Date as set forth under "Principal and Interest
Payments" above.
SECURITY
The Equipment Notes issued with respect to each Aircraft are secured by a
security interest in the related Aircraft. In the case of each Leased Aircraft,
the related Equipment Notes are secured by: (i) an assignment to the related
Leased Aircraft Indenture Trustee of the related Owner Trustee's rights, except
for certain limited rights, under the Lease with respect to the related Leased
Aircraft, including the right to receive specified payments of rent thereunder,
(ii) a mortgage to such Leased Aircraft Indenture Trustee of such Aircraft,
subject to the rights of United under such Lease, and (iii) an assignment to
such Leased Aircraft Indenture Trustee of certain of such Owner Trustee's rights
under the purchase agreement between United and the related manufacturer. Under
the terms of each Lease, United's obligations in respect of each Leased Aircraft
are those of a lessee under a "net lease." Accordingly, United is obligated,
among other things and at its expense, to cause each Leased Aircraft to be duly
registered, to pay all costs of operating such Aircraft and to maintain,
service, repair and overhaul (or cause to be maintained, serviced, repaired and
overhauled) such Aircraft.
Pursuant to the Granting Clause of the Leased Aircraft Indentures, the
Owner Trustee has assigned to the Indenture Trustee a first priority security
interest in the Owner Trustee's rights, powers and remedies under the Leases
(including the Owner Trustee's rights to receive any payments of rent under the
Leases), except for rights retained exclusively by the Owner Trustee and rights
shared by the Owner Trustee and the Indenture Trustee under the circumstances
described in the Leased Aircraft Indentures. The assignment by the Owner Trustee
to the Leased Aircraft Indenture Trustee of its rights under the related Lease
excludes rights of such Owner Trustee and the related Owner Participant relating
to indemnification by United for certain matters, insurance proceeds payable to
such Owner Trustee in its individual capacity and to such Owner Participant
under liability insurance maintained by United under such Lease or by such Owner
Trustee or such Owner Participant, insurance proceeds payable to such Owner
Trustee in its individual capacity or to such Owner Participant under certain
casualty insurance maintained by such Owner Trustee or such Owner Participant
under such Lease and certain reimbursement payments made by United to such Owner
Trustee. (Leased Aircraft Indentures, Granting Clause)
The Equipment Notes issued with respect to the Owned Aircraft are secured
by: (i) a mortgage to such Owned Aircraft Indenture Trustee of such Aircraft,
subject to the rights of United under the related Owned Aircraft Indenture, and
(ii) an assignment to such Owned Aircraft Indenture Trustee of certain of
United's rights under its purchase agreement with the related manufacturer.
Under the terms of each Owned Aircraft Indenture, United is obligated, among
other things and at its expense, to cause each Owned Aircraft to be duly
registered, to pay all costs of operating such Aircraft and to maintain,
service, repair and overhaul (or cause to be maintained, serviced, repaired and
overhauled) such Aircraft. (Owned Aircraft Indentures, Section 4.01)
The Equipment Notes are not cross-collateralized and, consequently, the
Equipment Notes issued in respect of any one Aircraft are not secured by any of
the other Aircraft or replacement Aircraft (as described in "-- The Leases and
Certain Provisions of the Owned Aircraft Indentures -- Events of Loss") or, in
the case of the Leased Aircraft, the Leases related thereto. There are no
cross-default provisions in the Indentures or, in the case of the Leased
Aircraft, in the Leases. Consequently, events resulting in an Indenture Default
under any particular Indenture may or may not result in an Indenture Default
occurring under any other Indenture, and, in the case of the Leased Aircraft, a
Lease Event of Default under any particular Lease will not constitute a Lease
Event of Default under any other Lease. If the Equipment Notes issued with
respect to
64
<PAGE> 66
one or more Aircraft are in default and the Equipment Notes issued with respect
to the remaining Aircraft are not in default, no remedies will be exercisable
under the Indentures with respect to such remaining Aircraft.
Funds, if any, held from time to time by the Indenture Trustee with respect
to any Aircraft, including funds held as the result of an Event of Loss to such
Aircraft or, in the case of a Leased Aircraft, termination of the Lease, if any,
relating thereto, will be invested and reinvested by such Indenture Trustee, at
the direction of United (acting as the agent of the Owner Trustee in the case of
the Leased Aircraft), in investments described in the related Indenture (so long
as no Lease Event of Default has occurred and is continuing, in the case of the
Leased Aircraft). Upon maturity, sale or disposition of such investments, United
(acting as agent of the Owner Trustee in the case of the Leased Aircraft), upon
demand by the Indenture Trustee, will pay to the Indenture Trustee the amount of
any loss realized therefrom, and will be entitled to receive from the Indenture
Trustee any profit, income, interest, dividend or gain realized therefrom (so
long as no Lease Event of Default has occurred and is continuing in the case of
the Leased Aircraft and so long as no Indenture Default has occurred and is
continuing in the case of the Owned Aircraft). (Leased Aircraft Indentures and
Owned Aircraft Indentures, Section 9.04)
LOAN TO AIRCRAFT VALUE RATIOS OF EQUIPMENT NOTES
The loan to Aircraft value ratios for the Equipment Notes issued in respect
of each Aircraft as of certain specified dates are set forth in a Appendix IV.
The loan to Aircraft value ratio for each Aircraft was obtained by dividing (i)
the outstanding balance (assuming no payment default) of such Equipment Notes
determined immediately after giving effect to the payments scheduled to be made
in each such month by (ii) the assumed value (the "Assumed Aircraft Value") of
the Aircraft securing such Equipment Notes.
The table is based on the assumption that the value of each Aircraft set
forth opposite December 23, 1997 depreciates by approximately 2% of the initial
appraised value per year until the fifteenth year after the year of delivery of
such Aircraft, by approximately 4% of the initial appraised value per year for
the next five years and by approximately 6% of the initial appraised value per
year thereafter. Other rates or methods of depreciation would result in
materially different loan to Aircraft value ratios and no assurance can be given
(i) that the depreciation rates and method assumed for the purposes of the table
are the ones most likely to occur or (ii) as to the actual value of any
Aircraft. Thus, the table should not be considered a forecast or prediction of
expected or likely loan to Aircraft value ratios but simply a mathematical
calculation based on one set of assumptions.
LIMITATION OF LIABILITY
The Equipment Notes issued with respect to the Leased Aircraft are not
direct obligations of, or guaranteed by, United, the Owner Participants or the
Owner Trustees in their individual capacities. None of the Owner Trustees, the
Owner Participants or the Indenture Trustees, or any affiliates thereof, will be
personally liable to any holder of an Equipment Note issued with respect to the
Leased Aircraft or, in the case of the Owner Trustees and the Owner
Participants, to the Indenture Trustees for any amounts payable under the
Equipment Notes or, except as provided in each Indenture, for any liability
under such Indenture. In the case of the Leased Aircraft Equipment Notes, all
payments of principal of, and any Additional Payments and interest on, such
Equipment Notes issued with respect to the Leased Aircraft (other than payments
made in connection with an optional redemption or purchase of Equipment Notes
issued with respect to a Leased Aircraft by the related Owner Trustee or the
related Owner Participant) will be made only from the income and proceeds
received by the related Indenture Trustee from the assets subject to the lien of
the Indenture with respect to such Aircraft, including rent payable by United
under the Lease with respect to such Aircraft. (Leased Aircraft Indentures,
Section 2.09)
Except as otherwise provided in the Leased Aircraft Indentures, each Owner
Trustee in its individual capacity is not answerable or accountable under the
Leased Aircraft Indentures or under the Equipment Notes under any circumstances
except for its own wilful misconduct or gross negligence. None of the Owner
Participants have any personal liability under any of the Leased Aircraft
Indentures or the Equipment Notes
65
<PAGE> 67
to the Leased Aircraft Indenture Trustees or to any holder of any Equipment
Note. (Leased Aircraft Indentures, Section 2.09)
The Equipment Notes issued with respect to the Owned Aircraft are direct
obligations of United.
INDENTURE DEFAULTS, NOTICE AND WAIVER
Indenture Defaults under each Indenture include: (a) in the case of a
Leased Aircraft Indenture, the occurrence of any Lease Event of Default under
the related Lease (other than the failure to make certain indemnity payments and
other payments to the related Owner Trustee or Owner Participant unless a notice
is given by such Owner Trustee that such failure constitutes an Indenture
Default), (b) the failure by the Owner Trustee (other than as a result of a
Lease Event of Default), in the case of a Leased Aircraft Indenture, or United,
in the case of the Owned Aircraft Indentures, to pay any interest, Break Amount,
if any, or principal when due under such Indenture or under any Equipment Note
issued thereunder continued for more than 10 days, (c) the failure by the Owner
Trustee, in the case of the Leased Aircraft Indentures, or United, in the case
of the Owned Aircraft Indentures, to pay any amounts (other than interest,
principal or break amount) payable by the Owner Trustee or United, as
applicable, under such Indenture or under the Participation Agreement when due
and payable continued for more than 15 days (in the case of the Leased Aircraft
Indentures) or for more than 20 Business Days (in the case of the Owned Aircraft
Indentures) after receipt of written notice from the Indenture Trustee by United
(in the case of the Owned Aircraft Indentures) or by the Owner Trustee (in the
case of the Leased Aircraft Indentures), (d) the failure by the Owner
Participant or the Owner Trustee, in the case of a Leased Aircraft Indenture, to
discharge certain liens, continued after notice and specified cure periods, (e)
certain representations or warranties made by the related Owner Trustee or Owner
Participant in the related Participation Agreement (in the case of the Leased
Aircraft Indentures) or by United (in the case of the Owned Aircraft Indentures)
in any document or Equipment Note furnished to the Indenture Trustee pursuant
thereto being false or incorrect when made and continuing to be material and
remaining unremedied after notice and specified cure periods, (f) failure by
United (in the case of the Owned Aircraft Indentures) or the related Owner
Trustee or Owner Participant (in the case of the Leased Aircraft Indentures) to
perform or observe in any material respect any covenant or obligation for the
benefit of the Indenture Trustee or holders of Equipment Notes under such
Indenture or certain related documents, continued after notice and specified
cure periods, (g) with respect to the Owned Aircraft, the failure to carry or
maintain the insurance required under the Owned Aircraft Indenture, continued
for more than 30 days after written notice thereof to the Indenture Trustee or
the date that such lapse or cancellation is effective as to the Indenture
Trustee, (h) the occurrence of certain events of bankruptcy, reorganization or
insolvency of the related Owner Trustee or its parent or Owner Participant or
the Owner Participant Guarantor (as defined in the Leased Aircraft Indentures),
if any (in the case of the Leased Aircraft) or United (in the case of the Owned
Aircraft) or (i) the failure by United to maintain its status as a certificated
air carrier, which failure has continued for five consecutive business days).
(Leased Aircraft Indentures, Section 8.01; Owned Aircraft Indentures, Section
8.01) There are no cross-default provisions in the Indentures or, in the case of
the Leased Aircraft, the Leases. Consequently, events resulting in an Indenture
Default under any particular Indenture may or may not result in an Indenture
Default occurring under any other Indenture, and, in the case of the Leased
Aircraft, a Lease Event of Default under any particular Lease will not
constitute a Lease Event of Default under any other Lease. If the Equipment
Notes issued with respect to one or more Aircraft are in default and the
Equipment Notes issued with respect to the remaining Aircraft are not in
default, no remedies will be exercisable under the Indentures with respect to
such remaining Aircraft.
Under the Leased Aircraft Indentures, if United fails to make any basic
rental payment due under any Lease, within a specified period after such
failure, so long as no Indenture Event of Default (other than arising from a
Lease Event of Default not involving any failure to make any payments to which
the Indenture Trustee or any holder of Equipment Notes is entitled under the
Indenture) will have occurred and be continuing, the applicable Owner Trustee or
the Owner Participant may furnish to the Indenture Trustee the amount equal to
the full amount of such basic rental payment with respect to the related Leased
Aircraft, together with any interest thereon on account of the delayed payment
thereof, in which event the Indenture Trustee may not exercise any remedies
otherwise available under such Indenture or such Lease as the result of such
failure to
66
<PAGE> 68
make such rental payment; provided that if United has failed to make a rental
payment when due (or within the applicable cure period) on six or more
immediately preceding basic rental payment dates or on twelve or more previous
rental payment dates, the foregoing provision will not apply to such default. So
long as no Indenture Default will have occurred and be continuing (other than
such Lease Event of Default), the applicable Owner Trustee or the applicable
Owner Participant also may cure any other default by United in the performance
of its obligations under any Lease that can be cured with the payment of money.
(Leased Aircraft Indenture, Section 8.03(e)(i))
Subject to the provisions of the Intercreditor Agreement, the holders of a
majority in principal amount of the outstanding Equipment Notes issued with
respect to any Aircraft, by notice to the Indenture Trustee, may on behalf of
all the holders waive any existing Indenture Default and its consequences with
respect to such Aircraft, except a default in the payment of the principal of or
interest on any such Equipment Notes or a default in respect of any covenant or
provision of such Indenture that cannot be modified or amended without the
consent of each holder of Equipment Notes affected thereby. (Leased Aircraft
Indentures, Section 8.05; Owned Aircraft Indentures, Section 8.04)
REMEDIES
If certain bankruptcy, reorganization or insolvency Indenture Defaults
occur and are continuing, then the principal of the Equipment Notes, together
with accrued but unpaid interest and other amounts, will be immediately due and
payable. If any other Indenture Default occurs and is continuing under an
Indenture, the related Indenture Trustee or, subject to the provisions of the
Intercreditor Agreement, the holders of at least 25% in principal amount of the
Equipment Notes outstanding under such Indenture may, subject to the applicable
Owner Participant's or Owner Trustee's right to cure, as discussed above,
declare the principal of all such Equipment Notes issued thereunder immediately
due and payable, together with all accrued but unpaid interest thereon and any
Additional Payments. (Leased Aircraft Indentures, Section 8.02; Owned Aircraft
Indentures, Section 8.02) Subject to the provisions of the Intercreditor
Agreement, the holders of a majority in principal amount of Equipment Notes
outstanding under any Indenture (x) by notice to the Indenture Trustee, the
Lessee, the Owner Trustee and the Owner Participant, in the case of any Leased
Aircraft Indenture, and (y) by notice to the Indenture Trustee (which will give
notice to United), in the case of any Owned Aircraft Indenture, may rescind any
such declaration at any time prior to the sale or disposition of the related
indenture estate if (i) there has been paid to the related Indenture Trustee an
amount sufficient to pay all principal and interest on any such Equipment Notes,
to the extent such amounts have become due otherwise than by such declaration of
acceleration, and all sums due and payable to the Indenture Trustee, (ii) the
rescission would not conflict with any judgment or decree and (iii) all other
Indenture Defaults and incipient Indenture Defaults under such Indenture have
been cured or waived except nonpayment of principal of, or interest on, the
Equipment Notes solely because of such acceleration. (Leased Aircraft
Indentures, Section 8.02; Owned Aircraft Indentures, Section 8.02)
Each Indenture provides that if an Indenture Default under such Indenture
has occurred and is continuing, the related Indenture Trustee may exercise
certain rights or remedies available to it under such Indenture or under
applicable law, including (if, in the case of a Leased Aircraft, the
corresponding Lease has been declared in default) one or more of the remedies
under such Indenture or, in the case of a Leased Aircraft, under such Lease with
respect to the Aircraft subject to such Lease. The related Leased Aircraft
Indenture Trustee's right to exercise remedies under an Indenture is subject,
with certain exceptions, to its having proceeded to exercise one or more of the
dispossessory remedies under the Lease with respect to such Leased Aircraft;
provided that, in the case of the Leased Aircraft, the requirement to exercise
such remedies under such Lease will not apply in circumstances where such
exercise has been involuntarily stayed or prohibited by applicable law or court
order for a continuous period in excess of 60 days or such other period as may
be specified in Section 1110(a)(1)(A) of the U.S. Bankruptcy Code (the "U.S.
Bankruptcy Code") (plus an additional period, if any, resulting from (i) the
trustee or debtor-in-possession in such proceeding assuming, or agreeing to
perform its obligations under, such Lease with the approval of the applicable
court or such Leased Aircraft Indenture Trustee's consent to an extension of
such period, (ii) the extension of the Section 1110 Period with the consent of
the Indenture Trustee, (iii) such Leased Aircraft Indenture Trustee's
67
<PAGE> 69
failure to give any requisite notice, (iv) United's assumption of such Lease
with the approval of the relevant court or (v) a judicial stay pending the
resolution of litigation with respect to the applicability of Section 1110 of
the U.S. Bankruptcy Code (assuming there is no Lease Event of Default other than
one arising solely from United's bankruptcy or any such other Lease Event of
Default has been cured)). (Leased Aircraft Indenture, Section 8.03(e)(iii)) See
"-- The Leases and Certain Provisions of the Owned Aircraft Indentures -- Events
of Default under the Leases." Such remedies may be exercised by the related
Leased Aircraft Indenture Trustee to the exclusion of the related Owner Trustee,
subject to certain conditions specified in such Indenture, and United, subject
to the terms of such Lease. Any Aircraft sold in the exercise of such remedies
will be free and clear of any rights of those parties, including the rights of
United under the Lease with respect to such Aircraft; provided that no exercise
of any remedies by the related Leased Aircraft Indenture Trustee may affect the
rights of United under any Lease unless a Lease Event of Default has occurred
and is continuing. (Leased Aircraft Indenture, Section 8.03)
If the Equipment Notes issued in respect of one Aircraft are in default,
the Equipment Notes issued in respect of the other Aircraft may not be in
default, and, if not, no remedies will be exercisable under the applicable
Indentures with respect to such other Aircraft.
Section 1110 of the U.S. Bankruptcy Code provides that the right of
lessors, conditional vendors and holders of security interests (or the holders
of purchase money equipment security interests in the case of aircraft first
placed in service prior to October 22, 1994) with respect to "equipment" (as
defined in Section 1110 of the U.S. Bankruptcy Code) to take possession of such
equipment in compliance with the provisions of a lease, conditional sale
contract or security agreement, as the case may be, is not affected by (i) the
automatic stay provision of the U.S. Bankruptcy Code, which provision enjoins
repossessions by creditors for the duration of the reorganization period, (ii)
the provision of the U.S. Bankruptcy Code allowing the trustee in reorganization
to use property of the debtor during the reorganization period, (iii) Section
1129 of the U.S. Bankruptcy Code (which governs the confirmation of plans of
reorganization in Chapter 11 cases) and (iv) any power of the bankruptcy court
to enjoin a repossession. Section 1110 provides, however, that the right of a
lessor, conditional vendor or holder of a security interest to take possession
of an aircraft in the event of an event of default may not be exercised for 60
days following the date of commencement of the reorganization proceedings
(unless specifically permitted by the bankruptcy court) and may not be exercised
at all if, within such 60-day period (or such longer period consented to by the
lessor, conditional vendor or holder of a security interest), the trustee in
reorganization agrees to perform the debtor's obligations that become due on or
after such date and cures all existing defaults (other than defaults resulting
solely from the financial condition, bankruptcy, insolvency or reorganization of
the debtor). "Equipment" is defined in Section 1110 of the U.S. Bankruptcy Code,
in part, as "an aircraft, aircraft engine, propeller, appliance, or spare part
(as defined in section 40102 of title 49) that is subject to a security interest
granted by, leased to, or conditionally sold to a debtor that is a citizen of
the United States (as defined in section 40102 of title 49) holding an air
carrier operating certificate issued by the Secretary of Transportation pursuant
to chapter 447 of title 49 for aircraft capable of carrying 10 or more
individuals or 6,000 pounds or more of cargo."
Vedder, Price, Kaufman & Kammholz, special counsel to United, has advised:
(i) each Leased Aircraft Indenture Trustee that the related Owner Trustee, as
lessor under the related Lease, and the related Leased Aircraft Indenture
Trustee, as assignee of such Owner Trustee's rights under such Lease pursuant to
the related Leased Aircraft Indenture, are entitled to the benefits of Section
1110 of the U.S. Bankruptcy Code with respect to the related airframe and
engines; and (ii) each Owned Aircraft Indenture Trustee that it is entitled to
the benefits of Section 1110 of the U.S. Bankruptcy Code with respect to the
related airframe and engines as secured party under the related Owned Aircraft
Indenture. This opinion assumes that United is and will be a citizen of the
United States holding an air carrier operating certificate issued by the
Secretary of Transportation pursuant to chapter 447 of title 49 of the U.S. Code
for aircraft capable of carrying 10 or more individuals or 6,000 pounds or more
of cargo. For a description of certain limitations on the Indenture Trustee's
exercise of rights contained in the Indenture, see "-- Indenture Defaults,
Notice and Waiver."
The opinion of Vedder, Price, Kaufman & Kammholz does not address the
possible replacement of an Aircraft after an Event of Loss in the future, the
consummation of which is conditioned upon the contemporaneous delivery of an
opinion of counsel to the effect that the related Indenture Trustee's
68
<PAGE> 70
entitlement to Section 1110 benefits should not be diminished as a result of
such replacement. See "-- The Leases and Certain Provisions of the Owned
Aircraft Indentures -- Events of Loss." The opinion of Vedder, Price, Kaufman &
Kammholz also does not address the availability of Section 1110 with respect to
any possible sublessee of a Leased Aircraft subleased by United or to any
possible lessee of the Owned Aircraft leased by United.
If an Indenture Default under any Indenture occurs and is continuing, any
sums held or received by the related Indenture Trustee may be applied to
reimburse such Indenture Trustee or the Owner Trustee, in the case of the Owned
Aircraft, for any tax, expense or other loss incurred by it and to pay any other
amounts due to such Indenture Trustee prior to any payments to holders of the
Equipment Notes issued under such Indenture. (Leased Aircraft Indentures,
Section 3.05; Owned Aircraft Indentures, Section 3.03)
In the event of bankruptcy, insolvency, receivership or like proceedings
involving an Owner Participant, it is possible that, notwithstanding that the
applicable Leased Aircraft is owned by the related Owner Trustee in trust, such
Leased Aircraft and the related Lease and Equipment Notes might become part of
such proceeding. In such event, payments under such Lease or on such Equipment
Notes might be interrupted and the ability of the related Leased Aircraft
Indenture Trustee to exercise its remedies under the related Leased Aircraft
Indenture might be restricted, although such Leased Aircraft Indenture Trustee
would retain its status as a secured creditor in respect of the related Lease
and the related Leased Aircraft.
MODIFICATION OF INDENTURES AND LEASES
Without the consent of holders of a majority in principal amount of the
Equipment Notes outstanding under any Indenture, the provisions of such
Indenture and the related Lease, the Participation Agreement and the Trust
Agreement corresponding thereto may not be amended or modified, except to the
extent indicated below.
Certain provisions of any Leased Aircraft Indenture, and of the Lease (so
long as no Indenture Default has occurred and is continuing), the Participation
Agreement and the Trust Agreement related thereto, may be amended or modified by
the parties thereto without the consent of any holders of the Equipment Notes
outstanding under such Indenture. In the case of the Owned Aircraft Indentures,
United and the related Indenture Trustee may, without the consent of any holders
of the Equipment Notes, (a) enter into one or more supplemental agreements to
provide for the issuance of Series D Equipment Notes and Class D Certificates
issued by the Class D Trust in accordance with the related Participation
Agreement and to make changes relating thereto, and (b) provide for the
re-issuance of any Series of Equipment Notes that has previously been redeemed
pursuant to Section 6.01(b) of the related Owned Aircraft Indenture in
accordance with the terms of the Equipment Notes issued under such Owned
Aircraft Indentures. In addition, the Leased Aircraft Indentures and the Owned
Aircraft Indentures may be amended without the consent of the holders of
Equipment Notes, to, among other things, (a) correct any mistake or cure any
ambiguity, defect or inconsistency in such Indenture or the Equipment Notes
issued thereunder or to make any change not inconsistent with the provisions of
such Indenture, provided that such change does not adversely affect the
interests of any such holder, (b) to evidence the succession of another party as
Owner, in the case of the Owned Aircraft, or Owner Trustee, in the case of the
Leased Aircraft, or to evidence the succession of a new Indenture Trustee under
such Indenture, the removal of the Indenture Trustee under such Indenture or the
appointment of any co-trustee or co-trustees or any separate or additional
trustee or trustees, and (c) to add to the rights of the holders of the
Equipment Notes issued under such Indenture. (Leased Aircraft Indentures,
Section 11.01; Owned Aircraft Indenture, Section 11.01)
Without the consent of the holder of each Equipment Note outstanding under
any Indenture affected thereby and, in the case of the Series A or Series B
Equipment Notes, the applicable Liquidity Provider, no amendment or modification
of such Indenture may, among other things, (a) reduce the principal amount of,
any Additional Payments or interest payable on, any Equipment Notes issued under
such Indenture or change the date on which any principal, any Additional
Payments or interest is due and payable, (b) create any security interest with
respect to the property subject to the lien of such Indenture prior to or pari
passu with the lien thereon created by such Indenture, except as provided in
such Indenture, or deprive any holder of an Equipment Note issued under such
Indenture of the lien of such Indenture upon the property subject thereto
69
<PAGE> 71
or (c) reduce the percentage in principal amount of outstanding Equipment Notes
issued under such Indenture necessary to modify or amend any provision of such
Indenture or to waive compliance therewith. (Leased Aircraft Indenture, Section
11.02; Owned Aircraft Indenture, Section 11.02)
INDEMNIFICATION
United must indemnify, among others, each Indenture Trustee, each Owner
Participant and each Owner Trustee for certain losses, claims and other matters.
Each Owner Participant must indemnify the related Indenture Trustee and the
holders of the Equipment Notes issued with respect to the Leased Aircraft in
which such Owner Participant has an interest for certain losses that may be
suffered as a result of the failure of such Owner Participant to discharge
certain liens or claims on or against the assets subject to the lien of the
related Indenture. (Leased Aircraft Participation Agreements, Section 7; Owned
Aircraft Participation Agreements, Section 5(b))
THE LEASES AND CERTAIN PROVISIONS OF THE OWNED AIRCRAFT INDENTURES
Each Leased Aircraft is leased to United by the relevant Owner Trustee
under the relevant lease agreement (each, a "Lease"). The Owned Aircraft is
owned by United.
Lease Rentals and Payments
Each Leased Aircraft has been leased separately by the relevant Owner
Trustee to United for a term commencing on the date on which the Aircraft was
acquired by the Owner Trustee and expiring on a date not earlier than the latest
maturity date of the related Equipment Notes, unless terminated prior to the
originally scheduled expiration date as permitted by the applicable Lease. The
basic rent payment under each Lease is payable by United on each related Lease
Payment Date (as defined below) (or, if such day is not a business day, on the
next business day), and has been assigned by the Owner Trustee under the
corresponding Indenture to provide the funds necessary to make payments of
principal and interest due from the Owner Trustee on the Equipment Notes issued
under such Indenture. In certain cases, the basic rent payments under the Leases
may be adjusted, but each Lease provides that under no circumstances will rent
payments by United be less than the scheduled payments on the related Equipment
Notes. In addition, inasmuch as the basic rent payments to be made by United
under each Lease have been calculated based on an assumed interest rate payable
on all of the related Equipment Notes and are increased or decreased by an
amount equal to the difference between the actual interest rate payable from
time to time on each Series of Equipment Notes and the assumed interest rate
payable on such Series, the basic rent payments to be made under such Lease will
adjust to take in account such rent differential amount arising as a result of
the resetting of the rate of interest on the Equipment Notes as required by the
terms thereof. See "Principal and Interest Payments" and "Exchange Offer --
General." Any balance of each such basic rent payment under each Lease, after
payment of amounts due on the Equipment Notes issued under the Indenture
corresponding to such Lease, will be paid over to the Owner Trustee. (Leases,
Section 3; Leased Aircraft Indentures, Section 3.03)
"Lease Payment Date" means March 2, June 2, September 2 or December 2
during the term of such Lease.
Maintenance
Under the terms of each Lease, United's obligations in respect of each
Leased Aircraft are those of a lessee under a "net lease." Accordingly, under
each Lease United is obligated, among other things and at its expense, to keep
each Leased Aircraft duly registered and insured, to pay all costs of operating
the Aircraft and to maintain, service, repair and overhaul the Leased Aircraft
so as to keep it in as good an operating condition as when leased to United,
ordinary wear and tear excepted, and in such condition as required to maintain
the airworthiness certificate for the Leased Aircraft in good standing at all
times, and to maintain all records and logs required by the FAA and the
applicable regulatory agency of any other jurisdiction in which each Leased
Aircraft may be registered. (Leases, Sections 7, 8 and 18) The Owned Aircraft
Indenture imposes comparable maintenance, service and repair obligations on
United with respect to the Owned Aircraft. (Owned Aircraft Indenture, Sections
4.01, 4.02 and 4.03)
70
<PAGE> 72
Possession, Sublease and Transfer
Each Aircraft may be operated by United or under lease, sublease or
interchange arrangements, subject to certain restrictions. Normal interchange
and pooling agreements with respect to any Engine (in each case customary to the
airline industry and entered into in the ordinary course of business) are
permitted. (Leases, Section 7(b)) In the case of a Leased Aircraft, United may,
at any time, in its sole discretion, enter into a sublease with (1) a U.S. air
carrier, (2) after the close of the calendar year in which there occurs the
seventh anniversary of the delivery date, certain foreign air carriers or (3)
after the close of the calendar year in which there occurs the seventh
anniversary of the delivery date, any other person approved in writing by the
Owner Trustee; provided, that no sublease will (A) extend beyond the date of the
expiration of the term of the lease or any renewal then in effect, unless United
has irrevocably committed to purchase the related Aircraft or renew the related
Lease at the end of the lease term or renewal term, as the case may be, to a
date at least beyond the latest permissible expiration date of such sublease,
and (B) be made to a sublessee which is not domiciled in a country which
maintains diplomatic relations with the United States. (Leases, Section
7(b)(vii)) With respect to the Owned Aircraft, so long as no payment or
bankruptcy default under the applicable Indenture and no Indenture Default
exists under the Owned Aircraft Indenture, United is permitted to lease the
Owned Aircraft or Engines to (a) any U.S. certificated air carrier, (b) certain
foreign air carriers or (c) any other person, provided that, with respect to
(c), the Indenture Trustee receives at the time of such lease an opinion of
counsel to the effect that there exists no possessory rights in favor of the
lessee under the laws of such lessee's country which would, upon bankruptcy or
insolvency of or other default by United or the lessee, prevent the return of
such Owned Aircraft or Engines to the Indenture Trustee; with respect to (b) and
(c), the U.S. and the country of the lessee's domicile maintain diplomatic
relations; and no lessee will be subject to any bankruptcy, insolvency, or
reorganization proceeding or order. (Owned Aircraft Indenture, Section
4.01(b)(viii)) It is uncertain to what extent the relevant Indenture Trustee's
security interest would be recognized in an Aircraft located in a country that
is not a party to the Convention on the International Recognition of Rights in
Aircraft (Geneva 1948) (the "Convention"), and to what extent such security
interest would be recognized in a jurisdiction adhering to the Convention if the
Aircraft is registered in a jurisdiction not a party to the Convention.
Moreover, in the case of an Indenture Default, the ability of the related
Indenture Trustee to realize upon its security interest in an Aircraft could be
adversely affected as a legal or practical matter if such Aircraft were
registered or located outside the United States.
Registration
United is required to keep each Aircraft duly registered under part A of
subtitle VII of title 49, United States Code (the "Transportation Code") with
the FAA (subject to United's right to cause the Aircraft to be reregistered
under the laws of another country, and, except (in the case of a Leased
Aircraft) if the relevant Owner Trustee or the relevant Owner Participant fails
to meet the applicable citizenship requirements), and, in the case of the Leased
Aircraft Indentures, to record each Indenture and certain other documents under
the Transportation Code. (Leases, Section 7(a); Owned Aircraft Indentures,
Section 4.01(a)) Such recordation of the Indenture and other documents with
respect to each Aircraft will give the relevant Indenture Trustee a
first-priority security interest in such Aircraft whenever it is located in the
United States or any of its territories and possessions.
United has the right to register the Leased Aircraft in a country other
than the United States at its own expense to certain specified foreign air
carriers, subject to certain conditions set forth in the related Indenture, and
so long as no payment or bankruptcy default under the Lease or any Lease Event
of Default exists. These conditions include a requirement that the applicable
Indenture Trustee will have received an opinion of counsel substantially to the
effect that (i) the country of registration will recognize the related Owner
Trustee's right of ownership with respect to the Aircraft and will give effect
to the priority of the lien of the applicable Indenture and (ii) the applicable
Indenture (and such Indenture Trustee's lien and right to repossession
thereunder) is valid and enforceable under the laws of such country. (Leases,
Section 7(a); Leased Aircraft Indentures, Section 7.02) The Owned Aircraft
Indentures contain comparable provisions with respect to registration of the
Owned Aircraft. (Owned Aircraft Indentures, Section 4.01(a); Participation
71
<PAGE> 73
Agreement, Section 6(a)) See "-- Possession, Sublease and Transfer" above for
risks relating to registration or location of an Aircraft outside the United
States.
Liens
United is required to maintain each Aircraft free of any liens, other than
the rights of the relevant Indenture Trustee, the holders of the related
Equipment Notes, United and, with respect to a Leased Aircraft, the Owner
Participant and Owner Trustee arising under the applicable Indenture, the Lease
(in the case of a Leased Aircraft) or the other operative documents related
thereto, and other than certain limited liens permitted under such documents,
including (i) liens for taxes either not yet due or being contested in good
faith by appropriate proceedings; (ii) materialmen's, mechanics' and other
similar liens arising in the ordinary course of business and securing
obligations that either are not overdue for a period of more than 30 days (in
the case of the Leased Aircraft) or 60 days (in the case of the Owned Aircraft),
or are being contested in good faith by appropriate proceedings; (iii) judgment
liens so long as such judgment is discharged or vacated within 45 days (in the
case of the Leased Aircraft) or 60 days (in the case of the Owned Aircraft) or
the execution of such judgment is stayed pending appeal and discharged, vacated
or reversed within 45 days (in the case of the Leased Aircraft) or 60 days (in
the case of the Owned Aircraft) after expiration of such stay; and (iv) any
other lien with respect to which United or any lessee (in the case of the Owned
Aircraft) or sublessee (in the case of the Leased Aircraft) has provided a bond
or other security in an amount and under terms reasonably satisfactory to the
Indenture Trustee or (in the case of a Leased Aircraft) the relevant Owner
Trustee; provided that in the case of each of the liens described in the
foregoing clauses (i), (ii) and (iii), such liens and proceedings do not involve
any material risk of the sale, forfeiture or loss of such Aircraft or the
related Engines or any interest therein (Leases, Section 6; Owned Aircraft
Indentures, Sections 1.01 and 5.02)
Replacement of Parts; Alterations
United is obligated to replace all parts at its expense that may from time
to time be incorporated or installed in, or attached to, any Aircraft and that
may become lost, damaged beyond repair, worn out, stolen, seized, confiscated or
rendered permanently unfit for use (other than severable parts added at the
option of United and obsolete or unsuitable parts that United is permitted to
remove to the extent described below). United is further obligated to make such
alterations and modifications as may be required to be made from time to time to
comply with any law, rule or regulation of any applicable regulatory body or
jurisdiction in which the Aircraft is registered. United or any permitted lessee
or sublessee has the right, at its own expense, to make such alterations,
modifications and additions with respect to each Aircraft as it deems desirable
in the proper conduct of its business and to remove parts which it deems to be
obsolete or no longer suitable or appropriate for use; provided that such
alteration, modification, addition or removal does not diminish the condition or
airworthiness of the related Airframe or Engine or materially diminish the
value, utility or, in regard to the Airframe, the remaining useful life of the
related Aircraft, Airframe or Engine, except that the value of the Aircraft may
be reduced by the removal of obsolete or unsuitable parts so long as the
aggregate original cost of all such parts removed from any one Aircraft and not
replaced does not, in the case of each Leased Aircraft, exceed $400,000 and does
not, in the case of each Owned Aircraft, exceed the specified limit (varying by
Aircraft) under the related Indenture. (Leases, Section 8; Owned Aircraft
Indentures, Section 4.02 and Exhibit C)
Insurance
United must, at its or any lessee's or sublessee's expense, maintain or
cause to be maintained all-risk aircraft hull insurance covering each Aircraft
and fire and extended coverage (including war risk, governmental confiscation
and hijacking insurance, if and to the extent the same is maintained by United
or any sublessee with respect to other aircraft owned or leased, and operated by
United or such sublessee on the same routes) at all times in an amount not less
than the agreed value of such Aircraft (which, in the case of each Leased
Aircraft, is the applicable stipulated loss value or in the case of each Owned
Aircraft, is an amount at least equal to the aggregate unpaid principal of the
outstanding Equipment Notes related to such Aircraft). During any period when an
Aircraft is on the ground and not in operation, United may carry or cause to be
carried in
72
<PAGE> 74
lieu of the insurance required by the previous sentence, insurance otherwise
conforming with the provisions of the previous sentence except that the scope of
the risks covered and the type of insurance must be the same as are from time to
time applicable to aircraft owned or leased by United of the same type as such
Aircraft similarly on the ground and not in operation, in an amount at least
equal to the stipulated loss value of such Aircraft. All policies covering loss
of or damage to an Aircraft have been made payable to the applicable Indenture
Trustee for any loss in excess of that certain amount specified in the
applicable Lease or Indenture, the highest of which under any Lease or Indenture
is $10,000,000. United may self-insure a portion of these risks, but in no case
will the self-insurance with respect to all of the aircraft in United's fleet
(including the Aircraft) exceed, for any calendar year, the lesser of (a) either
50% of the highest replacement value (in the case of each Leased Aircraft) or
100% of the highest replacement value (in the case of each Owned Aircraft) of
any single aircraft in United's fleet or 1 1/2% of the average aggregate
insurable value (during the preceding calendar year) of all aircraft on which
United carries insurance. (Leases, Section 11; Owned Aircraft Indentures,
Section 4.03)
In addition, United must, at its or any lessee's or sublessee's expense,
carry or cause to be carried comprehensive airline liability (including, without
limitation, passenger, contractual, bodily injury and property damage liability)
insurance (exclusive of manufacturer's product liability insurance) and cargo
liability insurance with respect to each Aircraft (i) in amounts that are not
less than the greater of the comprehensive airline liability insurance from time
to time applicable to aircraft owned or leased and operated by United of the
same type as such Aircraft, and not less than $300,000,000 per occurrence (in
the case of the Leased Aircraft) or either $300,000,000 or $400,000,000 per
occurrence (in the case of the Owned Aircraft), varying by Aircraft, (ii) of the
types and covering the same risks as are from time to time applicable to
aircraft owned or leased, and operated, by United of the same type as such
Aircraft and (iii) which is maintained in effect with insurers of recognized
reputation and responsibility; provided that United need not maintain cargo
liability insurance, or may maintain such insurance in an amount less than that
specified above for the respective Aircraft as long as the amount of cargo
liability insurance, if any, maintained with respect to such Aircraft is the
same as the cargo liability insurance, if any, maintained for other aircraft of
the same model as such Aircraft owned or leased, and operated by United. During
any period when an Aircraft is on the ground and not in operation, United may
carry or cause to be carried in lieu of the insurance required by the previous
sentence, insurance otherwise conforming with the provisions of the previous
sentence, except that the amounts of coverage will not be required to exceed the
amounts of comprehensive airline liability insurance, and the scope of risks
covered and type of insurance will be the same, as are from time to time
applicable to aircraft owned or leased by United of the same type as such
Aircraft similarly on the ground and not in operation. United may also
self-insure a portion of these risks subject to the same limitations described
above for insurance for risks of loss of or damage to the Aircraft. (Leases,
Section 11(a); Owned Aircraft Indentures, Section 4.03(a)) The Trustee, each
related Indenture Trustee, Owner Participant and Owner Trustee, in its
individual capacity and as owner of the Aircraft, and United will be named as
insured parties under all insurance policies required with respect to the
related Aircraft. (Leases, Sections 1 and 11; Owned Aircraft Indentures,
Sections 1.01 and 4.03)
In addition, the insurance policies maintained under the Lease with respect
to each Aircraft provide that, in respect of the respective interests of the
Trustee, the Indenture Trustee, the Owner Participant and the Owner Trustee
relating to such Aircraft, the insurance will not be invalidated by any action
or inaction of United or any sublessee or any other entity and will insure the
respective interests of the Trustee, the Indenture Trustee, the Owner
Participant and the Owner Trustee relating to such Aircraft, as they appear,
regardless of any breach or violation of any warranty, declaration or condition
contained in such policies by United (or any sublessee or any other entity).
(Leases, Section 11(h), Owned Aircraft Indentures, Section 4.03(g)) Subject to
certain limited exceptions, United may not operate or permit any sublessee or
any other entity to operate Aircraft in any area excluded from coverage by any
insurance required by the related Lease unless the United States government or
any agency or instrumentality thereof provides indemnification or insurance in
lieu of such insurance coverage. (Leases, Section 11(f); Owned Aircraft
Indentures, Section 4.03(f))
73
<PAGE> 75
Lease Termination
Unless a Lease Event of Default has occurred and is continuing, United may
terminate any Lease on any Lease Payment Date occurring after the seventh
anniversary of the date on which such Lease commenced, if it determines in good
faith that the Leased Aircraft subject to such Lease is economically obsolete or
surplus to its requirements. United is required to give notice of its intention
to exercise its right of termination described in this paragraph at least 180
days prior to the proposed date of termination (which notice will become
irrevocable (except in certain circumstances) 26 days prior to such proposed
date); provided that United may give only three such termination notices. In
such a situation, if the Owner Trustee elects (subject to the rights of United
to purchase the Aircraft as described below) to sell such Aircraft, United is
required to use reasonable efforts to sell such Aircraft as an agent for such
Owner Trustee. If the Owner Trustee elects to accept any bid, such Owner Trustee
must sell such Aircraft on the date of termination to the highest cash bidder.
If such sale occurs, the Equipment Notes related thereto are required to be
prepaid. The net proceeds of such sale are payable to the applicable Owner
Trustee. If the net proceeds to be received from such sale are less than the
termination value for such Aircraft (which is set forth in a schedule to each
Lease), United is required to pay to the applicable Owner Trustee an amount
equal to the excess, if any, of the applicable termination value for such
Aircraft over such net proceeds. Upon payment of termination value for such
Aircraft and an amount equal to any Additional Payments payable on such date of
payment, together with certain additional amounts and together with all accrued
and unpaid interest thereon, the lien of the relevant Indenture will be
released, the relevant Lease will terminate, and the obligation of United
thereafter to make scheduled rent payments under such Lease will cease. However,
certain payment obligations of United will survive the termination of the Lease.
If such Aircraft is not sold by the proposed termination date, such Lease,
including all of United's obligations thereunder, will continue in effect, and
the Equipment Notes related thereto will not be prepaid. (Leases, Section 9;
Leased Aircraft Indentures, Section 6.01(b))
The Owner Trustee has the option to retain title to the Leased Aircraft if
United has given a notice of termination under the Lease. In such event, such
Owner Trustee will pay to the applicable Indenture Trustee an amount sufficient
to prepay the outstanding Equipment Notes issued with respect to such Aircraft,
and United will pay to the Owner Trustee an amount equal to the excess, if any,
of the termination value of such Aircraft over the highest bona fide cash bid
made for such Aircraft, together with any Additional Payments on such Equipment
Notes and all other amounts due and payable to the Owner Trustee and Owner
Participant under such Lease, the related Participation Agreement or any other
related operative document. (Leases, Section 9; Leased Aircraft Indentures,
Section 6.01(b))
Events of Loss
If an Event of Loss occurs with respect to the Airframe or the Airframe and
Engines of an Aircraft, United must elect within 60 days after such occurrence
to perform one of the following options: (a) not later than the first "Lease
Period Date" (as defined in the Leases) (in the case of the Leased Aircraft) or
the interest payment date (in the case of the Owned Aircraft) following the
100th day following the date of occurrence of such Event of Loss, or, if
earlier, the first Lease Period Date that is three business days following the
receipt of the insurance proceeds in respect of such Event of Loss (but not
earlier than the first business day following the 65th day following the
occurrence of such Event of Loss) (in the case of the Leased Aircraft) or the
interest payment date (in the case of the Owned Aircraft) following the receipt
of the insurance proceeds in respect of such Event of Loss, to pay the
applicable Owner Trustee (in the case of a Leased Aircraft) or to the Owned
Aircraft Trustee (in the case of the Owned Aircraft) the stipulated loss value
of such Aircraft, together with certain additional amounts (in the case of
Leased Aircraft) or an amount sufficient to redeem the Equipment Notes (in the
case of the Owned Aircraft) or (b) not later than the first business day (in the
case of the Leased Aircraft) or the interest payment date (in the case of the
Owned Aircraft) following the 100th day following the date of occurrence of such
Event of Loss, or, if earlier, the third business day following the receipt of
the insurance proceeds in respect of such Event of Loss (but not earlier than
the first business day following the 65th day following the occurrence of such
Event of Loss) (unless a Lease default or any Lease Event of Default involving
the bankruptcy of the Lessee or the failure by the Lessee to make certain
payments under the relevant Lease (in the case of a Leased Aircraft) or a
payment
74
<PAGE> 76
or bankruptcy default or Indenture Event of Default under the Owned Aircraft
Indenture (in the case of the Owned Aircraft) has occurred and is continuing),
substitute an aircraft (or airframe and one or more engines, as the case may be)
for the Aircraft, Airframe or Engine(s) that suffered such Event of Loss.
(Leases, Section 10(a); Leased Aircraft Indentures, Section 6.01(a); Owned
Aircraft Indenture, Section 5.01)
If United elects to replace an Aircraft (or Airframe or Airframe and one or
more Engines, as the case may be) that suffered such Event of Loss, it will, in
the case of a Leased Aircraft, convey to the related Owner Trustee title to an
aircraft (or airframe or airframe and one or more engines, as the case may be
or, in the case of an Owned Aircraft, subject to the lien of the applicable
Indenture), and such replacement airframe or airframe and engines must (i) be
free and clear of all liens except permitted liens and (ii) be the same model as
the Airframe or Airframe and Engines to be replaced or an improved model having
a value, utility and, in regard to the Airframe, remaining useful life at least
equal to, and in at least as good an operating condition as, the Airframe or
Airframe and Engines to be replaced (assuming that such Airframe and such
Engines were in the condition required by the terms of the related Lease,
immediately prior to the occurrence of such Event of Loss). In the case of the
Owned Aircraft, any replacement airframe and engines must have a value and
utility at least equal to, and be in as good operating condition and repair as,
the Airframe and Engines to be replaced (assuming such Airframe and Engines were
in the condition required by the terms of the Owned Aircraft Indenture). United
is also required to provide, among other things, to the relevant Indenture
Trustee, prior to any substitution, and (in the case of a Leased Aircraft) the
relevant Owner Trustee and Owner Participant (a) an FAA bill of sale and a full
warranty bill of sale, (b) a certification as to compliance with the foregoing
requirements from a qualified aircraft appraiser, together with a certified
report setting forth such appraiser's opinion as to the fair market value of
such replacement airframe or engine and (c) reasonably acceptable opinions of
counsel to the effect that (i) United or such Owner Trustee, as the case may be,
will acquire good title to such replacement airframe and, if applicable,
replacement engine, free and clear of all liens (other than permitted liens) (in
the case of the Leased Aircraft), (ii) such replacement airframe and, if
applicable, engine will be made subject to the applicable Indenture to the same
extent as the Airframe and, if applicable, Engine replaced thereby, (iii) in the
case of a Leased Aircraft, such Owner Trustee and Indenture Trustee (as assignee
of lessor's rights and interests under the Lease) or the Owned Aircraft
Indenture Trustee, in the case of the Owned Aircraft, will be entitled to
receive the benefits and protections of Section 1110 of the U.S. Bankruptcy Code
with respect to any such replacement airframe and (to the extent such opinion
can be rendered, in view of applicable law) such replacement engine and (iv)
such replacement airframe has been duly registered and each supplement to such
Lease or Indenture, as applicable, has been duly recorded. (Leases, Section
10(a); Owned Aircraft Indentures, Section 5.01(a))
If United elects not to replace such Aircraft, then upon payment of an
amount sufficient to redeem the Equipment Notes issued with respect to such
Aircraft (in the case of the Owned Aircraft) or the stipulated loss value for
such Aircraft and all additional amounts then due and unpaid with respect to
such Aircraft (in the case of a Leased Aircraft), which must be at least
sufficient to pay in full as of the date of payment thereof the aggregate unpaid
principal amount under such Equipment Notes together with accrued but unpaid
interest thereon and all other amounts due and owing in respect of such
Equipment Notes, the lien of the Indenture and (in the case of a Leased
Aircraft) the Lease relating to such Aircraft will terminate with respect to
such Aircraft, the obligation of United thereafter to make the scheduled rent
payments (in the case of a Leased Aircraft) or interest and principal payments
(in the case of the Owned Aircraft) with respect thereto will cease and (in the
case of a Leased Aircraft) the related Owner Trustee will transfer all of its
right, title and interest in and to the related Aircraft to United. The
stipulated loss value and other payments made under the Leases or the Owned
Aircraft Indenture, as the case may be, by United will be deposited with the
applicable Indenture Trustee. Amounts in excess of the amounts due and owing
under the Equipment Notes issued with respect to such Aircraft will be
distributed by such Indenture Trustee to the applicable Owner Trustee or to
United, as the case may be. (Leases, Section 10(a); Leased Aircraft Indentures,
Section 6.01(a); Owned Aircraft Indentures, Sections 5.01(a) and 6.01(a))
If an Event of Loss occurs with respect to an Engine alone, United will be
required to replace such Engine within 60 days after the occurrence of such
Event of Loss with another engine, free and clear of all liens (other than
certain permitted liens). Such replacement engine will be the same make and
model as the
75
<PAGE> 77
Engine to be replaced, suitable for installation and use on the Aircraft, and
having performance and durability characteristics and a value and utility at
least equal to, and in at least as good an operating condition as, the Engine to
be replaced (assuming that such Engine was of the value and utility and in the
condition and repair required by the terms of the relevant Lease or the Owned
Aircraft Indenture, as the case may be, immediately prior to the occurrence of
the Event of Loss). (Leases, Section 10(a) and (b); Owned Aircraft Indentures,
Section 5.01(a) and (b))
An "Event of Loss" with respect to an Aircraft, Airframe or any Engine
means any of the following events, among others, with respect to such property:
(i) the destruction of such property, damage to such property beyond practical
or economic repair or rendition of such property permanently unfit for normal
use; (ii) any damage to such property which results in an insurance settlement
with respect to such property on the basis of a total loss or a constructive or
compromised total loss; (iii) any loss of such property or loss of use of such
property for a period of 90 consecutive days (in the case of the Leased
Aircraft) for 180 consecutive days in the case of the Owned Aircraft) or more as
a consequence of any theft, hijacking or disappearance of such property; (iv)
any seizure, condemnation, confiscation, taking or requisition of title to, or
use of, such property by any governmental or purported governmental entity
(other than a requisition for use by the U.S. government or any government of
registry of the Aircraft) resulting in the loss of title or loss of possession
of the aircraft for a period of 90 days (in the case of the Leased Aircraft) or
180 days (in the case of the Owned Aircraft) or more; (v) the requisition for
use by a governmental body (other than the U.S. government) which continues for
more than two years or, in the case of the Leased Aircraft, requisition by the
U.S. government, which extends beyond the Lease Term; or (vi) as a result of any
law, rule, regulation, order or other action by the FAA or any governmental
entity, the use of such property in the normal course of United's business of
passenger air transportation is prohibited for 180 days, unless United prior to
the end of such 180-day period diligently implements all steps which are
necessary or desirable to permit the normal use of such property by it and
United, within one year (in the case of the Leased Aircraft) or two years (in
the case of the Owned Aircraft), will have conformed at least one such aircraft
in its fleet to the requirements of any such law, rule, regulation, order or
other action, and commenced regular commercial use in such jurisdiction and,
unless, in the case of the Leased Aircraft, such grounding is applicable to
United's entire fleet of such model aircraft registered in such country, or for
a period expiring on the last day of the Lease term, whichever is earlier. An
Event of Loss with respect to an Airframe will constitute an Event of Loss with
respect to the Aircraft. (Leases, Section 1.01; Owned Aircraft Indenture,
Section 1.01)
Purchase Options under the Leases
United has the option to purchase any Leased Aircraft (a) upon notice to
the Owner Trustee at least 180 days prior to the relevant purchase date (which
notice will become irrevocable 120 days prior to the relevant purchase date), on
the last business day of the original Lease or on the last business day of any
renewal terms at a purchase price equal to the fair market sales value of such
Aircraft, (b) upon notice to the Owner Trustee at least 120 days prior to the
relevant purchase date (which notice will become irrevocable 20 days prior to
the relevant purchase date), on specified purchase option dates (the earliest of
which is January 1, 2006) at a purchase price equal to the greater of the fair
market sales value or the "Termination Value" (as defined in the Leases) or (c)
upon notice to the Owner Trustee at least 120 days prior to the relevant
purchase date (which notice will become irrevocable 20 days prior to the
relevant purchase date), on January 1, 2012 at the applicable EBO Percentage (as
defined in the Leases). The fair market sales value of such Aircraft will be
determined by mutual agreement of United and the Owner Trustee or, if they are
unable to agree, by an appraisal. Notwithstanding any other provision, the
purchase price under any purchase option will be sufficient to pay in full the
principal amount, any Additional Payments and accrued and unpaid interest on the
Equipment Notes outstanding, together with all other amounts payable by United.
Upon payment of the purchase price, all basic and supplemental rent due and all
other amounts due and payable by United under the relevant Lease, Participation
Agreement and any other related operative document, the Owner Trustee will
transfer title to such Aircraft to United. (Leases, Section 19(b) and (c);
Leased Aircraft Indentures, Section 10.01)
76
<PAGE> 78
The holder of the Equipment Notes issued under a Leased Aircraft Indenture
has no right to amounts payable by United in connection with its exercise of
purchase options for the related Leased Aircraft to the extent that all amounts
payable by the relevant Owner Trustee to such holder under such Equipment Notes,
such Indenture and related operative agreements have been paid in full.
Events of Default under the Leases
Lease Events of Default under each Lease include, among other things: (i)
failure by United to make any payment of basic rent, renewal rent, stipulated
loss value, EBO Percentage, any Additional Payments or termination value under
such Lease within 10 days after the same have become due, or failure by United
to pay any other amount due under such Lease or under any other related
operative document within 15 days from and after United's receipt of any written
demand therefor from the Owner Trustee; (ii) failure by United to carry and
maintain insurance on and in respect of the Aircraft subject to such Lease, in
accordance with the provisions of such Lease; (iii) failure by United to perform
or observe in any material respect any other covenant or agreement to be
performed or observed by it under such Lease or any other related operative
document, and such failure will continue unremedied for a period of 30 days
after written notice of such failure by the applicable Owner Trustee or
Indenture Trustee; provided however, that if United has undertaken to cure any
such failure and, nonetheless such failure is not cured within the prescribed
thirty-day period but is curable with future due diligence, there will be no
Lease Event of Default so long as United is proceeding with due diligence and
such failure is in fact cured within one year; (iv) (a) any representation or
warranty made by United in such Lease or the related Participation Agreement or
in any other related operative document (other than in the related tax indemnity
agreement) will prove to have been untrue, inaccurate or misleading in any
material respect at the time made, (b) such representation or warranty is
material at the time in question and (c) the same remains uncured for more than
30 days after the receipt of written notice thereof by United; (v) the
occurrence of certain voluntary events of bankruptcy, reorganization or
insolvency of United or the occurrence of involuntary events of bankruptcy,
reorganization or insolvency which continues undismissed or unstayed for a
period of 90 days; and (vi) failure to maintain its status as a U.S. air carrier
and such failure will continue for five consecutive days. (Leases, Section 14)
Indenture Events of Default under the Owned Aircraft Indenture are
discussed above under "--Indenture Defaults, Notice and Waiver."
Remedies Exercisable upon Events of Default under the Lease
If a Lease Event of Default has occurred and is continuing, the applicable
Owner Trustee may (or, so long as the Indenture is in effect, the applicable
Indenture Trustee may, subject to the terms of the Indenture) exercise one or
more of the remedies provided in such Lease with respect to the related
Aircraft. These remedies include the right to repossess and use or operate such
Aircraft, to rescind or terminate such Lease, to sell or release, or hold and
keep idle such Aircraft free and clear of United's rights, except as set forth
in the Lease, and retain the proceeds, and to require United to pay, as
liquidated damages any due and unpaid basic rent or renewal rent plus an amount
equal to the excess of the stipulated loss value for such Aircraft (specified in
schedules to such Lease) over, (i) the discounted fair market rental value of
such Aircraft for the remainder of the term of the Lease relating to such
Aircraft (using a discount rate equal to the overdue rate), (ii) the fair market
sales value of such Aircraft or (iii) if such Aircraft has been sold, the net
sales proceeds from the sale of such Aircraft. (Leases, Section 15; Leased
Aircraft Indentures, Section 8.03).
Remedies under the Owned Aircraft Indenture are discussed above under "--
Remedies."
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary describes the principal U.S. federal income tax
consequences of the acquisition, ownership and disposition of the New
Certificates acquired in the Exchange Offer by holders of Old Certificates.
Except as otherwise specified, the summary is addressed to beneficial owners of
New Certificates
77
<PAGE> 79
("U.S. Certificateholders") that are citizens or residents of the United States,
corporations, partnerships or other entities created or organized in or under
the laws of the United States or any State, or estates or trusts the income of
which is subject to U.S. federal income taxation regardless of its source or
trusts if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more U.S.
fiduciaries have the authority to control all substantial decisions of the trust
("U.S. Persons") that will hold the New Certificates as capital assets. This
summary does not address the tax treatment of U.S. Certificateholders that may
be subject to special tax rules, such as banks, insurance companies, dealers in
securities or commodities, tax-exempt entities, holders that will hold New
Certificates as part of a straddle or holders that have a "functional currency"
other than the U.S. Dollar, nor does it address the tax treatment of U.S.
Certificateholders that do not acquire New Certificates pursuant to the Exchange
Offer. The summary does not purport to be a comprehensive description of all of
the tax considerations that may be relevant to a decision to acquire New
Certificates. This summary does not describe any tax consequences arising under
the laws of any State, locality or taxing jurisdiction other than the United
States. The Trusts are not indemnified for any federal income taxes that may be
imposed upon them, and the imposition of any such taxes could result in a
reduction in the amounts available for distribution to the New
Certificateholders of the affected Trust.
The summary is based upon the tax laws and practice of the United States as
in effect on the date of this Prospectus, as well as judicial and administrative
interpretations thereof (in final or proposed form) available on or before such
date. All of the foregoing are subject to change, which change could apply
retroactively. HOLDERS OF OLD CERTIFICATES SHOULD CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NEW CERTIFICATES.
CONSEQUENCES OF THE EXCHANGE OFFER TO EXCHANGING AND NONEXCHANGING HOLDERS
The exchange of an Old Certificate for a New Certificate pursuant to the
Exchange Offer will not be taxable to an exchanging Holder for U.S. federal
income tax purposes. As a result (i) an exchanging Holder will not recognize any
gain or loss on the exchange; (ii) the holding period for the New Certificate
will include the holding period for the Old Certificate; and (iii) the basis of
the New Certificate will be the same as the basis for the Old Certificate.
The Exchange Offer will result in no U.S. federal income tax consequences
to a non-exchanging holder of Old Certificates.
TAX STATUS OF THE TRUSTS
In the opinion of Mayer, Brown & Platt, special tax counsel to United ("Tax
Counsel"), each Trust will be classified as a grantor trust and not as an
association taxable as a corporation for U.S. federal income tax purposes.
Accordingly, each U.S. Certificateholder will be subject to federal income
taxation as if it owned directly a pro rata undivided interest in each asset
owned by the corresponding Trust and paid directly its share of fees and
expenses paid by such Trust.
TAXATION OF CERTIFICATEHOLDERS GENERALLY
A U.S. Certificateholder will be treated as owning its pro rata undivided
interest in each of the Equipment Notes and any other property held by the
related Trust. Accordingly, each Certificateholder should be required to report
on its federal income tax return its pro rata share of the entire income from
the Equipment Notes or any other property held by the related Trust, in
accordance with such Certificateholder's method of accounting. Each U.S.
Certificateholder's share of interest paid on the Equipment Notes will be
taxable as ordinary income, as it is paid or accrued, in accordance with such
owner's method of accounting for U.S. federal income tax purposes and a U.S.
Certificateholder's share of any Additional Payments, paid on the Equipment
Notes will be treated as capital gain. Any amounts received by a Trust from
Interest Drawings
78
<PAGE> 80
under the relevant Primary Liquidity Facility will be treated for U.S. federal
income tax purposes as having the same characteristics as the payments they
replace.
The treatment of interest described above is based in part upon United's
determination that, as of the date of issuance of the Old Certificates, the
possibility that additional amounts would be paid to Certificateholders as a
result of the failure of a Registration Event to occur timely or the expiration
of a Shelf Registration Statement was remote. The Internal Revenue Service (the
"Service") may take a different position, which could affect the timing and
character of interest income reported by Certificateholders. While not free from
doubt, if such additional amounts are in fact paid, United believes that these
amounts will be taxable to a Certificateholder as ordinary income in accordance
with such holder's method of accounting.
Each U.S. Certificateholder will be entitled to deduct, consistent with its
method of accounting, its pro rata share of fees and expenses paid or incurred
by the corresponding Trust as provided in Section 162 or 212 of the Code.
Certain fees and expenses, including fees paid to the Trustee and the Liquidity
Providers, will be borne by parties other than the Certificateholders. It is
possible that such fees and expenses will be treated as constructively received
by the Trust, in which event a U.S. Certificateholder will be required to
include in income and will be entitled to deduct its pro rata share of such fees
and expenses. If a U.S. Certificateholder is an individual, estate or trust, the
deduction for such holder's share of such fees or expenses will be allowed only
to the extent that all of such holder's miscellaneous itemized deductions,
including such holder's share of such fees and expenses, exceed 2% of such
holder's adjusted gross income. In addition, in the case of U.S.
Certificateholders who are individuals, certain otherwise allowable itemized
deductions will be subject generally to additional limitations on itemized
deductions under the applicable provisions of the Code.
EFFECT OF SUBORDINATION OF CLASS B CERTIFICATEHOLDERS
If the Class B Trust receives less than the full amount of the receipts of
principal or interest paid with respect to the Equipment Notes held by it (any
shortfall in such receipts being the "Shortfall Amounts") because of the
subordination of the Equipment Notes held by such Trust under the Intercreditor
Agreement, the corresponding owners of beneficial interests in the Class B
Certificates (the "Subordinated Certificateholders") would probably be treated
for federal income tax purposes as if they had (1) received as distributions
their full share of such receipts, (2) paid over to the Class A
Certificateholders an amount equal to their share of such Shortfall Amount and
(3) retained the right to reimbursement of such amounts to the extent of future
amounts payable to such Subordinated Certificateholders with respect to such
Shortfall Amount.
Under this analysis, (1) Subordinated Certificateholders incurring a
Shortfall Amount would be required to include as current income any interest or
other income of the Class B Trust that was a component of the Shortfall Amount,
even though such amount was in fact paid to the Class A Certificateholders, (2)
a loss would only be allowed to such Subordinated Certificateholders when their
right to receive reimbursement of such Shortfall Amount became worthless (i.e.,
when it becomes clear that funds will not be available from any source to
reimburse such loss) and (3) reimbursement of such Shortfall Amount prior to
such a claim of worthlessness would not be taxable income to Subordinated
Certificateholders because such amount was previously included in income. These
results should not significantly affect the inclusion of income for Subordinated
Certificateholders on the accrual method of accounting, but could accelerate
inclusion of income to Subordinated Certificateholders on the cash method of
accounting by, in effect, placing them on the accrual method.
SALE OR OTHER DISPOSITION OF THE NEW CERTIFICATES
Upon the sale, exchange or other disposition of a New Certificate, a U.S.
Certificateholder generally will recognize capital gain or loss equal to the
difference between the amount realized on the disposition (other than any amount
attributable to accrued interest which will be taxable as ordinary income) and
the U.S. Certificateholder's adjusted tax basis in the related Equipment Notes
and any other assets held by the corresponding Trust. A U.S. Certificateholder's
adjusted tax basis will equal the holder's cost for its New Certificate. Any
gain or loss will be capital gain or loss if the New Certificate was held as a
capital asset. In the
79
<PAGE> 81
case of non-corporate taxpayers, capital gains recognized on New Certificates
held (i) one year or less will be treated as short-term capital gains and taxed
at ordinary income tax rates, (ii) more than one year but 18 months or less will
be treated as mid-term capital gains and taxed at a rate of 28% and (iii) more
than 18 months will be treated as long-term capital gains and taxed at a maximum
rate of 20%. Capital gains recognized by corporate taxpayers are subject to tax
at the ordinary income tax rates applicable to corporations.
FOREIGN CERTIFICATEHOLDERS
Subject to the discussion of backup withholding below, payments of
principal and interest on the Equipment Notes to, or on behalf of, any
beneficial owner of a New Certificate that is not a U.S. Person (a "Non-U.S.
Certificateholder") will not be subject to U.S. federal withholding tax;
provided, in the case of interest, that (i) such Non-U.S. Certificateholder does
not actually or constructively own 10% or more of the total combined voting
power of all classes of the stock of any Owner Participant or United or any
transferee of an Owner Participant's interest, (ii) such Non-U.S.
Certificateholder is not a controlled foreign corporation for U.S. tax purposes
that is related, directly or indirectly, to any Owner Participant or United
through stock ownership and (iii) either (A) the Non-U.S. Certificateholder
certifies, under penalties of perjury, that it is not a U.S. Person and provides
its name and address or (B) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business (a "financial institution") and holds the New Certificate
certifies, under penalties of perjury, that such statement has been received
from the Non-U.S. Certificateholder by it or by another financial institution
and furnishes the payor with a copy thereof.
Final withholding regulations published by the Internal Revenue Service on
October 14, 1997 (the "1997 Final Regulations") apply to "reportable payments"
(such as interest) made after December 31, 1998, regardless of the issue date of
the instrument with respect to which the payments are made. The 1997 Final
Regulations provide, among other things, new documentation procedures designed
to simplify compliance by withholding agents and may require non-U.S.
Certificateholders to furnish new certification of their foreign status after
December 31, 1998. Foreign investors should consult their tax advisors regarding
the applicability and effect of the 1997 Final Regulations to payments made with
respect to the New Certificates.
The Trustee will, where required, report to the Certificateholders and the
Service the amount of any "reportable payments" and any amount withheld with
respect to the New Certificates during the taxable year.
Any capital gain realized upon the sale, exchange, retirement or other
disposition of a New Certificate or upon receipt of any Additional Payments paid
on an Equipment Note by a Non-U.S. Certificateholder will not be subject to U.S.
federal income or withholding taxes if (i) such gain is not effectively
connected with a U.S. trade or business of the holder and (ii) in the case of an
individual, such holder is not present in the United States for 183 days or more
in the taxable year of the sale, exchange, retirement or other disposition or
receipt, and is not subject to Code provisions applicable to certain
expatriates.
BACKUP WITHHOLDING
Payments made on the New Certificates and proceeds from the sale of New
Certificates will not be subject to a backup withholding tax of 31% unless, in
general, the Certificateholder fails to comply with certain reporting procedures
or otherwise fails to establish an exemption from such tax under applicable
provisions of the Code and the regulations thereunder (including the 1997 Final
Regulations).
Backup withholding is not an additional tax. Any amount withheld under
backup withholding rules may be refunded or credited against a
Certificateholder's federal income tax liability, if any, provided that the
required information is provided to the IRS.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, ACQUIRERS OF NEW
CERTIFICATES SHOULD CONSULT THEIR OWN TAX ADVISOR AS TO THE TAX CONSEQUENCES OF
THE ACQUISITION, OWNERSHIP AND DISPOSITION OF
80
<PAGE> 82
THE NEW CERTIFICATES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL
OR FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS.
ERISA CONSIDERATIONS
ERISA imposes certain requirements on employee benefit plans subject to
ERISA ("ERISA Plans"), and on those persons who are fiduciaries with respect to
ERISA Plans. Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including, but not limited to, the requirement of investment
prudence and diversification and the requirement that an ERISA Plan's
investments be made in accordance with the documents governing the Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit certain
transactions involving the assets of an ERISA Plan (as well as those plans that
are not subject to ERISA but which are subject to Section 4975 of the Code, such
as individual retirement accounts (together with ERISA Plans, "Plans")) and
certain persons (referred to as "parties in interest" or "disqualified persons")
having certain relationships to such Plans, unless a statutory or administrative
exemption is applicable to the transaction. A party in interest or disqualified
person who engages in a prohibited transaction may be subject to excise taxes
and other penalties and liabilities under ERISA and the Code.
The Department of Labor has promulgated a regulation, 29 CFR Section
2510.3-101 (the "Plan Asset Regulation"), describing what constitutes the assets
of a Plan with respect to the Plan's investment in an entity for purposes of
ERISA and Section 4975 of the Code. Under the Plan Asset Regulation, if a Plan
invests (directly or indirectly) in a Certificate, the Plan's assets will
include both the Certificate and an undivided interest in each of the underlying
assets of the corresponding Trust, including the Equipment Notes held by such
Trust, unless it is established that equity participation in the Trust by
employee benefit plans (including Plans and entities whose underlying assets
include plan assets by reason of an employee benefit plan's investment in the
entity) is not "significant" within the meaning of the Plan Asset Regulation. In
this regard, the extent to which there is equity participation in a particular
Trust by, or on behalf of, employee benefit plans will not be monitored. If the
assets of a Trust are deemed to constitute the assets of a Plan, transactions
involving the assets of such Trust could be subject to the prohibited
transaction provisions of ERISA and Section 4975 of the Code unless a statutory
or administrative exemption is applicable to the transaction.
The fiduciary of a Plan that proposes to purchase and hold any Certificates
should consider, among other things, whether such purchase and holding may
involve (i) the direct or indirect extension of credit to a party in interest or
a disqualified person, (ii) the sale or exchange of any property between a Plan
and a party in interest or a disqualified person and (iii) the transfer to, or
use by or for the benefit of, a party in interest or a disqualified person, of
any Plan assets. In addition, whether or not the assets of a Trust are deemed to
be Plan assets under the Plan Asset Regulation, if Certificates are purchased by
a Plan and Certificates of a subordinate Class are held by a party in interest
or a disqualified person with respect to such Plan, the exercise by the holder
of the subordinate Class of Certificates of its right to purchase the senior
Classes of Certificates upon the occurrence and during the continuation of a
Triggering Event could be considered to constitute a prohibited transaction
unless a statutory or administrative exemption were applicable. Depending on the
identity of the Plan fiduciary making the decision to acquire or hold
Certificates on behalf of a Plan, Prohibited Transaction Class Exemption
("PTCE") 91-38 (relating to investments by bank collective investment funds),
PTCE 84-14 (relating to transactions effected by a "qualified professional asset
manager"), PTCE 95-60 (relating to investments by an insurance company general
account), PTCE 96-23 (relating to transactions directed by an in-house
professional asset manager) or PTCE 90-1 (relating to investments by insurance
company pooled separate accounts) (collectively, the "Class Exemptions") could
provide an exemption from the prohibited transaction provisions of ERISA and
Section 4975 of the Code. However, there can be no assurance that any of these
Class Exemptions or any other exemption will be available with respect to any
particular transaction involving the Certificates.
81
<PAGE> 83
By its acceptance of a Certificate (including upon exchange of an Old
Certificate for a New Certificate pursuant to the Exchange Offer), each
Certificateholder will be deemed to have represented and warranted that either
(i) no Plan assets have been used to purchase such Certificate or (ii) the
purchase and holding of such Certificate is exempt from the prohibited
transaction restrictions of ERISA and the Code pursuant to an administrative
class exemption. See "Transfer Restrictions."
Each Plan fiduciary (and each fiduciary for a governmental or church plan
subject to rules similar to those imposed on Plans under ERISA) should consult
with its legal advisor concerning an investment in any of the Certificates.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Certificates for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Certificates. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Certificates received in
exchange for Old Certificates where such Old Certificates were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that, starting on the Expiration Date and ending on the close of business
180 days after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until such date all broker-dealers effecting transactions
in the New Certificates may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Certificates
by broker-dealers. New Certificates received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Certificates or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Certificates. Any
broker-dealer that resells New Certificates that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Certificates may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit of any
such resale of New Certificates and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Starting on the Expiration Date, the Company will promptly send additional
copies of this Prospectus and any amendment or supplement to this Prospectus to
any broker-dealer that requests such documents in the Letter of Transmittal. The
Company has agreed to pay all expenses incident to the Exchange Offer other than
commissions or concessions of any brokers or dealers, fees of counsel to the
Holders and certain transfer taxes, and will indemnify the Holders of the New
Certificates (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Certificates is being passed upon for United by
Mayer, Brown & Platt.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements and schedule of United as of December
31, 1997 and 1996, and for each of the three years in the period ended December
31, 1997, incorporated by reference in this Prospectus, have been audited by
Arthur Andersen LLP, independent public accountants, as stated in their report,
with respect thereto, incorporated herein by reference, in reliance upon the
authority of said firm as experts in giving said reports.
82
<PAGE> 84
APPENDIX I -- INDEX OF TERMS
<TABLE>
<S> <C>
1997 Final Regulations...................................... 80
Above-Cap Account........................................... 23
Above-Cap Collateral Amount................................. 23, 52
Above-Cap Interest Payments................................. 22, 52
Above-Cap Liquidity Facility................................ 22, 52
Above-Cap Liquidity Provider................................ 1, 39
Additional Payment.......................................... 61
Adjusted Expected Distributions............................. 57
Administration Expenses..................................... 56
Agent's Message............................................. 32
Aggregate LTV Collateral Amount............................. 57
Aircraft.................................................... 2
AISI........................................................ 11
Applicable Date............................................. 61
Appraised Current Market Value.............................. 57
Appraisers.................................................. 11
Assumed Aggregate Aircraft Value............................ 11
Assumed Aircraft Value...................................... 65
Aviation Act................................................ 45
AvSolutions................................................. 11
Base Rate................................................... 51
Basic Pass Through Trust Agreement.......................... 1
BK.......................................................... 11
Book-Entry Confirmation..................................... 32
Book-Entry Transfer Facility................................ 33
Break Amount................................................ 61
Business Day................................................ 42
Calculation Agent........................................... 39
Capped Interest Rate........................................ 20
Capped LIBOR................................................ 20
Cash Account................................................ 23
Cash Collateral Account..................................... 21
Cede........................................................ 14
Certificate Account......................................... 41
Certificate Owners.......................................... 26
Certificateholders.......................................... 14
Certificates................................................ 1
Class A Certificates........................................ 8
Class A Initial Purchasers.................................. 3
Class A Trust............................................... 1
Class B Certificates........................................ 8
Class B Initial Purchaser................................... 5
Class B Trust............................................... 1
Class C Certificates........................................ 8
Class C Trust............................................... 1
Class D Certificates........................................ 8
Class D Trust............................................... 1
Class Exemptions............................................ 81
Code........................................................ 26
Commission.................................................. 5, 30
Company..................................................... 1
</TABLE>
I-1
<PAGE> 85
<TABLE>
<S> <C>
Controlling Party........................................... 24
Convention.................................................. 71
Current Distribution Date................................... 55
Current Interest Rate....................................... 19
Distribution Date........................................... 24
Downgrade Drawing........................................... 21
DTC......................................................... 14
DTC Participants............................................ 26
Eligible Institution........................................ 33
Equipment................................................... 68
Equipment Notes............................................. 2
ERISA....................................................... 26
ERISA Plans................................................. 81
Event of Loss............................................... 76
Exchange Act................................................ 4
Exchange Agent.............................................. 8
Exchange Offer.............................................. 1
Expected Distributions...................................... 55
Expiration Date............................................. 1, 32
Final Distributions......................................... 25
Final Drawing............................................... 50
Final Expected Distribution Date............................ 2
Final Maturity Date......................................... 15
Global Certificate.......................................... 48
Indenture Default........................................... 11, 44
Indenture Trustees.......................................... 8
Indentures.................................................. 8
Initial Purchasers.......................................... 5
Intercreditor Agreement..................................... 24
Interest Drawings........................................... 19, 49
Issuance Date............................................... 5, 30
Lease....................................................... 70
Lease Event of Default...................................... 43
Lease Payment Date.......................................... 70
Lease Period Date........................................... 74
Leased Aircraft............................................. 2
Leased Aircraft Indenture................................... 8
Leased Aircraft Indenture Trustees.......................... 8
Letter of Transmittal....................................... 1
LIBOR Business Day.......................................... 39
Liquidity Event of Default.................................. 51
Liquidity Expenses.......................................... 54
Liquidity Facilities........................................ 22, 52
Liquidity Obligations....................................... 20
Liquidity Provider.......................................... 39
London Reference Banks...................................... 39
LTV Appraisals.............................................. 57
LTV Collateral Amount....................................... 57
LTV Ratio................................................... 57
LTVs........................................................ 11
Make-Whole Amount........................................... 61
Maximum Commitment Amount................................... 19
Moody's..................................................... 21
</TABLE>
I-2
<PAGE> 86
<TABLE>
<S> <C>
Morgan Stanley.............................................. 3
New Certificates............................................ 1
Non-Performing Equipment Notes.............................. 57
Non-U.S. Certificateholder.................................. 80
Note Purchase Agreement..................................... 9, 60
Notice of Guaranteed Delivery............................... 35
NYSE........................................................ 35
Old Certificates............................................ 1
Old Class A Certificates.................................... 1
Old Class B Certificates.................................... 1
Operative Agreements........................................ 37
Owned Aircraft.............................................. 2
Owned Aircraft Indenture.................................... 8
Owned Aircraft Indenture Trustee............................ 8
Owner Participant........................................... 59
Owner Trustee............................................... 2
Participating Broker-Dealer................................. 3, 6, 31
Pass Through Trust Agreement................................ 1, 9
Performing Equipment Note................................... 20
Plan Asset Regulation....................................... 81
Plans....................................................... 26, 81
Pool Balance................................................ 42
Pool Factor................................................. 42
Primary Liquidity Facility.................................. 19
Primary Liquidity Provider.................................. 1, 39
PTC Events of Default....................................... 15
PTCE........................................................ 81
Rating Agencies............................................. 21
Record Date................................................. 14
Registration Event.......................................... 31
Registration Rights Agreement............................... 5
Regular Distribution Date................................... 14, 39
Replacement Primary Liquidity Facility...................... 50
Reset Agent................................................. 62
Rule 144A................................................... 2
Scheduled Payments.......................................... 39
Section 1110 Period......................................... 20
Securities Act.............................................. 1
Series...................................................... 2
Series A Equipment Notes.................................... 2
Series B Equipment Notes.................................... 2
Series C Equipment Notes.................................... 2
Series D Equipment Notes.................................... 2
Service..................................................... 79
Shelf Registration Statement................................ 31
Shortfall Amounts........................................... 79
Special Distribution Date................................... 14
Special Payment............................................. 41
Special Payments Account.................................... 41
Standard & Poor's........................................... 21
Stated Interest Rate........................................ 19
Subordinated Certificateholders............................. 79
Subordination Agent......................................... 8
</TABLE>
I-3
<PAGE> 87
<TABLE>
<S> <C>
Tax Counsel................................................. 78
Termination Notice.......................................... 51
Termination Value........................................... 76
Three-Month LIBOR........................................... 39
Three Month LIBOR Reference Date............................ 39
Threshold Rating............................................ 50
Transportation Code......................................... 71
Triggering Event............................................ 15
Trust....................................................... 8
Trust Indenture Act......................................... 36
Trust Property.............................................. 8
Trust Supplement............................................ 1
Trustee..................................................... 1
Trusts...................................................... 1, 8
U.S. Bankruptcy Code........................................ 67
U.S. Certificateholders..................................... 78
U.S. Persons................................................ 78
United...................................................... 1
</TABLE>
I-4
<PAGE> 88
[AIRCRAFT INFORMATION SERVICES, INC. LOGO] APPENDIX II - APPRAISAL LETTERS
06 November 1997
Mr. John Springer
United Airlines Inc.
WHQ-FT
1200 E. Algonquin Road
Elk Grove Township, IL 60007
Subject: Half Life Base Market Value Opinion, 14 Aircraft Fleet
AISI File number: A7S042BVO
Reference: (a) United Airlines Facsimile Message, 27 October 1997
Dear Mr. Springer:
In response to your request, Aircraft Information Services, Inc. (AISI) is
pleased to offer our opinion to United Airlines, Inc. ("United") of the half
life base market values of the 14 aircraft fleet as identified in Table 1 of
this report (the "Aircraft").
1. METHODOLOGY AND DEFINITIONS
The historical standard term of reference for commercial aircraft value has
been "half-life fair market value" of an "average" aircraft. However, "fair
market value" could mean a fair value in the given market or a value in a
hypothetical "fair" or balanced market, and the two definitions are not
equivalent. Recently, the term "base value" has been created to describe the
theoretical balanced market condition and to avoid the potentially misleading
term "fair market value" which has now become synonymous with the term
"current market value" or a "fair" value in the actual current market. AISI
value definitions are consistent with those of the International Society of
Transport Aircraft Trading (ISTAT) of 01 January 1994; AISI is a member of that
organization and employs an ISTAT Certified Senior Aircraft Appraiser.
AISI defines a "base value" as that of a transaction between equally willing
and informed buyer and seller, neither under compulsion to buy or sell, for a
single unit cash transaction with no hidden value or liability, and with
supply and demand of the sale item roughly in balance. Base values are
typically given for aircraft in "new" condition, "average half-life" condition,
or in a specifically described condition unique to a single aircraft at a
specific time. An "average" aircraft is an operable airworthy aircraft in
average physical condition and with average accumulated flight hours and
cycles, with clear title and standard unrestricted certificate of
airworthiness, and registered in an authority which does not represent a
penalty to aircraft
II-1
<PAGE> 89
APPENDIX II - APPRAISAL LETERS
06 November 1997 [LOGO]
AISI File No. A7S042BVO
Page -2-
value or liquidity, with no damage history and with inventory configuration and
level of modification which is normal for its intended use and age.
AISI assumes average condition unless otherwise specified in this report.
"Half-life" condition assumes that every component or maintenance service which
has a prescribed interval that determines its service life, overhaul interval
or interval between maintenance services, is at a condition which is one-half
of the total interval. It should be noted that AISI and ISTAT value definitions
apply to a transaction involving a single aircraft, and that transactions
involving more than one aircraft are often executed at considerable and highly
variable discounts to a single aircraft price, for a variety of reasons
relating to an individual buyer or seller.
AISI defines a "current market value" or "fair market value" as that value
which reflects the real market conditions, whether at, above or below the base
value conditions. Assumption of a single unit sale and definitions of aircraft
condition, buyer/seller qualifications and type of transaction remain unchanged
from that of base value. Current market value takes into consideration the
status of the economy in which the aircraft is used, the status of supply and
demand for the particular aircraft type, the value of recent transactions and
the opinions of informed buyers and sellers. Current market value assumes that
there is no short term time constraint to buy or sell.
AISI encourages the use of base values to consider historical trends, to
establish a consistent baseline for long term value comparisons and future
value considerations, or to consider how actual market values vary from
theoretical base values. Base values are less volatile than current market
values and tend to diminish regularly with time. Base values are normally
inappropriate to determine near term values. AISI encourages the use of current
market values to consider the probable near term value of an aircraft.
No physical inspection of the Aircraft or their essential records was made by
AISI for the purposes of this report, nor has any attempt been made to verify
information provided to us, which is assumed to be correct and applicable to
the Aircraft.
2. HALF LIFE BASE MARKET VALUATION
Our opinion of the half life base market value of the Aircraft is derived from
information and specifications supplied by United in reference (a) facsimile
message.
It is our considered opinion that the half life base market values are as
follows in Table 1 subject to the assumptions, definitions, and disclaimers
herein.
II-2
<PAGE> 90
APPENDIX II - APPRAISAL LETTERS
06 November 1997 [LOGO]
AISI File No. A7S042BVO
Page -3-
Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in
writing, this report shall be for the sole use of the client/addressee. This
report is offered as a fair and unbiased assessment of the subject aircraft or
equipment. AISI has no past, present, or anticipated future interest in the
subject aircraft or equipment. The conclusions and opinions expressed in this
report are based on published information, information provided by others,
reasonable interpretations and calculations thereof and are given in good
faith. Such conclusions and opinions are judgments that reflect conditions and
values which are current at the time of this report. The values and conditions
reported upon are subject to any subsequent change. AISI shall not be liable to
any party for damages arising out of reliance or alleged reliance on this
report, or for any parties action or failure to act as a result of reliance or
alleged reliance on this report.
Sincerely,
AIRCRAFT INFORMATION SERVICES, INC.
/s/ Fred E. Bearden
Fred E. Bearden
President
FEB/JMC/jm
II-3
<PAGE> 91
APPENDIX II - APPRAISAL LETTER
[LOGO]
Table 1 - AISI File A7S041BVO - 06 November 1997
AIRCRAFT PORTFOLIO - UNITED AIRLINES
Half Life Base Valuation
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Half Life Base
Serial Registration Value
No Aircraft Model Number Number Nose Number Date of Delivery Engine MTOW (Lbs.) Million US$
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 A320-232 589 N433UA 4233 Jun-96 IAE2527-A5 169,754 $41.34
- ------------------------------------------------------------------------------------------------------------------------------------
2 A320-232 592 N434UA 4234 Jun-96 IAE2527-A5 169,754 $41.34
- ------------------------------------------------------------------------------------------------------------------------------------
3 A320-232 613 N435UA 4235 Sep-96 IAE2527-A5 169,754 $41.34
- ------------------------------------------------------------------------------------------------------------------------------------
4 A320-232 638 N436UA 4236 Dec-96 IAE2527-A5 169,754 $41.34
- ------------------------------------------------------------------------------------------------------------------------------------
CFM56-3B1 (1 Each)
5 B737-322 24673 N398UA 9398 Sep-90 CFM56-3C1 (1 Each) 130,000 $23.37
- ------------------------------------------------------------------------------------------------------------------------------------
6 B737-322 24674 N399UA 9399 Oct-90 CFM56-3B1 130,000 $23.17
- ------------------------------------------------------------------------------------------------------------------------------------
7 B737-322 24717 N202UA 9002 Oct-90 CFM56-3B1 130,000 $23.17
- ------------------------------------------------------------------------------------------------------------------------------------
8 B737-322 24718 N203UA 9003 Oct-90 CFM56-3B1 130,000 $23.17
- ------------------------------------------------------------------------------------------------------------------------------------
9 B747-422 26890 N193UA 8193 Aug-96 PW4056 875,000 $142.76
- ------------------------------------------------------------------------------------------------------------------------------------
10 B747-422 26892 N194UA 8594 Sep-96 PW4056 875,000 $142.76
- ------------------------------------------------------------------------------------------------------------------------------------
11 B777-222 26937 N776UA 2076 Apr-96 PW4077 545,000 $112.25
- ------------------------------------------------------------------------------------------------------------------------------------
12 B777-222 26940 N778UA 2078 Jul-96 PW4077 545,000 $112.25
- ------------------------------------------------------------------------------------------------------------------------------------
13 B777-222 26944 N780UA 2080 Aug-96 PW4077 545,000 $112.25
- ------------------------------------------------------------------------------------------------------------------------------------
14 B777-222IGW 26938 N786UA 2286 Apr-97 PW4090 624,700 $123.94
- ------------------------------------------------------------------------------------------------------------------------------------
---------
Total: $1,004.45
=========
</TABLE>
II-4
<PAGE> 92
APPENDIX II - APPRAISAL LETTER
BK ASSOCIATES, INC.
1295 NORTHERN BOULEVARD
MANHASSET, NEW YORK 11030
(516) 365-6272 FAX * (516) 365-6287
November 6, 1997
UNITED AIR LINES
1200 E. Algonquin Road
Elk Grove Township, IL 60007
ATTN: Mr. John Springer
Gentlemen:
In response to your request, BK Associates, Inc. is pleased to provide this
opinion on the current Base Value (BV) as of November 1997 on each of two
B747-422, four A320-232, three B777-222, one B777-222IGW, and four B737-222
aircraft (Aircraft). The Aircraft are further identified in the "Conclusions"
section of this appraisal.
Set forth below is a summary of the methodology, considerations and assumptions
utilized in this appraisal.
CURRENT FAIR MARKET VALUE
According to the International Society of Transport Aircraft Trading's (ISTAT)
definition of fair market value, to which BK Associates subscribes, the quoted
fair market value is the Appraiser's opinion of the most likely trading price
that may be generated for an aircraft under the market circumstances that are
perceived to exist at the time in question. The fair market value assumes that
the aircraft is valued for its highest and best use, that the parties to the
hypothetical sale transaction are willing, able, prudent and knowledgeable, and
under no unusual pressure for a prompt sale, and that the transaction would be
negotiated in an open and unrestricted market on an arm's length basis, for
cash or equivalent consideration, and given an adequate amount of time for
effective exposure to prospective buyers, which BK Associates considers to be 12
to 18 months.
BASE VALUE
Base value is the Appraiser's opinion of the underlying economic value of an
aircraft in an open, unrestricted, stable market environment with a reasonable
balance of supply and demand, and assumes full consideration of its "highest
and best use". An aircraft's base value is founded in the historical trend of
values and in the projection of future value trends and presumes an arm's
length, cash transaction between willing, able and
II-5
<PAGE> 93
APPENDIX II - APPRAISAL LETTER
[BK ASSOCIATES, INC. LOGO]
United Air Lines
November 6, 1997
Page 2
knowledgeable parties, acting prudently, with an absence of duress and with a
reasonable period of time available for marketing.
VALUE METHODOLOGY
Fair market valuations are determined based upon one of three methods:
comparable recent sales, replacement cost or rate of return to investor. In
this appraisal, BK used the comparable sales method, which is the most common
method, and the replacement cost method, in determining the fair market values
of the Aircraft. The comparable sales method uses industry data to ascertain
the prices realized in recent sales of comparable models. The fair market
value of the base Aircraft is based on BK's familiarity with the aircraft type,
its earnings potential in commercial service, its knowledge of its capabilities
and the uses to which it will be put worldwide, its knowledge of the marketing
of used aircraft, and the factors affecting the fair market value of such
aircraft, and on its knowledge of the asking, offered and transaction prices
for similar competitive, and alternative equipment, as will as transactions and
negotiations involving basically identical aircraft. These realizations,
however, which reflect the market supply and demand at the time of sale, are
subject to minor adjustments for other conditions existing at the time of the
appraisal. In this respect, we consider the market for the Aircraft to be in
reasonable balance at this time, and thus, the fair market value is equal to
the base value. In addition, values were adjusted for engine type and maximum
gross takeoff weights (MGTOW). In arriving at the values, BK considered the
impact of many factors affecting the market for used aircraft, including: the
suitability and operating economics of the aircraft, regulatory factors, and
recent sales experience. In the absence of relevant recent comparable sales,
the replacement cost methodology is also considered. In this approach, which
is especially suitable for nearly new aircraft, the new price or replacement
cost is used and an allowance is deducted to account for the estimated hours and
cycles accumulated on the aircraft to date.
LIMITING CONDITIONS AND ASSUMPTIONS
BK has neither inspected the Aircraft not their maintenance records but relied
upon information supplied by you and from BK's own database. In determining the
market value of a used aircraft, the following assumptions apply to the base
aircraft:
II-6
<PAGE> 94
APPENDIX II - APPRAISAL LETTERS
[BK ASSOCIATES, INC. LOGO]
United Air Lines
November 6, 1997
Page 3
1. Unless it is new, the aircraft has half-time remaining to its next major
overhauls or scheduled shop visit on its airframe, engines, landing gear and
auxiliary power unit.
2. The aircraft is in compliance under a Federal Aviation Administration
approved airline maintenance program, with all airworthiness directives,
mandatory modifications and applicable service bulletins currently up to
industry standard.
3. The interior of the aircraft is in a standard configuration for its
specific type, with the buyer furnished equipment and options of the types
and models generally accepted and utilized in the industry.
4. The aircraft is in current flight operations.
5. The aircraft is sold for cash without seller financing.
6. The Aircraft is in average or better condition.
7. There is no accident damage.
CONCLUSIONS
Based on the above methodology, considerations and assumptions, it is our
opinion that the current fair market value of each aircraft is as follows:
<TABLE>
<CAPTION>
Date of Registration Engine Base
Model Delivery Number Type Value
-------- --------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
B747-422 08/07/96 N193UA PW4056 $138,100,000
B747-422 09/19/96 N194UA PW4056 138,100,000
A320-232 06/03/96 N433UA IAE2527-A5 37,800,000
A320-232 06/10/96 N434UA IAE2527-A5 37,800,000
A320-232 09/03/96 N435UA IAE2527-A5 38,250,000
A320-232 12/11/96 N436UA IAE2527-A5 38,650,000
B777-222 04/11/96 N776UA PW4077 105,000,000
B777-222 07/18/96 N778UA PW4077 107,000,000
B777-222 08/07/96 N780UA PW4077 107,000,000
B777-222IGW 04/04/97 N786UA PW4090 121,000,000
</TABLE>
II-7
<PAGE> 95
APPENDIX II - APPRAISAL LETTERS
[BK ASSOCIATES, INC. LOGO]
United Air Lines
November 6, 1997
Page 4
<TABLE>
<CAPTION>
Date of Registration Engine Base
Model Delivery Number Type Value
-------- --------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
B737-322 10/12/90 N202UA CFM56-3B1 $ 25,300,000
B737-322 10/24/90 N203UA CFM56-3B1 25,300,000
B737-322 09/24/90 N398UA CFM56-3B1/C1 25,300,000
B737-322 10/09/90 N399UA CFM56-3B1 25,300,000
</TABLE>
BK Associates, Inc. has no present or contemplated future interest in the
Aircraft, nor any interest that would preclude our making a fair and unbiased
estimate. This appraisal represents the opinion of BK Associates, Inc. and
reflects our best judgment based on the information available to us at the time
of preparation and the time and budget constraints imposed by the client. It
is not given as a recommendation, or as an inducement, for any financial
transaction and further, BK Associates, Inc. assumes no responsibility or legal
liability for any action taken or not taken by the addressee, or any other
party, with regard to the appraised equipment. By accepting this appraisal,
the addressee agrees that BK Associates, Inc. shall bear no such responsibility
or legal liability. This appraisal is prepared for the use of the addressee
and shall not be provided to other parties without the express consent of the
addressee.
Sincerely yours,
BK ASSOCIATES, INC.
/s/ John F. Keitz
John F. Keitz
President
ISTAT Senior Certified Appraiser
JFK/kf
II-8
<PAGE> 96
APPENDIX II - APPRAISAL LETTERS
AvSOLUTIONS
November 6, 1997
John M. Springer
Staff Specialist - Treasury
United Airlines
World Headquarters
P.O. Box 66100
Chicago, IL 60666-0100
Dear Mr. Springer:
AvSOLUTIONS is pleased to provide this opinion on the base value, as of
November 1997, of two Boeing 747-422, four Airbus A320-232, three Boeing
777-222, one Boeing 777-222 IGW and four Boeing 737-322 aircraft (the
aircraft). The Boeing 747-422 aircraft are powered by Pratt and Whitney 4056
engines, the Airbus A320-232 aircraft are powered by IAE 2527-A5 engines, the
Boeing 777-222 aircraft are powered by Pratt and Whitney 4077 engines, the
Boeing 777-222 IGW aircraft is powered by Pratt and Whitney 4090 engines, and
the Boeing 737-322 aircraft are powered by the CFM56-3-B1/C1. A complete
listing of the aircraft is enclosed as Attachment 1.
Set forth below is a summary of the methodology, considerations and
assumptions utilized in this appraisal.
BASE VALUE
Base value is the appraiser's opinion of the underlying economic value of an
aircraft in an open, unrestricted, stable market environment with a reasonable
balance of supply and demand, and assumes full consideration of its "highest
and best use". An aircraft's base value is founded in the historical trend of
values and in the projection of future value trends and presumes an arm's
length, cash transaction between willing, able and knowledge parties, acting
prudently, with an absence of duress and with a reasonable period of time
available for marketing.
CURRENT FAIR MARKET VALUE
According to the International Society of Transport Aircraft Trading's
(ISTAT) definition of Fair Market Value (FMV), to which AvSOLUTIONS subscribes,
the quoted FMV is the appraiser's opinion of the most likely trading price that
may be generated for an aircraft under the market circumstances that are
perceived to exist at the time in question. The fair market value assumes that
the aircraft is valued for its highest and best use, that the parties to the
hypothetical sales transaction are willing, able, prudent and knowledgeable,
and under no unusual pressure for
II-9
7518-B Diplomat Drive, Manassas, Virginia 20109
Telephone 703-330-0461 Fax 703-330-0581
<PAGE> 97
APPENDIX II - APPRAISAL LETTERS
AvSOLUTIONS
- --------------------------------------------------------------------------------
Page 2
United Airlines
a prompt sale, and that the transaction would be negotiated in an open and
unrestricted market on an arm's length basis, for cash equivalent
consideration, and given an adequate amount of time for effective market
exposure to perspective buyers, which AvSOLUTIONS considers to be ten to twenty
months.
APPRAISAL METHODOLOGY
The method employed by AvSOLUTIONS to appraise the current and future
values of aircraft and the associated equipment addresses the factors that
influence the market value of an aircraft, such as its age, condition,
configuration, the population of similar aircraft, similar aircraft on the
market, operating costs, cost to acquire a new aircraft, and the state of demand
for transportation services.
To achieve this objective, cross-sectional data concerning the values of
aircraft in each of several general categories is collected and analyzed.
Cross-sectional data is then postulated and compared to reported market values
at a specified point in time. Such data impounds the effect of deterioration
in aircraft performance due to usage and exposure to the elements, as well as
the effect of obsolescence due to the evolutionary development and
implementation of new designs and materials.
The product of the analysis identifies the relationship between the value
of each aircraft and its characteristics, such as age, model designation,
service configuration and engine type. Once the relationship is identified,
one can then postulate the effects of the difference between the economic
circumstances at the time when the cross-sectional data were collected and the
current situation. Therefore, if one can determine the current value of all
aircraft in one category, it is possible to estimate the current values of all
aircraft in that category.
The manufacturer and size of the aircraft usually determine the specific
category to which it is assigned. Segregating the world airplane fleet in
this manner accommodates the potential effects of difference size and different
design philosophies.
The variability of the data used by AvSOLUTIONS to determine the current
and future market values implies that the actual value realized will fall
within a range of values. Therefore, if a contemplated value falls within the
specified confidence range, AvSOLUTIONS cannot reject the hypothesis that it
is a reasonable representation of the current market situation.
LIMITING CONDITIONS AND ASSUMPTIONS
In order to conduct this valuation, AvSOLUTIONS is solely relying on
information as supplied by United Airlines, and from data within AvSOLUTIONS'
own database. In determining
II-10
<PAGE> 98
APPENDIX II - APPRAISAL LETTERS
AvSOLUTIONS
- --------------------------------------------------------------------------------
Page 3
United Airlines
the base value on the aircraft, the following assumptions have been researched
and determined:
1. AvSOLUTIONS has not inspected these aircraft or their maintenance records;
accordingly, AvSOLUTIONS cannot attest to the physical presence, condition or
current maintenance status.
2. The aircraft and its major components are in "half-time" condition. That
means that half of the flying hours and/or cycles between major maintenance
events on the airframe, engines and other components are available to be flown.
3. The aircraft is certified, maintained and currently being operated under
United States Federal Aviation Regulation (FAR) part 121.
4. All mandatory inspections and Airworthiness Directives have been complied
with.
5. The aircraft have no damage history.
6. A 3% annual rate of inflation is anticipated.
7. The aircraft are in average or better condition.
8. The aircraft are sold for cash without seller financing.
Based upon the above methodology, considerations and assumptions, it is
AvSOLUTIONS' opinion that the base values of each aircraft are as listed in
Attachment 1.
II-11
<PAGE> 99
APPENDIX II - APPRAISAL LETTERS
AvSOLUTIONS
- --------------------------------------------------------------------------------
Page 4
United Airlines
STATEMENT OF INDEPENDENCE
This appraisal report represents the opinion of AvSOLUTIONS, and is
intended to be advisory only in nature. Therefore, AvSOLUTIONS assumes no
responsibility or legal liability for actions taken or not taken by the Client
or any other party with regard to the subject aircraft. By accepting this
report, the Client agrees that AvSOLUTIONS shall bear no responsibility or
legal liability regarding this report. Further, this report is prepared for
the exclusive use of the Client and shall not be provided to their parties
without the Client's express consent.
Aviation Solutions Inc. (AvSOLUTIONS) hereby states that this valuation
report has been independently prepared and fairly represents the subject
aircraft and AvSOLUTIONS' opinion of their values. Aviation Solutions Inc.
(AvSOLUTIONS) further states that it has no present or contemplated future
interest or association with the subject aircraft.
Signed,
/s/ Quentin Brasie
Quentin Brasie
Vice-President
II-12
<PAGE> 100
APPENDIX II - APPRAISAL LETTERS
AvSOLUTIONS
- --------------------------------------------------------------------------------
ATTACHMENT 1
EETC COLLATERAL SUMMARY
<TABLE>
<CAPTION>
Tail Number Aircraft Nose # S/N Year Engines MGTOW Base Value
(millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
N193UA 747-422 8193 26890 Aug-96 PW 4056 875,000 142.8
N194UA 747-422 8594 26892 Sep-96 PW 4056 875,000 142.8
N433UA A320-232 4233 589 Jun-96 IAE2527-A5 169,754 37
N434UA A320-232 4234 592 Jun-96 IAE2527-A5 169,754 37
N435UA A320-232 4235 613 Sep-96 IAE2527-A5 169,754 37.5
N436UA A320-232 4236 638 Dec-96 IAE2527-A5 169,754 38.1
N776UA B777-222 2076 26937 Apr-96 PW4077 545,000 99.1
N778UA B777-222 2078 26940 Jul-96 PW4077 545,000 99.1
N780UA B777-222 2080 26944 Aug-96 PW4077 545,000 99.7
N786UA B777-222IGW 2286 26938 Apr-97 PW4090 624,700 128.6
N202UA B737-322 9002 24717 Oct-90 CFM56-3B1 130,000 22.9
N203UA B737-322 9003 24718 Oct-90 CFM56-3B1 130,000 22.9
N398UA B737-322 9398 24673 Sep-90 CFM56-3B1/C1 130,000 22.7
N399UA B737-322 9399 24674 Oct-90 CFM56-3B1 130,000 22.9
</TABLE>
II-13
<PAGE> 101
APPENDIX III -- EQUIPMENT NOTES PRINCIPAL PAYMENT SCHEDULE
SERIES A
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION
DATES AIRCRAFT REGISTRATION NUMBER
- ---------------------- -----------------------------------------------------------------------------------------------
N193UA N194UA N433UA N434UA N435UA N436UA N776UA
------ ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
March 2, 1998......... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
June 2, 1998.......... 1,683,856 1,683,856 450,714 450,714 456,079 98,012 1,251,983
September 2, 1998..... 0 0 0 0 0 0 0
December 2, 1998...... 358,117 358,117 95,857 95,857 96,998 460,849 266,268
June 2, 1999.......... 1,683,856 1,683,856 450,714 450,714 456,079 98,012 1,251,983
December 2, 1999...... 358,117 358,117 95,857 95,857 96,998 460,849 266,268
June 2, 2000.......... 1,683,856 1,683,856 450,714 450,714 456,079 98,012 1,251,983
December 2, 2000...... 358,117 358,117 95,857 95,857 96,998 460,849 266,268
June 2, 2001.......... 1,683,856 1,683,856 450,714 450,714 456,079 98,012 1,251,983
December 2, 2001...... 358,117 358,117 95,857 95,857 96,998 460,849 266,268
June 2, 2002.......... 1,683,856 1,683,856 450,714 450,714 456,079 98,012 1,251,983
December 2, 2002...... 55,109,251 55,109,251 14,751,005 14,751,005 14,926,612 15,445,544 40,975,013
December 2, 2003...... 0 0 0 0 0 0 0
December 2, 2004...... 0 0 0 0 0 0 0
December 2, 2005...... 0 0 0 0 0 0 0
December 2, 2006...... 0 0 0 0 0 0 0
December 2, 2007...... 0 0 0 0 0 0 0
December 2, 2008...... 0 0 0 0 0 0 0
December 2, 2009...... 0 0 0 0 0 0 0
December 2, 2010...... 0 0 0 0 0 0 0
December 2, 2011...... 0 0 0 0 0 0 0
December 2, 2012...... 0 0 0 0 0 0 0
December 2, 2013...... 0 0 0 0 0 0 0
December 2, 2014...... 0 0 0 0 0 0 0
December 2, 2015...... 0 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION
DATES AIRCRAFT REGISTRATION NUMBER
- ---------------------- -----------------------------------------------------------------------------------------------
N778UA N780UA N786UA N202UA N203UA N398UA N399UA
------ ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
March 2, 1998......... $ 0 $ 0 $ 0 $ 139,008 $ 137,884 $ 0 $ 139,008
June 2, 1998.......... 1,265,294 1,267,678 1,454,544 0 0 0 0
September 2, 1998..... 0 0 0 108,657 109,781 0 108,657
December 2, 1998...... 269,096 269,604 314,296 247,865 247,865 249,804 247,865
June 2, 1999.......... 1,265,294 1,267,678 1,454,544 0 0 0 0
December 2, 1999...... 269,096 269,604 314,296 247,865 247,865 250,005 247,865
June 2, 2000.......... 1,265,294 1,267,678 1,454,544 0 0 0 0
December 2, 2000...... 269,096 269,604 314,296 247,865 247,865 250,004 247,865
June 2, 2001.......... 1,265,294 1,267,678 1,454,544 0 0 0 0
December 2, 2001...... 269,096 269,604 314,296 247,865 247,865 250,004 247,865
June 2, 2002.......... 1,265,294 1,267,678 1,454,544 0 0 0 0
December 2, 2002...... 41,410,145 41,488,193 48,482,096 247,865 247,865 250,005 247,865
December 2, 2003...... 0 0 0 247,865 247,865 250,004 247,865
December 2, 2004...... 0 0 0 247,865 247,865 250,005 247,865
December 2, 2005...... 0 0 0 495,730 495,730 250,004 495,730
December 2, 2006...... 0 0 0 495,731 495,731 500,009 495,731
December 2, 2007...... 0 0 0 495,730 495,730 500,009 495,730
December 2, 2008...... 0 0 0 495,730 495,730 500,009 495,730
December 2, 2009...... 0 0 0 495,731 495,731 500,009 495,731
December 2, 2010...... 0 0 0 743,595 743,595 500,009 743,595
December 2, 2011...... 0 0 0 743,596 743,596 750,014 743,596
December 2, 2012...... 0 0 0 832,312 832,879 856,793 832,312
December 2, 2013...... 0 0 0 654,879 654,312 643,235 654,879
December 2, 2014...... 0 0 0 743,596 743,596 1,342,656 743,596
December 2, 2015...... 0 0 0 2,478,650 2,478,650 2,657,422 2,478,650
</TABLE>
III-1
<PAGE> 102
SERIES B
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION
DATES AIRCRAFT REGISTRATION NUMBER
- ---------------------- -----------------------------------------------------------------------------------------------
N193UA N194UA N433UA N434UA N435UA N436UA N776UA
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
March 2, 1998......... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
June 2, 1998.......... 317,024.... 317,024 84,857 84,857 85,867 0 235,714
December 2, 1998...... 0 0 0 0 0 86,765 0
June 2, 1999.......... 317,024 317,024 84,857 84,857 85,867 0 235,714
December 2, 1999...... 0 0 0 0 0 86,765 0
June 2, 2000.......... 317,024 317,024 84,857 84,857 85,867 0 235,714
December 2, 2000...... 0 0 0 0 0 86,765 0
June 2, 2001.......... 317,024 317,024 84,857 84,857 85,867 0 235,714
December 2, 2001...... 0 0 0 0 0 86,765 0
June 2, 2002.......... 317,024 317,024 84,857 84,857 85,867 0 235,714
December 2, 2002...... 13,948,878 13,948,878 3,733,714 3,733,714 3,777,663 3,903,939 10,371,429
December 2, 2003...... 0 0 0 0 0 0 0
December 2, 2004...... 0 0 0 0 0 0 0
December 2, 2005...... 0 0 0 0 0 0 0
December 2, 2006...... 0 0 0 0 0 0 0
December 2, 2007...... 0 0 0 0 0 0 0
December 2, 2008...... 0 0 0 0 0 0 0
December 2, 2009...... 0 0 0 0 0 0 0
December 2, 2010...... 0 0 0 0 0 0 0
December 2, 2011...... 0 0 0 0 0 0 0
December 2, 2012...... 0 0 0 0 0 0 0
December 2, 2013...... 0 0 0 0 0 0 0
December 2, 2014...... 0 0 0 0 0 0 0
December 2, 2015...... 0 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION
DATES AIRCRAFT REGISTRATION NUMBER
- ---------------------- -----------------------------------------------------------------------------------------------
N778UA N780UA N786UA N202UA N203UA N398UA N399UA
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
March 2, 1998......... $ 0 $ 0 $ 0 $ 128,521 $ 128,521 $ 0 $ 128,521
June 2, 1998.......... 238,221 238,670 272,668 0 0 0 0
December 2, 1998...... 0 0 0 46,972 46,708 129,637 46,972
June 2, 1999.......... 238,221 238,670 272,668 0 0 0 0
December 2, 1999...... 0 0 0 1,624 1,888 40,659 1,624
June 2, 2000.......... 238,221 238,670 272,668 0 0 0 0
December 2, 2000...... 0 0 0 59,272 59,272 8,355 59,272
June 2, 2001.......... 238,221 238,670 272,668 0 0 0 0
December 2, 2001...... 0 0 0 59,272 59,272 59,784 59,272
June 2, 2002.......... 238,221 238,670 272,668 0 0 0 0
December 2, 2002...... 10,481,895 10,501,650 12,269,660 59,272 59,272 59,784 59,272
December 2, 2003...... 0 0 0 59,272 59,272 59,784 59,272
December 2, 2004...... 0 0 0 59,272 59,272 59,784 59,272
December 2, 2005...... 0 0 0 150,268 157,191 103,133 150,268
December 2, 2006...... 0 0 0 86,820 79,898 76,218 86,820
December 2, 2007...... 0 0 0 118,544 118,544 119,567 118,544
December 2, 2008...... 0 0 0 118,544 118,544 119,567 118,544
December 2, 2009...... 0 0 0 258,685 258,655 119,567 258,685
December 2, 2010...... 0 0 0 193,827 193,909 283,772 193,827
December 2, 2011...... 0 0 0 21,665 21,612 15,147 21,665
December 2, 2012...... 0 0 0 89,100 88,533 72,572 89,100
December 2, 2013...... 0 0 0 266,533 267,099 601,850 266,533
December 2, 2014...... 0 0 0 598,143 592,027 640,820 598,143
December 2, 2015...... 0 0 0 172,394 178,511 0 172,394
</TABLE>
III-2
<PAGE> 103
SERIES C
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION
DATES AIRCRAFT REGISTRATION NUMBER
- ------------------------ ------------------------------------------------------------------------------------------
N193UA N194UA N433UA N434UA N435UA N436UA N776UA
---------- ----------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
June 2, 1998............ $ 0 $ 374,665 $ 100,286 $ 100,286 $ 101,480 $ 0 $ 278,571
December 2, 1998........ 0 0 0 0 0 102,541 0
June 2, 1999............ 0 374,665 100,286 100,286 101,480 0 278,571
December 2, 1999........ 0 0 0 0 0 102,541 0
June 2, 2000............ 0 374,665 100,286 100,286 101,480 0 278,571
December 2, 2000........ 0 0 0 0 0 102,541 0
June 2, 2001............ 0 374,665 100,286 100,286 101,480 0 278,571
December 2, 2001........ 0 0 0 0 0 102,541 0
June 2, 2002............ 0 374,665 100,286 100,286 101,480 0 278,571
December 2, 2002........ 2,362,000 16,485,673 4,412,571 4,412,571 4,465,602 4,614,837 12,257,143
December 2, 2003........ 0 0 0 0 0 0 0
December 2, 2004........ 0 0 0 0 0 0 0
December 2, 2005........ 0 0 0 0 0 0 0
December 2, 2007........ 0 0 0 0 0 0 0
December 2, 2008........ 0 0 0 0 0 0 0
December 2, 2009........ 0 0 0 0 0 0 0
December 2, 2012........ 0 0 0 0 0 0 0
December 2, 2013........ 0 0 0 0 0 0 0
December 2, 2014........ 0 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION
DATES AIRCRAFT REGISTRATION NUMBER
- ---------------------------- -----------------------------------------------------------------------------------
N778UA N780UA N786UA N202UA N203UA N398UA N399UA
----------- ----------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
June 2, 1998................ $ 281,534 $ 282,065 $ 322,244 $ 0 $ 0 $ 0 $ 0
December 2, 1998............ 0 0 0 82,349 82,613 0 82,349
June 2, 1999................ 281,534 282,065 322,244 0 0 0 0
December 2, 1999............ 0 0 0 127,697 127,433 89,779 127,697
June 2, 2000................ 281,534 282,065 322,244 0 0 0 0
December 2, 2000............ 0 0 0 70,049 70,049 122,082 70,049
June 2, 2001................ 281,534 282,065 322,244 0 0 0 0
December 2, 2001............ 0 0 0 70,049 70,049 70,653 70,049
June 2, 2002................ 281,534 282,065 322,244 0 0 0 0
December 2, 2002............ 12,387,330 12,410,677 14,501,780 70,049 70,049 70,654 70,049
December 2, 2003............ 0 0 0 70,049 70,049 70,653 70,049
December 2, 2004............ 0 0 0 180,747 184,656 604,957 180,747
December 2, 2005............ 0 0 0 390,560 383,720 683,383 390,560
December 2, 2007............ 0 0 0 184,229 184,409 178,959 184,229
December 2, 2008............ 0 0 0 253,576 349,167 388,413 253,576
December 2, 2009............ 0 0 0 327,875 235,102 326,689 327,875
December 2, 2010............ 0 0 0 0 0 153,675 0
December 2, 2012............ 0 0 0 63,990 63,923 55,900 63,990
December 2, 2013............ 0 0 0 479,021 473,122 222,203 479,021
December 2, 2014............ 0 0 0 641,760 647,659 0 641,760
</TABLE>
III-3
<PAGE> 104
SERIES D
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION
DATES AIRCRAFT REGISTRATION NUMBER
- ------------------------------- --------------------------------------------------------------------------
N193UA N194UA N433UA N434UA N435UA N436UA N776UA
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
March 2, 1998.................. $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
December 2, 1998............... 0 0 0 0 0 0 0
December 2, 1999............... 0 0 0 0 0 0 0
December 2, 2000............... 0 0 0 0 0 0 0
December 2, 2001............... 0 0 0 0 0 0 0
December 2, 2002............... 0 0 0 0 0 0 0
December 2, 2003............... 0 0 0 0 0 0 0
December 2, 2004............... 0 0 0 0 0 0 0
December 2, 2013............... 0 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION
DATES AIRCRAFT REGISTRATION NUMBER
- ------------------------------- --------------------------------------------------------------------------
N778UA N780UA N786UA N202UA N203UA N398UA N399UA
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
March 2, 1998.................. $ 0 $ 0 $ 0 $ 61,503 $ 62,297 $329,049 $ 61,503
December 2, 1998............... 0 0 0 82,122 81,060 186,857 82,122
December 2, 1999............... 0 0 0 342,442 342,499 339,205 342,442
December 2, 2000............... 0 0 0 386,338 386,399 383,136 386,338
December 2, 2001............... 0 0 0 436,134 436,199 432,885 436,134
December 2, 2002............... 0 0 0 487,011 487,080 483,762 487,011
December 2, 2003............... 0 0 0 540,288 540,361 537,040 540,288
December 2, 2004............... 0 0 0 486,116 482,284 59,259 486,116
December 2, 2013............... 0 0 0 68,442 73,012 0 68,442
</TABLE>
III-4
<PAGE> 105
APPENDIX IV -- LOAN TO AIRCRAFT VALUE RATIOS
The table is based on the assumption that the value of each Aircraft set
forth opposite December 23, 1997 depreciates by approximately 2% of the initial
appraised value per year until the fifteenth year after the year of delivery of
such Aircraft, by approximately 4% of the initial appraised value per year for
the next five years and by approximately 6% of the initial appraised value per
year thereafter. Other rates or methods of depreciation would result in
materially different loan to Aircraft value ratios and no assurance can be given
(i) that the depreciation rates and method assumed for the purposes of the table
are the ones most likely to occur or (ii) as to the actual value of any
Aircraft. Thus the table should not be considered a forecast or prediction of
expected or likely loan to Aircraft value ratios but simply a mathematical
calculation based on one set of assumptions.
<TABLE>
<CAPTION>
AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION
NUMBER N193UA NUMBER N194UA
---------------------------------- ----------------------------------
EQUIPMENT EQUIPMENT
NOTE ASSUMED LOAN NOTE ASSUMED LOAN
OUTSTANDING AIRCRAFT TO OUTSTANDING AIRCRAFT TO
BALANCE VALUE VALUE BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS) RATIO
---- ----------- ---------- ----- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
December 23, 1997.... $ 82.86 $ 141.22 58.7% $ 98.85 $ 141.22 70.0%
December 2, 1998..... 80.50 138.34 58.2 96.12 138.34 69.5
December 2, 1999..... 78.14 135.46 57.7 93.39 135.46 68.9
December 2, 2000..... 75.78 132.57 57.2 90.65 132.57 68.4
December 2, 2001..... 73.42 129.69 56.6 87.92 129.69 67.8
December 2, 2002..... 0.00 126.81 NA 0.00 126.81 NA
<CAPTION>
AIRCRAFT REGISTRATION
NUMBER N433UA
----------------------------------
EQUIPMENT
NOTE ASSUMED LOAN
OUTSTANDING AIRCRAFT TO
BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO
---- ----------- ---------- -----
<S> <C> <C> <C>
December 23, 1997.... $ 26.46 $ 37.80 70.0%
December 2, 1998..... 25.73 37.03 69.5
December 2, 1999..... 25.00 36.26 68.9
December 2, 2000..... 24.26 35.49 68.4
December 2, 2001..... 23.53 34.71 67.8
December 2, 2002..... 0.00 33.94 NA
</TABLE>
<TABLE>
<CAPTION>
AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION
NUMBER N434UA NUMBER N435UA
---------------------------------- ----------------------------------
EQUIPMENT EQUIPMENT
NOTE ASSUMED LOAN NOTE ASSUMED LOAN
OUTSTANDING AIRCRAFT TO OUTSTANDING AIRCRAFT TO
BALANCE VALUE VALUE BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS) RATIO
---- ----------- ---------- ----- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
December 23, 1997.... $ 26.46 $ 37.80 70.0% $ 26.78 $ 38.25 70.0%
December 2, 1998..... 25.73 37.03 69.5 26.03 37.47 69.5
December 2, 1999..... 25.00 36.26 68.9 25.29 36.69 68.9
December 2, 2000..... 24.26 35.49 68.4 24.55 35.91 68.4
December 2, 2001..... 23.53 34.71 67.8 23.81 35.13 67.8
December 2, 2002..... 0.00 33.94 NA 0.00 34.35 NA
<CAPTION>
AIRCRAFT REGISTRATION
NUMBER N436UA
----------------------------------
EQUIPMENT
NOTE ASSUMED LOAN
OUTSTANDING AIRCRAFT TO
BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO
---- ----------- ---------- -----
<S> <C> <C> <C>
December 23, 1997.... $ 27.06 $ 38.65 70.0%
December 2, 1998..... 26.31 37.86 69.5
December 2, 1999..... 25.56 37.07 68.9
December 2, 2000..... 24.81 36.28 68.4
December 2, 2001..... 24.06 35.49 67.8
December 2, 2002..... 0.00 34.71 NA
</TABLE>
<TABLE>
<CAPTION>
AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION
NUMBER N776UA NUMBER N778UA
---------------------------------- ----------------------------------
EQUIPMENT EQUIPMENT
NOTE ASSUMED LOAN NOTE ASSUMED LOAN
OUTSTANDING AIRCRAFT TO OUTSTANDING AIRCRAFT TO
BALANCE VALUE VALUE BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS) RATIO
---- ----------- ---------- ----- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
December 23, 1997.............................. $ 73.50 $ 105.00 70.0% $ 74.28 $ 106.12 70.0%
December 2, 1998............................... 71.47 102.86 69.5 72.23 103.95 69.5
December 2, 1999............................... 69.43 100.71 68.9 70.17 101.79 68.9
December 2, 2000............................... 67.40 98.57 68.4 68.12 99.62 68.4
December 2, 2001............................... 65.37 96.43 67.8 66.06 97.45 67.8
December 2, 2002............................... 0.00 94.29 NA 0.00 95.29 NA
</TABLE>
<TABLE>
<CAPTION>
AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION
NUMBER N780UA NUMBER N786UA
---------------------------------- ----------------------------------
EQUIPMENT EQUIPMENT
NOTE ASSUMED LOAN NOTE ASSUMED LOAN
OUTSTANDING AIRCRAFT TO OUTSTANDING AIRCRAFT TO
BALANCE VALUE VALUE BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS) RATIO
---- ----------- ---------- ----- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
December 23, 1997.............................. $ 74.42 $ 106.32 70.0% $ 86.76 $ 123.94 70.0%
December 2, 1998............................... 72.36 104.15 69.5 84.39 121.46 69.5
December 2, 1999............................... 70.30 101.98 68.9 82.03 118.98 68.9
December 2, 2000............................... 68.25 99.81 68.4 79.67 116.50 68.4
December 2, 2001............................... 66.19 97.64 67.8 77.30 114.02 67.8
December 2, 2002............................... 0.00 95.47 NA 0.00 111.55 NA
</TABLE>
IV-1
<PAGE> 106
<TABLE>
<CAPTION>
AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION
NUMBER N202UA NUMBER N203UA
---------------------------------- ----------------------------------
EQUIPMENT EQUIPMENT
NOTE ASSUMED LOAN NOTE ASSUMED LOAN
OUTSTANDING AIRCRAFT TO OUTSTANDING AIRCRAFT TO
BALANCE VALUE VALUE BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS) RATIO
---- ----------- ---------- ----- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
December 23, 1997.......................... $ 19.11 $ 23.17 82.5% $ 19.11 $ 23.17 82.5%
December 2, 1998........................... 18.21 22.63 80.5 18.21 22.63 80.5
December 2, 1999........................... 17.49 22.09 79.2 17.49 22.09 79.2
December 2, 2000........................... 16.73 21.55 77.6 16.73 21.55 77.6
December 2, 2001........................... 15.91 21.01 75.7 15.92 21.01 75.7
December 2, 2002........................... 15.05 20.48 73.5 15.05 20.48 73.5
December 2, 2003........................... 14.13 19.94 70.9 14.13 19.94 70.9
December 2, 2004........................... 13.16 19.40 67.8 13.16 19.40 67.8
December 2, 2005........................... 12.12 18.86 64.3 12.12 18.86 64.3
December 2, 2006........................... 11.54 17.78 64.9 11.55 17.78 64.9
December 2, 2007........................... 10.74 16.70 64.3 10.75 16.70 64.3
December 2, 2008........................... 9.87 15.63 63.2 9.79 15.63 62.6
December 2, 2009........................... 8.79 14.55 60.4 8.80 14.55 60.5
December 2, 2010........................... 7.85 13.47 58.3 7.86 13.47 58.3
December 2, 2011........................... 7.09 11.85 59.8 7.09 11.85 59.8
December 2, 2012........................... 6.10 10.24 59.6 6.11 10.24 59.7
December 2, 2013........................... 4.63 8.62 53.8 4.64 8.62 53.8
December 2, 2014........................... 2.65 7.00 37.8 2.66 7.00 37.9
December 2, 2015........................... 0.00 5.39 NA 0.00 5.39 NA
</TABLE>
<TABLE>
<CAPTION>
AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION
NUMBER N398UA NUMBER N399UA
---------------------------------- ----------------------------------
EQUIPMENT EQUIPMENT
NOTE ASSUMED LOAN NOTE ASSUMED LOAN
OUTSTANDING AIRCRAFT TO OUTSTANDING AIRCRAFT TO
BALANCE VALUE VALUE BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS) RATIO
---- ----------- ---------- ----- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
December 23, 1997.......................... $ 19.11 $ 23.37 81.8% $ 19.11 $ 23.17 82.5%
December 2, 1998........................... 18.21 22.83 79.8 18.21 22.63 80.5
December 2, 1999........................... 17.49 22.28 78.5 17.49 22.09 79.2
December 2, 2000........................... 16.73 21.74 77.0 16.73 21.55 77.6
December 2, 2001........................... 15.92 21.20 75.1 15.91 21.01 75.7
December 2, 2002........................... 15.05 20.65 72.9 15.05 20.48 73.5
December 2, 2003........................... 14.14 20.11 70.3 14.13 19.94 70.9
December 2, 2004........................... 13.16 19.57 67.3 13.16 19.40 67.8
December 2, 2005........................... 12.13 19.02 63.7 12.12 18.86 64.3
December 2, 2006........................... 11.55 17.94 64.4 11.54 17.78 64.9
December 2, 2007........................... 10.75 16.85 63.8 10.74 16.70 64.3
December 2, 2008........................... 9.74 15.76 61.8 9.87 15.63 63.2
December 2, 2009........................... 8.80 14.67 59.9 8.79 14.55 60.4
December 2, 2010........................... 7.86 13.59 57.8 7.85 13.47 58.3
December 2, 2011........................... 7.09 11.96 59.3 7.09 11.85 59.8
December 2, 2012........................... 6.11 10.33 59.2 6.10 10.24 59.6
December 2, 2013........................... 4.64 8.70 53.4 4.63 8.62 53.8
December 2, 2014........................... 2.66 7.07 37.6 2.65 7.00 37.8
December 2, 2015........................... 0.00 5.43 NA 0.00 5.39 NA
</TABLE>
IV-2
<PAGE> 107
======================================================
NO OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF
TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE EXCHANGE AGENT.
NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH
TOGETHER, CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY
SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR THE
ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THE
INFORMATION CONTAINED HEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................ 4
Reports of Certificateholders........ 4
Incorporation of Certain Documents by
Reference.......................... 4
Prospectus Summary................... 5
Risk Factors......................... 27
Use of Proceeds...................... 30
The Exchange Offer................... 30
Summary of New Certificates and
Certain Agreements................. 37
Description of the New
Certificates....................... 38
Description of the Liquidity
Facilities......................... 49
Description of the Intercreditor
Agreement.......................... 53
Description of the Aircraft and the
Appraisals......................... 58
Description of the Equipment Notes... 59
Federal Income Tax Consequences...... 77
ERISA Considerations................. 81
Plan of Distribution................. 82
Legal Matters........................ 82
Independent Public Accountants....... 82
Experts.............................. 83
Index of Terms....................... I-1
Appraisal Letters.................... II-1
Equipment Notes Principal Payment
Schedule........................... III-1
Loan to Aircraft Value Ratios........ IV-1
</TABLE>
======================================================
======================================================
UNITED AIRLINES LOGO
OFFER TO EXCHANGE
ENHANCED PASS THROUGH CERTIFICATES
SERIES 1997-1A AND
SERIES 1997-1B
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933,
AS AMENDED,
FOR ANY AND ALL OUTSTANDING
ENHANCED PASS THROUGH CERTIFICATES,
SERIES 1997-1A AND
SERIES 1997-1B
--------------------
PROSPECTUS
--------------------
MAY 5, 1998
======================================================
