<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                 SCHEDULE 13E-4
                         ISSUER TENDER OFFER STATEMENT
                      (Pursuant to Section 13(e)(1) of the
                        Securities Exchange Act of 1934)

                                Amendment No. 1

                                UAL CORPORATION
                              (Name of the Issuer)

                      SERIES A CONVERTIBLE PREFERRED STOCK
                         (Title of Class of Securities)

                                  902549 30 2
                     (CUSIP Number of Class of Securities)

             Francesca M. Maher                     Robert E. Curley
 Vice President-Law and Corporate Secretary      Mayer, Brown & Platt
              UAL Corporation                   190 South LaSalle Street
          1200 East Algonquin Road              Chicago, Illinois  60603
     Elk Grove Township, Illinois 60007              (312) 701-7306
               (708) 952-4000

  (Name, Address and Telephone Number of Persons Authorized to Receive Notices
            and Communications on Behalf of Person Filing Statement)

                                 March 2, 1995

     (Date Tender Offer First Published, Sent or Given to Security Holders)

                           CALCULATION OF FILING FEE

 Transaction Valuation*                          Amount of Filing Fee
 ----------------------                          --------------------
      $600,000,000                                     $40,000

* Calculated as of February 2, 1995, pursuant to Rule 0-11(a)(4) under the
  Securities Act of 1933, as amended.

(x)  Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
     and identify the filing with which the offsetting fee was previously paid.
     Identify the previous filing by registration statement number, or the Form
     or Schedule and the date of its filing.

Amount Previously Paid:  $206,897
Form or Registration No.:  S-4
Filing Party:  UAL Corporation
Date Filed:  February 3, 1995
Exhibit Index:  Page 4

<PAGE>
 
     UAL Corporation ("UAL") hereby amends its Issuer Tender Offer Statement on
Schedule 13E-4 (File No. 5-7322) (the "Statement") filed under the Securities
Exchange Act of 1934, as amended, in connection with the registration statement
on Form S-4 (File No. 33-57579) (the "Registration Statement") regarding an
exchange offer (the "Exchange Offer") to holders of its Series A Convertible
Preferred Stock (the "Series A Preferred Stock") by amending Item 9 in the
statement as set forth below and the references in its answers to all of the
items to the term "Preliminary Prospectus" to mean UAL's Prospectus dated March
1, 1995 included in Amendment No. 1 to the Registration Statement on Form S-4,
filed with the Securities and Exchange Commission on March 1, 1994.  A copy of
the Prospectus, dated March 1, 1994 is attached hereto as Exhibit 1.

ITEM 9.   MATERIAL TO BE FILED AS EXHIBITS.

     A list of exhibits filed herewith is contained in the Index to Exhibits,
which is incorporated herein by reference.

                                      -2-

<PAGE>
 
                                   SIGNATURE

     After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.

Dated:  March 1, 1995

                                         UAL CORPORATION


                                         By /s/ Douglas A. Hacker
                                            ---------------------
                                            Douglas A. Hacker
                                            Senior Vice President-Finance



                                      -3-

<PAGE>
 
                               INDEX TO EXHIBITS


Exhibit                                      Description
- -------                                      -----------

   1                   Prospectus dated March 1, 1995

   2                   Press Release issued by UAL on February 3, 1995

   3*                  Proposed form of Letter of Transmittal (incorporated by
                       reference to Exhibit 99.1 to the Registration Statement)

   4*                  Proposed form of Letter to Clients

   5*                  Proposed form of Letter to Registered Holders and DTC
                       Participants

   6*                  Proposed form of Notice of Guaranteed Delivery

   7*                  Proposed form of Indenture dated as of ____________, 1995
                       between UAL and The Bank of New York, as Trustee
                       (incorporated by reference to Exhibit 4.1 to the
                       Registration Statement)

   8*                  Form of Officer's Certificate relating to the Convertible
                       Subordinated Debentures (incorporated by reference to
                       Exhibit 4.2 to the Registration Statement)

   9*                  Form of Debenture (incorporated by reference to Exhibit
                       4.3 to the Registration Statement)

  10*                  Tax Opinion of Mayer, Brown & Platt (contained in the
                       Preliminary Prospectus under the headings "Certain
                       Federal Income Tax Considerations" and "Certain Federal
                       Income Tax Considerations for Non-United States Persons,"
                       which is incorporated herein by reference)

________________________

*   Previously filed.

                                      -4-





<PAGE>
 
       
                                UAL CORPORATION
 
                               OFFER TO EXCHANGE
               
            6 3/8% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2025     
                                      FOR
                      SERIES A CONVERTIBLE PREFERRED STOCK
 
                               ----------------
 
                  THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
             
          NEW YORK CITY TIME, ON APRIL 3, 1995, UNLESS EXTENDED.     
 
                               ----------------
   
  UAL Corporation, a Delaware corporation (the "Company"), hereby offers, upon
the terms and subject to the conditions set forth in this Prospectus (the
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal" which, together with the Prospectus, constitute the "Exchange
Offer"), to exchange up to $600,000,000 aggregate principal amount of
debentures designated as its 6 3/8% Convertible Subordinated Debentures due
2025 (the "Debentures") for up to all shares of the outstanding Series A
Convertible Preferred Stock of the Company (the "Series A Preferred Stock").
The Debentures are offered in minimum denominations of $1,000 and integral
multiples thereof, and the Series A Preferred Stock has a liquidation
preference of $100 per share. Consequently, the Exchange Offer will be effected
on a basis of $1,000 principal amount of Debentures for every ten shares of
Series A Preferred Stock validly tendered and accepted for exchange. The
Company will pay amounts of less than $1,000
 due to exchanging stockholders in
cash, in lieu of issuing Debentures with a principal amount of less than
$1,000. Dividends accumulated after January 31, 1995 will not be paid on Series
A Preferred Stock accepted for exchange in the Exchange Offer. In lieu thereof,
holders of Debentures will be entitled to interest from February 1, 1995, as
described below.     
   
  The Company will accept for exchange Series A Preferred Stock validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on April 3,
1995, or if extended by the Company, in its sole discretion, the latest date
and time to which extended (the "Expiration Date"). The Exchange Offer will
expire on the Expiration Date. Tenders of Series A Preferred Stock may be
withdrawn at any time prior to the Expiration Date and, unless accepted for
exchange by the Company, may be withdrawn at any time after forty business days
after the date of this Prospectus. The Company expressly reserves the right to
(i) extend, amend or modify the terms of the Exchange Offer in any manner and
(ii) withdraw or terminate the Exchange Offer and not accept for exchange any
Series A Preferred Stock, at any time for any reason, including (without
limitation) if fewer than 2,000,000 shares of Series A Preferred Stock are
tendered (which condition may be waived by the Company). See "The Exchange
Offer--Expiration Date; Extensions; Amendments; Termination."     
          
  SEE "SPECIAL CONSIDERATIONS RELATING TO THE DEBENTURES" FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER
AND AN INVESTMENT IN THE DEBENTURES, INCLUDING IN THE CASE OF THE DEBENTURES
THE PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH PAYMENT OF INTEREST MAY BE
DEFERRED AND CERTAIN RELATED FEDERAL INCOME TAX CONSEQUENCES.     
                                                      
                               ----------------    (Continued on next page)     
 
THESE  SECURITIES HAVE NOT BEEN APPROVED  OR DISAPPROVED BY THE SECURITIES  AND
 EXCHANGE  COMMISSION  OR  BY ANY  STATE  SECURITIES  COMMISSION NOR  HAS  THE
  SECURITIES  AND  EXCHANGE COMMISSION  OR  ANY STATE  SECURITIES  COMMISSION
   PASSED   UPON  THE  ACCURACY   OR  ADEQUACY   OF  THIS   PROSPECTUS.  ANY
    REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
 
                               ----------------
 
                The Dealer Managers for the Exchange Offer are:
GOLDMAN, SACHS & CO.                                             LEHMAN BROTHERS
 
                               ----------------
                  
               The date of this Prospectus is March 1, 1995     

<PAGE>
 
   
  The Debentures will mature on February 1, 2025 and will bear interest at an
annual rate of 6 3/8% from the first day following the Expiration Date (the
"Issue Date"). In addition, holders of record of the Debentures will be
entitled to interest at a rate of 6 1/4% per annum from February 1, 1995
through the Expiration Date in lieu of dividends accumulating after January 31,
1995 on their Series A Preferred Stock accepted for exchange, payable at the
time of the first interest payment on the Debentures. Interest will be payable
quarterly in arrears on February 1, May 1, August 1, and November 1 of each
year, commencing May 1, 1995, provided that, so long as the Company shall not
be in default in the payment of interest on the Debentures, the Company shall
have the right, upon prior notice by public announcement given in accordance
with New York Stock Exchange, Inc. ("NYSE") rules at any time during the term
of the Debentures, to extend the interest payment period from time to time for
a period not exceeding 20 consecutive calendar quarters (each, an "Extension
Period"). No interest shall be due and payable during an Extension Period, but
at the end of each Extension Period the Company shall pay all interest then
accrued and unpaid on the Debentures, together with interest thereon,
compounded quarterly. Upon the termination of any Extension Period and the
payment of all interest then due, the Company may commence a new Extension
Period. After prior notice by public announcement given in accordance with NYSE
rules, the Company also may prepay at any time all or any portion of the
interest accrued during an Extension Period. Consequently, there could be
multiple Extension Periods of varying lengths throughout the term of the
Debentures. The Company has no current intention of exercising its right to
extend an interest payment period. However, should the Company determine to
exercise such right in the future, the market price of the Debentures is likely
to be affected. See "Special Considerations Relating to the Debentures" and
"Description of Debentures--Interest" and "--Option to Extend Interest Payment
Period."     
   
  Each Debenture is convertible at the option of the holder at any time after
the date of original issuance thereof, unless previously redeemed, into a
combination of cash in the amount of $541.90 per $1,000 principal amount and
common stock of the Company, par value $.01 per share (the "Common Stock"), at
a conversion price of $143.50 (equivalent to approximately 3.192 shares of the
Common Stock per $1000 principal amount of the Debentures). Such conversion
price is subject to adjustment in certain events. See "Description of
Debentures--Conversion." On February 28, 1995, the last reported sale price of
the Common Stock on the NYSE was $94.75 per share.     
 
  The Debentures are redeemable at any time after May 1, 1996 at the option of
the Company, in whole or in part, initially at a redemption price of 104.375%
of the principal amount of the Debentures redeemed, and thereafter at prices
declining ratably to 100% of the principal amount of the Debentures redeemed
from and after May 1, 2003, plus interest accrued and unpaid to the redemption
date. The Company may exercise this redemption option only if for 20 trading
days within any period of 30 consecutive trading days, including the last
trading day, the last sale price of the Company's Common Stock as reported by
the NYSE Composite Transaction Tape exceeds 120% of the conversion price,
subject to adjustment as described herein. No sinking fund will be established
for the payment of the Debentures. See "Description of Debentures--Redemption."
The Debentures are unsecured obligations of the Company and will be subordinate
to all Senior Indebtedness (as defined herein) of the Company. Because the
Company is a holding company that conducts business through its subsidiaries,
the Debentures are also effectively subordinated to all existing and future
obligations of the Company's subsidiaries. On December 31, 1994, approximately
$732 million of such Senior Indebtedness and approximately $13.7 billion of
additional indebtedness, leases and other obligations of the Company's
subsidiaries (net of those obligations of the Company to its subsidiaries that
are included in the definition of Senior Indebtedness (as defined)) not
included in Senior Indebtedness were outstanding. See "Description of
Debentures--Subordination."
 
  For federal income tax purposes, the exchange of Series A Preferred Stock for
Debentures will, depending upon each particular exchanging holder's facts and
circumstances, be treated as either an exchange in which gain or loss is
recognized or as a dividend, and the Debentures will be treated as having been
issued with original issue discount. For a discussion of these and other United
States federal income tax considerations relevant to the Exchange Offer, see
"Certain Federal Income Tax Considerations" and "Certain Federal Tax
Considerations for Non-United States Persons."
   
  The Debentures constitute a new issue of securities with no established
trading market. While the the Debentures have been approved for listing on the
NYSE, subject to official notice of issuance, there can be no assurance that an
active market for the Debentures will develop. The Series A Preferred Stock and
the Common Stock issuable upon conversion of such Series A Preferred Stock have
not been and will not be registered under the Securities Act of 1933, as
amended (the "Securities Act"), and are subject to certain restrictions on
transfer provided for therein and pursuant to their terms at original issuance.
Such restrictions will continue to apply to the Series A Preferred Stock and
the Common Stock issuable upon conversion of such Series A Preferred Stock that
is not exchanged for Debentures. Moreover, to the extent that Series A
Preferred Stock is tendered and accepted in the Exchange Offer, a holder's
ability to sell untendered Series A Preferred Stock could be adversely
affected.     
   
  D.F. King & Co., Inc. has been retained by the Company to act as Information
Agent to assist in connection with the Exchange Offer.     
 
                                       2

<PAGE>
 
   
  NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE RESPECTIVE DATES OF
WHICH INFORMATION IS GIVEN HEREIN. THE EXCHANGE OFFER IS NOT BEING MADE TO (NOR
WILL TENDERS BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS (AS DEFINED BELOW) OF
SERIES A PREFERRED STOCK IN ANY JURISDICTION IN WHICH THE MAKING OF THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
LAWS OF SUCH JURISDICTION. HOWEVER, THE COMPANY MAY, AT ITS DISCRETION, TAKE
SUCH ACTION AS IT MAY DEEM NECESSARY TO MAKE THE EXCHANGE OFFER IN ANY SUCH
JURISDICTION AND EXTEND THE EXCHANGE OFFER TO HOLDERS OF SERIES A PREFERRED
STOCK IN SUCH JURISDICTION. IN ANY JURISDICTION THE SECURITIES LAWS OR BLUE SKY
LAWS OF WHICH REQUIRE THE EXCHANGE OFFER TO BE MADE BY A LICENSED BROKER OR
DEALER, THE EXCHANGE OFFER IS BEING MADE ON BEHALF OF THE COMPANY BY THE DEALER
MANAGERS OR ONE OR MORE REGISTERED BROKERS OR DEALERS WHICH ARE LICENSED UNDER
THE LAWS OF SUCH JURISDICTION.     
       
                             AVAILABLE INFORMATION
 
  The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information concerning the Company can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024;
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511; and 7 World Trade Center, Suite 1300 New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such material can also be inspected and copied at the offices of the
NYSE, 20 Broad Street, New York, New York 10005; the Chicago Stock Exchange,
440 South LaSalle Street, Chicago, Illinois 60605; and the Pacific Stock
Exchange, 301 Pine Street, San Francisco, California 94104 or 618 South Spring
Street, Los Angeles, California 90014.
 
  This Prospectus constitutes a part of a registration statement on Form S-4
(together with all amendments and exhibits, the "Registration Statement") filed
by the Company with the Commission under the Securities Act. This Prospectus
does not contain all of the information included in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. Statements contained herein concerning the provisions of any
document do not purport to be complete and, in each instance, are qualified in
all respects by reference to the copy of such document filed as an exhibit to
the Registration Statement or otherwise filed with the Commission. Each such
statement is subject to and qualified in its entirety by such reference.
Reference is made to such Registration Statement and to the exhibits relating
thereto for further information with respect to the Company and the securities
offered hereby.
 
                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
 
  The following documents have been filed with the Commission and are
incorporated herein by reference (Commission File No. 1-6033):
 
    1. The Company's Annual Report on Form 10-K for the year ended December
  31, 1993, as amended.
 
    2. The Company's Quarterly Reports on Form 10-Q for the periods ended
  March 31, 1994, as amended, June 30, 1994 and September 30, 1994.
     
    3. The Company's Current Reports on Form 8-K dated February 4, 1994 (3
  reports), March 25, 1994 (2 reports), April 27, 1994, April 28, 1994, May
  3, 1994, June 2, 1994, June 10, 1994, June 15, 1994, June 29, 1994, July 8,
  1994, July 11, 1994, July 12, 1994 (2 reports) and February 28, 1995.     
 
                                       3

<PAGE>
 
    4. A description of the Company's Common Stock and Rights that are
  attached to the Common Stock, as contained in the Company's Proxy
  Statement/Joint Prospectus dated June 10, 1994 filed pursuant to Rule
  424(b) under the Securities Act under the caption "Description of
  Securities--the Common Stock, the Series A Preferred Stock and the Junior
  Participating Preferred Stock."
 
  All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the securities offered hereby shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated herein by reference shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified and superseded, to
constitute a part of this Prospectus.
   
  THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH
PERSON, INCLUDING ANY BENEFICIAL OWNER OF THE SERIES A PREFERRED STOCK, TO WHOM
THIS PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON,
A COPY OF ANY OR ALL OF THE FOREGOING DOCUMENTS INCORPORATED HEREIN BY
REFERENCE, OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS). THESE DOCUMENTS
ARE AVAILABLE UPON REQUEST FROM UAL CORPORATION, P.O. BOX 66919, CHICAGO,
ILLINOIS 60666 (TELEPHONE NUMBER (708) 952-4000), ATTENTION: FRANCESCA M.
MAHER, SECRETARY. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE NOT LATER THAN FIVE BUSINESS DAYS PRIOR TO THE
EXPIRATION DATE.     
   
  Like many other carriers, United overflies Cuba in order to serve other
destinations in Central and South America and the Caribbean and is required by
the Cuban government to pay fees for such overflight which United does pursuant
to a license which it has obtained from the U.S. government. This information
is accurate as of the date of this Prospectus and current information
concerning business dealings of United with the government of Cuba or with any
person or affiliate located in Cuba may be obtained from the Florida Department
of Banking and Finance, Plaza Level, The Capitol, Tallahassee, Florida 32399-
0350, telephone number (904) 488-9530.     
                                
                             TABLE OF CONTENTS     
 

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
Available Information......................................................   3
Incorporation of Certain Documents by Reference............................   3
Prospectus Summary.........................................................   5
Special Considerations Relating to the Debentures..........................  11
The Company................................................................  14
Recent Developments........................................................  14
Price Range of Common Stock and Dividends..................................  15
Capitalization.............................................................  16
Selected Consolidated Financial and Operating Information..................  17
The Exchange Offer.........................................................  18
Description of Debentures..................................................  25
Description of Capital Stock...............................................  39
Certain Federal Income Tax Considerations..................................  64
Certain Federal Tax Considerations for Non-United States Persons...........  68
Legal Matters..............................................................  72
Experts....................................................................  72
</TABLE>

 
                                       4

<PAGE>
 
                               PROSPECTUS SUMMARY
 
  The following summary does not purport to be complete and is qualified in its
entirety by the detailed information contained elsewhere in this Prospectus or
by documents incorporated by reference into this Prospectus.
 
                                  THE COMPANY
   
  UAL Corporation, a Delaware corporation (the "Company"), is a holding company
and its primary subsidiary is United Air Lines, Inc., a Delaware corporation
("United"), which is wholly owned. At the end of 1994, United served 152
airports in the United States and 29 foreign countries. During 1994, United
averaged 2,004 departures daily, flew a total of 108 billion revenue passenger
miles and carried an average of 203,400 passengers per day. At the end of 1994,
United's fleet of aircraft totaled 543. United's major hub operations are
located at Chicago, Denver, San Francisco, Washington, D.C. and Tokyo.     
 
                               THE EXCHANGE OFFER
 
PURPOSE OF EXCHANGE OFFER
 
  The principal purpose of the Exchange Offer is to improve the Company's
after-tax cash flow by replacing the Series A Preferred Stock (as defined
below) with the Debentures (as defined below). The potential cash flow benefit
to the Company arises because interest payable on the Debentures should be
deductible by the Company for federal income tax purposes, while dividends
payable on the Series A Preferred Stock are not deductible. See "The Exchange
Offer--Purpose of the Exchange Offer."
 
THE EXCHANGE OFFER; SECURITIES OFFERED
   
  Upon the terms and subject to the conditions set forth herein and in the
Letter of Transmittal, the Company hereby offers to exchange up to $600,000,000
aggregate principal amount of Debentures designated as its 6 3/8% Convertible
Subordinated Debentures due 2025 (the "Debentures") for up to all of the
outstanding shares of Series A Convertible Preferred Stock (the "Series A
Preferred Stock"). Exchanges will be made on a basis of $1,000 principal amount
of Debentures (the minimum permitted denomination) for every ten shares of
Series A Preferred Stock validly tendered and accepted for exchange in the
Exchange Offer. The Company will pay amounts of less than $1,000 due to any
exchanging stockholder in cash, in lieu of issuing Debentures with a principal
amount of less than $1,000. See "The Exchange Offer--Terms of the Exchange
Offer."     
   
  The Debentures will mature on February 1, 2025 and will bear interest at an
annual rate of 6 3/8% from the first day following the Expiration Date (the
"Issue Date") or from the most recent interest payment date to which interest
has been paid or duly provided for. Interest will be payable quarterly in
arrears on February 1, May 1, August 1 and November 1 of each year, commencing
May 1, 1995, provided that, so long as the Company shall not be in default in
the payment of interest on the Debentures, the Company shall have the right,
upon prior notice by public announcement given in accordance with NYSE rules at
any time during the term of the Debentures, to extend any interest payment
period from time to time for a period not exceeding 20 consecutive calendar
quarters. The Company has no current intention of exercising its right to
extend any interest payment period. However, should the Company determine to
exercise such right in the future, the market price of the Debentures is likely
to be affected. See "Special Considerations Relating to the Debentures" and
"Description of Debentures--Option to Extend Interest Payment Period."     
       
                                       5

<PAGE>
 
   
  Dividends accumulated after January 31, 1995 will not be paid on Series A
Preferred Stock accepted for exchange in the Exchange Offer. In lieu thereof,
holders of record of the Debentures will be entitled to interest at a rate of 6
1/4% per annum from February 1, 1995 through the Expiration Date, payable at
the time of the first interest payment on the Debentures. The Debentures will
be issued pursuant to an indenture, to be dated as of April 3, 1995, between
the Company and The Bank of New York, as trustee. See "Description of
Debentures."     
 
EXPIRATION DATE; WITHDRAWALS
   
  The Company will accept for exchange Series A Preferred Stock, validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on April 3,
1995, or if extended by the Company, in its sole discretion, the latest date
and time to which extended (the "Expiration Date"). The Exchange Offer will
expire on the Expiration Date. Tenders of Series A Preferred Stock pursuant to
the Exchange Offer may be withdrawn at any time prior to the Expiration Date
and, unless accepted for exchange by the Company, may be withdrawn at any time
after forty business days after the date of this Prospectus. See "The Exchange
Offer--Withdrawal of Tenders" and "--Expiration Date; Extensions; Amendments;
Termination."     
 
EXTENSIONS, AMENDMENTS AND TERMINATION
   
  The Company expressly reserves the right to (i) extend, amend or modify the
terms of the Exchange Offer in any manner and (ii) withdraw or terminate the
Exchange Offer and not accept for exchange any Series A Preferred Stock, at any
time for any reason, including (without limitation) if fewer than 2,000,000
shares of Series A Preferred Stock are tendered (which condition may be waived
by the Company). See "The Exchange Offer--Expiration Date; Extensions;
Amendments; Termination."     
 
PROCEDURES FOR TENDERING
   
  Each Holder of the Series A Preferred Stock wishing to accept the Exchange
Offer must (i) properly complete and sign the Letter of Transmittal or a
facsimile thereof (all references in this Prospectus to the Letter of
Transmittal shall be deemed to include a facsimile thereof) in accordance with
the instructions contained herein and therein, together with any required
signature guarantees, and deliver the same to The Bank of New York, as Exchange
Agent, at either of its addresses set forth in "The Exchange Offer--Exchange
Agent and Information Agent" and either (a) certificates for the Series A
Preferred Stock must be received by the Exchange Agent at such address or (b)
such Series A Preferred Stock must be transferred pursuant to the procedures
for book-entry transfer described herein and a confirmation of such book-entry
transfer must be received by the Exchange Agent, in each case prior to the
Expiration Date or (ii) comply with the guaranteed delivery procedures
described herein. See "The Exchange Offer--General" and "--Procedures for
Tendering."     
 
SPECIAL PROCEDURES FOR BENEFICIAL OWNERS
 
  Any beneficial owner whose Series A Preferred Stock is 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 such beneficial owner's behalf. If such
beneficial owner wishes to tender on its own behalf, such owner must, prior to
completing and executing a Letter of Transmittal and delivering its Series A
Preferred Stock, either make appropriate arrangements to register ownership of
the Series A Preferred Stock in such owner's name or obtain a properly
completed stock power from the registered holder. The transfer of registered
ownership may take considerable time and may not be able to be completed prior
to the Expiration Date. See "The Exchange Offer--Procedures for Tendering--
Signature Guarantee."
 
                                       6

<PAGE>
 
 
GUARANTEED DELIVERY PROCEDURES
 
  If a Holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Series A Preferred Stock to reach the Exchange Agent
before the Expiration Date or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected in accordance with the
guaranteed delivery procedures set forth in "The Exchange Offer--Procedures for
Tendering--Guaranteed Delivery."
 
ACCEPTANCE OF SHARES AND DELIVERY OF DEBENTURES
 
  Upon the terms and subject to the conditions of the Exchange Offer, including
the reservation by the Company of the right to withdraw or terminate the
Exchange Offer and certain other rights, the Company will accept for exchange
shares of Series A Preferred Stock that are properly tendered in the Exchange
Offer and not withdrawn prior to the Expiration Date. Subject to such terms and
conditions, the Debentures issued pursuant to the Exchange Offer will be issued
as of the Issue Date and will be delivered as promptly as practicable following
the Expiration Date. See "The Exchange Offer--Terms of the Exchange Offer" and
"--Expiration Date; Extensions; Amendments; Termination."
 
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
 
  The exchange of Series A Preferred Stock for Debentures pursuant to the
Exchange Offer will be a taxable event. Depending on each exchanging
stockholder's particular facts and circumstances, the exchange may be treated
as (i) a transaction in which gain or loss will be recognized in an amount
equal to the difference between the fair market value of the Debentures
received in the exchange and the exchanging stockholder's tax basis in the
share of Series A Preferred Stock surrendered or (ii) a distribution taxable as
a dividend in an amount equal to the fair market value of the Debentures
received by such exchanging stockholder. See "Certain Federal Income Tax
Considerations" and "Certain Federal Tax Considerations for Non-United States
Persons."
 
  In the event an Extension Period occurs, holders of the Debentures would
continue under the original issue discount rules to accrue income corresponding
to stated interest on the Debentures for United States federal income tax
purposes. As a result, a holder ordinarily would include such amounts in gross
income in advance of the receipt of cash. A holder that disposes of its
Debentures prior to the record date for payment of interest at the end of an
Extension Period will not receive cash from the Company related to such
interest because such interest will be paid to the holder of record on such
record date, regardless of who the holders of record may have been on other
dates during the Extension Period. The extent to which such a holder would
receive a return on the Debentures for the period it held such Debentures will
depend on the market for the Debentures at the time of disposition. In
addition, under the original issue discount rules, a holder will, in effect, be
required to accrue the difference between the fair market value of the
Debentures at the time of the exchange and the stated principal amount as
interest income over the term of the Debentures. See "Certain Federal Income
Tax Considerations--Interest and Original Issue Discount on Debentures."
 
UNTENDERED SHARES
 
  Holders of Series A Preferred Stock who do not tender their Series A
Preferred Stock in the Exchange Offer or whose Series A Preferred Stock is not
accepted for exchange will continue to hold such Series A Preferred Stock and
will be entitled to all the rights and preferences, and will be subject to all
of the limitations, applicable thereto, including without limitation the
existing restrictions on transfer under the Securities Act. See "The Exchange
Offer--Listing and Trading of Debentures and Series A Preferred Stock; Transfer
Restrictions."
 
                                       7

<PAGE>
 
   
EXCHANGE AGENT AND INFORMATION AGENT     
   
  The Bank of New York has been appointed as Exchange Agent in connection with
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to D.F. King &
Co., Inc., which has been retained by the Company to act as Information Agent
for the Exchange Offer. The addresses and telephone numbers of the Exchange
Agent and Information Agent are set forth in "The Exchange Offer--Exchange
Agent and Information Agent."     
 
DEALER MANAGERS
   
  Goldman, Sachs & Co. and Lehman Brothers Inc. have been retained as Dealer
Managers to solicit exchanges of Series A Preferred Stock for Debentures.
Questions with respect to the Exchange Offer may be directed to Goldman Sachs &
Co. at (800) 323-5678 and to Lehman Brothers Inc., Equity Syndicate Desk, at
(800) 524-4462.     
 
COMPARISON OF DEBENTURES AND SERIES A PREFERRED STOCK
 
  The following is a brief summary comparison of certain of the principal terms
of the Debentures and the Series A Preferred Stock.
 

<TABLE>
<CAPTION>
                                    DEBENTURES                SERIES A PREFERRED STOCK
                                    ----------                ------------------------
<S>                      <C>                              <C>
Interest/Dividend Rate.. 6 3/8% annual interest from the  6 1/4% annual dividend, payable
                         Issue Date (6 1/4% per annum for quarterly in arrears out of
                         the period from February 1       funds legally available therefor
                         through the Expiration Date)     on February 1, May 1, August 1
                         payable quarterly in arrears on  and November 1 of each year,
                         February 1, May 1, August 1 and  when, as and if declared by the
                         November 1 of each year, com-    Company's Board of Directors
                         mencing May 1, 1995, subject to  (the "Board"). All dividends on
                         the Company's right to extend    the Series A Preferred Stock
                         the interest payment period from have been paid to date. In the
                         time to time to a period of up   event dividends are not paid on
                         to 20 consecutive calendar quar- a dividend payment date in the
                         ters, as described herein. At    future, holders would not be en-
                         the end of each Extension Period titled to receive interest on
                         the Company shall pay to the     any dividend arrearages.
                         holders all interest then ac-
                         crued and unpaid, together with
                         interest thereon, compounded
                         quarterly, at the rate of inter-
                         est on the Debentures.
Conversion.............. Convertible into a combination   Convertible into a combination
                         of cash in the amount of $541.90 of cash in the amount of $54.19
                         and approximately 3.192 shares   and approximately 0.3195 shares
                         of Common Stock (equivalent to a of Common Stock per each share
                         Conversion Price of $143.50 per  of Series A Preferred Stock
                         share of Common Stock) per       (equivalent to a Conversion
                         $1,000 principal amount of De-   Price of $143.38 per share of
                         bentures converted, subject to   Common Stock), giving effect to
                         adjustment as described herein.  the adjustment to the considera-
                                                          tion deliverable upon conversion
                                                          of the Series A Preferred Stock
                                                          resulting from the recapitaliza-
                                                          tion of the Company (the "Recap-
                                                          italization") on July 12, 1994
                                                          and subject to further adjust-
                                                          ment as described herein.
</TABLE>

 
 
                                       8

<PAGE>
 

<TABLE>
<CAPTION>
                                   DEBENTURES               SERIES A PREFERRED STOCK
                                   ----------               ------------------------
<S>                      <C>                             <C>
Optional Redemption..... Redeemable at the option of the Redeemable at the option of the
                         Company at any time on or after Company at any time on or after
                         May 1, 1996, in whole or in     May 1, 1996, in whole or in
                         part, initially at a redemption part, initially at a redemption
                         price of 104.375% of the prin-  price of 104.375% of the liqui-
                         cipal amount of the Debentures  dation preference of the Series
                         redeemed, declining ratably to  A Preferred Stock redeemed, de-
                         100% of the principal amount of clining ratably to 100% of the
                         the Debentures redeemed from    liquidation preference of the
                         and after May 1, 2003, in each  Series A Preferred Stock re-
                         case plus accrued and unpaid    deemed from and after May
                         interest to the date fixed for  1, 2003, in each case plus ac-
                         redemption. The Company may ex- cumulated and unpaid dividends
                         ercise this redemption option   to the date fixed for redemp-
                         ONLY IF for 20 trading days     tion.
                         within any period of 30 consec-
                         utive trading days, including
                         the last trading day, the last
                         sale price of the Company Com-
                         mon Stock as reported by the
                         NYSE Composite Transaction Tape
                         exceeds 120% of the Conversion
                         Price, subject to adjustment as
                         described herein.
Subordination........... Subordinated to all existing    Subordinate to claims of credi-
                         and future Senior Indebtedness  tors, including holders of the
                         of the Company, and effectively Company's outstanding debt se-
                         subordinated to all obligations curities and the Debentures,
                         of the Company's subsidiaries,  and effectively subordinated to
                         but senior to all Preferred     all obligations of the
                         Stock of the Company, including Company's subsidiaries, but on
                         the Series A Preferred Stock,   parity with the Series B Pre-
                         and to the Common Stock. On De- ferred Stock and senior to all
                         cember 31, 1994, approximately  other issued and outstanding
                         $732 million of such Senior In- preferred stock of the Company
                         debtedness and approximately    and the Common Stock.
                         $13.7 billion of additional in-
                         debtedness, leases and other
                         obligations of the Company's
                         subsidiaries (net of those ob-
                         ligations of the Company to its
                         subsidiaries that are included
                         in the definition of Senior In-
                         debtedness) not included in Se-
                         nior Indebtedness were out-
                         standing.
Voting Rights........... None.                           None, except in certain circum-
                                                         stances.
</TABLE>

 
 
                                       9

<PAGE>
 

<TABLE>
<CAPTION>
                                   DEBENTURES               SERIES A PREFERRED STOCK
                                   ----------               ------------------------
<S>                      <C>                             <C>
Transfer Restrictions;   The Debentures and the Common   The Series A Preferred Stock
New York Stock Exchange  Stock issuable upon conversion  and the Common Stock issuable
Listing................. thereof have been registered    upon conversion of such Series
                         under the Securities Act and    A Preferred Stock have not been
                         will be transferable to the ex- and will not be registered un-
                         tent permitted thereunder. The  der the Securities Act. The Se-
                         Debentures and the Common Stock ries A Preferred Stock has not
                         issuable upon conversion        been and will not be listed on
                         thereof have been approved for  the NYSE. The Series A Pre-
                         listing on the NYSE, subject to ferred Stock and the Common
                         official notice of issuance.    Stock issuable upon conversion
                                                         thereof are subject to certain
                                                         significant restrictions on
                                                         their transfer under the Secu-
                                                         rities Act and pursuant to
                                                         their terms at original issu-
                                                         ance and unexchanged Series A
                                                         Preferred Stock and the Common
                                                         Stock issued upon conversion
                                                         thereof will remain subject to
                                                         such transfer restrictions. Un-
                                                         der Rule 144 under the Securi-
                                                         ties Act as in effect on the
                                                         date hereof ("Rule 144"), be-
                                                         ginning February 12, 1996, the
                                                         Series A Preferred Stock and
                                                         the Common Stock issuable upon
                                                         conversion thereof which is not
                                                         (and has not been) held by an
                                                         affiliate of the Company will
                                                         no longer be subject to these
                                                         limitations.
Dividends Received       Interest will not be eligible   Dividends are eligible for the
Deduction............... for the dividends received de-  dividends received deduction
                         duction for corporate stock-    for corporate stockholders.
                         holders.
</TABLE>

 
                                       10

<PAGE>
 
               SPECIAL CONSIDERATIONS RELATING TO THE DEBENTURES
 
  Prospective exchanging stockholders should carefully consider, in addition to
the other information set forth elsewhere in this Prospectus, the following:
 
RIGHT OF COMPANY TO DEFER PAYMENT OF INTEREST
 
  So long as the Company shall not be in default in the payment of interest on
the Debentures, the Company shall have the right, upon prior notice by public
announcement given in accordance with NYSE rules at any time during the term of
the Debentures, to extend any interest payment period from time to time for a
period not exceeding 20 consecutive calendar quarters (each, an "Extension
Period"). No interest shall be due and payable during an Extension Period, but
on the interest payment date occurring at the end of each Extension Period the
Company shall pay to the holders of record on the record date for such interest
payment date (regardless of who the holders of record may have been on other
dates during the Extension Period) all accrued and unpaid interest on the
Debentures, together with interest thereon, compounded quarterly.
 
  Upon the termination of any Extension Period and the payment of all interest
then due, the Company may commence a new Extension Period. After prior notice
given by public announcement in accordance with NYSE rules, the Company may
also prepay at any time all or a portion of the interest accrued during an
Extension Period. Consequently, there could be multiple Extension Periods of
varying lengths throughout the term of the Debentures. See "Description of
Debentures--Option to Extend Interest Payment Period."
 
  The Company has no current intention of exercising its right to defer any
interest payment period.
 
NO CASH PAYMENTS DURING EXTENSION PERIOD TO PAY ACCRUED TAX LIABILITY
 
  In the event an Extension Period occurs, holders of the Debentures would
continue under the original issue discount rules to accrue income corresponding
to stated interest on the Debentures for U.S. federal income tax purposes. As a
result, a holder ordinarily would include such amounts in gross income in
advance of the receipt of cash. A holder that disposes of its Debentures prior
to the record date for payment of interest at the end of an Extension Period
will not receive cash from the Company related to such interest because such
interest will be paid to the holder of record on such record date, regardless
of who the holders of record may have been on other dates during the Extension
Period. The extent to which such a holder would receive a return on the
Debentures for the period it held such Debentures will depend on the market for
the Debentures at the time of disposition. See "Certain Federal Income Tax
Considerations--Interest and Original Issue Discount on Debentures."
 
SUBORDINATION OF DEBENTURES
   
  The Debentures are unsecured obligations of the Company and will be
subordinate to all Senior Indebtedness of the Company. Because the Company is a
holding company that conducts business through its subsidiaries, the Debentures
will also be effectively subordinated to all existing and future obligations of
the Company's subsidiaries. On December 31, 1994, approximately $732 million of
such Senior Indebtedness and approximately $13.7 billion of additional
indebtedness, leases and other obligations of the Company's subsidiaries (net
of those obligations of the Company to its subsidiaries that are included in
the definition of Senior Indebtedness) not included in Senior Indebtedness were
outstanding. See "Description of Debentures--Subordination."     
 
POTENTIAL MARKET VOLATILITY DURING EXTENSION PERIOD
 
  As described above, the Company has the right to extend an interest payment
period from time to time for a period not exceeding 20 consecutive calendar
quarters. In the event the Company determines
 
                                       11

<PAGE>
 
to extend an interest payment period, or in the event the Company thereafter
extends an Extension Period or prepays interest accrued during an Extension
Period as described above, the market price of the Debentures is likely to be
affected. In addition, as a result of such rights, the market price of the
Debentures may be more volatile than other debt instruments with original issue
discount that do not have such rights. A holder that disposes of its Debentures
during an Extension Period, therefore, may not receive the same return on its
investment as a holder that continues to hold its Debentures. See "Description
of Debentures--Option to Extend Interest Payment Period."
 
CASH CONVERSION CONSIDERATION NOT ESCROWED
   
  Upon conversion of the Series A Preferred Stock or the Debentures, the holder
of the Series A Preferred Stock or the Debentures, as the case may be, is
entitled to receive $54.19 for each share of Series A Preferred Stock or
$541.90 for each $1,000 principal amount of Debentures such holder converts, in
addition to the Common Stock receivable upon such conversion. The Company is
not obligated to and has not set aside or escrowed any cash to be issued in
connection with such conversions and there can be no assurance that a
sufficient amount of cash will be available at the time that a holder elects to
convert its shares of Series A Preferred Stock or Debentures. If all of the
outstanding untendered Series A Preferred Stock and all of the Debentures
offered hereby are converted into Common Stock, the Company would be required
to pay an aggregate of approximately $325 million to the holders of the Series
A Preferred Stock and the Debentures upon conversion. The Company's
consolidated cash, cash equivalents and short-term investments at December 31,
1994 aggregated approximately $1.5 billion.     
 
EXCHANGE OFFER AS TAXABLE EVENT
 
  The exchange of Series A Preferred Stock for Debentures pursuant to the
Exchange Offer will be a taxable event. Depending on each exchanging
stockholder's particular facts and circumstances, the exchange may be treated
as (i) a transaction in which gain or loss will be recognized in an amount
equal to the difference between the fair market value of the Debentures
received in the exchange and the exchanging stockholder's tax basis in the
shares of Series A Preferred Stock surrendered or (ii) a distribution taxable
as a dividend in an amount equal to the fair market value of the Debentures
received by such exchanging stockholder. See "Certain Federal Income Tax
Considerations" and "Certain Federal Tax Considerations for Non-United States
Persons." All holders of Series A Preferred Stock are advised to consult their
own tax advisors regarding the federal, state, local and foreign tax
consequences of the exchange of Series A Preferred Stock.
 
ORIGINAL ISSUE DISCOUNT
 
  Under the original issue discount rules, a holder will, in effect, be
required to accrue the difference between the fair market value of the
Debentures at the time of the exchange and the stated principal amount as
interest income over the term of the Debentures. See "Certain Federal Income
Tax Considerations--Interest and Original Issue Discount on Debentures."
   
RECENT RECAPITALIZATION     
   
  The Company's recapitalization completed in July 1994, resulted in a new
labor agreement for certain employee groups and a new corporate governance
structure, which was designed to achieve balance between the various employee-
owner groups and public shareholders. The Company's restated certificate of
incorporation (the "Restated Certificate") provides, among other things, that
until the Sunset (as defined under "Description of Capital Stock--Corporate
Governance--Sunset"), the Company's board of directors (the "Board") and
committees thereof must consist of directors elected by certain classes of
stockholders and that Board actions must be approved by specified numbers of
directors, including, in some cases, directors elected by the employee groups.
The new labor agreements and new corporate governance structure could inhibit
management's ability to alter strategy in a volatile, competitive industry by
restricting certain operating and financing activities, including the sale of
assets and the issuance of equity securities and the ability to furlough
employees.     
 
                                       12

<PAGE>
 
   
The Company's ability to react to competition may be hampered further by the
fixed long-term nature of these various agreements. The success of the
recapitalization is dependent upon a number of factors, including the state of
the competitive environment in the airline industry, competitive response to
United's efforts, United's ability to achieve enduring cost savings through
productivity improvements and the renegotiation of labor agreements at the end
of the investment period. See "Recent Developments" and "Description of Capital
Stock--Corporate Governance."     
   
REDUCTION IN SHAREHOLDERS' EQUITY RESULTING FROM EXCHANGE OFFER     
   
  To the extent that shares of Series A Preferred Stock are exchanged for
Debentures, the Company's shareholders' equity will be reduced. If all of the
outstanding shares of Series A Preferred Stock were exchanged for Debentures,
on a pro forma basis at December 31, 1994, shareholders' equity would have been
reduced by approximately $525 million, from a deficit of $316 million to a
deficit of $841 million. A reduction in the level of shareholders' equity could
be viewed negatively by financial institutions which may limit the Company's
ability to effect future financings. A reduction in shareholders' equity could
also affect the Company's ability to pay dividends on the Company's outstanding
capital stock, including the Series A Preferred Stock. The Delaware General
Corporation Law (the "DGCL") requires that dividends may only be made from
surplus or the net profits of the Company for the fiscal year in which the
dividend is declared and/or the preceding fiscal year. For purposes of the
DGCL, surplus equals the excess, if any, at any given time, of the net assets
of the corporation over stated capital. Since the Exchange Offer would increase
the Company's indebtedness and reduce shareholders' equity, the Company's
ability to pay dividends could be reduced. In addition, dividends may not be
paid if, after giving effect to such dividends, the Company would not be able
to pay its debts as they become due in the usual course of business.     
   
FAIR VALUE CONSIDERATIONS     
   
  The Debentures will be senior to any Series A Preferred Stock not tendered in
the Exchange Offer and the interest rate on the Debentures will be higher than
the dividend rate on the Series A Preferred Stock. Under fraudulent transfer
law, if a court in a lawsuit by an unpaid creditor or a representative of
creditors, such as a trustee in bankruptcy, were to find that the Company
received less than fair consideration or reasonably equivalent value for
incurring the indebtedness represented by the Debentures in exchange for the
Series A Preferred Stock and, at the time of such incurrence, the Company (i)
was insolvent or was rendered insolvent by reason of such incurrence, (ii) was
engaged in or about to engage in a business or transaction for which its
remaining property constituted unreasonably small capital or (iii) intended to
incur, or believed it would incur, debts beyond its ability to pay as they
mature, a court could (a) void the Company's obligations, and certain payments
made, to the holders of the Debentures and thereby place holders of the
Debentures in the same position they would have occupied if they had continued
to hold Series A Preferred Stock and/or (b) subordinate the Debentures to any
other existing and future indebtedness of the Company which is not already
senior to the Debentures, in effect entitling such other creditors to be paid
in full before any payment could be made on the Debentures. Generally, a debtor
is considered insolvent if its liabilities exceed the fair value of its
property, or if the present fair saleable value of its assets is less than the
amount required to repay its debts as they mature. The Company believes that
the Exchange Offer is in its reasonable business interests and is for fair
consideration and reasonably equivalent value. If a court were to subordinate
the obligations on the Debentures to the claims of all other applicable
creditors of the Company as a result of such findings, however, the Company
anticipates that such subordination would not subordinate the Debentures to a
position that is inferior to the position of the Series A Preferred Stock.     
 
                                       13

<PAGE>
 
                                  THE COMPANY
   
  The Company is a holding company and its primary subsidiary is United, which
is wholly owned. At the end of 1994, United served 152 airports in the United
States and 29 foreign countries. During 1994, United averaged 2,004 departures
daily, flew a total of 108 billion revenue passenger miles and carried an
average of 203,400 passengers per day. At the end of 1994, United's fleet of
aircraft totaled 543. United's major hub operations are located at Chicago,
Denver, San Francisco, Washington, D.C., and Tokyo.     
 
                              RECENT DEVELOPMENTS
 
RECAPITALIZATION
   
  On July 12, 1994, the stockholders of the Company approved a plan of
recapitalization that provides an approximately 55% equity and voting interest
in the Company to certain employees of United in exchange for wage concessions
and work-rule changes. The employees' equity interest will be allocated to
individual employee accounts through the year 2000 under Employee Stock
Ownership Plans ("ESOPs") which were created as a part of the Recapitalization.
Since the ESOP shares will be allocated over time, the current ownership
interest held by employees is substantially less than 55%. The entire 55% ESOP
voting interest is currently exercisable, which generally will be voted by the
ESOP trustee at the direction of, and on behalf of, the employees participating
in the ESOPs. The employee interest may increase to up to 63%, depending on the
average market value of a share of Common Stock between July 13, 1994 and July
12, 1995. Based on the average market value of a share of Common Stock through
February 23, 1995, the market value of Common Stock for the remainder of the
measuring period would have to average at least $204 for any adjustment to be
made in the ESOP percentage interest. In connection with the Recapitalization,
holders of the Company's old common stock received approximately $2.1 billion
in cash and the remaining 45% (subject to reduction, as described above, to not
less than 37%) of the equity in the form of Common Stock. Each share of old
common stock was converted into 0.5 shares of Common Stock (with cash in lieu
of fractional shares) plus a cash payment of $84.81. The conversion of certain
convertible securities (including the Series A Preferred Stock) and the
exercise of certain stock options could result in additional cash distributions
of up to $428 million, based on the amount of convertible securities and stock
options outstanding on December 31, 1994. Distributions on account of stock
option exercises would be reduced by cash proceeds on the exercise of the
options. In connection with the Recapitalization, United issued $370 million of
10.67% debentures due in 2004 (the "10.67% Debentures") and $371 million of
11.21% Debentures due in 2014 (the "11.21% Debentures") and the Company issued
series B 12 1/4% preferred stock (the "Series B Preferred Stock") with an
aggregate liquidation preference of $410 million. Approximately $169 million of
pretax costs were incurred in connection with the Recapitalization, including
transaction costs and severance payments to certain former United employees.
    
  The Delaware Court of Chancery, after a fairness hearing on January 24, 1995,
approved the proposed settlement of two stockholder class actions challenging
the Recapitalization and awarded the plaintiffs $5.1 million in costs and
attorneys' fees.
 
                                       14

<PAGE>
 
                   PRICE RANGE OF COMMON STOCK AND DIVIDENDS
 
  The Common Stock is traded principally on the NYSE, and are also listed on
the Chicago Stock Exchange and the Pacific Stock Exchange. The following sets
forth for the periods indicated the high and low closing sales prices per share
of the Company's old common stock outstanding immediately prior to the
Recapitalization and of the Common Stock on the NYSE Composite Tape.
 

<TABLE>       
<CAPTION>
                                                           HIGH     LOW
                                                          ------- -------
      <S>                                                 <C>     <C>
      OLD COMMON STOCK:
        1993
          First Quarter.................................. 132 1/4 110 3/4
          Second Quarter................................. 149 3/4 118
          Third Quarter.................................. 150 1/2 121 5/8
          Fourth Quarter................................. 155 1/2 135 7/8
        1994
          First Quarter.................................. 150     123 3/4
          Second Quarter................................. 130 1/2 115 1/8
          Third Quarter (through July 12).................130.1/2 125 1/2
      COMMON STOCK:
        1994
          Third Quarter (from July 13)....................105.     86 3/4
          Fourth Quarter.................................  96 7/8  83 1/8
        1995
          First Quarter (through February 28)............  99 5/8  89 1/2
</TABLE>
    
 
  For a recent last reported sales price of the Common Stock on the NYSE, see
the cover page of this Prospectus.
 
  The Recapitalization was consummated on July 12, 1994. In connection with the
Recapitalization, holders of the Company's old common stock received one-half
of a share of Common Stock and $84.81 for each share of old common stock. As a
result of the foregoing, the price per share of old common stock is not
comparable to the price per share of the Common Stock.
 
  The Company has not paid cash dividends on its common stock since 1987. The
payment of any future dividends on the Common Stock and the amount thereof will
be determined by the Board in light of earnings, the financial condition of the
Company and other relevant factors.
 
                                       15

<PAGE>
 
                                 CAPITALIZATION
   
  The following table sets forth the consolidated capitalization of the Company
at December 31, 1994 and as adjusted to give effect to the Exchange Offer
(assuming that 50% and 100% of the outstanding shares of the Series A Preferred
Stock are exchanged).     
 

<TABLE>
<CAPTION>
                                                   DECEMBER 31, 1994
                                         --------------------------------------
                                                        AS ADJUSTED
                                                 --------------------------
                                                   ASSUMING     ASSUMING
                                         ACTUAL  50% EXCHANGE 100% EXCHANGE
                                         ------  ------------ -------------
                                                 (DOLLARS IN MILLIONS)
<S>                                      <C>     <C>          <C>           <C>
Short-term borrowings, long-term debt
 maturing within one year and current
 obligations under capital leases....... $  729     $  729       $  729
                                         ------     ------       ------
Long-term debt, excluding portion due
 within one year
  Secured notes.........................  1,087      1,087        1,087
  Deferred purchase certificates........    169        169          169
  Debentures............................  1,591      1,591        1,591
  Convertible debentures................     26         26           26
  Promissory notes......................     34         34           34
  Convertible subordinated
   debentures(a)........................    --         300          600
  Unamortized discount on debt(a).......    (20)       (57)         (95)
                                         ------     ------       ------
                                          2,887      3,150        3,412
Long-term obligations under capital
 leases.................................    730        730          730
                                         ------     ------       ------
    Total long-term debt and capital
     lease obligations..................  3,617      3,880        4,142
                                         ------     ------       ------
Shareholders' equity:
  Series A Preferred Stock, $.01 stated
   value................................    --         --           --
  Series B Preferred Stock, $.01 stated
   value................................    --         --           --
  Class 1 ESOP Preferred Stock, $.01 par
   value................................    --         --           --
  Class 2 ESOP Preferred Stock, $.01 par
   value(b).............................    --         --           --
  Class P, M and S Voting Preferred
   Stock, $.01 par value................    --         --           --
  Class I, Pilot MEC, IAM and SAM
   Preferred Stock, $.01 par value......    --         --           --
  Common Stock, $.01 par value..........    --         --           --
  Additional capital invested(a)........  1,287      1,024          762
  Retained earnings (deficit)........... (1,335)    (1,335)      (1,335)
  Unearned ESOP Preferred Stock.........    (83)       (83)         (83)
  Stock held in treasury................   (161)      (161)        (161)
  Other.................................    (24)       (24)         (24)
                                         ------     ------       ------
    Total shareholders' equity..........   (316)      (579)        (841)
                                         ------     ------       ------
      Total capitalization.............. $4,030     $4,030       $4,030
                                         ======     ======       ======
</TABLE>

- --------
   
(a) Assuming a 50% exchange, the Debentures that will be issued are expected to
    have an aggregate principal amount of $300 million and an aggregate fair
    market value of $263 million as of the date of exchange. Assuming a 100%
    exchange, the Debentures that will be issued are expected to have an
    aggregate principal amount of $600 million and an aggregate fair market
    value of $525 million as of the date of exchange.     
       
       
  The difference between the aggregate principal amount and the aggregate
  fair market value of the Debentures is classified as a debt discount. The
  difference between the fair market value of the Debentures and the carrying
  value of the Preferred Stock is credited to additional capital invested. To
  the extent the actual aggregate fair market value of the Debentures at the
  date of exchange differs from the expected amounts, the balances of the
  unamortized debt discount and additional capital invested will change
  accordingly.
   
(b) To the extent that shares of Class 2 ESOP Preferred Stock are committed to
    be contributed to the Supplemental ESOP (as defined under "Description of
    Capital Stock--The ESOP Preferred Stock") such shares will be reported
    outside of equity because the employees can elect to receive their "book
    entry" shares from the Company in cash upon termination of employment.     
 
                                       16

<PAGE>
 
           SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
   
  The following should be read in conjunction with the Company's Consolidated
Financial Statements and the related notes thereto. The financial information
for each of the years in the five-year period ended December 31, 1994 has been
derived from the consolidated financial statements of the Company previously
filed with the Commission which have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports. Reference is
made to said reports for the years 1994, 1993 and 1992 which include an
explanatory paragraph with respect to the changes in methods of accounting for
income taxes and postretirement benefits other than pensions as discussed in
the notes to the consolidated financial statements for such years. See
"Incorporation of Certain Documents by Reference."     
       
       

<TABLE>   
<CAPTION>
                                       YEAR ENDED DECEMBER 31,
                          -----------------------------------------------------
                            1994       1993       1992       1991       1990
                          ---------  ---------  ---------  ---------  ---------
                           (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S>                       <C>        <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS
 DATA:
Operating revenues(a)...  $  13,950  $  13,325  $  11,853  $  10,706  $  10,296
Earnings (loss) from
 operations.............        521        263       (538)      (494)       (36)
Earnings (loss) before
 extraordinary item and
 cumulative effect of
 accounting changes.....         77        (31)      (417)      (332)        94
Net earnings (loss).....         51        (50)      (957)      (332)        94
Earnings (loss) per
 common share before
 extraordinary item and
 cumulative effect of
 accounting changes.....       0.76      (2.64)    (17.34)    (14.31)      4.33
Net earnings (loss) per
 common share(b)........      (0.61)     (3.40)    (39.75)    (14.31)      4.33
STATEMENT OF FINANCIAL
 POSITION DATA (at end
 of period):
Total assets............     11,764     12,840     12,257      9,876      7,983
Total long-term debt and
 capital lease
 obligations, including
 current portion........      4,077      3,735      3,783      2,531      1,327
Shareholders' equity....       (316)     1,203        706      1,597      1,671
Book value per common
 share(c)...............     (99.94)     24.55      29.11      67.21      76.34
OTHER DATA:
Ratio of earnings to
 fixed charges..........       1.12         (d)        (d)        (d)      1.16
Ratio of earnings to
 fixed charges and
 preferred stock
 dividends..............       1.11         (d)        (d)        (d)      1.16
UNITED OPERATING DATA:
Revenue passengers
 (millions).............         74         70         67         62         58
Average length of a
 passenger trip in
 miles..................      1,459      1,450      1,390      1,327      1,322
Revenue passenger miles
 (millions).............    108,299    101,258     92,690     82,290     76,137
Available seat miles
 (millions).............    152,193    150,728    137,491    124,100    114,995
Passenger load factor...       71.2%      67.2%      67.4%      66.3%      66.2%
Break even passenger
 load factor............       68.2%      65.5%      70.6%      69.7%      66.5%
Revenue per passenger
 mile...................       11.3c      11.6c      11.3c      11.5c      11.8c
Cost per available seat
 mile...................        8.8c       8.5c       8.9c       9.0c       9.0c
Average price per gallon
 of jet fuel............       58.8c      63.6c      66.4c      71.6c      80.4c
</TABLE>
    
- --------
(a) In the first quarter of 1994, United began recording certain air
    transportation price adjustments, which were previously recorded as
    commission expense, as adjustments to revenues. Operating revenues and
    certain operating statistics for periods prior to 1994 have been adjusted
    to conform with the current presentation. See the Company's Current Report
    on Form 8-K dated May 3, 1994 which is incorporated by reference in this
    Prospectus.
   
(b) In connection with the July 1994 recapitalization, each old common share
    was exchanged for one half of a share of Common Stock. As required under
    generally accepted accounting principles for transactions of this type, the
    historical weighted average shares outstanding have not been restated.
    Thus, direct comparisons between 1994 and prior years' per share amounts
    are not meaningful.     
(c) Book value per common share represents total equity, less the aggregate
    liquidation value of preferred stock, divided by actual common shares
    outstanding.
(d) Earnings were insufficient to cover both fixed charges and fixed charges
    and preferred stock dividends by $98 million in 1993, by $748 million in
    1992 and by $599 million in 1991.
 
                                       17

<PAGE>
 
                               THE EXCHANGE OFFER
 
GENERAL
 
  Participation in the Exchange Offer is voluntary and Holders should carefully
consider whether to accept. Neither the Board nor the Company makes any
recommendation to Holders as to whether to tender or refrain from tendering in
the Exchange Offer. Holders of the Series A Preferred Stock are urged to
consult their financial and tax advisors in making their own decisions on what
action to take in light of their own particular circumstances.
   
  Unless the context requires otherwise, the term "Holder" with respect to the
Exchange Offer means (i) any person in whose name any shares of Series A
Preferred Stock are registered on the books of the Company, (ii) any other
person who has obtained a properly completed stock power from the registered
holder, or (iii) any person whose shares of Series A Preferred Stock are held
of record by The Depository Trust Company ("DTC") who desires to deliver such
Series A Preferred Stock by book-entry transfer at DTC.     
 
PURPOSE OF THE EXCHANGE OFFER
 
  The principal purpose of the Exchange Offer is to improve the Company's
after-tax cash flow by replacing the Series A Preferred Stock with the
Debentures. The potential cash flow benefit to the Company arises because
interest payable on the Debentures (whether paid currently or deferred under
the terms of the Debentures) should be deductible by the Company as it accrues
for federal income tax purposes, while dividends payable on the Series A
Preferred Stock are not deductible. The extent of this cash flow benefit,
however, cannot be predicted because it depends upon the number of shares of
Series A Preferred Stock exchanged pursuant to the Exchange Offer, upon the
Company's federal income tax position in any year and the period of time the
Debentures remain outstanding. Neither the Company's ability to defer interest
payments on the Debentures nor the lack of voting rights on the part of holders
of the Debentures is a purpose of the Company in making the Exchange Offer.
 
  Except as described herein, the Company has no present plans or intention to
make acquisitions of or offers for the Series A Preferred Stock. However, if
any shares of Series A Preferred Stock remain outstanding after the expiration
of the Exchange Offer, the Company will continue to monitor the market for the
Series A Preferred Stock and reserves the right, in its sole discretion, to
acquire and to make offers for Series A Preferred Stock subsequent to the
Expiration Date for cash or in exchange for other securities, by optional
redemption or otherwise. The terms of any such acquisitions or offers may
differ from the terms of the Exchange Offer. Such acquisitions or offers, if
any, may depend upon, among other things, the price and availability of such
shares and the Company's tax position.
 
TERMS OF THE EXCHANGE OFFER
 
  Upon the terms and subject to the conditions set forth herein and in the
Letter of Transmittal, the Company will exchange up to $600,000,000 aggregate
principal amount of Debentures for up to all of the outstanding shares of
Series A Preferred Stock. The Debentures are offered in minimum denominations
of $1,000 and integral multiples thereof, and the Series A Preferred Stock has
a liquidation preference of $100 per share. Consequently, the Exchange Offer
will be effected on a basis of $1,000 principal amount of Debentures for every
ten shares of Series A Preferred Stock validly tendered and accepted for
exchange. The Company will pay cash to tendering Holders of Series A Preferred
Stock in lieu of issuing Debentures with a principal amount of less than
$1,000. Upon the terms and subject to the conditions set forth herein and in
the Letter of Transmittal, the Company will accept Series A Preferred Stock
validly tendered and not withdrawn as promptly as practicable after the
Expiration Date unless the Exchange Offer has been withdrawn or terminated. The
Company will not accept Series A Preferred Stock for exchange prior to the
Expiration Date. The Company expressly
 
                                       18

<PAGE>
 
reserves the right, in its sole discretion, to delay acceptance for exchange of
Series A Preferred Stock tendered under the Exchange Offer or the exchange of
the Debentures for the Series A Preferred Stock accepted for exchange (subject
to Rules 13e-4 and 14e-1 under the Exchange Act, which require that the Company
consummate the Exchange Offer or return the Series A Preferred Stock deposited
by or on behalf of the Holders thereof promptly after the termination or
withdrawal of the Exchange Offer), or to withdraw or terminate the Exchange
Offer and not accept any Series A Preferred Stock at any time for any reason.
In all cases, except to the extent waived by the Company, delivery of
Debentures in exchange for the Series A Preferred Stock accepted for exchange
pursuant to the Exchange Offer will be made only after timely receipt by the
Exchange Agent of Series A Preferred Stock (or confirmation of book-entry
transfer thereof), a properly completed and duly executed Letter of Transmittal
and any other documents required thereby.
   
  As of February 28, 1995, there were 5,999,900 shares of Series A Preferred
Stock outstanding. This Prospectus, together with the Letter of Transmittal, is
being sent to all registered Holders as of March 2, 1995.     
 
  The Company shall be deemed to have accepted validly tendered Series A
Preferred Stock (or defectively tendered Series A Preferred Stock with respect
to which the Company has waived such defect) when, as and if the Company has
given oral or written notice thereof to the Exchange Agent. The Exchange Agent
will act as agent for the tendering Holders for the purpose of receiving the
Debentures from the Company and remitting such Debentures to tendering Holders.
Upon the terms and subject to the conditions of the Exchange Offer, delivery of
Debentures in exchange for Series A Preferred Stock will be made as promptly as
practicable after the Expiration Date.
 
  If any tendered Series A Preferred Stock is not accepted for exchange because
of an invalid tender, the occurrence of certain other events set forth herein
or otherwise, unless otherwise requested by the Holder under "Special Delivery
Instructions" in the Letter of Transmittal, such Series A Preferred Stock will
be returned, without expense, to the tendering Holder thereof (or in the case
of Series A Preferred Stock tendered by book-entry transfer into the Exchange
Agent's account at DTC, such Series A Preferred Stock will be credited to an
account maintained at DTC designated by the participant therein who so
delivered such Series A Preferred Stock), as promptly as practicable after the
Expiration Date or the withdrawal or termination of the Exchange Offer.
 
  Holders of Series A Preferred Stock will not have any appraisal or
dissenters' rights under the DGCL in connection with the Exchange Offer. The
Company intends to conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the
Commission thereunder.
 
  Holders who tender Series A Preferred Stock in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of
Series A Preferred Stock pursuant to the Exchange Offer. See "--Fees and
Expenses."
 
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
   
  The Exchange Offer will expire on the Expiration Date. The term "Expiration
Date" shall mean 5:00 p.m., New York City time, on April 3, 1995, unless the
Company, in its sole discretion, extends the Exchange Offer, in which case the
term "Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended.     
 
  The Company reserves the right to extend the Exchange Offer in its sole
discretion at any time and from time to time by giving oral or written notice
to the Exchange Agent and by timely public announcement communicated, unless
otherwise required by applicable law or regulation, by making a
 
                                       19

<PAGE>
 
release to the Dow Jones News Service. During any extension of the Exchange
Offer, all Series A Preferred Stock previously tendered pursuant to the
Exchange Offer and not withdrawn will remain subject to the Exchange Offer.
   
  The Company expressly reserves the right to (i) amend or modify the terms of
the Exchange Offer in any manner and (ii) withdraw or terminate the Exchange
Offer and not accept for exchange any Series A Preferred Stock, at any time for
any reason, including (without limitation) if fewer than 2,000,000 shares of
Series A Preferred Stock are tendered (which condition may be waived by the
Company). If the Company makes a material change in the terms of the Exchange
Offer or if it waives a material condition of the Exchange Offer, the Company
will extend the Exchange Offer. The minimum period for which the Exchange Offer
will be extended following a material change or waiver, other than a change in
the amount of Series A Preferred Stock sought for exchange, will depend upon
the facts and circumstances, including the relative materiality of the change
or waiver. With respect to a change in the amount of Series A Preferred Stock
sought, the offer will be extended for a minimum of ten business days following
public announcement of such change. Any withdrawal or termination of the
Exchange Offer will be followed as promptly as practicable by public
announcement thereof. In the event the Company withdraws or terminates the
Exchange Offer, it will give immediate notice to the Exchange Agent, and all
Series A Preferred Stock theretofore tendered pursuant to the Exchange Offer
will be returned promptly to the tendering Holders thereof. See "--Withdrawal
of Tenders."     
 
ACCUMULATED DIVIDENDS AND INTEREST ON DEBENTURES
   
  The Debentures will bear interest at an annual rate of 6 3/8% from the first
day following the Expiration Date (the "Issue Date") or from the most recent
interest payment date to which interest has been paid or duly provided for.
Dividends accumulated after January 31, 1995 will not be paid on Series A
Preferred Stock accepted for exchange in the Exchange Offer. In lieu thereof,
holders of Debentures will be entitled to interest at a rate of 6 1/4% per
annum (equal to the stated dividend rate on the Series A Preferred Stock) from
February 1, 1995 through the Expiration Date, payable at the time of the first
interest payment on the Debentures. See "Description of Debentures--Interest."
    
PROCEDURES FOR TENDERING
 
  The tender of Series A Preferred Stock by a Holder thereof pursuant to one of
the procedures set forth below will constitute an agreement between such Holder
and the Company in accordance with the terms and subject to the conditions set
forth herein and in the Letter of Transmittal.
   
  Each Holder of the Series A Preferred Stock wishing to accept the Exchange
Offer must (i) properly complete and sign the Letter of Transmittal or a
facsimile thereof (all references in this Prospectus to the Letter of
Transmittal shall be deemed to include a facsimile thereof) in accordance with
the instructions contained herein and therein, together with any required
signature guarantees, and deliver the same to the Exchange Agent, at either of
its addresses set forth in "--Exchange Agent and Information Agent" and either
(a) certificates for the Series A Preferred Stock must be received by the
Exchange Agent at such address or (b) such Series A Preferred Stock must be
transferred pursuant to the procedures for book-entry transfer described below
and a confirmation of such book-entry transfer must be received by the Exchange
Agent, in each case prior to the Expiration Date or (ii) comply with the
guaranteed delivery procedures described below.     
   
  LETTERS OF TRANSMITTAL, SERIES A PREFERRED STOCK AND ANY OTHER REQUIRED
DOCUMENTS SHOULD BE SENT ONLY TO THE EXCHANGE AGENT, NOT TO THE COMPANY, THE
DEALER MANAGERS OR THE INFORMATION AGENT.     
 
                                       20

<PAGE>
 
   
  Signature Guarantees. If tendered Series A Preferred Stock is registered in
the name of the signer of the Letter of Transmittal and the Debentures to be
issued in exchange therefor are to be issued (and any untendered Series A
Preferred Stock is to be reissued) in the name of the registered Holder (which
term, for the purposes described herein, shall include any participant in DTC
whose name appears on a security listing as the owner of Series A Preferred
Stock), the signature of such signer need not be guaranteed. If the tendered
Series A Preferred Stock is registered in the name of someone other than the
signer of the Letter of Transmittal, such tendered Series A Preferred Stock
must be endorsed or accompanied by written instruments of transfer in form
satisfactory to the Company and duly executed by the registered Holder, and the
signature on the endorsement or instrument of transfer must be guaranteed by a
financial institution (including most banks, savings and loans associations and
brokerage houses) that is a participant in the Security Transfer Agents
Medallion Program or The New York Stock Exchange Medallion Signature Guarantee
Program or the Stock Exchange Medallion Program (any of the foregoing
hereinafter referred to as an "Eligible Institution"). If the Debentures and/or
Series A Preferred Stock not exchanged are to be delivered to an address other
than that of the registered Holder appearing on the register for the Series A
Preferred Stock, the signature in the Letter of Transmittal must be guaranteed
by an Eligible Institution. Any beneficial owner whose Series A Preferred Stock
is 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 such beneficial
owner's behalf. If such beneficial owner wishes to tender on its own behalf,
such owner must, prior to completing and executing a Letter of Transmittal and
delivering its Series A Preferred Stock, either make appropriate arrangements
to register ownership of the Series A Preferred Stock in such owner's name or
obtain a properly completed stock power from the registered Holder. The
transfer of registered ownership may take considerable time and may not be able
to be completed prior to the Expiration Date.     
   
  THE METHOD OF DELIVERY OF SERIES A PREFERRED STOCK AND ALL OTHER DOCUMENTS IS
AT THE ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PRIOR INSURANCE OBTAINED,
AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO
PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE.     
 
  Book-Entry Transfer. The Company understands that the Exchange Agent will
make a request promptly after the date of this Prospectus to establish accounts
with respect to the Series A Preferred Stock at DTC for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in DTC's system may make book-entry
delivery of Series A Preferred Stock by causing DTC to transfer such Series A
Preferred Stock into the Exchange Agent's account with respect to the Series A
Preferred Stock in accordance with DTC's Automated Tender Offer Program
("ATOP") procedures for such book-entry transfers. However, the exchange for
the Series A Preferred Stock so tendered will only be made after timely
confirmation (a "Book-Entry Confirmation") of such Book-Entry Transfer of
Series A Preferred Stock into the Exchange Agent's account, and timely receipt
by the Exchange Agent of an Agent's Message (as such term is defined in the
next sentence) and any other documents required by the Letter of Transmittal.
The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility 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 acknowledgement from a participant tendering Series A
Preferred Stock that is the subject of such Book-Entry Confirmation that such
participant has received and agrees to be bound by the terms of the Letter of
Transmittal, and that the Company may enforce such agreement against such
participant.
 
  Guaranteed Delivery. If a Holder desires to accept the Exchange Offer and
time will not permit a Letter of Transmittal or Series A Preferred Stock to
reach the Exchange Agent before the Expiration Date or the procedure for book-
entry transfer cannot be completed on a timely basis, a tender may be
 
                                       21

<PAGE>
 
   
effected if the Exchange Agent has received at its office, prior to the
Expiration Date, a letter, a telegram or facsimile transmission from an
Eligible Institution setting forth the name and address of the tendering
Holder, the name(s) in which the Series A Preferred Stock is registered and, if
the Series A Preferred Stock is held in certificated form, the certificate
number of the Series A Preferred Stock to be tendered, and stating that the
tender is being made thereby and guaranteeing that within five NYSE trading
days after the date of execution of such letter, telegram or facsimile
transmission by the Eligible Institution, the Series A Preferred Stock in
proper form for transfer together with a properly completed and duly executed
Letter of Transmittal (and any other required documents), or a confirmation of
book-entry transfer of such Series A Preferred Stock into the Exchange Agent's
account at DTC, will be delivered by such Eligible Institution. Unless the
Series A Preferred Stock being tendered by the above-described method is
deposited with the Exchange Agent within the time period set forth above
(accompanied or preceded by a properly completed Letter of Transmittal and any
other required documents) or a confirmation of book-entry transfer of such
Series A Preferred Stock into the Exchange Agent's account at DTC in accordance
with DTC's ATOP procedures is received, the Company may, at its option, reject
the tender. Copies of a Notice of Guaranteed Delivery which may be used by
Eligible Institutions for the purposes described in this paragraph are
available from the Exchange Agent and the Information Agent.     
   
  Miscellaneous. All questions as to the validity, form, eligibility (including
time of receipt) and acceptance for exchange of any tender of Series A
Preferred Stock will be determined by the Company, whose determination will be
final and binding. The Company reserves the absolute right to reject any or all
tenders not in proper form or the acceptance for exchange of which may, in the
opinion of the Company's counsel, be unlawful. The Company also reserves the
absolute right to waive any defect or irregularity in the tender of any Series
A Preferred Stock, and the Company's interpretation of the terms and conditions
of the Exchange Offer (including the Instructions in the Letter of Transmittal)
will be final and binding. None of the Company, the Exchange Agent, the Dealer
Managers or the Information Agent or any other person will be under any duty to
give notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification.     
 
  Tenders of Series A Preferred Stock involving any irregularities will not be
deemed to have been made until such irregularities have been cured or waived.
Series A Preferred Stock received by the Exchange Agent that is not validly
tendered and as to which the irregularities have not been cured or waived will
be returned by the Exchange Agent to the tendering Holder (or in the case of
Series A Preferred Stock tendered by book-entry transfer into the Exchange
Agent's account at DTC, such Series A Preferred Stock will be credited to an
account maintained at DTC designated by the participant therein who so
delivered such Series A Preferred Stock), unless otherwise requested by the
Holder in the Letter of Transmittal, as promptly as practicable after the
Expiration Date or the withdrawal or termination of the Exchange Offer.
 
LETTER OF TRANSMITTAL
 
  The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
 
  The party tendering Series A Preferred Stock for exchange (the "Transferor")
exchanges, assigns and transfers the Series A Preferred Stock to the Company
and irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Series A Preferred Stock to be
assigned, transferred and exchanged. The Transferor represents and warrants
that it has full power and authority to tender, exchange, assign and transfer
the Series A Preferred Stock and to acquire Debentures issuable upon the
exchange of such tendered Series A Preferred Stock, and that, when the same are
accepted for exchange, the Company will acquire good and unencumbered title to
the tendered Series A Preferred Stock, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim.
The Transferor also warrants that it will, upon
 
                                       22

<PAGE>
 
request, execute and deliver any additional documents deemed by the Company to
be necessary or desirable to complete the exchange, assignment and transfer of
tendered Series A Preferred Stock or transfer ownership of such Series A
Preferred Stock on the account books maintained by DTC. All authority conferred
by the Transferor will survive the death, bankruptcy or incapacity of the
Transferor and every obligation of the Transferor shall be binding upon the
heirs, legal representatives, successors, assigns, executors and administrators
of such Transferor.
 
WITHDRAWAL OF TENDERS
 
  Tenders of Series A Preferred Stock pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date and, unless accepted for
exchange by the Company, may be withdrawn at any time after 40 business days
after the date of this Prospectus.
 
  To be effective, a written notice of withdrawal delivered by mail, hand
delivery or facsimile transmission must be timely received by the Exchange
Agent at the address set forth in the Letter of Transmittal. The method of
notification is at the risk and election of the Holder. Any such notice of
withdrawal must specify (i) the Holder named in the Letter of Transmittal as
having tendered Series A Preferred Stock to be withdrawn, (ii) if the Series A
Preferred Stock is held in certificated form, the certificate numbers of the
Series A Preferred Stock to be withdrawn, (iii) that such Holder is withdrawing
his election to have such Series A Preferred Stock exchanged, and (iv) the name
of the registered Holder of such Series A Preferred Stock, and must be signed
by the Holder in the same manner as the original signature on the Letter of
Transmittal (including any required signature guarantees) or be accompanied by
evidence satisfactory to the Company that the person withdrawing the tender has
succeeded to the beneficial ownership of the Series A Preferred Stock being
withdrawn. The Exchange Agent will return the properly withdrawn Series A
Preferred Stock promptly following receipt of notice of withdrawal. If Series A
Preferred Stock has been tendered pursuant to the procedure for book-entry
transfer, any notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawn Series A Preferred Stock and
otherwise comply with DTC's procedures. All questions as to the validity of
notice of withdrawal, including time of receipt, will be determined by the
Company, and such determination will be final and binding on all parties.
Withdrawals of tenders of Series A Preferred Stock may not be rescinded and any
Series A Preferred Stock withdrawn will thereafter be deemed not validly
tendered for purposes of the Exchange Offer. Properly withdrawn Series A
Preferred Stock, however, may be retendered by following the procedures
therefor described elsewhere herein at any time prior to the Expiration Date.
See "--Procedures for Tendering."
   
EXCHANGE AGENT AND INFORMATION AGENT     
   
  The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Deliveries to the Exchange Agent should be as follows:     
       
      By Hand or Overnight Courier:                     By Mail:
          The Bank of New York               (registered or certified mail
        Reorganization Section                       recommended) 
          101 Barclay Street                    The Bank of New York
               (7 East)                         Reorganization Section
          New York, NY 10286                      101 Barclay Street
              Attention:                               (7 East)
            Arwen Gibbons                         New York, NY 10286
                                                      Attention:
                                                    Arwen Gibbons      
 
                                 By Facsimile:
                        
                     (For Eligible Institutions Only):     
                                 
                              (212) 571-3080     
                          
                       Confirm Receipt by Telephone:     
                                 
                              (212) 815-6333     
                                   
                                Attention:     
                                  
                               Arwen Gibbons     
 
                                       23

<PAGE>
 
   
  D.F. King & Co., Inc. has been retained as Information Agent. Questions and
requests for assistance regarding the Exchange Offer, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery may be directed to the Information Agent at 77
Water Street, New York, New York 10005, telephone (800) 669-5550 or (212) 269-
5550 (collect).     
   
  The Company will pay the Exchange Agent and Information Agent reasonable and
customary fees for their services and will reimburse them for all their
reasonable out-of-pocket expenses in connection therewith.     
 
DEALER MANAGERS
   
  Goldman, Sachs & Co. and Lehman Brothers Inc., as Dealer Managers, have
agreed to solicit exchanges of Series A Preferred Stock for Debentures. The
Company will pay each Dealer Manager a fee that is dependent on the number of
shares of Series A Preferred Stock accepted pursuant to the Exchange Offer. The
maximum fee payable is approximately $3.75 million. Additional solicitation may
be made by telecopier, by telephone or in person by officers and regular
employees of the Company and its affiliates. No additional compensation will be
paid to any such officers and employees who engage in soliciting tenders.     
 
LISTING AND TRADING OF DEBENTURES AND SERIES A PREFERRED STOCK; TRANSFER
RESTRICTIONS
   
  There has not previously been any public market for the Debentures. While the
Debentures and the Common Stock issuable upon conversion thereof have been
approved for listing on the NYSE, subject to official notice of issuance, there
can be no assurance that an active market for the Debentures will develop or be
sustained in the future on such exchange. Although the Dealer Managers have
indicated to the Company that they intend to make a market in the Debentures as
permitted by applicable laws and regulations, they are not obligated to do so
and may discontinue any such market-making at any time without notice.
Accordingly, no assurance can be given as to the liquidity of, or trading
markets for, the Debentures.     
   
  The Series A Preferred Stock and the Common Stock issuable upon conversion of
such Series A Preferred Stock have not been and will not be registered under
the Securities Act and may not be offered or sold within the United States or
to, or for the account or benefit of, U.S. persons except pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act. Such Series A Preferred Stock and such
Common Stock are subject to restrictions on their transfer designed to ensure
compliance with the requirements of the Securities Act and, upon consummation
of the Exchange Offer, will continue to be subject to such existing
restrictions upon transfer, including the terms of the original issuance of
such Series A Preferred Stock and such Common Stock. Holders of Series A
Preferred Stock who do not tender their Series A Preferred Stock in the
Exchange Offer or whose Series A Preferred Stock is not accepted for exchange
will continue to hold such Series A Preferred Stock and will be entitled to all
the rights and preferences, and will be subject to all of the limitations
applicable thereto. Moreover, to the extent that Series A Preferred Stock is
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Series A Preferred Stock could be adversely affected. Under Rule 144
as in effect on the date hereof, beginning February 12, 1996, the Series A
Preferred Stock and the Common Stock issuable upon conversion thereof which is
not (and has not been) held by an affiliate of the Company will no longer be
subject to these limitations.     
 
TRANSACTIONS AND ARRANGEMENTS CONCERNING THE SERIES A PREFERRED STOCK
 
  Except as described herein, there are no contracts, arrangements,
understandings or relationships in connection with the Exchange Offer between
the Company or any of its directors or executive officers and any person with
respect to any securities of the Company, including the Debentures, the Series
A Preferred Stock and the Common Stock issuable upon conversion thereof.
 
                                       24

<PAGE>
 
FEES AND EXPENSES; TRANSFER TAXES
   
  The expenses of soliciting tenders of the Series A Preferred Stock will be
borne by the Company. For compensation to be paid to the Dealer Managers see
"--Dealer Managers." The total cash expenditures to be incurred by the Company
in connection with the Exchange Offer, other than fees payable to the Dealer
Managers, but including the expenses of the Dealer Managers, printing,
accounting and legal fees, and the fees and expenses of the Exchange Agent, the
Information Agent and the Trustee under the Indenture, are estimated to be
approximately $600,000.     
 
  Holders of the Series A Preferred Stock accepted in the Exchange Offer are
responsible for paying any transfer taxes in connection with such exchange. 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.
 
                           DESCRIPTION OF DEBENTURES
 
GENERAL
   
  The Debenture constitutes a series of debt securities ("Debt Securities") to
be issued under an Indenture (the "Indenture"), to be dated as of April 3,
1995, between the Company and The Bank of New York, as trustee (the "Trustee").
The following statements with respect to the Debentures are summaries and are
subject to the detailed provisions of the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), and the Indenture, a copy of the form of
which has been filed as an exhibit to the Registration Statement. The following
summaries of certain provisions of the Indenture do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all
the provisions of the Debentures and the Indenture, including the definitions
therein of certain terms capitalized and not otherwise defined in this
Prospectus. Wherever references are made to particular provisions of the
Indenture or terms defined therein, such provisions or definitions are
incorporated by reference as part of the statements made and such statements
are qualified in their entirety by such references.     
   
  The Debentures will be unsecured, subordinated obligations of the Company,
will be limited in aggregate principal amount to the aggregate principal amount
of Debentures issued in the Exchange Offer and will mature on February 1, 2025.
The Debentures will be issued only in fully registered form, without coupons,
in minimum denominations of $1,000 and any integral multiples of $1,000 in
excess thereof.     
 
  The Indenture provides that the Debt Securities may be issued without
limitation as to aggregate principal amount, in one or more series, in each
case as established from time to time in or pursuant to authorization granted
by resolution of the Board and an officer's certificate or as established in
one or more indentures supplemental to the Indenture. All Debt Securities of
one series need not be issued at the same time and, unless otherwise provided,
a series may be reopened, without the consent of the holders of the Debt
Securities of such series, for issuances of additional Debt Securities of such
series.
 
  The Indenture does not contain any provisions that would limit the ability of
the Company to incur indebtedness or that would afford holders of the
Debentures protection in the event of a highly leveraged or similar transaction
involving the Company or in the event of a change of control.
 
  Debentures will be transferable or exchangeable at the agency of the Company
maintained for such purpose in The City of New York (which, unless changed,
shall be a corporate trust office or agency of the Trustee). Debentures may be
transferred or exchanged without service charge, other than any tax or
governmental charge imposed in connection therewith. (Section 3.5 of the
Indenture.)
 
                                       25

<PAGE>
 
INTEREST
   
  The Debentures will mature on February 1, 2025 and will bear interest at an
annual rate of 6 3/8% from the Issue Date or from the most recent interest
payment date to which interest has been paid or duly provided for. In addition,
holders of record of the Debentures will be entitled to interest at a rate of 6
1/4% per annum from February 1, 1995 through the Expiration Date, in lieu of
dividends accumulating after January 31, 1995 on their Series A Preferred Stock
accepted for exchange, payable at the time of the first interest payment on the
Debentures. Interest will be payable quarterly in arrears on February 1, May 1,
August 1 and November 1 of each year commencing May 1, 1995, provided that so
long as the Company shall not be in default in the payment of interest on the
Debentures, the Company shall have the right, upon prior notice by public
announcement given in accordance with NYSE rules at any time during the term of
the Debentures, to extend the interest payment period from time to time for a
period not exceeding 20 consecutive calendar quarters (each, an "Extension
Period"). Interest will continue to accrue on the Debentures during an
Extension Period and will compound quarterly, at the rate specified for the
Debentures, to the extent permitted by applicable law. See "--Option to Extend
Interest Payment Period." Interest payable on any Debenture that is punctually
paid or duly provided for on any Interest Payment Date shall be paid to the
person in whose name such Debenture is registered at the close of business on
the January 15, April 15, July 15 or October 15, respectively, preceding such
Interest Payment Date (each, a "Record Date"). Interest will be computed on the
basis of twelve 30-day months and a 360-day year and, for any period shorter
than a full calendar month, on the basis of the actual number of days elapsed
in such period. (Section 3.10 of the Indenture). If any date on which interest
is payable on the Debentures is not a Business Day, the payment of interest due
on such date may be made on the next succeeding Business Day (and without any
interest or other payment in respect of such delay). A "Business Day" shall
mean any day other than a day on which banking institutions in The City of New
York or in Chicago, Illinois are authorized or required by law to close.     
 
  Payments in respect of the Debentures will be made at the office or agency of
the Company maintained for that purpose in The City of New York (which, unless
changed, shall be a corporate trust office or agency of the Trustee). However,
at the option of the Company, payments on the Debentures may be made (i) by
checks mailed by the Trustee to the Holders entitled thereto at their
registered addresses or (ii) by wire transfers to accounts maintained by the
Holders entitled thereto as specified in the Register, provided that, in either
case, the payment of principal with respect to any Debenture will be made only
upon surrender of such Debenture to the Trustee. Interest payable on any
Debenture that is not punctually paid or duly provided for on any Interest
Payment Date will forthwith cease to be payable to the person in whose name
such Debenture is registered on the relevant Record Date, and such defaulted
interest will instead be payable to the person in whose name such Debenture is
registered on the special record date or other specified date determined in
accordance with the Indenture; provided, however, that interest shall not be
considered payable by the Company on any Interest Payment Date falling within
an Extension Period unless the Company has elected to make a full or partial
payment of interest accrued on the Debentures on such Interest Payment Date.
(Section 3.7 of the Indenture.)
 
  In the event the Company fails at any time to make any payment of interest,
principal or premium on the Debentures when due (after giving effect to any
grace period for payment thereof as described in "--Events of Default, Notice
and Certain Rights on Default") or the Company exercises its option to extend
the interest payment period for an Extension Period as described in "--Option
to Extend Interest Payment Period," the Company will not, until all defaulted
interest on the Debentures and all interest accrued on the Debentures during an
Extension Period and all principal and premium, if any, then due and payable on
the Debentures shall have been paid in full, (i) declare, set aside or pay any
dividend or distribution on any capital stock of the Company, including the
Series A Preferred Stock and the Common Stock, except for dividends or
distributions in shares of its capital stock or in rights to acquire shares of
its capital stock, or (ii) repurchase, redeem or otherwise acquire, or make any
sinking fund
 
                                       26

<PAGE>
 
   
payment for the purchase or redemption of, any shares of its capital stock
(except by conversion into or exchange for shares of its capital stock and
except for a redemption, purchase or other acquisition of shares of its capital
stock made for the purpose of an employee incentive plan or benefit plan of the
Company or any of its subsidiaries); provided, however, that any moneys
deposited in any sinking fund with respect to any preferred stock of the
Company in compliance with the provisions of such sinking fund and not in
violation of this provision may thereafter be applied to the purchase or
redemption of such preferred stock in accordance with the terms of such sinking
fund without regard to the restrictions contained in this provision. (Section
9.8 of the Indenture.)     
 
OPTION TO EXTEND INTEREST PAYMENT PERIOD
 
  So long as the Company shall not be in default in the payment of interest on
the Debentures, the Company shall have the right, upon prior notice by public
announcement given in accordance with NYSE rules at any time during the term of
the Debentures, prior to an Interest Payment Date as provided below, to extend
the interest payment period from time to time to another Interest Payment Date
by one or more quarterly periods, not to exceed 20 consecutive calendar
quarters from the last Interest Payment Date to which interest was paid in full
(each, an "Extension Period"). No interest shall be due and payable during an
Extension Period, but on the Interest Payment Date occurring at the end of each
Extension Period the Company shall pay to the holders of record on the Record
Date for such Interest Payment Date (regardless of who the holders of record
may have been on other dates during the Extension Period) all accrued and
unpaid interest on the Debentures, together with interest thereon. Interest
will continue to accrue on the Debentures during an Extension Period and will
compound quarterly, at the rate specified for the Debentures, to the extent
permitted by applicable law. Prior to the termination of any Extension Period,
the Company may pay all or any portion of the interest accrued on the
Debentures on any Interest Payment Date to holders of record on the Record Date
for such Interest Payment Date or from time to time further extend the interest
payment period, provided that any such Extension Period together with all such
previous and further extensions thereof may not exceed 20 calendar quarters. If
the Company shall elect to pay all of the interest accrued on the Debentures on
an Interest Payment Date during an Extension Period, such Extension Period
shall automatically terminate on such Interest Payment Date. Upon the
termination of any Extension Period and the payment of all amounts of interest
then due, the Company may commence a new Extension Period, subject to the above
requirements. Consequently, there could be multiple Extension Periods of
varying lengths throughout the term of the Debentures. The Company has no
current intention of exercising its right to defer any interest payment period.
However, in the event the Company determines to extend an interest payment
period, or in the event the Company thereafter extends an Extension Period or
prepays interest accrued during an Extension Period as described above, the
market price of the Debentures is likely to be affected. In addition, as a
result of such rights, the market price of the Debentures may be more volatile
than other debt instruments with original issue discount that do not have such
rights. A holder that disposes of its Debentures during an Extension Period,
therefore, may not receive the same return on its investment as a holder that
continues to hold its Debentures.
   
  The Company shall cause the Trustee to give holders of the Debentures prior
notice, by public announcement given in accordance with NYSE rules and by mail
to all such holders, of (i) the Company's election to initiate an Extension
Period and the duration thereof, (ii) the Company's election to extend any
Extension Period beyond the Interest Payment Date on which such Extension
Period is then scheduled to terminate and the duration of such extension and
(iii) the Company's election to make a full or partial payment of interest
accrued on the Debentures on any Interest Payment Date during any Extension
Period and the amount of such payment. In no event shall such notice be given
less than five Business Days prior to the January 15, April 15, July 15 or
October 15 next preceding the applicable Interest Payment Date.     
 
                                       27

<PAGE>
 
SUBORDINATION
 
  The payment of the principal of, and premium, if any, and interest on the
Debentures will be subordinated to the extent set forth in the Indenture to the
prior payment in full of amounts then due on all Senior Indebtedness (as
defined below). No payments or distributions, whether in cash, securities or
other property (other than securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment the payment of which
is subordinated, at least to the same extent as the Debentures, to the payment
of all Senior Indebtedness at the time outstanding and to any securities issued
in respect thereof under any such plan of reorganization or readjustment) on
account of principal of, and premium, if any, or interest on the Debentures may
be made by the Company unless full payment of all amounts then due on Senior
Indebtedness has been made or provided for in money or money's worth. Upon any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities (other than securities of the Company
or any other corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinated, at least to the same extent
as the Debentures, to the payment of all Senior Indebtedness at the time
outstanding and to any securities issued in respect thereof under such plan of
reorganization or readjustment) to creditors upon any dissolution or winding up
or total or partial liquidation or reorganization of the Company, whether
voluntary or involuntary or in bankruptcy, insolvency, receivership or other
proceedings, all amounts due upon all Senior Indebtedness shall first be paid
in full, or payment thereof provided for in money or money's worth, before the
holders of the Debentures or the Trustee shall be entitled to retain any assets
so paid or distributed (other than the securities described in the first
parenthetical of this sentence) in respect of the Debentures (for principal or
interest) or of the Indenture. (Article 12 of the Indenture.)
 
  The term "Senior Indebtedness" of the Company means all Indebtedness of the
Company (other than the Debentures), unless such Indebtedness by its terms or
the terms of the instrument creating or evidencing the same expressly provides
that it is subordinate in right of payment to or pari passu with the
Debentures. (Section 1.1 of the Indenture.) "Indebtedness," when used with
respect to the Company, means, without duplication, the principal of, and
premium, if any, and accrued and unpaid interest (including post-petition
interest) on any obligation, whether outstanding on the date hereof or
thereafter created, incurred or assumed, which is (i) indebtedness of the
Company for money borrowed, (ii) Indebtedness Guarantees (as defined in the
Indenture) by the Company of indebtedness for money borrowed by any other
person, (iii) indebtedness evidenced by notes, debentures, bonds or other
instruments of indebtedness for payment of which the Company is responsible or
liable, (iv) obligations for the reimbursement of any obligor on any letter of
credit, bankers' acceptance or similar credit transaction, (v) obligations of
the Company under Capital Leases (as defined in the Indenture) and Flight
Equipment (as defined in the Indenture) leases (the amount of the Company's
obligation under such Flight Equipment leases to be computed in accordance with
Statement of Financial Accounting Standards No. 13 as if such Flight Equipment
leases were Capital Leases), (vi) obligations (net of counterparty payments)
under interest rate and currency swaps, caps, collars, options, forward or spot
contracts or similar arrangements or with respect to foreign currency hedges,
and (vii) commitment and other bank financing fees under contractual
obligations associated with bank debt; provided, however, that Indebtedness
shall not include amounts owed to trade creditors in the ordinary course of
business.
 
  By reason of the subordination described herein, in the event of the
distribution of assets upon insolvency, creditors of the Company who are not
holders of Senior Indebtedness or of the Debentures may recover less, ratably,
than holders of Senior Indebtedness, and may recover more, ratably, than
holders of the Debentures. Moreover, upon any distribution of the assets of the
Company, the holders of the Debentures are required to pay over their share of
such distribution to the holders of Senior Indebtedness to the extent necessary
to pay all holders of Senior Indebtedness in full.
 
  On December 31, 1994 approximately $732 million of Senior Indebtedness was
outstanding. The calculation of the amount of Senior Indebtedness assumes that
the Company is primarily obligated for
 
                                       28

<PAGE>
 
   
the present value of future minimum lease payments under operating leases
guaranteed by the Company but does not include other contingent obligations
such as stipulated loss values or liquidated damages which may be payable under
such operating leases. There is no restriction under the Indenture on the
creation of additional indebtedness, including Senior Indebtedness, by the
Company, including indebtedness owed by the Company to United and its other
subsidiaries.     
 
  Because the Company is a holding company that conducts business through its
subsidiaries, the Debentures are effectively subordinated to all existing and
future obligations of the Company's subsidiaries, including United. Any right
of the Company to participate in any distribution of the assets of any of the
Company's subsidiaries, including United, upon the liquidation, reorganization
or insolvency of such subsidiary (and the consequent right of the holders of
the Debentures to participate in those assets) will be subject to the claims of
the creditors (including trade creditors) and preferred stockholders of such
subsidiary, except to the extent that claims of the Company itself as a
creditor of such subsidiary may be recognized, in which case the claims of the
Company would still be subordinate to any security interest in the assets of
such subsidiary and any indebtedness of such subsidiary senior to that held by
the Company. On December 31, 1994, approximately $13.7 billion of indebtedness,
leases and other obligations (including trade payables) of the Company's
subsidiaries (net of those obligations of the Company to its subsidiaries that
are included in the definition of Senior Indebtedness) not included in the
definition of Senior Indebtedness was outstanding.
 
  Because the Company is a holding company, the Company's cash flow and
consequent ability to meet its debt obligations are primarily dependent upon
the earnings of its subsidiaries, particularly United, and on dividends and
other payments therefrom. The Company's subsidiaries are not obligated or
required to pay any amounts due pursuant to the Debentures or to make funds
available therefor in the form of dividends or advances to the Company.
 
CONVERSION
   
  Each Debenture will be convertible at the option of the holder thereof at any
time after the date of original issuance thereof, unless previously redeemed,
into $541.90 for each $1,000 principal amount thereof and the number of fully
paid and nonassessable shares of Common Stock obtained by dividing the
aggregate Principal Amount of such Debenture minus $541.90 for each $1,000
principal amount thereof by the Conversion Price and surrendering such
Debentures to be converted as provided below; provided, however, that the right
to convert Debentures called for redemption shall terminate at the close of
business on the day preceding the Redemption Date, unless the Company shall
default in making payment of the cash payable upon such redemption.
Certificates will be issued for the remaining Debentures in any case in which
fewer than all of the Debentures represented by a certificate are converted.
    
  Holders of Debentures at the close of business on an interest payment record
date shall be entitled to receive the interest payable on such Debentures on
the corresponding Interest Payment Date notwithstanding the conversion thereof
following such interest payment record date and prior to such Interest Payment
Date. However, Debentures surrendered for conversion during the period between
the close of business on any interest payment record date and the opening of
business on the corresponding Interest Payment Date (except Debentures
converted after the issuance of a notice of redemption with respect to a
Redemption Date during such period, which shall be entitled to such interest on
the Interest Payment Date) must be accompanied by payment of an amount equal to
the interest payable on such Debentures on such Interest Payment Date. A holder
of Debentures on an interest payment record date who (or whose transferee)
tenders any such Debentures for conversion into shares of Common Stock on such
Interest Payment Date will receive the interest payable by the Company on such
Debentures on such date, and the converting holder need not include payment of
the amount of such interest upon surrender of Debentures for conversion. Except
as provided above, the Company shall make no payment or allowance for unpaid
interest, whether or not in arrears, on converted Debentures or for dividends
on the shares of Common Stock issued upon such conversion.
 
                                       29

<PAGE>
 
  Each conversion shall be deemed to have been effected immediately prior to
the close of business on the date on which the Debentures shall have been
surrendered and such notice (and if applicable, payment of an amount equal to
the interest payable on such Debentures) received by the Company as aforesaid,
and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares
represented thereby at such time on such date and such conversion shall be at
the Conversion Price in effect at such time on such date, unless the stock
transfer books of the Company shall be closed on that date, in which event such
person or persons shall be deemed to have become such holder or holders of
record at the close of business on the next succeeding day on which such stock
transfer books are open, but such conversion shall be at the Conversion Price
in effect on the date upon which such shares shall have been surrendered and
such notice received by the Company.
 
  No fractional shares or scrip representing fractions of shares of Common
Stock will be issued upon conversion of the Debentures. Instead of any
fractional interest in a share of Common Stock that would otherwise be
deliverable upon the conversion of a Debenture, the Company shall pay to the
holder of such share an amount in cash based upon the Current Market Price of
Common Stock on the Trading Day immediately preceding the date of conversion.
If more than one Debenture shall be surrendered for conversion at one time by
the same holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate principal
amount of the Debentures so surrendered.
 
  The Conversion Price shall be adjusted from time to time as follows:
 
    (a) If the Company shall after the Issue Date (A) pay a dividend or make
  a distribution on its capital stock in shares of its Common Stock, (B)
  subdivide its outstanding Common Stock into a greater number of shares, (C)
  combine its outstanding Common Stock into a smaller number of shares or (D)
  issue any shares of capital stock by reclassification of its Common Stock,
  the Conversion Price in effect at the opening of business on the day next
  following the date fixed for the determination of stockholders entitled to
  receive such dividend or distribution or at the opening of business on the
  day next following the day on which such subdivision, combination or
  reclassification becomes effective, as the case may be, shall be adjusted
  so that the holder of any Debentures thereafter surrendered for conversion
  shall be entitled to receive the number of shares of Common Stock that such
  holder would have owned or have been entitled to receive after the
  happening of any of the events described above had such Debenture been
  converted immediately prior to the record date in the case of a dividend or
  distribution or the effective date in the case of a subdivision,
  combination or reclassification. An adjustment made pursuant to this
  paragraph (a) shall become effective immediately after the opening of
  business on the day next following the record date (except as provided
  below) in the case of a dividend or distribution and shall become effective
  immediately after the opening of business on the day next following the
  effective date in the case of a subdivision, combination or
  reclassification.
 
    (b) If the Company shall issue after the Issue Date rights or warrants
  (in each case, other than the Rights) to all holders of Common Stock
  entitling them (for a period expiring within 45 days after the record date
  mentioned below) to subscribe for or purchase Common Stock at a price per
  share less than the Fair Market Value per share of Common Stock on the
  record date for the determination of stockholders entitled to receive such
  rights or warrants, then the Conversion Price in effect at the opening of
  business on the day next following such record date shall be adjusted to
  equal the price determined by multiplying (1) the Conversion Price in
  effect immediately prior to the opening of business on the day next
  following the date fixed for such determination by (2) a fraction, the
  numerator of which shall be the sum of (A) the number of shares of Common
  Stock outstanding on the close of business on the date fixed for such
  determination and (B) the number of shares that the aggregate proceeds to
  the Company from the exercise of such rights or warrants for
 
                                       30

<PAGE>
 
  Common Stock would purchase at such Fair Market Value, and the denominator
  of which shall be the sum of (A) the number of shares of Common Stock
  outstanding on the close of business on the date fixed for such
  determination and (B) the number of additional shares of Common Stock
  offered for subscription or purchase pursuant to such rights or warrants.
  Such adjustment shall become effective immediately after the opening of
  business on the day next following such record date (except as provided
  below). In determining whether any rights or warrants entitle the holders
  of Common Stock to subscribe for or purchase shares of Common Stock at less
  than such Fair Market Value, there shall be taken into account any
  consideration received by the Company upon issuance and upon exercise of
  such rights or warrants, the value of such consideration, if other than
  cash, to be determined by the Board.
     
    (c) If the Company shall distribute to all holders of its Common Stock
  any shares of capital stock of the Company (other than Common Stock) or
  evidence of its indebtedness or assets (excluding cash dividends or
  distributions paid from profits or surplus of the Company) or rights or
  warrants (in each case, other than the Rights) to subscribe for or purchase
  any of its securities (excluding those rights and warrants issued to all
  holders of Common Stock entitling them for a period expiring within 45 days
  after the record date referred to in paragraph (b) above to subscribe for
  or purchase Common Stock, which rights and warrants are referred to in and
  treated under paragraph (b) above (any of the foregoing being hereinafter
  in this paragraph (c) called the "Securities")), then in each such case the
  Conversion Price shall be adjusted so that it shall equal the price
  determined by multiplying (1) the Conversion Price in effect immediately
  prior to the close of business on the date fixed for the determination of
  stockholders entitled to receive such distribution by (2) a fraction, the
  numerator of which shall be the Fair Market Value per share of the Common
  Stock on the record date mentioned below less the then fair market value
  (as determined by the Board, whose determination shall be conclusive) of
  the portion of the capital stock or assets or evidences of indebtedness so
  distributed or of such rights or warrants applicable to one share of Common
  Stock, and the denominator of which shall be the Fair Market Value per
  share of the Common Stock on the record date mentioned below. Such
  adjustment shall become effective immediately at the opening of business on
  the Business Day next following (except as provided below) the record date
  for the determination of stockholders entitled to receive such
  distribution. For the purposes of this paragraph (c), the distribution of a
  Security, which is distributed not only to the holders of the Common Stock
  on the date fixed for the determination of stockholders entitled to receive
  such distribution of such security, but also is distributed with each share
  of Common Stock delivered to a person converting a Debenture after such
  determination date, shall not require an adjustment of the Conversion Price
  pursuant to this paragraph (c); provided that on the date, if any, on which
  a Person converting a Debenture would no longer be entitled to receive such
  Security with a share of Common Stock (other than as a result of the
  termination of all such Securities), a distribution of such Securities
  shall be deemed to have occurred and the Conversion Price shall be adjusted
  as provided in this paragraph (c) (and such day shall be deemed to be "the
  date fixed for the determination of the stockholders entitled to receive
  such distribution" and "the record date" within the meaning of the two
  preceding sentences).     
 
    (d) No adjustment in the Conversion Price shall be required unless such
  adjustment would require a cumulative increase or decrease of at least 1%
  in such price; provided, however, that any adjustments that by reason of
  this paragraph (d) are not required to be made shall be carried forward and
  taken into account in any subsequent adjustment until made; and provided,
  further, that any adjustment shall be required and made in accordance with
  these conversion provisions (other than this paragraph (d)) not later than
  such time as may be required in order to preserve the tax-free nature of a
  distribution to the holders of shares of Common Stock. Notwithstanding any
  other provisions, the Company shall not be required to make any adjustment
  of the Conversion Price for the issuance of any shares of Common Stock
  pursuant to any plan providing for the reinvestment of dividends on
  securities of the Company. All calculations shall be made to the nearest
  cent (with $.005 being rounded upward) or to the nearest 1/10 of a share
  (with .05 of a
 
                                      31

<PAGE>
 
  share being rounded upward), as the case may be. Anything to the contrary
  notwithstanding, the Company shall be entitled, to the extent permitted by
  law, to make such reductions in the Conversion Price, in addition to those
  required by this conversion provision, as it in its discretion shall
  determine to be advisable in order that any stock dividends, subdivision of
  shares, reclassification or combination of shares, distribution of rights
  or warrants to purchase stock or securities, or a distribution of other
  assets (other than cash dividends) hereafter made by the Company to its
  stockholders shall not be taxable.
 
  If the Corporation shall be a party to any transaction (including without
limitation a merger, consolidation, sale of all or substantially all of the
Company's assets or recapitalization of the Common Stock and excluding any
transaction as to which paragraph (a) above applies) (each of the foregoing
being referred to herein as a "Transaction"), in each case as a result of which
shares of Common Stock shall be converted into the right to receive stock,
securities or other property (including cash or any combination thereof), each
Debenture which is not converted into the right to receive stock, securities or
other property in connection with such Transaction shall thereafter be
convertible into the kind and amount of shares of stock, securities and other
property (including cash or any combination thereof) receivable upon the
consummation of such Transaction by a holder of that number of shares or
fraction thereof of Common Stock into which $1,000 principal amount of
Debenture was convertible immediately prior to such Transaction, assuming such
holder of Common Stock (i) is not a Person with which the Company consolidated
or into which the Company merged or which merged into the Company or to which
such sale or transfer was made, as the case may be ("Constituent Person"), or
an affiliate of a Constituent Person and (ii) failed to exercise his rights of
election, if any, as to the kind or amount of stock, securities and other
property (including cash) receivable upon such Transaction (provided that if
the kind or amount of stock, securities and other property (including cash)
receivable upon such Transaction is not the same for each share of Common Stock
of the Company held immediately prior to such Transaction by other than a
Constituent Person or an affiliate thereof and in respect of which such rights
of election shall not have been exercised ("non-electing share"), then for the
purpose of this paragraph the kind and amount of stock, securities and other
property (including cash) receivable upon such Transaction by each non-electing
share shall be deemed to be the kind and amount so receivable per share by the
plurality of the non-electing shares). The Company shall not be a party to any
Transaction unless the terms of such Transaction are consistent with the
provisions herein and it shall not consent or agree to the occurrence of any
Transaction until the Company has entered into an agreement with the successor
or purchasing entity, as the case may be, for the benefit of the holders of the
Debentures that will contain provisions enabling the holders of the Debentures
that remain outstanding after such Transaction to convert into the
consideration received by holders of Common Stock at the Conversion Price in
effect immediately prior to such Transaction. The provisions of this paragraph
shall similarly apply to successive Transactions.
 
    If:
 
      (i) the Company shall declare a dividend (or any other distribution)
    on the Common Stock (other than in cash out of profits or surplus and
    other than the Rights); or
       
      (ii) the Company shall authorize the granting to the holders of the
    Common Stock of rights or warrants (other than the Rights) to subscribe
    for or purchase any shares of any class or any other rights or warrants
    (other than the Rights); or     
 
      (iii) there shall be any reclassification of the Common Stock (other
    than an event to which paragraph (a) above with respect to Conversion
    Price adjustment applies) or any consolidation or merger to which the
    Company is a party and for which approval of any stockholders of the
    Company is required, or the sale or transfer of all or substantially
    all of the assets of the Company as an entirety; or
       
      (iv) there shall occur the voluntary or involuntary liquidation,
    dissolution or winding up of the Company;     
 
then the Company shall cause to be filed with the Trustee and shall cause to be
mailed to the holders of the Debentures at their addresses as shown on the
register of the Company, as promptly as possible,
 
                                       32

<PAGE>
 
   
but a least 15 days prior to the applicable date hereinafter specified, a
notice stating (A) the date on which a record is to be taken for the purpose of
such dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be
entitled to receive such dividend, distribution or rights or warrants are to be
determined or (B) the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution or winding up is expected to
become effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution or winding up. Failure to give or receive such notice or any defect
therein shall not affect the legality or validity of such proceedings.     
   
  Whenever the Conversion Price is adjusted as herein provided, the Company
shall promptly file with the Trustee an officer's certificate setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment which certificate shall be prima facie
evidence of the correctness of such adjustment. Promptly after delivery of such
certificate, the Company shall prepare a notice of such adjustment of the
Conversion Price setting forth the adjusted Conversion Price and the effective
date of such adjustment and shall mail such notice of such adjustment of the
Conversion Price to the holders of the Debentures at such holders' last address
as shown on the register of the Company.     
 
  In any case in which an adjustment shall become effective on the day next
following a record date for an event, the Company may defer until the
occurrence of such event (A) issuing to the holder of any Debenture converted
after such record date and before the occurrence of such event the additional
shares of Common Stock issuable upon such conversion by reason of the
adjustment required by such event over and above the Common Stock issuable upon
such conversion before giving effect to such adjustment and (B) paying to such
holder any amount in cash in lieu of any fraction.
 
  For purposes of these conversion provisions, the number of shares of Common
Stock at any time outstanding shall not include any shares of Common Stock then
owned or held by or for the account of the Company. The Company shall not pay a
dividend or make any distribution on shares of Common Stock held in the
treasury of the Company.
 
  There shall be no adjustment of the Conversion Price in case of the issuance
of any stock of the Company in a reorganization, acquisition or other similar
transaction except as specifically set forth herein. If any action or
transaction would require adjustment of the Conversion Price pursuant to more
than one paragraph hereof, only one adjustment shall be made and such
adjustment shall be the amount of adjustment that has the highest absolute
value.
 
  If the Company shall take any action affecting the Common Stock, other than
action described herein, that in the opinion of the Board would materially
adversely affect the conversion rights of the holders of the Debentures, the
Conversion Price for the Debentures may be adjusted, to the extent permitted by
law, in such manner, if any, and at such time, as the Board may determine to be
equitable in the circumstances.
 
  The Company will at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued shares
of Common Stock or its issued shares of Common Stock held in its treasury, or
both, for the purpose of effecting conversion of the Debentures, the full
number of shares of Common Stock deliverable upon the conversion of all
outstanding Debentures not theretofore converted. For purposes of this
paragraph, the number of shares of Common Stock that shall be deliverable upon
the conversion of all outstanding Debentures shall be computed as if at the
time of computation all such outstanding Debentures were held by a single
holder.
 
  The Company agrees that any shares of Common Stock issued upon conversion of
the Debentures shall be validly issued, fully paid and non-assessable. Before
taking any action that would cause an
 
                                       33

<PAGE>
 
adjustment reducing the Conversion Price below the then-par value of the shares
of Common Stock deliverable upon conversion of the Debentures, the Company will
take any corporate action that, in the opinion of its counsel, may be necessary
in order that the Company may validly and legally issue fully-paid and
nonassessable shares of Common Stock at such adjusted Conversion Price.
 
  The Company shall endeavor to list the shares of Common Stock required to be
delivered upon conversion of the Debentures, prior to such delivery, upon each
national securities exchange, if any, upon which the outstanding Common Stock
is listed at the time of such delivery.
 
  Prior to the delivery of any securities that the Company shall be obligated
to deliver upon conversion of the Debentures, the Company shall endeavor to
comply with all federal and state laws and regulations thereunder requiring the
registration of such securities with, or any approval of or consent to the
delivery thereof by, any governmental authority.
 
  The Company will pay any and all documentary stamp or similar issue or
transfer taxes payable in respect of the issue or delivery of shares of Common
Stock or other securities or property on conversion of the Debentures pursuant
to these conversion provisions; provided, however, that the Company shall not
be required to pay any tax that may be payable in respect of any transfer
involved in the issue or delivery of shares of Common Stock or other securities
or property in a name other than that of the holder of the Debentures to be
converted and no such issue or delivery shall be made unless and until the
person requesting any issue or delivery has paid to the Company the amount of
any such tax or established, to the reasonable satisfaction of the Company,
that such tax has been paid.
 
  The term "Conversion Price" means the conversion price per share of Common
Stock for which the Debentures are convertible, as such Conversion Price may be
adjusted. The initial Conversion Price will be $143.50.
 
  The term "Current Market Price" of publicly traded shares of Common Stock or
any other class of capital stock or other security of the Company or any other
issuer for any day shall mean the last reported sales price, regular way on
such day, or, if no sale takes place on such day, the average of the reported
closing bid and asked prices on such day, regular way, in either case as
reported on the NYSE Composite Tape, or, if such security is not listed or
admitted for trading on the NYSE, on the principal national securities exchange
on which such security is listed or admitted for trading or, if not listed or
admitted for trading on any national securities exchange, on the Nasdaq
National Market ("NNM") of the National Association of Securities Dealers, Inc.
Automated Quotations System ("Nasdaq") or, if such security is not quoted on
such NNM, the average of the closing bid and asked prices on such day in the
over-the-counter market as reported by Nasdaq or, if bid and asked prices for
such security on such day shall not have been reported through Nasdaq, the
average of the bid and asked prices on such day as furnished by any NYSE member
firm regularly making a market in such security selected for such purpose by
the Board.
 
  The term "Fair Market Value" means the average of the daily Current Market
Prices of a share of Common Stock during the five (5) consecutive Trading Days
selected by the Company commencing not more than 20 Trading Days before, and
ending not later than, the earlier of the day in question and the day before
the "ex" date with respect to the issuance or distribution requiring such
computation. The term "ex date," when used with respect to any issuance or
distribution, means the first day on which the Common Stock trades regular way,
without the right to receive such issuance or distribution, on the exchange or
in the market, as the case may be, used to determine that day's Current Market
Price.
 
  The term "Principal Amount" shall mean the principal amount of the Debenture.
 
  The term "Rights" is defined under "Description of Capital Stock--Preferred
Share Purchase Rights."
 
                                       34

<PAGE>
 
  The term "Trading Day" means any day on which the securities in question are
traded on the NYSE, or if such securities are not listed or admitted for
trading on the NYSE, on the principal national securities exchange on which
such securities are listed or admitted, or if not listed or admitted for
trading on any national securities exchange, on the NNM, or if such securities
are not quoted on such NNM, in the applicable securities market in which the
securities are traded.
 
REDEMPTION
 
  The Debentures will not be subject to any mandatory redemption, sinking fund
or other obligation of the Company to amortize, redeem or retire the
Debentures, and will not be redeemable prior to May 1, 1996. On and after such
date, the Company has the option to redeem the Debentures in whole or in part,
at the following percentages of the principal amount thereof redeemed, plus
accrued and unpaid interest, if any, up to but excluding the redemption date,
if redeemed during the twelve-month period commencing May 1 of the years
indicated:
 

<TABLE>
<CAPTION>
                      REDEMPTION
YEAR                    PRICE
- ----                  ----------
<S>                   <C>
1996.................  104.375%
1997.................  103.750%
1998.................  103.125%
1999.................  102.500%
</TABLE>


<TABLE>
<CAPTION>
                      REDEMPTION
YEAR                    PRICE
- ----                  ----------
<S>                   <C>
2000.................  101.875%
2001.................  101.250%
2002.................  100.625%
2003 and thereafter..  100.000%
</TABLE>

   
If fewer than all the outstanding Debentures are to be redeemed, the Trustee,
not more than 45 days prior to the Redemption Date, will select those
Debentures to be redeemed in such manner as the Trustee shall deem fair and
appropriate. (Section 10.3 of the Indenture.)     
 
  The Company may exercise this redemption option only if for 20 trading days
within any period of 30 consecutive trading days, including the last trading
day, the last sale price of the Common Stock as reported by the NYSE Composite
Transaction Tape exceeds 120% of the Conversion Price, subject to adjustment as
described herein. To exercise the option, the Company must, within 10 trading
days after the 30 day period in which the condition in the preceding sentence
has been met, mail a notice of redemption at least 30 days but not more than 60
days before the redemption date to each holder of record of Debentures to be
redeemed at the address shown on the register of the Company. (Section 10.4 of
the Indenture). After the redemption date, interest will cease to accrue on the
Debentures called for redemption and all rights of the holders of such
Debentures will terminate, except the right to receive the redemption price
without interest.
 
VOTING RIGHTS
 
  The holders of the Debentures will have no voting rights.
 
CONSOLIDATION, MERGER OR SALE BY THE COMPANY
 
  The Indenture provides that the Company may merge or consolidate with or into
any other corporation or sell, convey, transfer or otherwise dispose of all or
substantially all of its assets to any person, firm or corporation, if (i) (a)
in the case of a merger or consolidation, the Company is the surviving
corporation or (b) in the case of a merger or consolidation where the Company
is not the surviving corporation and in the case of a sale, conveyance,
transfer or other disposition, the successor corporation is a corporation
organized and existing under the laws of the United States of America or a
State thereof and such corporation expressly assumes by supplemental indenture
all the obligations of the Company under the Debentures and under the
Indenture, (ii) immediately after giving effect to such merger or
consolidation, or such sale, conveyance, transfer or other disposition, no
Default or Event of Default (as defined below) shall have occurred and be
continuing and (iii) certain other conditions are
 
                                       35

<PAGE>
 
   
met. In the event a successor corporation assumes the obligations of the
Company, such successor corporation shall succeed to and be substituted for the
Company under the Indenture and under the Debentures and all obligations of the
Company thereunder shall terminate. (Article 7 of the Indenture.)     
 
EVENTS OF DEFAULT, NOTICE AND CERTAIN RIGHTS ON DEFAULT
 
  The Indenture provides that, if an Event of Default specified therein shall
have occurred and be continuing, either the Trustee or the holders of 25% in
aggregate principal amount of the Debentures then outstanding may, by written
notice to the Company (and to the Trustee, if notice is given by such holders
of Debentures), declare the principal of all the Debentures to be due and
payable. However, at any time after a declaration of acceleration with respect
to the Debentures has been made, but before a judgment or decree based on such
acceleration has been obtained, the holders of a majority in aggregate
principal amount of the Debentures then outstanding may, under certain
circumstances, rescind and annul such acceleration. (Section 5.2 of the
Indenture.)
   
  Events of Default are defined in the Indenture as being: default for thirty
days in payment of any interest installment when due; default for ten days in
payment of principal or premium, if any, at maturity or on redemption or
otherwise, on the Debentures when due; default for sixty days after notice to
the Company by the Trustee, or to the Company and the Trustee by the holders of
at least 25% in aggregate principal amount of the Debentures then outstanding,
in the performance of any other covenant or warranty in the Indenture; and
certain events of bankruptcy, insolvency or reorganization of the Company.
(Section 5.1 of the Indenture.) In addition, pursuant to the officer's
certificate establishing the terms of the Debentures, an Event of Default
occurs if there is a default during an Extension Period resulting in
acceleration of other indebtedness of the Company for borrowed money where the
aggregate principal amount so accelerated exceeds $150 million and such
acceleration is not rescinded or annulled within ten days after the written
notice thereof to the Company by the Trustee or to the Company and the Trustee
by the holders of at least 25% in aggregate principal amount of the Debentures
then outstanding, provided, however, that such Event of Default will be cured
or waived if the default that resulted in the acceleration of such other
indebtedness is cured or waived.     
 
  The Indenture provides that the Trustee shall, within ninety days after the
occurrence of a Default with respect to the Debentures, give to the holders of
the Debentures notice of all uncured Defaults known to it; provided that,
except in the case of default in payment on the Debentures the Trustee may
withhold the notice if and so long as a Responsible Officer (as defined in the
Indenture) in good faith determines that withholding such notice is in the
interests of the holders. (Section 6.6 of the Indenture.) "Default" means any
event which is, or after notice or passage of time or both, would be, an Event
of Default. (Section 1.1 of the Indenture.)
 
  The Indenture provides that the holders of a majority in aggregate principal
amount of the Debentures then outstanding may direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, provided that such
direction shall not be in conflict with any law or the Indenture and subject to
certain other limitations. (Section 5.8 of the Indenture.) The right of any
holder of Debentures to institute action for any remedy under the Indenture
(except the right to enforce payment of the principal of, interest on, and
premium, if any, on its Debentures when due) is subject to certain conditions
precedent, including a request to the Trustee by the holders of not less than
25% in aggregate principal amount of Debentures then outstanding to take
action, and an offer to the Trustee of satisfactory indemnification against
liabilities incurred by it in so doing (Section 5.9 of the Indenture.)
 
  The Indenture includes a covenant that the Company will file annually with
the Trustee a certificate as to the Company's compliance with all conditions
and covenants of the Indenture. (Section 9.7 of the Indenture.)
 
                                       36

<PAGE>
 
  The holders of a majority in aggregate principal amount of the Debentures
then outstanding by notice to the Trustee may waive, on behalf of the holders
of all the Debentures, any past Default or Event of Default and its
consequences except a Default or Event of Default in the payment of the
principal of, premium, if any, or interest on any of the Debentures and certain
other defaults. (Section 5.7 of the Indenture.)
 
  If a bankruptcy proceeding is commenced in respect of the Company under the
Federal Bankruptcy Code or if the principal amount of the Debentures is
accelerated upon the occurrence of an event of default, the holders of the
Debentures may be unable to recover amounts representing the unamortized
portion of any original issue discount at the time such proceeding is commenced
or such acceleration occurs.
 
AGREED TAX TREATMENT
 
  The Indenture provides that each holder of a Debenture, each person that
acquires a beneficial ownership interest in a Debenture and the Company agree
that for United States federal, state and local tax purposes it is intended
that such Debenture constitute indebtedness. (Section 3.1 of the Indenture.)
 
MODIFICATION OF THE INDENTURE
   
  The Indenture contains provisions permitting the Company and the Trustee to
enter into one or more supplemental indentures without the consent of the
holders of any of the Debentures in order (i) to evidence the succession of
another corporation to the Company and the assumption of the covenants and
obligations of the Company by such successor to the Company; (ii) to add to the
covenants of the Company or surrender any right or power of the Company; (iii)
to add additional Events of Default with respect to any series; (iv) to add or
change any provisions to such extent as necessary to permit or facilitate the
issuance of Debentures in bearer form or in global form; (v) to add to, change
or eliminate any provisions affecting Debt Securities not yet issued; (vi) to
secure the Debentures; (vii) to establish the form or terms of Debt Securities
of any series; (viii) to evidence and provide for successor Trustees; (ix) if
allowed without penalty under applicable laws and regulations, to permit
payment in respect of Debt Securities in bearer form in the United States; (x)
to correct or supplement any defective or inconsistent provisions in the
Indenture or any supplemental indenture, to cure any ambiguity or correct any
mistake or to make any other provisions with respect to matters or questions
arising under the Indenture, provided that such action shall not adversely
affect the interests of the holders of the Debentures; or (xi) to comply with
any requirement of the Commission in connection with the qualification of the
Indenture under the Trust Indenture Act. (Section 8.1 of the Indenture.)     
 
  The Indenture also contains provisions permitting the Company and the
Trustee, with the consent of the holders of a majority in aggregate principal
amount of the Debentures then outstanding, to execute supplemental indentures
adding any provisions to or changing or eliminating any of the provisions of
the Indenture or any supplemental indenture or modifying the rights of the
holders, except that no such supplemental indenture may, without the consent of
each holder, (i) change the time for payment of principal, premium, if any, or
interest on any Debenture; (ii) reduce the principal of, or any installment of
principal of, or interest on any Debenture; (iii) reduce the amount of premium,
if any, payable upon the redemption of any Debenture; (iv) reduce the amount of
principal payable upon acceleration of the maturity of an Original Issue
Discount Security (as defined in the Indenture); (v) change the coin or
currency in which any Debenture or any premium or interest thereon is payable;
(vi) impair the right to institute suit for the enforcement of any payment on
or with respect to any Debenture; (vii) reduce the percentage in principal
amount of the outstanding Debentures the consent of whose holders is required
for modification or amendment of the Indenture or for waiver of compliance with
certain provisions of the Indenture or for waiver of certain default; (viii)
change the obligation of the
 
                                       37

<PAGE>
 
Company to maintain an office or agency in the places and for the purposes
specified in the Indenture; (ix) modify the provisions relating to waiver of
certain defaults or any of the foregoing provisions; or (x) adversely affect
the right to convert Debentures. (Section 8.2 of the Indenture.)
 
THE TRUSTEE
   
  The Bank of New York is the Trustee under the Indenture. The Trustee will
also act as Exchange Agent for the Exchange Offer.     
 
FORM OF DEBENTURES
 
  The Debentures will be issued in fully registered form, without coupons.
Investors may elect to hold their Debentures directly or, subject to the rules
and procedures of DTC described below, hold interests in one or more global
Debentures (the "Global Debentures") registered in the name of DTC or its
nominee.
   
  DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the Banking Law of the State of New York, a member of
the Federal Reserve System, a "clearing corporation" within the meaning of the
New York Uniform Commercial Code, and a "clearing agency" registered pursuant
to the provisions of section 17A of the Exchange Act. DTC holds securities that
its participants (the "Participants") deposit with DTC and facilitates the
clearance and settlement of securities transactions among its Participants in
such securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC's participants include securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations, some
of whom (and/or their representatives) own DTC. Access to DTC's book-entry
system is also 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. The rules applicable to DTC and its
Participants are on file with the Commission.     
   
  Upon the issuance of a Global Debenture, DTC will credit on its book-entry
registration and transfer system the principal amount of the Debentures
represented by such Global Debenture to the accounts of institutions that have
accounts with DTC. The accounts to be credited shall be designated by the
holders that sold such Debentures to such Participants. Ownership of beneficial
interests in a Global Debenture will be limited to Participants or persons that
may hold interests through Participants. Ownership of beneficial interests in
Global Debenture will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC for such Global Debenture and
on the records of Participants (with respect to the interests of persons
holding through Participants). So long as DTC, or its nominee, is the owner of
a Global Debenture, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Debentures represented by such Global Debenture
for all purposes under the Indenture.     
 
  Each person owning a beneficial interest in a Global Debenture must rely on
the procedures of DTC and, if such person is not a Participant, on the
procedures of the Participant through which such person owns its interest, to
exercise any rights of a holder under the Indenture. The Company understands
that under existing industry practices, if it requests any action of holders or
if an owner of a beneficial interest in a Global Debenture desires to give or
take any action which a holder is entitled to give or take under the Indenture,
DTC would authorize the Participants holding the relevant beneficial interests
to give or take such action, and such Participants would authorize beneficial
owners owning through such Participants to give or take such action or would
otherwise act upon the instructions of beneficial owners holding through them.
 
  Principal and interest payments on the Debentures will be made to DTC. The
Company understands that it is DTC's practice to credit any Participant's
accounts with payments in amounts
 
                                       38

<PAGE>
 
proportionate to their respective beneficial interests in the Debentures
represented by the Global Debenture as shown on the records of DTC on the date
payment is scheduled to be made, unless DTC has reason to believe that it will
not receive payment on such date. The Company expects that payments by
Participants to owners of beneficial interests in such Global Debenture 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 in bearer form or registered in "street name," and will be the
responsibility of such Participants. Accordingly, although owners who hold
Debentures through Participants will not possess Debentures in definitive form,
the Participants will provide a mechanism by which holders of Debentures will
receive payments and will be able to transfer their interests.
 
  Principal and interest payments on Debentures represented by Global
Debentures registered in the name of DTC or its nominee will be made to DTC or
its nominee, as the case may be, as the registered owner of such Global
Debentures. None of the Company, the Trustee or any other agent of the Company
will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interest in
such Global Debentures or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
 
  If DTC or a successor depositor at any time notifies the Company that it is
unwilling or unable to continue as depository of the Global Debentures or if at
any time DTC is no longer eligible under the Indenture, and a successor
depository is not appointed by the Company within ninety days, the Company will
issue Debentures in definitive certificated form in exchange for the Global
Debentures. In addition, the Company may at any time and in its sole discretion
determine not to have Debentures represented by Global Debentures and, in such
event, will issue Debentures in definitive certificated form in exchange for
the Global Debentures. In either case, an owner of a beneficial interest in
Global Debentures will be entitled to have certificated Debentures equal in
principal amount of such beneficial interest registered in its name and will be
entitled to physical delivery of such certificated Debentures. (Section 3.5 of
the Indenture.)
 
SAME-DAY SETTLEMENT IN RESPECT OF GLOBAL DEBENTURES
 
  So long as any Debentures are represented by Global Debentures registered in
the name of DTC or its nominee, such Debentures will trade in DTC's Same-Day
Funds Settlement System, and secondary market trading activity in such
Debentures will therefore be required by DTC to settle in immediately available
funds. No assurance can be given as to the effect, if any, of settlement in
immediately available funds on trading activity in the Debentures.
 
                          DESCRIPTION OF CAPITAL STOCK
   
  The Company's restated certificate of incorporation (the "Restated
Certificate") provides that the authorized capital stock of the Company
consists of (i) 100,000,000 shares of Common Stock, (ii) 16,000,000 shares of
serial preferred stock, without par value (the "Serial Preferred Stock"), of
which (a) 6,000,000 shares are designated as Series A Preferred Stock, (b)
50,000 shares are designated Series B Preferred Stock (the "Series B Preferred
Stock") and (c) 1,250,000 shares are designated Series C Junior Participating
Preferred Stock (the "Series C Preferred Stock"), (iii) 25,000,000 shares of
Class 1 ESOP Convertible Preferred Stock, par value $0.01 per share (the "Class
1 ESOP Preferred Stock"), (iv) 25,000,000 shares of Class 2 ESOP Convertible
Preferred Stock, par value $0.01 per share (the "Class 2 ESOP Preferred Stock"
and together with the Class 1 ESOP Preferred Stock, the "ESOP Preferred
Stock"), (v) 11,600,000 shares of Class P ESOP Voting Junior Preferred Stock,
par value $0.01 per share (the "Class P ESOP Voting Preferred Stock"), (vi)
9,300,000 shares of Class M ESOP Voting Junior Preferred Stock, par value $0.01
per share (the "Class M ESOP Voting Preferred Stock"), (vii) 4,200,000 shares
of Class S ESOP Voting Junior Preferred Stock, par value $0.01 per share (the
"Class S ESOP Voting Preferred Stock" and together with the Class P ESOP Voting
Preferred Stock     
 
                                       39

<PAGE>
 
and the Class M ESOP Voting Preferred Stock, the "Voting Preferred Stock"),
(viii) ten shares of Class I Junior Preferred Stock, par value $0.01 per share
(the "Class I Preferred Stock"), (ix) one share of Class Pilot MEC Junior
Preferred Stock, par value $0.01 per share (the "Class Pilot MEC Preferred
Stock"), (x) one share of Class IAM Junior Preferred Stock, par value $0.01 per
share (the "Class IAM Preferred Stock"), and (xi) ten shares of Class SAM
Junior Preferred Stock, par value $0.01 per share (the "Class SAM Preferred
Stock" and together with the Class Pilot MEC Preferred Stock and the Class IAM
Preferred Stock, the "Employee Director Preferred Stock;" the Employee Director
Preferred Stock together with the Class I Preferred Stock, the "Director
Preferred Stock"). Together the shares of Serial Preferred Stock, ESOP
Preferred Stock, Voting Preferred Stock and Director Preferred Stock are
referred to as the "Preferred Stock." Shares of Serial Preferred Stock not
otherwise designated may be issued from time to time in one or more series,
without stockholder approval (unless the Serial Preferred Stock would rank
prior to the ESOP Preferred Stock in which case such issuance shall be subject
to the approval of each class of ESOP Preferred Stock, voting separately as a
class), with such powers, preferences and relative, participating, optional or
other special rights, and qualifications, limitations, or restrictions thereof
as may be adopted by the Board or a duly authorized committee thereof.
   
  As of January 31, 1995, the outstanding capital stock of the Company
consisted of (i) 12,434,294 shares of Common Stock, (ii) 5,999,900 shares of
Series A Preferred Stock, (iii) 13,079.6 shares of Series B Preferred Stock,
issued in the form of depositary preferred shares each representing one one-
thousandth of a share of Series B Preferred Stock, (iv) 1,789,585 Shares of
Class 1 ESOP Preferred Stock, (v) no shares of Class 2 ESOP Preferred Stock,
(vi) one share of Class P ESOP Voting Preferred Stock, one share of Class M
ESOP Voting Preferred Stock and one share of Class S ESOP Voting Preferred
Stock, each owned of record by the trustee of the ESOP trusts, (vii) one share
of Class Pilot MEC Preferred Stock held by the United Airlines Pilots Master
Executive Counsel ("ALPA-MEC") of the Air Line Pilots Association,
International ("ALPA"), (viii) one share of Class IAM Preferred Stock held by
the International Association of Machinists and Aerospace Workers (the "IAM"),
(ix) three shares of Class SAM Preferred Stock, two held by the salaried and
management director of the Company (the "Salaried and Management Director"),
and one share owned by the senior executive of United with primary
responsibility for human resources (the "SAM Designated Stockholder") and (x)
four shares of Class I Preferred Stock, one held by each of the independent
directors of the Company (the "Independent Directors"). Additional shares of
ESOP Preferred Stock will not be outstanding but will be recorded on the books
of the Company as book-entry shares ("Book-Entry Shares"). See "--The ESOP
Preferred Stock." All of the outstanding shares of Common Stock and Preferred
Stock are, and the shares of Common Stock issuable upon conversion of the
Debentures will be, validly issued, fully paid and nonassessable.     
 
CORPORATE GOVERNANCE
 
 Composition of the Board
 
  Subject to the rights of holders of Series A Preferred Stock and the holders
of the Series B Preferred Stock to elect a total of two additional directors in
the event of certain dividend arrearages (the "Preferred Stock Dividend Default
Rights"), and prior to the Sunset, the Board will consist of 12 directors, who
include (i) five Public Directors (as defined below), (ii) four Independent
Directors (as defined below), (iii) two Union Directors (as defined below) and
(iv) one Salaried and Management Director (as defined below) (the Union
Directors and the Salaried and Management Director, collectively, are referred
to as the "Employee Directors"). Following the Sunset, subject to the Preferred
Stock Dividend Default Rights and the occurrence of either or both of the ALPA
Termination Date and the IAM Termination Date (both as defined below, see "--
Sunset"), the Board will consist of 12 directors of whom nine will be elected
by the holders of the Common Stock and three will be Employee Directors,
elected as described below.
 
                                       40

<PAGE>
 
 Public Directors
 
  Five directors (the "Public Directors") are elected by holders of the Common
Stock and consist of (a) three individuals who are not and have never been an
officer or employee of, or a provider of professional services to, the Company
or any of its subsidiaries (the "Outside Public Directors") and (b) two
substantially full-time employees of the Company or any of its subsidiaries,
one of whom, in addition, to the fullest extent such additional qualification
is permitted by law, will be, at the time of election, the CEO, and the other
of whom, in addition, to the fullest extent such additional qualification is
permitted by law, will be a senior executive officer of the Company
satisfactory to the CEO (the "Management Public Directors"). At the expiration
of the term of each Outside Public Director and to fill vacancies, Outside
Public Directors will be nominated or appointed, as appropriate, by an "Outside
Public Director Nomination Committee" comprised of the Outside Public
Directors. Any amendment or modification of the rights, powers, privileges or
qualifications of the Outside Public Directors or the Outside Public Director
Nomination Committee will, in addition to the approval required by law or as
described below under the Restated Certificate, require the concurrence of all
of the Outside Public Directors or the affirmative vote of at least a majority
in voting power of the outstanding capital stock of the Company entitled to
vote thereon excluding shares held by the ESOP Trustee. In addition, Management
Public Directors are nominated or appointed, as appropriate, by a majority vote
of the entire Board.
 
 Independent Directors
 
  The four Independent Directors have been elected by the holders of Class I
Preferred Stock. Each Independent Director, upon becoming an Independent
Director, acquired a share of Class I Preferred Stock and became a party to the
Class I Preferred Stockholders' Agreement pursuant to which the stockholders
have agreed to vote their shares to elect the Independent Directors nominated
in accordance with the procedures set forth below and to refrain from
transferring their shares of Class I Preferred Stock other than to a person who
has been elected to serve as an Independent Director and who agrees to be
subject to the provisions of the Class I Preferred Stockholders' Agreement.
 
  None of the Independent Directors may have, without the consent of both Union
Directors and all of the Public Directors, a current or prior material
affiliation or business relationship with the Company (other than an
affiliation that results from being a member of the Board) or be an officer,
director, trustee or official of any labor organization that serves as a
collective bargaining "representative" under the Railway Labor Act or the
National Labor Relations Act. In addition, generally, at least two of the four
Independent Directors at the time of their initial nomination or appointment to
the Board must (i) be a senior executive officer of a private or public company
with revenues in excess of $1 billion during such company's prior fiscal year
and/or (ii) be a member of the board of directors of at least one other public
company with a market capitalization in excess of $1 billion as of the date of
such company's most recent annual financial statements.
 
  The Independent Directors are nominated or appointed, as appropriate, by an
"Independent Director Nomination Committee" consisting of the Independent
Directors and the Employee Directors. Approval of such nomination or
appointment requires a majority of the Independent Directors and the
concurrence of at least one Union Director.
 
 Employee Directors
 
  The three Employee Directors are elected as follows: (i) one director (the
"ALPA Director") is elected by the holder of the Class Pilot MEC Preferred
Stock, (ii) one director (the "IAM Director" and, together with the ALPA
Director, the "Union Directors") is elected by the holder of the Class IAM
Preferred Stock, and (iii) the Salaried and Management Director is elected by
the holders of the Class SAM Preferred Stock, each selected as described below.
 
                                       41

<PAGE>
 
  The replacement Salaried and Management Director will be nominated by the
System Roundtable. The System Roundtable will establish a selection committee
of four employees to select the nominee for Salaried and Management Employee
Director from time to time. The Salaried and Management Director and the SAM
Designated Stockholder are parties to the Class SAM Preferred Stockholders'
Agreement pursuant to which the stockholders have agreed to vote their shares
to elect the Salaried and Management Director nominated by the System
Roundtable and to refrain from transferring the shares of Class SAM Preferred
Stock other than to a person who has been elected to serve as the Salaried and
Management Director or to the senior executive of United who has primary
responsibility for human resources and, in each case, who agrees to be subject
to the provisions of the Class SAM Preferred Stockholders' Agreement. The
"System Roundtable" is a body of salaried and management employees of United
empaneled to review and discuss issues relating to the Company and their effect
on salaried and management employees.
 
  Vacancies of Employee Directors may be filled only by the holder or holders
of the class of stock that elected such director.
 
 Quorum
 
  The Restated Certificate provides that until the Sunset, a quorum at a Board
meeting will exist only if (a) directors with at least a majority of the votes
entitled to be cast by the entire Board are present and (b) unless consented to
by the two Union Directors, if less than all votes are present, the number of
votes constituting a majority of the votes present is no greater than the sum
of (i) two plus (ii) the number of Independent Director votes present at the
meeting.
 
 Required Board Action
   
  Except as required by law or as set forth in the Restated Certificate,
approval of all Board action requires a majority vote of the total number of
director votes present at a meeting at which a quorum is present. Until the
Sunset, in the event of a vacancy on the Board of an Independent Directorship,
the remaining Independent Directors will as a group continue to have four votes
(divided equally among the remaining Independent Directors). Until the Sunset,
in the event of a vacancy on the Board of an Employee Directorship or a Public
Directorship, or in the event of a vacancy of an Independent Directorship that
immediately prior to the occurrence of such vacancy was held by a member of a
Board committee of which only one Independent Director was a member, then,
subject to the fiduciary duties of the remaining Directors or members of such
Board committee, as the case may be, then in office, neither the Board nor such
Board committee may take any action (other than to fill such vacancy) until
after the earlier of (i) 20 days following the occurrence of such vacancy and
(ii) the time that such vacancy is filled in accordance with the Restated
Certificate.     
 
 Term of Office; Resignation; Removal
   
  Each Director holds office until the next annual meeting of stockholders and
until his or her successor is elected and qualified, subject to such Director's
earlier death, resignation or removal. In addition, the term of an Outside
Public Director or an Independent Director automatically terminates if such
Director ceases to meet the qualifications of an Outside Public Director or
Independent Director, as the case may be. Any Director may resign at any time
upon written notice to the Company. Directors may not be removed from office
except (i) without cause, by the class of stockholders that elected them, or
(ii) "for cause" as determined under the DGCL.     
 
 Officers
 
  All decisions to hire or fire members of senior management (other than the
CEO) are taken by the board or pursuant to the authority typically delegated by
it to the CEO. Until the Sunset, hiring a new
 
                                       42

<PAGE>
 
   
CEO requires the approval of a majority of the Board following a recommendation
by the Executive Committee, which will act as a search committee. If at the
first meeting of stockholders following the hiring of a new CEO (other than the
initial CEO following the Recapitalization), such CEO is not elected to the
Board as a Public Director by the stockholders entitled to vote on such
election, such CEO will be removed from office and a successor CEO will be
selected. Any successor CEO will be appointed to fill the Public Directorship
vacated by the predecessor CEO.     
 
 Stockholder Approval Matters
   
  Stockholder approval is not a condition to any action of the Company except
(i) as required by DGCL, or (ii) as described below under "--Extraordinary
Matters," "--Special Voting Provisions with Respect to Purchase and Sale of
Common Stock" or "--The ESOP Preferred Stock--Voting Rights." Until the Sunset,
except as otherwise required by law or by the Restated Certificate, the
presence in person or by proxy of the holders of outstanding shares
representing at least a majority of the total voting power of all outstanding
shares entitled to vote at a meeting of stockholders will constitute a quorum
at a meeting of stockholders.     
 
 ESOP Voting
   
  Allocated shares of Voting Preferred Stock (and, under any limited
circumstances required by law or the Restated Certificate in which matters are
submitted to it for a vote, the ESOP Preferred Stock) held by the tax-qualified
employee stock ownership plan (as defined under "--The ESOP Preferred Stock")
will be voted by participants, as named fiduciaries under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), on a confidential
pass-through basis. The ESOP Trustee (as defined below) is obligated to vote as
instructed by the participants to whom the Voting Preferred Stock has been
allocated, and the shares which are allocated command the entire voting power
of each class of Voting Preferred Stock. ALPA has made an agreed-upon election
pursuant to which the shares of Class P Voting Preferred Stock allocated to
former employees who were ALPA members will be voted by the ESOP Trustee.
Unallocated shares and allocated shares which were not voted by the
participants in the Qualified ESOP will be voted as described below by those
ESOP participants who are employees who choose so to direct the ESOP Trustee.
The ESOP Trustee will (except as may be required by law) vote the unallocated
and otherwise unvoted shares in the proportions directed by participants who
give instructions to the ESOP Trustee with respect to such shares; each
participant who is an employee has the right to give such directions to the
ESOP Trustee in proportion that the participant's allocated shares bears to the
allocated shares of all participants giving such directions. Shares held by the
Supplemental ESOP will be voted as instructed by the administrative committee
appointed under the Supplemental ESOP. The Supplemental ESOP provides that the
administrative committee shall consider the sentiments of participants
concerning the vote, but is not required to take any particular action in
response thereto. The Supplemental ESOP provides that it shall be amended at
the request of ALPA to provide for pass-through voting by participants. The
foregoing provisions also govern instructions to be given to the ESOP Trustee
in the event of a tender offer.     
 
 Extraordinary Matters
 
  Certain matters, defined as "Extraordinary Matters" generally require, in
addition to any voting requirements under the DGCL, approval of at least either
three-quarters of the Board (including the concurrence of one Union Director)
or three-quarters of the shares present and voting at a stockholder meeting at
which a quorum is present. In addition, the vote of at least 66 2/3% of the
outstanding voting stock that is not owned by an "interested stockholder" is
required to approve a "business combination" under Section 203 of the DGCL,
where applicable. Extraordinary Matters include:
 
    (a) Amendments to the Restated Certificate (other than certain technical
  amendments), substantive amendments to the Bylaws and mergers or
  consolidations of the Company or any of
 
                                       43

<PAGE>
 
  its subsidiaries or a sale, lease or exchange of all or substantially all
  of the assets of the Company or United involving a person that has been
  formed by or is an affiliate of one or more labor groups representing
  employees of the Company or any of its subsidiaries or a person determined
  by the Board to be a person in which a substantial group of employees of
  the Company or any of its subsidiaries, acting as an organized group, owns
  a majority ownership interest (a "Labor Affiliate") (the Extraordinary
  Matters described in this paragraph (a) require, in addition to the
  approvals described above, either (i) six affirmative votes cast by
  Directors who are not Employee Directors or (ii) the affirmative vote of a
  majority of the shares of capital stock not held by ESOPs);
 
    (b) Mergers or consolidations of the Company or any of its subsidiaries
  or a sale, lease or exchange of all or substantially all of the assets of
  the Company or United involving a person who is not a Labor Affiliate;
 
    (c) Dissolutions;
 
    (d) Entry into any new line of business outside the "airline business"
  (defined generally as the business of operating a domestic air carrier,
  together with any business or activities reasonably related to or in
  support of all such operations engaged in by the Company or any subsidiary
  at or immediately prior to the Effective Time), or the making of any
  investment (in excess of five percent of the total assets of the Company
  and its subsidiaries on a consolidated basis) outside the airline business;
 
    (e) The making of any domestic airline acquisition or any material
  investment in another airline including ordinary course investments in
  excess of one half of one percent of the total assets of the Company and
  its subsidiaries on a consolidated basis;
 
    (f) The adoption of any material amendment to the Rights Agreement (as
  defined below, see "--Preferred Share Purchase Rights") or taking of any
  material actions, including the redemption of rights, under the Rights
  Agreement;
 
    (g) The sale, lease, exchange, surrender to or at the direction of a
  lessor, or other disposition (a "Disposition") by the Company or any of its
  Subsidiaries of assets for "Gross Proceeds" (defined to exclude taxes and
  sales costs) that, when added to the Gross Proceeds from (i) the
  Disposition of other such assets during the preceding 365 day period
  resulting in Gross Proceeds in excess of $5 million and (ii) the
  Disposition of other such assets during a recently completed preceding
  twelve calendar month period resulting in Gross Proceeds of $5 million or
  less, collectively exceeds $200 million; provided that (A) Gross Proceeds
  included in clauses (i) and (ii) will not include Gross Proceeds from any
  transactions consummated prior to the Effective Time and (B) the $5 million
  set forth in clauses (i) and (ii) may be increased by action of the Board
  on an annual basis based on the affirmative vote of at least 75% of the
  votes entitled to be cast by the entire Board, which must include the
  concurrence of at least one Union Director; provided, further, that such
  approval will not be required for certain specified transactions (or count
  against the $200 million Gross Proceeds calculation above) including: (1)
  secured aircraft financings, (2) sale-leaseback and leveraged lease
  transactions, or sales or similar transfers of receivables, for financing
  purposes, (3) Dispositions of assets if replacement assets (consisting of
  assets of the same class as the assets being disposed of) generally have
  been ordered or acquired within the six calendar month period prior to such
  Dispositions of assets or so ordered or acquired within 365 days following
  the Disposition of assets for which no replacement assets had been
  previously acquired, (4) Dispositions provided Gross Proceeds in an amount
  up to 10% of the book value (net of depreciation) of the Company's fixed
  assets at the time of the most recent quarterly financial statements of the
  Company if (A) Directors entitled cast at least 75% of the votes entitled
  to be cast by the entire Board, including all of the Independent Directors,
  determine by resolution of the Board that such asset Disposition is
  necessary to (I) cure a default under material financing agreements binding
  upon the Company or any of its subsidiaries or any of their respective
  properties, or avoid a default thereunder that, absent such Disposition,
  would be reasonably likely to occur within 90 days or (II) remedy a
  material adverse development in the Company's business
 
                                       44

<PAGE>
 
     
  or condition, and (B) the Gross Proceeds of such asset Disposition are used
  to remedy the condition referred to in clause (A) (provided, that the
  exception afforded by this clause (4) will be available not more than once
  in any consecutive five-year period), (5) certain ordinary course
  Dispositions designed to allow the Company and its subsidiaries to continue
  many of their existing practices without significant restrictions that may
  involve Dispositions of assets, (6) Dispositions of assets (other than air
  frames, engines and related spare parts) if (A) made pursuant to a discrete
  asset management program that provides for the Disposition of not more than
  an aggregate of $25 million of assets and (B) such discrete asset
  management program is approved annually by either the Board or the
  stockholders as an Extraordinary Matter in accordance with the voting
  thresholds outlined above, and (7) Dispositions of assets that
  individually, or when aggregated with other assets in the same or related
  Dispositions, are not in excess of a de minimis amount, either with respect
  to periods prior to December 31, 1994 or pursuant to a distinct asset
  management program approved in accordance with the procedures set forth in
  clause (6) above; and     
     
    (h) The issuance of equity or equity equivalent securities (including
  convertible debt, but excluding non-voting, non-convertible preferred
  stock) (a "Non-Dilutive Issuance"); provided that such issuance shall not
  constitute an Extraordinary Matter if any of the following occur: (A) (I)
  three-quarters of the votes entitled to be cast by the entire Board,
  including all the Independent Directors, determine that such issuance is in
  the best interests of the Company, (II) such issuance is subject to the
  First Refusal Agreement (as defined below, see "--Common Stock--Right of
  First Refusal") and (III) if such issuance occurs on or prior to July 12,
  1995, the Board by the affirmative vote of a majority of the votes entitled
  to be cast by the Directors present at a meeting of the Board at which a
  quorum is present, which vote must include the affirmative votes of both
  Union Directors, approves an equitable adjustment to the number of
  Additional Shares (as defined, see "--Establishment of ESOPs--Additional
  Shares") to be issued pursuant to the Plan of Recapitalization, (B) three-
  quarters of votes entitled to be cast by the entire Board, including all
  the Independent Directors, determine (I) that the Company is insolvent (or,
  absent a material positive change in the Company's results of operations
  over the immediately succeeding 90 days from the results contained in the
  Company's regularly prepared projections, that the Company will become
  insolvent within 90 days), which determination is confirmed by written
  opinions of two nationally recognized investment banking firms that further
  opine (giving effect to the facts and circumstances applicable to the
  Company, including discussions with prospective equity investors) that the
  sale of equity securities is necessary to avoid or remedy such insolvency
  (the "Bankruptcy Opinions") and (II) that, after giving effect to the
  proposed issuance of additional equity securities (the "Permitted
  Bankruptcy Equity"), the Company would no longer be or not become
  "insolvent" in the time frame referred to in the Bankruptcy Opinions (the
  "Solvency Determination") and such issuance of Permitted Bankruptcy Equity
  satisfies the following three conditions: (X) such issuance does not exceed
  the amount determined by the Board to be reasonably necessary to allow the
  Board to make the Solvency Determination, (Y) a binding commitment for the
  sale of such Permitted Bankruptcy Equity is entered into within 90 days of
  the delivery of the Bankruptcy Opinions and (Z) the terms of the First
  Refusal Agreement have been complied with in all material respects by the
  Company, or (C) such issuance is pursuant to (I) the exercise, conversion
  or exchange of equity securities outstanding immediately prior to July 12,
  1994, (II) the Company's 1981 Incentive Stock Plan, 1988 Restricted Stock
  Plan or Incentive Plan, each as amended in accordance with the Plan of
  Recapitalization, (III) the UAL Corporation 1992 Stock Plan for Outside
  Directors or (IV) any other equity incentive compensation plan approved by
  the affirmative vote of three-quarters of the votes entitled to be cast by
  the entire Board, including all the Independent Directors.     
 
 Special Voting Provisions with Respect to Purchase and Sale of Common Stock
 
  Until the Sunset, any purchases of Common Stock by the Company (other than to
fulfill its obligations to issue or retain shares of Common Stock in connection
with the exercise of employee options issued pursuant to employee benefit plans
or to retain shares of Common Stock in connection
 
                                       45

<PAGE>
 
with tax withholding obligations in connection with the exercise of employee
options or restricted stock), or any sale by the Company of any shares of
Common Stock to a Company-sponsored pension, retirement or other employee
benefit plans for the account of employees (other than pursuant to the First
Refusal Agreement or in connection with the creation and operation of the ESOPs
to which the ESOP Preferred Stock is issued), whether for cash or non-cash
consideration, including without limitation, employee concessions, must be
approved by a majority of the Board, including at least 80% of the votes of the
Public Directors.
 
 Nondilution
 
  The holders of Voting Preferred Stock vote as a single class with the holders
of the Common Stock and the Employee Director Preferred Stock and represent
approximately 55% of the votes to be cast on matters submitted to the vote of
the Common Stock, Employee Director Preferred Stock and the Voting Preferred
Stock (other than the election of Directors and such matters for which a vote
by separate class is required under the DGCL). The number of votes represented
by such Voting Preferred Stock is subject to increase on July 12, 1995 as
described in "--The Voting Preferred Stock--Voting Rights." The Voting
Preferred Stock will generally continue to represent approximately 55% of the
aggregate voting power of the Common Stock, the Employee Director Preferred
Stock and the Voting Preferred Stock, as adjusted under certain circumstances,
until the Sunset.
 
 Sunset
 
  The "Sunset" will occur when (i) the Common Stock issuable upon conversion of
the outstanding ESOP Preferred Stock, plus (ii) any Common Equity and Available
Unissued ESOP Shares held in the ESOPs, in any other employee benefit plans
sponsored by the Company or any of its subsidiaries for the benefit of its
employees, represent, in the aggregate, less than 20% of the Common Equity and
Available Unissued ESOP Shares of the Company. "Common Equity" is defined as,
in the aggregate and without double-counting, (i) the Common Stock outstanding
at the time in question, (ii) the Common Stock issuable upon conversion of the
ESOP Preferred Stock and Voting Preferred Stock outstanding at the time in
question, (iii) the Common Stock which is both (x) issuable upon exercise,
conversion or exchange of Equity Securities and (y) included in the definition
of "Fully Diluted Shares" (as defined in the Recapitalization Agreement), and
(iv) the Common Stock represented by the Permitted Bankruptcy Equity
outstanding at the time in question, if any; but excluding any Equity
Securities (other than Permitted Bankruptcy Equity, Equity Securities issued in
connection with the Recapitalization, any Class 2 ESOP Preferred Stock that may
be issued and Equity Securities included in the definition of Fully Diluted
Shares, as well as any other Equity Securities issued upon exercise or
conversion of any such Permitted Bankruptcy Equity or any other such Equity
Securities) issued in connection with a Non-Dilutive Issuance, including,
without limitation, any Equity Securities (a) outstanding immediately prior to
the Recapitalization that were not included in the definition of Fully Diluted
Shares or (b) issued under the circumstances described in paragraph (h)(A)
under "--Extraordinary Matters" or paragraph (h)(C)(II), (III) or (IV) under
"--Extraordinary Matters" (including, in each case the shares of Equity
Securities underlying such Equity Securities or issuable upon the exercise,
conversion or exchange thereof). "Available Unissued ESOP Shares" is generally
defined as the number of shares of Common Stock to be issued in connection with
the ESOPs which have not yet been issued.
 
  If the Sunset occurs, the Company will file a restated certificate of
incorporation providing for more customary corporate governance provisions, the
number of Directors will remain at 12 (of which three will be Employee
Directors), the Outside Public Director Nomination Committee will nominate the
Board's nominees for election of directors (other than the Employee Directors)
to be elected by the stockholders at a meeting which will be held promptly
thereafter and upon the effectiveness of such election the term of the then
incumbent Directors will terminate, and there will be no special director or
voting rights, except that (a) the ALPA Director will be elected by the holder
of the Class Pilot MEC
 
                                       46

<PAGE>
 
Preferred Stock until the ALPA Termination Date, the IAM Director will be
elected by the holder of the Class IAM Preferred Stock until the IAM
Termination Date and the Salaried and Management Director will be elected by
the holders of the Class SAM Preferred Stock until the earlier of the ALPA
Termination Date and the IAM Termination Date, each voting separately in a
class, and (b) the Union Directors would continue to serve on Committees as
provided below.
 
  Under current actuarial assumptions, the Company estimates that the Sunset
will occur in the year 2016 if no additional purchases were made by eligible
employee trusts and retirement plans. However, employees have the right to, and
may be expected to, make additional purchases through such trusts and plans
that will have the effect of delaying the Sunset. In certain circumstances
described under "--The Director Preferred Stock--Uninstructed Trustee Action,"
the Sunset may not occur until 2010 even though the conditions for the Sunset
have occurred. The Common Stock issuable or issued upon conversion of the
Series A Preferred Stock is considered Common Equity for purposes of Sunset and
the actuarial assumptions used in estimating the Sunset date assume that all
Series A Preferred Stock is converted into Common Stock and none is redeemed or
repurchased by the Company. However, neither the Debentures nor any Common
Stock issued upon conversion thereof are considered Common Equity under the
Restated Certificate. Accordingly, the Company estimates that the exchange of
the Series A Preferred Stock in the Exchange Offer can be expected, based on
such actuarial assumptions and all other things being equal, to delay the
occurrence of the Sunset by approximately one year, assuming all of the
outstanding Series A Preferred Stock is exchanged for Debentures in the
Exchange Offer.
 
 Committees
 
  The Restated Certificate provides that until the Sunset the following
committees will constitute the Board committees: the Audit Committee, the
Competitive Action Plan ("CAP") Committee, the Compensation Committee, the
Compensation Administration Committee, the Executive Committee, the Independent
Director Nomination Committee, the Labor Committee, the Outside Public Director
Nomination Committee and the Transaction Committee (collectively, the
"Committees"). In addition, the Board may, by resolution passed by the
affirmative vote of 80% of the votes of the entire Board, including the
affirmative vote of at least one Union Director, designate one or more other
committees of the Board, and it has exercised such power to create a Pension
and Welfare Plan Oversight Committee ("PAWPOC"). Except as provided below, any
act of a Committee will require the affirmative vote of a majority of the votes
entitled to be cast by the Directors present at a meeting of such Committee and
entitled to vote on the matter in question. The Restated Certificate contains
certain provisions relating to the required quorum for committee action.
 
  The Audit Committee consists of the four Independent Directors and the three
Outside Public Directors or such fewer number of such Directors (in as nearly
as practicable that same proportion of Independent Directors and Outside Public
Directors) as shall qualify for audit committee membership under applicable
rules of the securities exchanges or other similar trading market on which the
Common Stock is traded. The Audit Committee is primarily concerned with (i)
reviewing the professional services and independence of the Company's
independent auditors and the scope of the annual external audit as recommended
by the independent auditors, (ii) ensuring that the scope of the annual
external audit is sufficiently comprehensive, (iii) reviewing, in consultation
with the independent auditors and the internal auditors, the plan and results
of the annual external audit, the adequacy of the Company's internal control
systems and the results of the Company's internal audits, and (iv) reviewing,
with management and the independent auditors, the Company's annual financial
statements, financial reporting practices and the results of each external
audit. The Audit Committee also has the authority to consider the
qualifications of the Company's independent auditors, to make recommendations
to the Board as to their selection and to review and resolve disputes between
such independent auditors and management relating to the preparation of the
annual financial statements.
 
                                       47

<PAGE>
 
   
  The CAP Committee consists of eight Directors, including four Public
Directors, two Independent Directors and the two Union Directors. Of the four
Public Directors, three must be Outside Public Directors and one must be the
CEO (if the CEO is a Public Director). The two Independent Director members are
appointed by the Independent Director Nomination Committee which appointment
requires the affirmative vote of all of the votes entitled to be cast by the
Independent Directors. The function of the CAP Committee is to oversee
implementation of the Company's Competitive Action Plan. The CAP Committee has
the exclusive authority, acting for and on behalf of the Board and consistent
with the protection of the interests of the holders of Common Stock to approve
on behalf of the Company any and all modifications of or amendments to the
Competitive Action Plan. However, to the extent such modifications or
amendments relate to changes to any provision of the revised Collective
Bargaining Agreements with the IAM and ALPA, the two Union Directors on the CAP
Committee are neither entitled to vote nor counted in determining the presence
of a quorum of such committee in connection therewith. Notwithstanding the
foregoing, only the Labor Committee may approve on behalf of the Company any
such changes to such Collective Bargaining Agreements. In addition, the CAP
Committee has the exclusive authority, acting for and on behalf of the Board,
to approve on behalf of the Company any and all modifications of or amendments
to the salaried and management employee investment described in "--Investment
for Salaried and Management Employees." Such modifications or amendments must
be approved by the affirmative vote of at least a majority of the votes of the
entire CAP Committee, including both Union Directors and all of the Outside
Public Directors.     
   
  The Compensation Committee consists of seven Directors, including two
Independent Directors, two Public Directors and three Employee Directors. Of
the two Public Directors, one must be an Outside Public Director appointed by
the Outside Public Director Nomination Committee, and one must be the CEO (if
the CEO is a Public Director). The two Independent Director members are
appointed by the unanimous approval of the Independent Director Nomination
Committee. The principal functions of the Compensation Committee are to review
and recommend to the Board the compensation and benefit arrangements to be
established for the officers of the Company and to review general policy
matters relating to compensation and benefit arrangements of non-union
employees of the Company. The Compensation Committee also administers the stock
option plans and executive compensation programs of the Company, including
bonus and incentive plans applicable to officers and key employees of the
Company. Subject to the final approval of the Compensation Committee (except as
described in the following paragraph), the Compensation Committee may delegate
to the Compensation Administration Committee specific responsibilities with
respect to the compensation of the CEO.     
 
  The Compensation Administration Committee consists of two Independent
Directors and one Outside Public Director, each of whom is (a) a "disinterested
person" or "disinterested administrator" or any related successor concept under
Rule 16b-3 (or any successor provision) promulgated pursuant to Section 16 of
the Exchange Act and (b) an "outside director" or any related successor concept
under Section 162(m) (or any successor provision) of the Code. The Outside
Public Director is appointed by the Outside Public Director Nomination
Committee. The two Independent Directors are appointed by the Independent
Director Nomination Committee, which appointment shall require the affirmative
vote of all the Independent Directors. The principal function of the
Compensation Administration Committee is to administer the stock option plans
and executive compensation programs of the Company to the extent such functions
cannot or are not appropriate to be performed by the Compensation Committee in
light of any provision of the Internal Revenue Code, the securities laws, any
other applicable law or any regulations promulgated under any of the foregoing.
Any action of the Compensation Administration Committee must also be approved
by the Compensation Committee, unless such approval could reasonably be
expected to prevent a stock option plan or executive compensation program, or a
component thereof, that is intended to qualify under Rule 16b-3 (or any
successor provision) or to qualify for an exception under such Section 162(m)
(or any successor provision) from receiving the benefits of Rule 16b-3 or
qualifying for such exception, respectively.
 
                                       48

<PAGE>
 
  The Executive Committee is comprised of two Independent Directors, two Public
Directors (the CEO, if the CEO is a Public Director, and one Outside Public
Director) and two Union Directors. Subject to the DGCL, the Executive Committee
has all the powers of the Board to manage the affairs of the Company except
that it does not have the authority to act with respect to any of the
"Extraordinary Matters" discussed above, to take any action as to matters
specifically vested in other Committees or take any action that may be taken by
the Board only with a vote greater than or additional to a majority of the
Board. In the event a new CEO is to be selected prior to the Sunset, the
Executive Committee will function as a search committee to identify a successor
CEO.
 
  The Labor Committee consists of three or more Directors, including one
Outside Public Director, at least one Independent Director and at least one
other Director, as designated by the Board, but may not include any Employee
Directors. The Labor Committee has the exclusive authority on behalf of the
Board to approve on behalf of the Company the entering of, or any modification
or amendment to, a collective bargaining agreement for U.S. employees to which
the Company or any of its subsidiaries is a party.
 
  The Transaction Committee consists of seven Directors, consisting of the four
Independent Directors and the three Outside Public Directors. The function of
the Transaction Committee is to evaluate and advise the Board with respect to
any proposed merger or consolidation of the Company or any of its Subsidiaries
with or into, the sale, lease or exchange of all or substantially all of the
Company's or any of its Subsidiaries' property or assets to, or a significant
business transaction with, any Labor Affiliate.
 
  PAWPOC consists of six Directors, consisting of two Independent Directors,
one Outside Public Director and three Employee Directors. The function of
PAWPOC is to exercise oversight with respect to compliance by the Company and
its subsidiaries with laws governing employee benefit plans maintained by the
Company and its subsidiaries and subject to the provisions of ERISA.
 
 Amended and Restated Bylaws
   
  The Company's restated bylaws (the "Restated Bylaws") provide that until the
Sunset, many matters will be governed by the Restated Certificate including,
among others: (i) quorum requirements at any meeting of the stockholders, the
Board or any Board Committee; (ii) the number, composition and term of office
of Directors; (iii) removal of Directors; (iv) filling of vacancies on the
Board and on Board Committees; (v) designation of Board Committees; (vi) the
composition, function and powers of the Executive Committee; (vii) the
appointment, term of office, filling of vacancies and removal of officers of
the Company; and (viii) any substantive amendment to the Restated Bylaws.
Further the Restated Bylaws provide that, subject to certain exceptions,
following the Sunset many provisions of the Company's Bylaws prior to their
restatement in connection with the Recapitalization will be reinstated.     
   
  The Restated Bylaws also: (i) govern the ability, until the Sunset, of any
two Directors, the CEO or the secretary of the Company to call a special
meeting of the Board; (ii) require, until the Sunset, subject to the fiduciary
obligations of the Directors, that the CEO will be elected as one of the
Management Public Directors; (iii) provide that the term of office of the CEO
(other than Mr. Greenwald as the initial CEO) will automatically terminate if
he or she is not elected as Management Public Director by the stockholders at
the first meeting of stockholders for the election of directors at which he or
she is eligible for nomination as a Management Public Director; and (iv)
require, until the Sunset, that non-substantive amendments to the Restated
Bylaws may be adopted either by a majority vote of the entire Board or by 75%
of the voting power of the stock entitled to vote at a stockholder meeting in
which a quorum is present. In addition, the Restated Bylaws contain other
procedural sections, some of which operate only until the Sunset and some of
which become operative only after the Sunset.     
 
                                       49

<PAGE>
 
COMMON STOCK
 
  Dividend Rights. Holders of Common Stock are entitled to receive dividends
when, as and if declared by the Board out of funds legally available therefor,
provided that, so long as any shares of Preferred Stock are outstanding, no
dividends (other than dividends payable in common stock) or other distributions
may be made with respect to the Common Stock unless full cumulative dividends
on the shares of Preferred Stock have been paid. The Company has not paid cash
dividends on the Common Stock since the third quarter of 1987.
 
  As a holding company, the Company relies on distributions from United to pay
dividends on its capital stock. There are currently no contractual restrictions
on United's ability to pay dividends to the Company.
 
  Voting Rights. The holders of the Common Stock are entitled to cast one vote
per share. Prior to the Sunset, the holders of the Common Stock, the holders of
the Employee Director Preferred Stock and the holders of the Voting Preferred
Stock vote together as a single class with respect to all matters submitted to
the vote of the holders of Common Stock pursuant to law or as provided in the
Restated Certificate except with respect to (a) such matters upon which the
DGCL requires a separate class vote and (b) the election of the Public
Directors, whom the holders of the Common Stock elect separately as a class.
Until the Sunset, the holders of the Common Stock do not vote to elect any
directors other than the Public Directors. After the Sunset, the holders of the
Common Stock, the holders of the Employee Director Preferred Stock and the
holders of the Voting Preferred Stock will continue to vote together as a
single class with respect to all matters submitted to the vote of the holders
of Common Stock pursuant to law or as provided in the Restated Certificate
except with respect to such matters upon which the DGCL requires a separate
class vote. See "--The Voting Preferred Stock--Voting Rights."
   
  Right of First Refusal. The Company has entered into a First Refusal
Agreement (the "First Refusal Agreement") with ALPA, the IAM and the Salaried
and Management Director (solely as the representative of the Salaried and
Management Employees) pursuant to which the Company has agreed that, subject to
certain exceptions, if it proposes to issue any shares of Common Stock or other
securities that are exchangeable for or convertible into shares of Common Stock
(collectively, the "Equity Securities"), it must first offer such Equity
Securities to ALPA and the IAM on behalf of the employees represented thereby
and to the Salaried and Management Employees on the same terms and conditions
upon which the Company proposes to sell such Equity Securities to a third
party. Under the First Refusal Agreement, the members of ALPA will be entitled
to purchase 46.23% of the Equity Securities offered, the members of the IAM
will be entitled to purchase 37.13% of the Equity Securities offered and the
Salaried and Management Employees will be entitled to purchase 16.64% of the
Equity Securities offered. The First Refusal Agreement terminates on the
Sunset. The First Refusal Agreement was amended on February 24, 1995 to clarify
that the issuance of the Debentures and the underlying Common Stock are
excluded from such right of first refusal.     
 
SERIES A PREFERRED STOCK
 
  Dividends. Holders of shares of Series A Preferred Stock are entitled to
receive, when, as and if declared by the Board of the Company out of assets of
the Company legally available therefor, cumulative cash dividends at the rate
per annum of $6.25 per share of Series A Preferred Stock. Dividends on the
Series A Preferred Stock are payable quarterly in arrears. Dividends on the
Series A Preferred Stock are cumulative. Accumulations of dividends on shares
of Series A Preferred Stock do not bear interest.
 
  Except as provided in the next sentence, no dividend may be declared or paid
on any Parity Stock (as defined below) unless full cumulative dividends have
been paid on the Series A Preferred Stock for
 
                                       50

<PAGE>
 
   
all prior dividend periods. If accrued dividends on the Series A Preferred
Stock for all prior dividend periods have not been paid in full, then any
dividend declared on the Series A Preferred Stock for any dividend period and
any dividend on any Parity Stock will be declared ratably in proportion to
accrued and unpaid dividends on the Series A Preferred Stock and such Parity
Stock.     
 
  The Company will not (i) declare, pay or set apart funds for the payment of
any dividend or other distribution with respect to any Junior Stock (as defined
below) or (ii) redeem, purchase or otherwise acquire for consideration any
Junior Stock or Parity Stock through a sinking fund or otherwise (except by
conversion into or exchange for shares of Junior Stock and other than a
redemption or purchase or other acquisition of shares of Common Stock of the
Company made for purposes of an employee incentive or benefit plan of the
Company or any subsidiary), unless all accrued and unpaid dividends with
respect to the Series A Preferred Stock and any Parity Stock at the time such
dividends are payable have been paid or funds have been set apart for payment
of such dividends.
 
  For purposes of the description of the Series A Preferred Stock, (i) the term
"dividend" does not include dividends payable solely in shares of Junior Stock
on Junior Stock, or in options, warrants or rights to holders of Junior Stock
to subscribe for or purchase any Junior Stock, (ii) the term "Parity Stock"
means any class or series of preferred stock ranking on a parity with the
Series A Preferred Stock as to payment of dividends and amounts payable upon
liquidation, dissolution or winding up, including the Series B Preferred Stock,
and (iii) the term "Junior Stock" means the Common Stock, the ESOP Preferred
Stock, the Voting Preferred Stock, the Director Preferred Stock, any shares of
Series C Preferred Stock issued pursuant to the Rights, and any other class or
series of capital stock of the Company now or hereafter issued and outstanding
that ranks junior as to the payment of dividends or amounts payable upon
liquidation, dissolution or winding up to the Series A Preferred Stock.
 
  Redemption. The Series A Preferred Stock is not redeemable prior to May 1,
1996. On and after such date, the Series A Preferred Stock is redeemable at the
option of the Company, in whole or in part, initially at $104.375 per share and
thereafter at prices declining ratably on each May 1 to $100.00 per share on
and after May 1, 2003, plus, in each case, all accrued and unpaid dividends.
Unless converted by the holders or redeemed by the Company, the Series A
Preferred Stock will have perpetual maturity.
   
  Liquidation Preference. The holders of shares of Series A Preferred Stock are
entitled to receive, in the event of any liquidation, dissolution or winding up
of the Company, $100 per share plus an amount per share equal to all dividends
(whether or not earned or declared) accrued and unpaid thereon to the date of
final distribution to such holders (for purposes of the description of the
Series A Preferred Stock, the "Liquidation Preference"), and no more.     
 
  Until the holders of the Series A Preferred Stock have been paid the
Liquidation Preference in full, no payment will be made to any holder of Junior
Stock upon the liquidation, dissolution or winding up of the Company. If, upon
any liquidation, dissolution or winding up of the Company, the assets of the
Company, or proceeds thereof, distributable among the holders of the shares of
Series A Preferred Stock are insufficient to pay in full the Liquidation
Preference and the liquidation preference with respect to any other shares of
Parity Stock, then such assets, or the proceeds thereof, will be distributed
among the holders of shares of Series A Preferred Stock and any such Parity
Stock ratably in accordance with the respective amounts which would be payable
on such shares of Series A Preferred Stock and any such Parity Stock if all
amounts payable thereon were paid in full. Neither a consolidation or merger of
the Company with another corporation nor a sale or transfer of all or
substantially all of the Company's assets will be considered a liquidation,
dissolution or winding up, voluntary or involuntary, of the Company.
 
  Voting Rights. Except as indicated below, or except as otherwise from time to
time required by applicable law, the holders of shares of Series A Preferred
Stock do not have any voting rights, and their consent is not required for
taking any corporate action. When and if the holders of the Series A Preferred
Stock are entitled to vote, each share will be entitled to one vote.
 
                                       51

<PAGE>
 
  If the equivalent of six quarterly dividends payable on the Series A
Preferred Stock or any other series of Serial Preferred Stock of the Company
have not been declared and paid or set apart for payment, whether or not
consecutive, the number of directors of the Company will be increased by two
and the holders of all such series in respect of which such a default exists,
voting as a class without regard to series, will be entitled to elect two
additional directors at the next annual meeting and each subsequent meeting,
until all cumulative dividends have been paid in full.
 
  The affirmative vote or consent of the holders of 66 2/3% of the outstanding
shares of the Series A Preferred Stock, voting separately as a class with all
other affected series of Serial Preferred Stock that is also a Parity Stock, is
required for any amendment of the Restated Certificate which alters or changes
the powers, preferences, privileges or rights of the Series A Preferred Stock
so as to materially adversely affect the holders thereof. The affirmative vote
or consent of the holders of shares representing 66 2/3% of the outstanding
shares of the Series A Preferred Stock and any other series of Parity Stock,
voting as a single class without regard to series, is required to authorize the
creation or issue of, or reclassify any authorized stock of the Company into,
or issue or authorize any obligation or security convertible into or evidencing
a right to purchase, any additional class or series of stock ranking senior to
all such series of Parity Stock.
 
  Except as required by law, the holders of Series A Preferred Stock are not
entitled to vote on any merger or consolidation involving the Company or a sale
of all or substantially all of the assets of the Company.
 
  Conversion Rights. Shares of Series A Preferred Stock are convertible in
whole or in part, at any time at the option of the holders thereof, into a
combination of cash in the amount of $54.19 and 0.3195 shares of Common Stock
(equivalent to a conversion price of $143.38 per share of Common Stock) for
each share of Series A Preferred Stock converted, subject to adjustment as set
forth in the Restated Certificate. The right to convert shares of Series A
Preferred Stock called for redemption will terminate at the close of business
on the day preceding a redemption date.
 
SERIES B PREFERRED STOCK
 
  General. The outstanding shares of Series B Preferred Stock have been
deposited under a Deposit Agreement (the "Deposit Agreement") between the
Company and First Chicago Trust Company of New York, as the Depositary (the
"Depositary"). The Company has issued receipts for fractional interests
("Depositary Shares") in the shares of Series B Preferred Stock with each
Depositary Share representing one one-thousandth of a share of Series B
Preferred Stock. Subject to the terms of the Deposit Agreement, each owner of a
Depositary Share is entitled, in proportion to the applicable interest in a
share of the Series B Preferred Stock represented by such Depositary Share, to
all of the rights and preferences of the interest in shares of Series B
Preferred Stock represented thereby (including dividend, voting, redemption and
liquidation rights).
 
  Ranking. The Series B Preferred Stock ranks on a parity with the Series A
Preferred Stock and ranks senior to the Common Stock, the ESOP Preferred Stock,
the Voting Preferred Stock, the Director Preferred Stock and any shares of
Series C Preferred Stock issued pursuant to the Rights with respect to payment
of dividends and amounts payable upon liquidation, dissolution or winding up.
 
  While any shares of Series B Preferred Stock are outstanding, the Company may
not authorize the creation or issue of any class or series of stock that ranks
senior to the Series B Preferred Stock as to dividends or upon liquidation,
dissolution or winding up without the consent of the holders of 66 2/3% of the
outstanding shares of Series B Preferred Stock. The Company may create
additional classes or series of preferred stock or authorize, or increase the
authorized amount of, any shares of any class or series of preferred stock
ranking on a parity with or junior to the Series B Preferred Stock without the
consent of any holder of Series B Preferred Stock. See "--Voting Rights" below.
 
                                       52

<PAGE>
 
  Dividends. Holders of shares of Series B Preferred Stock are entitled to
receive, when, as and if declared by the Board out of assets of the Company
legally available therefor, cumulative cash dividends at a rate of 12 1/4% of
the $25,000 liquidation preference thereof (or $3,062.50 per share) per year.
 
  Dividends on the Series B Preferred Stock are payable quarterly in arrears on
February 1, May 1, August 1 and November 1 of each year (and, in the case of
any accrued but unpaid dividends, at such additional times and for such interim
periods, if any, as determined by the Board). Each such dividend will be
payable to holders of record as they appear on the stock records of the Company
at the close of business on such record dates, which will not be more than 60
days or less than 10 days preceding the payment dates corresponding thereto, as
may be fixed by the Board or a duly authorized committee thereof. Dividends
will accrue from the date of the original issuance of the Series B Preferred
Stock (the "Series B Preferred Stock Issue Date"). Dividends will be cumulative
from such date, whether or not in any dividend period or periods there are
assets of the Company legally available for the payment of such dividends.
 
  Each share of Series B Preferred Stock issued after the Series B Preferred
Stock Issue Date (whether issued upon transfer of or in exchange for an
outstanding share of Series B Preferred Stock or issued for any other reason)
will be entitled to receive, when, as and if declared by the Board, dividends
with respect to each dividend period, starting with the Series B Preferred
Stock Issue Date, for which full dividends have not been paid prior to the date
upon which such share of Series B Preferred Stock was issued. Any share of
Series B Preferred Stock that is issued after the record date with respect to
any dividend payment and before such dividend is paid will not be entitled to
receive the dividend paid to holders of Series B Preferred Stock as of such
record date. Accumulations of dividends on shares of Series B Preferred Stock
do not bear interest.
 
  Except as provided in the next sentence, no dividend may be declared or paid
on any Parity Stock (as defined below) unless full cumulative dividends have
been paid on the Series B Preferred Stock for all prior dividend periods. If
accrued dividends on the Series B Preferred Stock for all prior dividend
periods have not been paid in full, then any dividend declared on the Series B
Preferred Stock for any dividend period and on any Parity Stock will be
declared ratably in proportion to accrued and unpaid dividends on the Series B
Preferred Stock and such Parity Stock.
 
  The Company will not (i) declare, pay or set apart funds for the payment of
any dividend or other distribution with respect to any Junior Stock (as defined
below) or (ii) redeem, purchase or otherwise acquire for consideration any
Junior Stock or Parity Stock through a sinking fund or otherwise (except by
conversion into or exchange for shares of Junior Stock and other than a
redemption or purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan of the Company or any
subsidiary), unless all accrued and unpaid dividends with respect to the Series
B Preferred Stock and any Parity Stock at the time such dividends or other
distributions are payable or such redemption, purchase or acquisition is to
occur have been paid or funds have been set apart for payment of such
dividends.
 
  For purposes of the description of the Series B Preferred Stock, (i) the term
"dividend" does not include dividends payable solely in shares of Junior Stock
on Junior Stock, or in options, warrants or rights to holders of Junior Stock
to subscribe for or purchase any Junior Stock, (ii) the term "Parity Stock"
means any other class or series of preferred stock ranking on a parity with the
Series B Preferred Stock as to the payment of dividends and amounts payable
upon liquidation, dissolution or winding up, including the Series A Preferred
Stock, and (iii) the term "Junior Stock" means the Common Stock, the ESOP
Preferred Stock, the Voting Preferred Stock, the Director Preferred Stock, any
shares of Series C Preferred Stock issued pursuant to the Rights and any other
class or series of capital stock of the Company now or hereafter issued and
outstanding that ranks junior as to the payment of dividends or amounts payable
upon liquidation, dissolution or winding up to the Series B Preferred Stock.
 
                                       53

<PAGE>
 
  Redemption. The Series B Preferred Stock is not redeemable prior to July 12,
2004. On and after such date, the Series B Preferred Stock is redeemable at the
option of the Company, in whole or in part, at the redemption price of $25,000
per share, plus, in each case, all dividends accrued and unpaid on the Series B
Preferred Stock up to the date fixed for redemption.
 
  Liquidation Preference. The holders of shares of Series B Preferred Stock are
entitled to receive, in the event of any liquidation, dissolution or winding up
of the Company, $25,000 per share plus an amount per share equal to all
dividends (whether or not earned or declared) accrued and unpaid thereon to the
date of final distribution to such holders (for purposes of the description of
the Series B Preferred Stock, the "Liquidation Preference"), and no more.
 
  Until the holders of the Series B Preferred Stock have been paid the
Liquidation Preference in full, no payment may be made to any holder of Junior
Stock upon the liquidation, dissolution or winding up of the Company. If, upon
any liquidation, dissolution or winding up of the Company, the assets of the
Company, or proceeds thereof, distributable among the holders of the shares of
Series B Preferred Stock are insufficient to pay in full the Liquidation
Preference and the liquidation preference with respect to any other shares of
Parity Stock, then such assets, or the proceeds thereof, will be distributed
among the holders of shares of Series B Preferred Stock and any such Parity
Stock ratably in accordance with the respective amounts that would be payable
on such shares of Series B Preferred Stock and any such Parity Stock if all
amounts payable thereon were paid in full. Neither a consolidation or merger of
the Company with another corporation nor a sale, lease or transfer of all or
substantially all of the Company's assets will be considered a liquidation,
dissolution or winding up, voluntary or involuntary, of the Company.
 
  Voting Rights. Except as indicated below, or except as otherwise from time to
time required by applicable law, the holders of shares of Series B Preferred
Stock do not have any voting rights, and their consent is not required for
taking any corporate action. When and if the holders of the Series B Preferred
Stock are entitled to vote, each share will be entitled to 1,000 votes.
 
  If the equivalent of six quarterly dividends payable on the Series B
Preferred Stock have not been declared and paid or set apart for payment,
whether or not consecutive, the number of directors of the Company will be
increased by two and the holders of all Series B Preferred Stock and any other
series of Serial Preferred Stock in respect of which such a default exists,
voting as a class without regard to series, will be entitled to elect two
additional directors at the next annual meeting and each subsequent meeting,
until all cumulative dividends have been paid in full or set apart for payment.
 
  The affirmative vote or consent of the holders of 66 2/3% of the outstanding
shares of the Series B Preferred Stock is required for any amendment of the
Restated Certificate that alters or changes the powers, preferences, privileges
or rights of the Series B Preferred Stock so as to materially adversely affect
the holders thereof. The affirmative vote or consent of the holders of shares
representing 66 2/3% of the outstanding shares of the Series B Preferred Stock
is required to authorize the creation or issue of, or reclassify any authorized
stock of the Company into, or issue or authorize any obligation or security
convertible into or evidencing a right to purchase, any additional class or
series of stock ranking senior to the Series B Preferred Stock.
 
THE ESOP PREFERRED STOCK
   
  In connection with the Recapitalization and employee investment transaction,
the Company established three ESOPs: (i) the "Leveraged ESOP," which is a
component of a tax-qualified employee stock ownership plan, (ii) the "Non-
Leveraged Qualified ESOP," which is also a component of a tax-qualified
employee stock ownership plan, and (iii) the "Supplemental ESOP," which is not
a tax-qualified plan. The Leveraged ESOP and the Non-Leveraged Qualified ESOP
are referred to as the "Qualified ESOP." To the extent reasonably possible, but
without violating certain limitations imposed by the     
 
                                       54

<PAGE>
 
Internal Revenue Code, shares will be delivered to employees through the
Leveraged ESOP. To the extent that shares cannot be delivered through the
Leveraged ESOP, they will be delivered through the Non-Leveraged Qualified
ESOP, and to the extent they cannot be delivered through the Non-Leveraged
Qualified ESOP, they will be delivered through the Supplemental ESOP.
 
  Approximately 14,000,000 shares (subject to adjustment as described below) of
Class 1 ESOP Preferred Stock will be issued in seven separate sales (the "ESOP
Tranches") to the ESOP Trustee under the Leveraged ESOP. The first ESOP Tranche
was sold to the trustee (the "ESOP Trustee") of the trust (the "Qualified
Trust") established to hold shares sold to the Leveraged ESOP and the Non-
Leveraged Qualified ESOP on July 13, 1994. The next five tranches will be sold
to the ESOP Trustee in approximately August 1995, and on the four following
anniversaries of such date. The final ESOP Tranche will be sold on the first
business day of the year 2000. The shares to be purchased in each of the first
six ESOP Tranches will generally equal the sum of (i) the shares of Class 1
ESOP Preferred Stock scheduled to be allocated to the accounts of participants
in the Leveraged ESOP for the year in which such ESOP Tranche is sold, minus
the dividends allocable to participants' accounts in such year from the shares
purchased in earlier Tranches, plus (ii) the number of shares of Class 1 ESOP
Preferred Stock equal in value to the aggregate dividends payable on the shares
purchased with the ESOP Tranche after the end of the year in which the ESOP
Tranche is purchased. The final ESOP Tranche will not include the shares
described in (ii), above, however.
   
  Because of certain limitations imposed by the Internal Revenue Code, the
Qualified Trust will not purchase the shares representing the entire equity
interest (initially 55%) represented by the ESOP Preferred Stock. Accordingly,
based on certain elections made by ALPA, the Company will allocate "phantom"
shares of Class 2 ESOP Preferred Stock (the "Book Entry Shares") under the
Supplemental ESOP. The Class 2 ESOP Preferred Stock will be issued to the
Qualified ESOP and credited to the Supplemental ESOP. Except as provided below,
these Book-Entry Shares allocated to a participant will not in fact be issued
by the Company. The number of shares of Class 2 ESOP Preferred Stock will be
equal to 17,675,345, less the number of shares of Class 1 ESOP Preferred Stock
sold to the Qualified ESOP. ALPA has the right to elect at any time that the
Supplemental ESOP be maintained by the actual issuance of Class 2 ESOP
Preferred Stock to a non-qualified trust (the "Non-Qualified Trust")
established under the Supplemental ESOP. Each year as a portion of the shares
of Class 1 ESOP Preferred Stock are allocated to employees' accounts under the
Leveraged ESOP, the same proportion of the Book-Entry Shares of Class 2 ESOP
Preferred Stock will be allocated as described below. To the extent permissible
under the Internal Revenue Code, the shares of Class 2 ESOP Preferred Stock
will be issued by the Company and transferred to the Qualified Trust for
allocation to employees' accounts under the Non-Leveraged Qualified ESOP. The
shares that cannot be transferred to the Qualified Trust will be credited as
Book-Entry Shares to the accounts of employees in the Supplemental ESOP (and if
ALPA elects that the Non-Qualified Trust will hold Class 2 ESOP Preferred
Stock, will be deposited therein). The Company will be liable for the benefits
of employees under the Supplemental ESOP.     
 
  General. The ESOP Preferred Stock consists of two similar classes of
Preferred Stock: the Class 1 ESOP Preferred Stock and the Class 2 ESOP
Preferred Stock. Where the summaries do not make a distinction between the
Class 1 ESOP Preferred Stock and the Class 2 ESOP Preferred Stock, such
summaries refer to either class.
   
  The shares of the ESOP Preferred Stock are convertible into shares of Common
Stock as described below. If all the shares of ESOP Preferred Stock to be
issued in connection with the employee investment transaction were to be
converted into shares of Common Stock, such shares of Common Stock would
constitute approximately 55% of the shares of Common Stock (including shares of
Common Stock issuable upon exercise of the ESOP Preferred Stock) that would be
outstanding at that time, on a fully diluted basis based on the treasury stock
method. If the average market value of the     
 
                                       55

<PAGE>
 
   
Common Stock exceeds $136 per share during the period of July 13, 1994 to July
12, 1995, a number of additional shares of ESOP Preferred Stock will be issued
or reserved for issuance as Book-Entry Shares. With the issuance or reservation
for issuance of such additional shares, the ownership interest of the ESOPs
could be increased from approximately 55% to up to approximately 63% of the
Company. Based on the average market value of Common Stock through February 23,
1995, the market value of the Common Stock would have to average at least $204
per share for the remainder of the measuring period in order to any adjustment
to be made in the number of shares of ESOP Preferred Stock outstanding or
reserved for issuance as Book-Entry Shares.     
   
  Ranking. The ESOP Preferred Stock ranks junior to the Series A Preferred
Stock and the Series B Preferred Stock and ranks senior to the Common Stock,
the Voting Preferred Stock, the Director Preferred Stock and any shares of
Series C Preferred Stock issued pursuant to the Rights with respect to payment
of dividends and amounts payable upon liquidation, dissolution or winding up.
The Class 1 ESOP Preferred Stock ranks senior to the Class 2 ESOP Preferred
Stock with respect to the payment of Fixed Dividends (as defined below) and the
Class 1 ESOP Preferred Stock ranks on a parity with the Class 2 ESOP Preferred
Stock as to the payment of Participating Dividends (as defined below) and as to
amounts payable upon liquidation, dissolution or winding up.     
 
  Dividends. Holders of Class 1 ESOP Preferred Stock are entitled to receive,
when, as and if declared by the Board out of assets of the Company legally
available therefor, cumulative cash dividends at a rate per annum of a dollar
amount per share of Class 1 ESOP Preferred Stock not to exceed, without the
consent of the Unions, $8.8872 (the "Fixed Dividend"). The Fixed Dividends on
the Class 1 ESOP Preferred Stock will cease to accrue on March 31, 2000. Under
certain circumstances, any Fixed Dividends that remain accrued and unpaid on
April 1, 2000 will not prevent the payment of dividends on any capital stock of
the Company that ranks junior to the Class 1 ESOP Preferred Stock with respect
to the payment of dividends, although such accrued and unpaid Fixed Dividends
will remain a part of the Liquidation Preference (as defined below) payable in
respect of the Class 1 ESOP Preferred Stock upon any liquidation, dissolution
or winding up of the Company. In addition, if during any 12-month period ending
on the annual dividend payment date, holders of the shares of Common Stock
receive any cash dividends or cash distributions thereon, and the aggregate
amount of such dividends and distributions that would have been received,
during such period, by the holder of a share of Class 1 ESOP Preferred Stock
had such share of Class 1 ESOP Preferred Stock been converted into shares of
Common Stock, exceeds the amount of the Fixed Dividend paid on such share of
Class 1 ESOP Preferred Stock, then the holders of the Class 1 ESOP Preferred
Stock will be entitled to receive an additional cash dividend in an amount
equal to such excess (the "Participating Dividend"), although the aggregate
amount of the Fixed Dividend and the Participating Dividend paid on any share
of Class 1 ESOP Preferred Stock with respect to any annual dividend period may
not exceed 12 1/2% of the fair market value of the shares of Common Stock into
which such share of Class 1 ESOP Preferred Stock is convertible.
 
  Holders of Class 2 ESOP Preferred Stock are not entitled to receive any Fixed
Dividend. If during any 12-month period ending on the annual dividend payment
date, holders of the Common Stock receive any cash dividends or cash
distributions thereon, then the holders of the Class 2 ESOP Preferred Stock
will be entitled to receive a cash dividend in an amount equal to the dividend
they would have received had their shares of Class 2 ESOP Preferred Stock been
converted into and were outstanding as Common Stock at all relevant times,
although the aggregate amount of the dividend paid on any share of Class 2 ESOP
Preferred Stock with respect to any annual dividend period may not exceed 12
1/2% of the fair market value of the shares of Common Stock into which it is
convertible.
 
  If the holders of the Common Stock receive cash dividends and cash
distributions that exceed 12 1/2% of the fair market value of such shares, such
excess will be applied to adjust the Conversion Rate (as defined below) on the
ESOP Preferred Stock.
 
                                       56

<PAGE>
 
  Except as described above, the Company will not (i) declare, pay or set apart
funds for the payment of any dividend or other distribution with respect to any
Junior Stock (as defined below) or (ii) redeem, purchase or otherwise acquire
for consideration any Junior Stock or Parity Stock (as defined below) through a
sinking fund or otherwise (except by conversion into or exchange for shares of
Junior Stock and other than a redemption or purchase or other acquisition of
shares of Common Stock made for purposes of an employee incentive or benefit
plan of the Company or any subsidiary), unless all accrued and unpaid dividends
with respect to the ESOP Preferred Stock and any Parity Stock at the time such
dividends are payable have been paid or funds have been set apart for payment
of such dividends.
 
  For purposes of the description of the ESOP Preferred Stock, (i) the term
"dividend" does not include dividends payable solely in shares of Junior Stock
on Junior Stock, or in options, warrants or rights to holders of Junior Stock
to subscribe for or purchase any Junior Stock, (ii) the term "Parity Stock"
means any class or series of preferred stock ranking on a parity with the ESOP
Preferred Stock as to payment of dividends (with respect to such dividends) or
amounts payable upon liquidation, dissolution or winding up (with respect to
such amounts) and (iii) the term "Junior Stock" means the Common Stock, the
Voting Preferred Stock, the Director Preferred Stock, any shares of Series C
Preferred Stock issued pursuant to the Rights and any other class or series of
capital stock of the Company now or hereafter issued and outstanding that ranks
junior as to the payment of dividends (with respect to such dividends) or
amounts payable upon liquidation, dissolution or winding up (with respect to
such amounts) to the ESOP Preferred Stock.
   
  Conversion. The ESOP Preferred Stock is convertible, in whole or in part, at
any time and from time to time, into shares of Common Stock initially at the
rate (for purposes of the description of ESOP Preferred Stock, the "Conversion
Rate") of one share of Common Stock for each share of ESOP Preferred Stock
converted. In addition, the Conversion Rate on the ESOP Preferred Stock will be
adjusted upon the occurrence of a variety of events, including, without
limitation, a distribution of capital stock to holders of shares of Common
Stock, a subdivision, recombination or reclassification of the Common Stock,
the issuance to holders of Common Stock of rights to subscribe for equity
securities at a price per share of Common Stock that is less than the fair
market value of a share of Common Stock, the issuance of Common Stock or
securities representing a right to acquire shares of Common Stock at a price
per share that is less than the fair market value of a share of Common Stock,
the payment of cash dividends and cash distributions to holders of Common Stock
(measured from the later of (i) the date that shares of Class 2 ESOP Preferred
Stock are first issued and (ii) the most recent dividend payment date for the
Class 2 ESOP Preferred Stock, through the payment date for such cash dividend
or cash distribution) that exceed in the aggregate 12 1/2% of the fair market
value of the Common Stock on the record date for such cash dividend or cash
distribution, the payment of any non-cash dividend or distribution to holders
of Common Stock and certain Pro Rata Repurchases of Common Stock.     
 
  Redemption. The ESOP Preferred Stock is not redeemable.
 
  Liquidation Preference. The holders of shares of ESOP Preferred Stock are
entitled to receive, in the event of any liquidation, dissolution or winding up
of the Company, $126.96 per share, plus an amount per share equal to all
dividends (whether or not earned or declared) accrued and unpaid thereon to the
date of final distribution to such holders, including, without limitation,
Fixed Dividends in respect of the Class 1 ESOP Preferred Stock that are accrued
and unpaid as of April 1, 2000 (but that will not prevent the payment of
dividends on any capital stock of the Company that ranks junior to the Class 1
ESOP Preferred Stock with respect to the payment of dividends) (for purposes of
the description of the ESOP Preferred Stock, the "Liquidation Preference"), and
no more.
 
  Until the holders of the ESOP Preferred Stock have been paid the Liquidation
Preference in full, no payment may be made to any holder of Junior Stock upon
the liquidation, dissolution or winding up of the Company. If, upon any
liquidation, dissolution or winding up of the Company, the assets of the
 
                                       57

<PAGE>
 
Company, or proceeds thereof, distributable among the holders of the shares of
ESOP Preferred Stock are insufficient to pay in full the Liquidation Preference
and the liquidation preference with respect to any other shares of Parity
Stock, then such assets, or the proceeds thereof, will be distributed among the
holders of shares of ESOP Preferred Stock and any such Parity Stock ratably in
accordance with the respective amounts that would be payable on such shares of
ESOP Preferred Stock and any such Parity Stock if all amounts payable thereon
were paid in full. Neither a consolidation or merger of the Company with
another corporation nor a sale, lease or transfer of all or substantially all
of the Company's assets will be considered a liquidation, dissolution or
winding up, voluntary or involuntary, of the Company.
 
  Voting Rights. Except as indicated below, and except as otherwise from time
to time required by applicable law, the holders of shares of ESOP Preferred
Stock do not have any voting rights, and their consent is not required for
taking any corporate action. When and if the holders of ESOP Preferred Stock
are entitled to vote, each share will be entitled to one vote.
   
  The affirmative vote or consent of at least a majority of the holders of the
outstanding shares of the Class 1 ESOP Preferred Stock or the Class 2 ESOP
Preferred Stock, as the case may be, voting separately as a class, is required
for any amendment of the Restated Certificate which alters or changes the
powers, preferences, privileges or rights of the Class 1 ESOP Preferred Stock
or the Class 2 ESOP Preferred Stock, as the case may be, so as to materially
adversely affect the holders thereof. The affirmative vote or consent of the
holders of at least a majority of the outstanding shares of the Class 1 ESOP
Preferred Stock or the Class 2 ESOP Preferred Stock, as the case may be, voting
separately as a class, is required to authorize the creation or issue of, or
reclassify any authorized stock of the Company into, or issue or authorize any
obligation or security convertible into or evidencing a right to purchase, any
additional class or series of stock ranking senior to such stock.     
 
  Consolidation, Merger, etc. Upon the occurrence of certain mergers and other
similar transactions, the holders of the ESOP Preferred Stock are entitled to
receive, depending on the circumstances, either (i) a preferred stock having
the same powers, preference and relative, participating, optional or other
special rights as the class of ESOP Preferred Stock they held prior to such
merger or other transaction or (ii) the consideration receivable by the holders
of the number of shares of Common Stock into which such shares of ESOP
Preferred Stock could have been converted immediately prior to such merger or
other transaction.
 
THE VOTING PREFERRED STOCK
   
  General. The Voting Preferred Stock consists of three similar classes of
Preferred Stock of the Company: the Class P ESOP Voting Preferred Stock, which
will be allocated to ESOP accounts of employees represented by ALPA, the Class
M ESOP Voting Preferred Stock, which will be allocated to ESOP accounts of
employees represented by the IAM, and the Class S ESOP Voting Junior Preferred
Stock, which will be allocated to Salaried and Management Employees' accounts.
Where the following summaries do not make a distinction among the Class M ESOP
Voting Preferred Stock, the Class P ESOP Voting Preferred Stock and the Class S
ESOP Voting Preferred Stock, such summaries refer to any such class.     
 
  One share of Class P ESOP Voting Preferred Stock, one share of Class M ESOP
Voting Preferred Stock and one share of Class S ESOP Voting Preferred Stock
have been issued to the ESOP Trustee.
 
  Voting Rights. The Voting Preferred Stock votes with the holders of the
Common Stock and the Director Preferred Stock as a single class on all matters
(except as to such matters as to which a separate class vote may be required by
the DGCL), except that until the Sunset, holders of the Voting Preferred Stock
are not entitled to vote to elect members of the Board. Until the Sunset, the
Voting Preferred Stock represents the right to cast in the aggregate
approximately 55% of the votes of all
 
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<PAGE>
 
   
classes of capital stock that vote together with the Common Stock as a single
class (other than for the election of members to the Board), subject to
reduction for the number of shares of Common Stock that have been issued upon
conversion of shares of the ESOP Preferred Stock that continue to be held by
the ESOP. If the average market value of the Common Stock exceeds $136 per
share during the period of July 13, 1994 to July 12, 1995, the number of votes
represented by the Voting Preferred Stock will be increased above approximately
55% of the votes represented by the shares of Common Stock (including shares of
Common Stock issuable upon conversion of the ESOP Preferred Stock that would be
outstanding or reserved for issuance as Book-Entry Shares or remaining to be
transferred to the ESOPs) to up to a maximum of approximately 63%. Based on the
average market value of Common Stock through February 23, 1995, the market
value of the Common Stock would have to average at least $204 per share for the
remainder of the measuring period in order for any adjustment to be made in the
ESOP voting percentage.     
   
  The voting power of the Voting Preferred Stock is held such that the Class P
ESOP Voting Preferred Stock is entitled to cast approximately 46.23% of the
votes represented by the Voting Preferred Stock, the Class M ESOP Voting
Preferred Stock is entitled to cast approximately 37.13% of the votes
represented by the Voting Preferred Stock and the Class S ESOP Voting Preferred
Stock is entitled to cast approximately 16.64% of the votes represented by the
Voting Preferred Stock. Such percentages are referred to as the "Agreed
Percentages."     
 
  After the Sunset, each class of Voting Preferred Stock will represent the
right to cast in the aggregate the number of votes that is equal to the
relevant Agreed Percentage of the number of shares of Common Stock into which
the ESOP Preferred Stock can be converted plus the number of Book-Entry Shares
remaining to be issued plus the number of shares of ESOP Preferred Stock, if
any, remaining to be transferred to the ESOP.
 
  Other. The Voting Preferred Stock is not entitled to receive any dividends.
The Voting Preferred Stock is convertible into shares of Common Stock at the
rate of one ten-thousandth of a share of Common Stock for each share of Voting
Preferred Stock converted. All the Voting Preferred Stock will be converted
into shares of Common Stock automatically upon the occurrence of an
Uninstructed Trustee Action (as defined below) or at such time when none of the
ESOP Preferred Stock remains outstanding. The Voting Preferred Stock has a
liquidation preference of $0.01 per share.
   
  Upon the occurrence of certain mergers and other similar transactions, the
holders of the Voting Preferred Stock are entitled to receive a preferred stock
having the same powers, preference and relative, participating, optional or
other special rights as the class of Voting Preferred Stock they held prior to
such merger or other transaction except that such preferred stock will not
control 55% of the vote of the surviving entity.     
 
THE DIRECTOR PREFERRED STOCK
 
 General
 
  The Director Preferred Stock consists of four classes of Preferred Stock: the
Class I Preferred Stock, the Class Pilot MEC Preferred Stock, the Class IAM
Preferred Stock and the Class SAM Preferred Stock. Where the summaries do not
make a distinction among the several classes of Director Preferred Stock, such
summaries refer to any of them.
 
  Each of the classes of Director Preferred Stock has the power to elect one or
more members of the Board. Except for the election of the Public Directors on
which the holders of the Director Preferred Stock cannot vote, and except as
otherwise from time to time required by applicable law, the holders of the
shares of Director Preferred Stock vote together as a class with the holders of
the Common Stock. None of the classes of Director Preferred Stock bear
dividends. Each class of Director Preferred Stock has a liquidation preference
of $0.01 per share.
 
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<PAGE>
 
  Each of the Class Pilot MEC Preferred Stock, the Class IAM Preferred Stock
and the Class SAM Preferred Stock provides that upon the consolidation, merger
or similar transaction involving the Company or United, pursuant to which the
outstanding shares of Common Stock are to be exchanged for or converted into
securities of a successor or resulting company or cash or other property, the
Class Pilot MEC Preferred Stock, the Class IAM Preferred Stock and the Class
SAM Preferred Stock, respectively, will be converted into, or exchanged for,
preferred stock of such successor or resulting company having, in respect of
such company, the same powers, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof, that the original Class Pilot MEC Preferred Stock, Class
IAM Preferred Stock and Class SAM Preferred Stock had, respectively.
 
 Class I Preferred Stock
 
  The Class I Preferred Stock has been issued to the Independent Directors. The
Restated Certificate authorizes the issuance of ten shares of Class I Preferred
Stock, although the Company expects that no more than four shares will be
outstanding at any time.
 
  The initial holders of the Class I Preferred Stock have entered into a
Stockholders' Agreement among themselves, ALPA, the IAM and the Company (the
"Class I Preferred Stockholders' Agreement"), pursuant to which the holders
agree to vote their shares to elect the Independent Directors nominated
pursuant to the provisions described above and to refrain from transferring the
shares of Class I Preferred Stock other than to a person who has been elected
to serve as one of the Independent Directors and who agrees to be subject to
the provisions of the Class I Preferred Stockholders' Agreement. The Restated
Certificate and the Class I Preferred Stockholders' Agreement provide that the
Company, subject to legally available funds, will redeem or purchase the shares
of Class I Preferred Stock held by any holder thereof who votes contrary to the
Class I Preferred Stockholder's Agreement or who purports to transfer the share
of Class I Preferred Stock to any person other than an Independent Director.
Any share of Class I Preferred Stock redeemed or purchased as provided in the
immediately prior sentence may be reissued as provided in the Restated
Certificate or the Class I Preferred Stockholders' Agreement. All shares of the
Class I Preferred Stock will be redeemed automatically upon the occurrence of
the Sunset, and following such redemption, none of the shares of Class I
Preferred Stock may be reissued thereafter.
 
 Class Pilot MEC Preferred Stock and Class IAM Preferred Stock
 
  The Restated Certificate authorizes the issuance of one share of each of the
Class Pilot MEC Preferred Stock and the Class IAM Preferred Stock. The share of
the Class Pilot MEC Preferred Stock has been issued to the ALPA MEC and the
share of Class IAM Preferred Stock has been issued to the IAM. Each of the
Class Pilot MEC Preferred Stock and the Class IAM Preferred Stock has the right
to elect one Employee Director, and the shares of such stock will be redeemed
automatically upon the purported transfer thereof to any person other than the
holder thereof authorized under the Restated Certificate. The Class Pilot MEC
Preferred Stock will be redeemed automatically upon the later of the Sunset or
the occurrence of the ALPA Termination Date. The Class IAM Preferred Stock will
be redeemed automatically upon the later of the Sunset or the occurrence of the
IAM Termination Date.
 
 Class SAM Preferred Stock
 
  The Restated Certificate authorizes the issuance of ten shares of Class SAM
Preferred Stock, although the Company expects that no more than three shares
will be outstanding at any time. Two shares of Class SAM Preferred Stock are
held by the Salaried and Management Director and one share is held by the SAM
Designated Shareholder.
 
                                       60

<PAGE>
 
  The initial holders of the Class SAM Preferred Stock have entered into a
Stockholders' Agreement among themselves and the Company (the "Class SAM
Preferred Stockholders' Agreement"), pursuant to which the holders agree to
vote their shares to elect the Salaried and Management Director nominated by
the System Roundtable, and to refrain from transferring the shares of Class SAM
Preferred Stock other than to a person who has been elected to serve as the
Salaried and Management Director or another person designated by the System
Roundtable to be the Designated Holder, each of whom must agree to be subject
to the provisions of the Class SAM Preferred Stockholders' Agreement. The Class
SAM Preferred Stockholders' Agreement provides that in most instances the
Designated Holder will be the senior executive of United who has primary
responsibility for human resources. The Restated Certificate and the Class SAM
Preferred Stockholders' Agreement provide that the Company, subject to legally
available funds, will redeem or purchase the shares of Class SAM Preferred
Stock of any holder who votes contrary to the instructions given by the System
Roundtable or who purports to transfer the share or shares of Class SAM
Preferred Stock to any person other than the Salaried and Management Director
or another person designated by the System Roundtable. The Restated Certificate
provides that no holder of shares of Class SAM Preferred Stock will have the
right to vote unless at such time such person is the Salaried and Management
Director or the Designated Holder. Any share of Class SAM Preferred Stock that
is redeemed or purchased as provided in the immediately prior sentence may be
reissued as provided in the Restated Certificate and the Class SAM Preferred
Stockholders' Agreement. All shares of the Class SAM Preferred Stock will be
redeemed automatically on or after the Sunset upon the earlier to occur of the
ALPA Termination Date and the IAM Termination Date, and following such
redemption, none of the shares of Class SAM Preferred Stock may be reissued.
 
 Uninstructed Trustee Actions
 
  Under certain circumstances prior to the Sunset, described below, (i) the
Voting Preferred Stock will cease to vote and (ii) the right to cast the votes
that the holder of the Voting Preferred Stock would otherwise have been
entitled to cast will be transferred generally in the following percentages:
46.23% to the holder of the Class Pilot MEC Preferred Stock, 37.13% to the
holder of the Class IAM Preferred Stock and 16.64% to the holders of the Class
SAM Preferred Stock.
   
  In connection with (i) a stockholder vote on a transaction involving a merger
of the Company or United or a change of control of the Company or United, or
(ii) if the trustee under either ESOP enters into a binding commitment with
respect to any such transaction, or (iii) if the trustee disposes of 10% or
more of the common equity initially represented by the ESOP Preferred Stock,
(x) if the trustee either (1) fails to solicit timely instructions from the
Plan participants or the Committees or (2) fails to act in accordance with the
instructions received, (y) if the merger or change of control transaction would
have been approved or if the trustee disposes of 10% or more of the common
equity initially represented by the ESOP Preferred Stock and (z)(I) the trustee
solicited instructions, failed to follow them and such transaction would not
have been approved if the trustee had followed the instructions, (II) the
trustee failed to follow instructions and the transaction would not have been
approved had the trustee cast all the votes represented by securities in the
Plan against the transaction or (III) the trustee failed to follow instructions
or to solicit instructions with respect to a matter upon which no vote is
required (the occurrence of the conditions set forth in clauses (x), (y) and
(z) being referred to as an "Uninstructed Trustee Action"), the voting rights
of the Voting Preferred Stock will be transferred from the Voting Preferred
Stock to the Class Pilot MEC Preferred Stock, the Class IAM Preferred Stock and
the Class SAM Preferred Stock in the proportions referred to above. In
addition, if the trustee fails to solicit instructions or disregards
instructions received in respect of a vote on a transaction which, if
consummated, would constitute an Uninstructed Trustee Action, then the voting
power of the Voting Preferred Stock will shift to the Class Pilot MEC Preferred
Stock, the Class IAM Preferred Stock and the Class SAM Preferred Stock and the
transaction must be approved by the vote of the Class Pilot MEC Preferred
Stock, the Class IAM Preferred Stock and the Class SAM Preferred Stock voting
together as a class with the Common Stock, in addition to any other vote
required by the Restated Certificate, stock exchange requirements or applicable
law.     
 
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<PAGE>
 
  In addition, if the Sunset occurs directly or indirectly as a result of an
Uninstructed Trustee Action (or for any reason within one year after an
Uninstructed Trustee Action), the voting power to which the Class Pilot MEC
Preferred Stock, the Class IAM Preferred Stock and the Class SAM Preferred
Stock succeed as a result of an Uninstructed Trustee Action will survive until
July 12, 2010.
 
SERIES C PREFERRED STOCK
 
  General. The Company has designated 1,250,000 shares of a series of Serial
Preferred Stock as Series C Preferred Stock and such shares are reserved for
issuance upon exercise of the Rights associated with each share of Common
Stock. See "--Preferred Share Purchase Rights" below. As of the date of this
Prospectus, there are no shares of Series C Preferred Stock outstanding.
 
  Ranking. The Series C Preferred Stock ranks junior to all other series of
preferred stock as to dividends and amounts payable upon any voluntary or
involuntary liquidation, dissolution or winding up of the Company unless the
terms of any such other series shall provide otherwise.
 
  Dividends. Holders of shares of Series C Preferred Stock will be entitled to
receive, when, as and if declared by the Board out of funds legally available
therefor, cumulative cash dividends payable quarterly on the fifteenth day of
January, April, July and October in each year (each such date being a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series C Preferred Stock, in an amount per share equal to the greater of (a)
$10.00 or (b) subject to certain provisions for adjustment set forth in the
Restated Certificate, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions other than a dividend payable in
shares of common stock or a subdivision of the outstanding shares of common
stock since the immediately preceding Quarterly Dividend Payment Date or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series C Preferred Stock.
 
  The Company must declare a dividend or distribution on the Series C Preferred
Stock immediately after it declares a dividend or distribution on common stock
(other than a dividend payable in shares of common stock), provided that in the
event no dividend or distribution has been declared on common stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $10.00 per share on the Series C
Preferred Stock will nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
 
  The Restated Certificate sets forth certain restrictions imposed upon the
Company whenever quarterly dividends or other distributions payable on Series C
Preferred Stock are in arrears, including, but not limited to, restrictions on
the Company's ability to declare or pay dividends on, make any other
distributions on, redeem or purchase or otherwise acquire for consideration
shares ranking junior to or on a parity with the Series C Preferred Stock
either as to dividends or amounts payable upon liquidation, dissolution or
winding up of the Company.
 
  Redemption. When issued and outstanding, the shares of Series C Preferred
Stock will not be redeemable.
 
  Liquidation Preference. Subject to (a) the rights of holders of preferred
stock of the Company ranking senior to Series C Preferred Stock as to dividends
and amounts payable upon any voluntary or involuntary liquidation, dissolution
or winding up and (b) any other provision of the Restated Certificate, upon any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
no distribution shall be made (1) to the holders of shares of stock ranking
junior (either as to dividends or amounts payable upon any voluntary or
involuntary liquidation, dissolution or winding up) to the Series C Preferred
Stock unless, prior thereto, the holders of shares of Series C Preferred Stock
will have
 
                                       62

<PAGE>
 
received $100.00 per share, plus accrued and unpaid dividends to the date of
such payment, provided that the holders of shares of Series C Preferred Stock
will be entitled to receive an aggregate amount per share, subject to certain
provisions for adjustment set forth in the Restated Certificate, equal to 100
times the aggregate amount to be distributed per share to holders of common
stock, or (2) to the holders of stock ranking on a parity (either as to
dividends or amounts payable upon any voluntary or involuntary liquidation,
dissolution or winding up) with the Series C Preferred Stock, except
distributions made ratably on Series C Preferred Stock and all other such
parity stock in proportion to the total amounts to which the holders of all
such shares are entitled upon such voluntary or involuntary liquidation,
dissolution or winding up.
 
  Voting Rights. Except as indicated below or as expressly required by
applicable law, the holders of Series C Preferred Stock will not have voting
rights.
   
  Subject to certain provisions for adjustment set forth in the Restated
Certificate, each share of Series C Preferred Stock will entitle the holder
thereof to 100 votes on all matters submitted to a vote of the stockholders of
the Company. Except as indicated below or expressly required by applicable law,
the holders of Series C Preferred Stock and the holders of shares of Common
Stock will vote together as one class on all matters submitted to a vote of
stockholders of the Company.     
 
  If the equivalent of six quarterly dividends payable on the Series C
Preferred Stock or any other series of Serial Preferred Stock of the Company
have not been declared and paid or set aside for payment, whether or not
consecutive, the number of directors of the Company will be increased by two
and the holders of all such series in respect of which such a default exists,
voting as a class without regard to series, will be entitled to elect two
additional directors at the next annual meeting and each subsequent meeting,
until all cumulative dividends have been paid in full or until noncumulative
dividends have been paid regularly for at least a year.
 
  Consolidation, Merger, Etc. In the event of any consolidation, merger,
combination or other transaction in which shares of common stock are exchanged
for or changed into other stock, securities, cash or other property, each share
of Series C Preferred Stock shall be similarly exchanged or changed in an
amount per share equal to 100 times the aggregate amount of stock, securities,
cash or other property, as the case may be, for or into which each share of
common stock is exchanged or changed.
 
PREFERRED SHARE PURCHASE RIGHTS
 
  A right (a "Right") is associated with, and trades with, each share of Common
Stock outstanding. As long as the Rights are associated with the shares of
Common Stock, each newly issued share of Common Stock issued by the Company,
including shares of Common Stock into which the ESOP Preferred Stock and the
Series A Preferred Stock are convertible, will include one Right. The Rights
Agreement provides that a Right will be associated with each share of ESOP
Preferred Stock outstanding and each Authorized Unissued ESOP Share. Each Right
will entitle its holder to purchase one one-hundredth of a share of Series C
Preferred Stock for $185 (subject to adjustment). Subject to amendment, the
Rights are not exercisable until 10 business days after any person or group
announces its beneficial ownership of 15% or more of the Common Stock. The
Rights Agreement provides that the transactions associated with the
Recapitalization will not cause the Rights to become exercisable as a result
thereof.
 
  If any person or group acquires 15% or more of the Common Stock outstanding
(other than the ESOP Trustee, ALPA, the IAM and the beneficial owners of Common
Stock eligible to report and reporting on Schedule 13G under the Exchange Act),
each Right holder (except the acquiring party) has the right to receive, upon
exercise, shares of Common Stock (or, under certain circumstances, cash,
property or other Company securities) having a market value of three times the
exercise price of the Right. If, after the Rights become exercisable, the
Company is involved in a merger where it does
 
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<PAGE>
 
not survive or survives with a change or exchange of its Common Stock or the
Company sells or transfers more than 50% of its assets or earning power, each
Right will be exercisable for common stock of the other party to such
transaction having a market value of three times the exercise price of the
Right. The Company has the right to redeem the Rights for $.05 per Right prior
to the time that they become exercisable. The Rights will expire on December
31, 1996.
 
  The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Board, except pursuant to an offer conditioned on
a substantial number of Rights being acquired. The Rights should not interfere
with any merger or other business combination approved by the Board since the
Rights may be redeemed or their terms amended by the Company as described
above.
 
                   CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
   
  The following is a general summary of the material United States federal
income tax considerations relevant to an exchange of Series A Preferred Stock
for Debentures and the ownership, disposition and conversion of Debentures by
persons acquiring Debentures pursuant to the Exchange Offer. To the extent it
relates to matters of law or legal conclusions, this summary constitutes the
opinion of Mayer, Brown & Platt, special counsel to the Company. This summary
is based on the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations (including Proposed Regulations and Temporary Regulations)
promulgated thereunder, Internal Revenue Service ("IRS") rulings, official
pronouncements and judicial decisions, all as in effect on the date hereof and
all of which are subject to change, possibly with retroactive effect, or
different interpretations. This summary is applicable only to holders who are
United States persons for federal income tax purposes and who hold Series A
Preferred Stock as a capital asset and who will hold Debentures and any Common
Stock received on conversion of Debentures as capital assets. For a discussion
of certain material United States federal income and estate tax considerations
that may be relevant to non-United States persons, see "Certain Federal Tax
Considerations for Non-United States Persons."     
 
  This summary does not discuss all the tax consequences that may be relevant
to a particular holder in light of the holder's particular circumstances and it
is not intended to be applicable in all respects to all categories of
investors, some of whom--such as insurance companies, tax-exempt persons,
financial institutions, regulated investment companies, dealers in securities
or currencies, persons that hold Series A Preferred Stock or the Debentures
received in the exchange as a position in a "straddle," as part of a "synthetic
security," "hedge," "conversion transaction" or other integrated investment or
persons whose functional currency is other than United States dollars--may be
subject to different rules not discussed below. In addition, this summary does
not address any state, local or foreign tax considerations that may be relevant
to a holder's decision to exchange Series A Preferred Stock for Debentures
pursuant to the Exchange Offer.
          
  ALL SERIES A PREFERRED STOCK HOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
THE EXCHANGE OF SERIES A PREFERRED STOCK FOR DEBENTURES AND OF THE OWNERSHIP,
CONVERSION AND DISPOSITION OF DEBENTURES RECEIVED IN THE EXCHANGE OFFER IN
LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES.     
 
EXCHANGE OF SERIES A PREFERRED STOCK FOR DEBENTURES
 
  The exchange of Series A Preferred Stock for Debentures pursuant to the
Exchange Offer will be a taxable event. If, with respect to a particular
holder, such exchange satisfies one of the tests of section 302 of the Code
described below, it will be treated as a transaction in which capital gain or
loss is recognized, rather than as a dividend. The tests under section 302 of
the Code are applied on a
 
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<PAGE>
 
stockholder-by-stockholder basis; therefore, whether an exchange will be
treated as a transaction in which capital gain or loss is recognized or as a
dividend with respect to a particular holder will depend on that holder's
particular facts and circumstances. If the exchange of Series A Preferred Stock
for Debentures is treated as a transaction in which capital gain or loss is
recognized with respect to a particular holder, the capital gain or loss will
be based on the difference between the fair market value of the Debentures
received in the exchange and such holder's adjusted tax basis in the Series A
Preferred Stock surrendered therefor. Such capital gain or loss will be long-
term capital gain or loss if the Series A Preferred Stock surrendered in the
exchange was held by such holder for more than one year. The exchanging
holder's tax basis in the Debentures received in the exchange will equal the
fair market value of such Debentures at the time of the exchange and the
holding period for such Debentures will begin on the day after the day on which
the Debentures are acquired by such holder.
   
  Pursuant to section 302 of the Code, an exchange will be treated as a
transaction in which gain or loss is recognized if, after giving effect to the
constructive ownership rules of section 318 of the Code, the exchange (i)
represents a "complete termination" of the exchanging holder's stock interest
in the Company, (ii) is "substantially disproportionate" with respect to the
exchanging holder or (iii) is "not essentially equivalent to a dividend" with
respect to the exchanging holder, all within the meaning of section 302(b) of
the Code. Under the constructive ownership rules of section 318 of the Code, a
holder of a Debenture will be treated as owning the Common Stock into which
such Debenture is convertible. Accordingly, an exchange pursuant to the
Exchange Offer could not, standing alone, satisfy the "complete termination" or
the "substantially disproportionate" tests. An exchange will be "not
essentially equivalent to a dividend" as to a particular holder if it results
in a "meaningful reduction" in such holder's interest in the Company (after
application of the constructive ownership rules of section 318 of the Code). In
general, there are no fixed rules for determining whether a "meaningful
reduction" has occurred. However, based upon published rulings of the Internal
Revenue Service, the exchange will be treated as a transaction in which gain or
loss is recognized if the holder's stock ownership (treating the Debentures as
converted) is minimal, the holder exercises no control over the affairs of the
Company, and the holder's percentage equity interest in the Company is reduced
in the redemption to any extent. Because the conversion price of a Debenture is
higher than that of the equivalent amount of Series A Preferred Stock to be
surrendered therefor, an exchange of Series A Preferred Stock for Debentures
would, standing alone, result in some reduction in an exchanging holder's
constructive stock interest in the Company. No assurance can be given that
these tests will be satisfied. EACH HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR
AS TO ITS ABILITY TO SATISFY ANY OF THE FOREGOING TESTS, POSSIBLY BY DISPOSING
OF A PORTION OF ITS STOCK INTEREST IN THE COMPANY CONTEMPORANEOUSLY, AND AS
PART OF AN INTEGRATED PLAN, WITH THE EXCHANGE OF SERIES A PREFERRED STOCK FOR
DEBENTURES, IN LIGHT OF ITS OWN PARTICULAR CIRCUMSTANCES.     
 
  If an exchange is treated as a dividend with respect to a particular
exchanging holder under section 302 of the Code, such holder (i) will not
recognize any loss on the exchange and (ii) will recognize dividend income
(rather than capital gain) in an amount equal to the fair market value of the
Debentures (and any cash in lieu of fractional Debentures) received (without
regard to such holder's basis in the Series A Preferred Stock surrendered in
the exchange), to the extent of its proportionate share of the Company's
current or accumulated earnings and profits. If the fair market value of the
Debentures (and any cash in lieu of fractional Debentures) received exceeds the
holder's proportionate share of the Company's current and accumulated earnings
and profits, the excess will be treated as a nontaxable recovery of the
holder's basis in any remaining Series A Preferred Stock held by such holder
or, if such holder does not retain any Series A Preferred Stock, to any Common
Stock held by such holder, with any remaining excess treated as gain from the
sale or exchange of such stock. Such holder's tax basis in the Debentures
generally will equal the fair market value of such Debentures at the time of
the exchange (without regard to such holder's basis in the Series A Preferred
Stock surrendered in the exchange). The holder's adjusted tax basis in its
Series A Preferred Stock surrendered in the exchange
 
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<PAGE>
 
will be transferred to any remaining Series A Preferred Stock held by such
holder or, if such holder does not retain any Series A Preferred Stock, to any
Common Stock held by such holder. If the holder does not retain any stock
ownership in the Company, it is unclear whether the holder will be permitted to
add such basis to any Debentures received in the exchange or will lose such
basis entirely. To the extent the distribution is taxable as a dividend to a
corporate stockholder, (i) it will be eligible for a dividend received
deduction (subject to the minimum holding period requirements under section
246(c) of the Code and other applicable limitations) and (ii) it may be subject
to the "extraordinary dividend" provisions of the Code which, if applicable,
would require a corporate shareholder to reduce its tax basis (and possibly
recognize gain) in any stock of the Company held by it by the nontaxed portion
of any such dividend. The holding period for the Debentures will begin on the
day after the day on which the Debentures are acquired by the exchanging
holder.
 
INTEREST AND ORIGINAL ISSUE DISCOUNT ON DEBENTURES
 
  In accordance with sections 1271 through 1275 of the Code and the final
Treasury Regulations promulgated thereunder (the "OID Regulations"), a debt
instrument bears original issue discount ("OID") if its "stated redemption
price at maturity" exceeds its "issue price" by more than a de minimis amount.
The issue price of the Debentures will be their fair market value at the time
of the exchange. The stated redemption price at maturity of a debt instrument
generally includes all amounts payable other than "qualified stated interest"
(i.e., payments that are unconditionally required to be paid at least annually
at a single fixed rate over the term of the instrument). Because the Company
has the right to elect to extend the interest payment period to a period of up
to 20 consecutive quarterly periods, none of the payments of stated interest on
the Debentures will be qualified stated interest. Thus, the Debentures will
have OID in an amount equal to the excess of all payments required to be made
under the Debentures over their issue price. A holder will be required to
include OID in income, based on a constant yield method, before the receipt of
cash attributable to such income, regardless of such holder's regular method of
accounting. As a result, during any period in which the Company has elected to
extend the interest payment period a holder generally would be required to
include OID in income but would not receive cash from the Company sufficient to
pay tax thereon. A holder will not recognize any income upon the receipt of a
payment of stated interest on a Debenture; instead, a holder's basis in the
Debentures will be increased by the amount of OID includible in income and
reduced by all payments made on the Debentures.
 
  The amount of OID includible in income is the sum of the daily portions of
OID with respect to such Debenture for each day during the taxable year on
which such holder held such Debenture. The daily portion of OID on a Debenture
is determined by allocating to each day in any "accrual period" a ratable
portion of the OID allocable to such accrual period. The term "accrual period"
means a period of any length selected by the holder, provided that each accrual
period must be no longer than one year and each scheduled payment date of
principal or interest on a Debenture must occur either on the final day of an
accrual period or the first day of an accrual period. The amount of OID
allocable to an accrual period is the product of the "adjusted issue price" at
the beginning of the accrual period and the "yield to maturity" of the
Debenture. For the first accrual period, the adjusted issue price of the
Debentures will be their issue price. Thereafter, the adjusted issue price of a
Debenture generally will be its issue price increased by any OID previously
includible in the gross income of the holder and decreased by any payment
previously made on the Debenture.
 
  Under the OID Regulations, in computing the yield to maturity of an
instrument the issuer is deemed to elect to exercise any option available to it
under the instrument if doing so will minimize the yield on the instrument. If
the issuer does not exercise such option, then, solely for purposes of the
accrual of OID, the yield and maturity of the instrument are redetermined by
treating the instrument as reissued for an amount equal to its adjusted issue
price. Thus, for example, in the case of the first accrual period with respect
to the Debentures, the OID Regulations require that the yield to maturity of
the Debentures
 
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<PAGE>
 
be computed assuming that the Company would elect to extend the interest
payment period to the maximum 20 consecutive quarters (because doing so would
minimize the yield on the Debentures). Assuming quarterly accrual periods, the
aggregate amount of OID for the first quarterly accrual period would equal the
product of the issue price and the yield to maturity (as so determined). If,
contrary to this assumption under the OID Regulations, the Company does not
elect to extend the interest payment period and pays the stated interest at the
end of the first quarterly interest payment period, the instrument will be
treated, solely for OID purposes, as having been reissued on such payment date.
The yield to maturity would then be recomputed, again assuming that the Company
would elect to extend the interest payment period to the maximum 20 consecutive
quarters (again, because doing so would minimize the yield on the Debentures).
The amount of OID for this second accrual period would equal the product of
such recomputed yield to maturity and the adjusted issue price on the date of
such deemed reissuance (i.e., the issue price plus the amount of previously
accrued OID minus the interest previously paid on the Debentures). In the case
of the final accrual period, the allocable OID is the difference between the
amount payable at maturity and the adjusted issue price at the beginning of the
accrual period.
 
  If an exchange of Series A Preferred Stock for Debentures is treated as a
dividend to the exchanging holder (see "--Exchange of Series A Preferred Stock
for Debentures," above), and the exchanging holder's basis in the Series A
Preferred Stock surrendered in the exchange is transferred to the Debentures,
such holder may have acquisition premium with respect to the Debentures, which
would reduce the amount includible in such holder's income as OID in each
taxable year.
 
SALE OR REDEMPTION OF DEBENTURES
 
  Generally, a sale or redemption of Debentures will result in taxable gain or
loss equal to the difference between the amount realized and the holder's tax
basis in the Debentures. Such gain or loss would be long-term capital gain or
loss if the Debentures were held for more than one year.
 
CONVERSION OF DEBENTURES
 
  The conversion of Debentures into Common Stock and cash will likely be
treated as a recapitalization within the meaning of Section 368(a)(1)(E) of the
Code. If the conversion so qualifies, a holder of Debentures will recognize
gain on the conversion of Debentures into Common Stock and cash equal to the
lesser of (1) the excess of (a) the sum of (i) the fair market value of the
Common Stock received at the time of conversion and (ii) the cash received over
(b) the holder's tax basis in the Debentures and (2) the cash received. Such
recognized gain will likely be treated as capital gain. The tax basis for the
Common Stock received upon such conversion will be equal to the tax basis of
the Debentures converted (reduced by the portion of such basis allocable to any
fractional Common Stock interest paid in cash) decreased by the cash received
in the conversion and increased by the amount of gain recognized on the
exchange by the holder. A holder generally will recognize gain (or loss) upon a
conversion to the extent that any cash paid in lieu of a fractional share of
Common Stock exceeds (or is less than) its tax basis in such fractional share.
 
  If the conversion is not treated as a recapitalization, the holder of
Debentures may be able to contend that the conversion should be treated as a
redemption of a portion of Debentures for cash and an exchange of the remaining
Debentures for Common Stock. The holder would generally recognize gain or loss
on the redemption of the Debentures equal to the difference between the cash
received and such holder's tax basis in the Debentures that are treated as
redeemed in the exchange for cash. The holder would not recognize any gain or
loss on the exchange of the remaining Debentures for Common Stock and would
have a tax basis in the Common Stock received equal to the tax basis of the
Debentures treated as exchanged for Common Stock.
 
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<PAGE>
 
  The holding period for the Common Stock generally will include the holding
period of the Debentures converted. However, the holding period for the Common
Stock allocable to original issue discount accrued during the holder's holding
period for the Debentures converted may be treated as commencing on the day
after the date of the conversion.
 
SALE OR DISPOSITION OF COMMON STOCK
 
  A holder will recognize gain or loss on the sale or exchange of Common Stock
received upon conversion of a Debenture equal to the difference between the
amount realized on such sale or exchange and the holder's adjusted tax basis in
the Common Stock sold or exchanged. Such gain or loss would be long-term
capital gain or loss if the holder's holding period for the Common Stock were
more than one year. See "--Conversion of Debentures."
 
ADJUSTMENT OF CONVERSION PRICE
 
  Pursuant to Treasury Regulations promulgated under section 305 of the Code, a
holder of a Debenture will be treated as having received a constructive
distribution from the Company upon an adjustment in the conversion price of the
Debentures if (i) as a result of such adjustment, the proportionate interest of
such holder in the assets or earnings and profits of the Company were increased
and (ii) the adjustment was not made pursuant to a bona fide, reasonable anti-
dilution formula. An adjustment in the conversion price would not be considered
made pursuant to such a formula if the adjustment was made to compensate for
certain taxable distributions with respect to the stock into which the
Debentures are convertible. Thus, under certain circumstances, a decrease in
the conversion price for the Debentures may be taxable to a holder as a
dividend to the extent of the current or accumulated earnings and profits of
the Company. In addition, the failure to adjust fully the conversion price of
the Debentures to reflect distributions of stock dividends with respect to the
Common Stock (or rights to acquire Common Stock) may result in a taxable
dividend to the holders of the Common Stock and holders of rights to acquire
Common Stock.
 
BACKUP WITHHOLDING
 
  A holder of Series A Preferred Stock, a Debenture or Common Stock issued upon
conversion of a Debenture may be subject to backup withholding at a rate of 31%
with respect to dividends or interest (including OID) on, or the proceeds of a
sale, exchange, or redemption of, such Series A Preferred Stock, Debenture or
Common Stock, as the case may be, unless (i) such holder is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact or (ii) provides a taxpayer identification number, certifies as to no
loss of exemption from backup withholding, and otherwise complies with
applicable backup withholding rules.
 
                       CERTAIN FEDERAL TAX CONSIDERATIONS
                         FOR NON-UNITED STATES PERSONS
   
  The following is a general summary of the material United States federal
income and estate tax considerations relevant to the exchange of Series A
Preferred Stock for Debentures by non-United States persons and the ownership,
disposition and conversion of Debentures by non-United States persons acquiring
Debentures pursuant to the Exchange Offer. To the extent it relates to matters
of law or legal conclusions this summary constitutes the opinion of Mayer,
Brown & Platt, special counsel to the Company. This summary is based on the
Code, Treasury Regulations (including Proposed Regulations and Temporary
Regulations) promulgated thereunder, IRS rulings, official pronouncements and
judicial decisions, all as in effect on the date hereof and all of which are
subject to change, possibly with retroactive effect, or different
interpretations. This summary does not discuss all the tax     
 
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<PAGE>
 
consequences that may be relevant to a particular holder that is a non-United
States person in light of the holder's particular circumstances and it is not
intended to be applicable in all respects to all categories of non-United
States persons, some of whom--such as foreign governments and certain
international organizations--may be subject to special rules not discussed
below. In addition, this summary does not address any state, local or foreign
tax considerations that may be relevant to a holder's decision to exchange
Series A Preferred Stock for Debentures pursuant to the Exchange Offer. For a
discussion of certain United States federal income tax considerations, some of
which may also be relevant to non-United States persons, see "Certain Federal
Income Tax Considerations."
 
  As used herein, "non-United States person" means any person who, for United
States federal income tax purposes, is neither (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any State or of any
of its territories or possessions or (iii) a domestic trust or estate.
   
  ALL SERIES A PREFERRED STOCK HOLDERS THAT ARE NON-UNITED STATES PERSONS ARE
ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES OF THE EXCHANGE OF SERIES A PREFERRED STOCK FOR
DEBENTURES AND THE OWNERSHIP, CONVERSION AND DISPOSITION OF DEBENTURES RECEIVED
IN THE EXCHANGE OFFER IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES.     
 
EXCHANGE OF SERIES A PREFERRED STOCK FOR DEBENTURES
   
  Subject to the discussion of backup withholding below, if a holder that is a
non-United States person proves, in a manner and under arrangements
satisfactory to the Company or other withholding agent, that the exchange of
Series A Preferred Stock for Debentures by such holder qualifies as a
transaction in which gain or loss is recognized, rather than as a dividend (see
"Certain Federal Income Tax Considerations--Exchange of Series A Preferred
Stock for Debentures," above), the Company or such withholding agent will not
withhold federal income tax on the issuance of Debentures to such holder and
such holder generally will not be subject to United States federal income tax
in respect of gain recognized on such exchange unless (i) such gain is
effectively connected with a trade or business conducted by such non-United
States person within the United States (in which case the branch profits tax
may also apply if the holder is a foreign corporation), (ii) in the case of a
non-United States person that is an individual, such holder is present if the
United States for a period or periods aggregating 183 days or more in the
taxable year of the exchange and certain other conditions are satisfied or
(iii) the Company is or has been a "United States real property holding
corporation" for federal income tax purposes within the five-year period ending
on the date of the exchange (which the Company does not believe it has been or
is currently) and certain other conditions are satisfied, and no treaty
exception is applicable.     
 
  If a holder that is a non-United States person who exchanges Series A
Preferred Stock for Debentures does not prove, in a manner satisfactory to the
Company or other withholding agent, that such exchange qualifies as a
transaction in which gain or loss is recognized, United States federal
withholding tax will be withheld from the gross proceeds to such holder in an
amount equal to 30% of such proceeds (including Debentures that such holder
would otherwise have received) unless such holder is eligible for a reduced tax
treaty rate with respect to dividend income, in which case the tax will be
withheld at the reduced rate, or establishes that it is exempt from such tax
(e.g., by providing the appropriate form certifying its status as a foreign
government). Except as may be otherwise provided in an applicable income tax
treaty, a holder that is a non-United States person will be taxed at ordinary
federal income tax rates on a net income basis if such dividend is effectively
connected with the conduct of a trade or business of such holder within the
United States (in which case the branch profits tax may also apply if the
holder is a foreign corporation) and will not be subject to the withholding tax
described
 
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<PAGE>
 
in the preceding sentence. A holder that is a non-United States person may be
eligible to obtain from the IRS a refund of tax withheld if such holder meets
one of the three tests of section 302 described above under "Certain Federal
Income Tax Considerations--Exchange of Series A Preferred Stock for Debentures"
or is otherwise able to establish that no tax (or a reduced amount of tax) was
due.
 
PAYMENTS ON DEBENTURES
 
  Subject to the discussion of backup withholding below, payments of principal,
premium (if any) and interest (including original issue discount) on a
Debenture by the Company or its agent (in its capacity as such) to a beneficial
owner that is a non-United States person will not be subject to United States
federal withholding tax; provided that (a) such person does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote, (b) such person is not a
controlled foreign corporation that is related to the Company actually or
constructively through stock ownership, (c) such person is not a bank that
acquired its Debenture in consideration of an extension of credit made pursuant
to a loan agreement entered into in the ordinary course of business and (d)
either (i) the beneficial owner certifies to the Company or its agent, under
penalties of perjury, in a suitable form that it is a not a United States
person and provides its name and address or (ii) a qualifying securities
clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business and that
holds the Debenture certifies to the Company or its agent under penalties of
perjury that such statement has been received from the beneficial owner in a
suitable form by it or by a qualifying intermediary and furnishes the payor
with a copy thereof.
 
  If a beneficial owner of a Debenture who is a non-United States person is
engaged in a trade or business within the United States and interest (including
original issue discount) and premium, if any, on the Debenture is effectively
connected with the conduct of such trade or business, such beneficial owner may
be subject to United States federal income tax on such interest (including
original issue discount) and premium at ordinary federal income tax rates on a
net basis (in which case the branch profits tax may also apply if the holder is
a foreign corporation).
   
CONVERSION OF DEBENTURES     
 
  If a holder that is a non-United States person converts a Debenture into
Common Stock and cash and does not prove, in a manner satisfactory to the
Company or other withholding agent, that the cash received is not treated as a
dividend for U.S. federal income tax purposes, United States federal
withholding tax will be withheld from the proceeds at a rate of 30% of such
proceeds unless such holder is eligible for a reduced tax treaty rate with
respect to dividend income, in which case the tax will be withheld at the
reduced rate, or establishes that it is exempt from such tax (e.g., by
providing the appropriate form certifying its status as a foreign government).
Except as may be otherwise provided in an applicable income tax treaty, a
holder that is a non-United States person will be taxed at ordinary federal
income tax rates on a net income basis if such dividend is effectively
connected with the conduct of a trade or business of such holder within the
United States (in which case the branch profits tax may also apply if the
holder is a foreign corporation) and will not be subject to the withholding tax
described in the preceding sentence. A holder that is a non-United States
person may be eligible to obtain from the IRS a refund of tax withheld if such
holder is able to establish that no tax (or a reduced amount of tax) is due. To
the extent such a holder receives cash in lieu of fractional shares of Common
Stock, such payment will be subject to the rules described below under "--Sale
or Exchange of Debentures or Common Stock."
 
SALE OR EXCHANGE OF DEBENTURES OR COMMON STOCK
 
  Subject to the discussion of backup withholding below, any capital gain
realized upon a sale or exchange of a Debenture (including upon retirement of a
Debenture) or Common Stock issued upon
 
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<PAGE>
 
conversion of a Debenture by a beneficial owner who is a non-United States
person ordinarily will not be subject to United States federal income tax
unless (i) such gain is effectively connected with a trade or business
conducted by such non-United States person within the United States (in which
case the branch profits tax may also apply if the holder is a foreign
corporation), (ii) in the case of a non-United States person that is an
individual, such holder is present in the United States for a period or periods
aggregating 183 days or more in the taxable year of the sale or exchange and
certain other conditions are met or (iii) the Company is or has been a "United
States real property holding corporation" for federal income tax purposes
(which the Company does not believe it has been or is currently) and such non-
United States person has held, directly or constructively, more than 5% of the
outstanding Common Stock within the five-year period ending on the date of the
sale or exchange, and no treaty exception is applicable.
 
DIVIDENDS ON COMMON STOCK
 
  Generally, any dividends paid on Common Stock received upon the conversion of
a Debenture will be subject to United States federal withholding tax at a rate
of 30% of the amount of the dividend, or at a lower applicable treaty rate.
However, if the dividend is effectively connected with a United States trade or
business of a holder that is a non-United States person, it will be subject to
United States federal income tax at ordinary federal income tax rates on a net
basis (in which case the branch profits tax may also apply if such holder is a
foreign corporation), rather than the 30% withholding tax.
 
  Under current Treasury Regulations, a holder's status as a non-United States
person and eligibility for a tax treaty reduced rate of withholding will be
determined by reference to the holder's address and to any outstanding
certificates or statements concerning eligibility for a reduced rate of
withholding, unless facts and circumstances indicate that reliance is not
warranted. However, the IRS has issued Proposed Regulations that, if adopted in
final form, would require a non-United States person to provide certifications
under penalties of perjury in order to obtain treaty benefits.
 
FEDERAL ESTATE TAXES
 
  Debentures beneficially owned by an individual who at the time of death is
neither a citizen nor a resident of the United States will not be subject to
United States federal estate tax as a result of such individual's death,
provided that at the time of death the income from the Debentures was not or
would not have been effectively connected with the conduct by such individual
of a trade or business within the United States and that such individual
qualified for the exemption from United States federal withholding tax (without
regard to the certification requirements) on premium and interest that is
described above under "--Payments on Debentures."
 
  Common Stock that is beneficially owned by an individual who is neither a
citizen nor a resident of the United States at the time of death will be
included in such holder's gross estate for United States federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.
 
BACKUP WITHHOLDING AND INFORMATION REPORTING
 
  Information reporting on IRS Form 1099 and backup withholding at a rate of
31% will not apply to payments of principal, premium (if any) and interest
(including original issue discount) made by the Company or a paying agent to a
non-United States holder on a Debenture if the certification described in
clause (d) under "--Payments on Debentures" above is received, provided that
the payor does not have actual knowledge that the holder is a United States
person. However, interest (including original issue discount) on a Debenture
owned by a holder that is a non-United States person may be required to be
reported annually on IRS Form 1042S.
 
  Generally, dividends on Common Stock paid to holders that are non-United
States persons that are subject to the 30% or a reduced treaty rate of United
States federal withholding tax will be exempt from backup withholding tax.
Otherwise, backup withholding of United States federal income tax at a rate of
31% may apply to dividends paid with respect to Common Stock to holders that
are not "exempt recipients" and that fail to provide certain information
(including the holder's taxpayer identification number) in the manner required
by United States law and applicable regulations.
 
                                       71

<PAGE>
 
  Payments of the proceeds from the sale by a holder that is a non-United
States person of a Debenture or Common Stock issued upon conversion of a
Debenture made to or through a foreign office of a broker will not be subject
to information reporting or backup withholding, except that if the broker is a
United States person, a controlled foreign corporation for United States tax
purposes or a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified three-year
period, information reporting may apply to such payments. Payments of the
proceeds from the sale of a Debenture or Common Stock to or through the United
States office of a broker is subject to information reporting and backup
withholding unless the holder certifies as to its non-United States status or
otherwise establishes an exemption from information reporting and backup
withholding.
                                  
                               LEGAL MATTERS     
 
  The validity of the Debentures will be passed upon for the Company by
Francesca M. Maher, Vice President--Law and Corporate Secretary of the Company.
Ms. Maher owns shares of Common Stock and has options to purchase additional
shares of Common Stock. Certain other legal matters will be passed upon for the
Company by Mayer, Brown & Platt, Chicago, Illinois. Certain legal matters will
be passed upon for the Dealer Managers by Shearman & Sterling, New York, New
York.
 
                                    EXPERTS
   
  The consolidated financial statements as of December 31, 1994 and 1993, and
for each of the three years in the period ended December 31, 1994, included in
the Form 8-K dated February 28, 1995, incorporated by reference in this
Registration Statement and the consolidated financial statements and related
schedules of the Company as of December 31, 1993 and 1992 and for each of the
three years in the period ended December 31, 1993, included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1993,
incorporated by reference in this Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said report.
Reference is made to said reports which include an explanatory paragraph with
respect to the changes in methods of accounting for income taxes and
postretirement benefits other than pensions as discussed in the notes to the
consolidated financial statements.     
 
                                       72

<PAGE>
 
   
  Facsimile copies of the Letter of Transmittal will be accepted. Letters of
Transmittal, certificates representing shares of Series A Preferred Stock and
any other required documents should be sent by each holder of Series A
Preferred Stock or his broker, dealer, commercial bank, trust company or other
nominee to the Exchange Agent at one of the addresses as set forth below:     
 
                             The Exchange Agent Is:
                              
                           THE BANK OF NEW YORK     
 
                By Mail:                     By Hand or Overnight Courier:
                                               
     (registered or certified mail              The Bank of New York 
           recommended)                        Reorganization Section  
        The Bank of New York                     101 Barclay Street   
      Reorganization Section                          (7 East)        
        101 Barclay Street                       New York, NY 10286   
             (7 East)                                Attention:       
        New York, NY 10286                         Arwen Gibbons       
            Attention:                      
          Arwen Gibbons      
    
 
                           By Facsimile Transmission
                       (For Eligible Institutions Only):
                                 
                              (212) 571-3080     
 
         Confirm Receipt of Notice of Guaranteed Delivery by Telephone:
                                 
                              (212) 815-2742     
                                   
                                Attention:     
                                  
                               Arwen Gibbons     
                            
                         The Information Agent Is:     
                              
                           D.F. KING & CO., INC.     
                                 
                              77 Water Street     
                            
                         New York, New York 10005     
                           
                        (800) 669-5550 (Toll-Free)     
                          
                        (212) 269-5550 (Call Collect)     
        
   
   Any questions or requests for assistance or additional copies of this
 Prospectus and the Letter of Transmittal may be directed to the Information
 Agent at its telephone number and location set forth above. You may also
 contact your broker, dealer, commercial bank or trust company or other
 nominee for assistance concerning the Exchange Offer.     
 
 
                The Dealer Managers for the Exchange Offer are:
 
          GOLDMAN, SACHS & CO.                      LEHMAN BROTHERS
            85 Broad Street                     3 World Financial Center
        New York, New York 10004                New York, New York 10285
                                               (800) 524-4462 (Toll-Free)
    (800) 323-5678 (Toll-Free)     



<PAGE>
 
PRESS RELEASE

UAL CORPORATION FILES REGISTRATION STATEMENT FOR
PREFERRED STOCK EXCHANGE OFFER WITH THE SEC


FOR IMMEDIATE RELEASE
- ---------------------

Chicago, February 3, 1995 -- UAL Corporation today filed a registration
statement with the Securities and Exchange Commission to offer to exchange up to
$600 million of subordinated convertible debentures for up to all of its
currently outstanding 6-1/4% Series A Preferred Stock on the basis of $1,000
principal amount of debentures for every ten shares of Series A Preferred Stock.
Each $1,000 principal amount of debentures would be convertible into $541.90 in
cash and approximately 3.192 shares of UAL common stock.  Outstanding shares of
Series A Preferred Stock are each convertible into $54.19 in cash and
approximately 0.3195 shares of UAL common stock.  Goldman, Sachs & Co. and
Lehman Brothers Inc. have been retained as Dealer Managers to solicit exchanges.

     Until the registration statement becomes effective, the debentures may not
be sold nor may offers to exchange be accepted.  The offer will be made only by
means of a prospectus.  This press release shall not constitute an offer to sell
or the solicitation of an offer to exchange, nor shall there be any exchange of
the debentures
 in any state in which such offer, solicitation or exchange would
be unlawful prior to registration or qualification under the securities laws of
any such state.