<PAGE>
 
       
   
   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 10, 1994     
                                                      REGISTRATION NO. 33-53107
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                                ---------------
                               
                            AMENDMENT NO. 3 TO     
                                   FORM S-4
                            REGISTRATION STATEMENT
                                     UNDER
                          THE SECURITIES ACT OF 1933
                                ---------------
                  UAL CORPORATION AND UNITED AIR LINES, INC.
          (EXACT NAME OF EACH REGISTRANT AS SPECIFIED IN ITS CHARTER)
                                ---------------
    DELAWARE--UAL                  4512--UAL             36-2675207--UAL
   DELAWARE--UNITED              4512--UNITED           36-2675206--UNITED

   (STATE OR OTHER       (PRIMARY STANDARD INDUSTRIAL    (I.R.S. EMPLOYER
   JURISDICTION OF        CLASSIFICATION CODE NUMBER)  IDENTIFICATION NUMBER)
   INCORPORATION OR 
    ORGANIZATION)   
 
                           1200 EAST ALGONQUIN ROAD
                      ELK GROVE TOWNSHIP, ILLINOIS 60007
                                (708) 952-4000

      (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
              CODE, OF REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)

                                                     Copies to:
      LAWRENCE M. NAGIN, ESQ.                 PETER ALLAN ATKINS, ESQ.
          UAL CORPORATION                     THOMAS H. KENNEDY, ESQ.
           P.O. BOX 66100                      ERIC L. COCHRAN, ESQ.
      CHICAGO, ILLINOIS 60666             SKADDEN, ARPS, SLATE, MEAGHER &
           (708) 952-4000                               FLOM
   (NAME, ADDRESS, INCLUDING ZIP                  919 THIRD AVENUE
    CODE, AND TELEPHONE NUMBER,               NEW YORK, NEW YORK 10022
 INCLUDING AREA CODE, OF AGENT FOR
              SERVICE)
                                ---------------
  APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: At the
effective time of the recapitalization (the "Recapitalization") of UAL
Corporation described in the Proxy Statement/Joint Prospectus forming a part
of this Registration Statement.
 
  If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
                                ---------------
                        CALCULATION OF REGISTRATION FEE

<TABLE> 
<CAPTION> 
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
                                               PROPOSED       PROPOSED
 TITLE OF EACH CLASS OF        AMOUNT          MAXIMUM        MAXIMUM
    SECURITIES TO BE            TO BE          OFFERING      AGGREGATE        AMOUNT OF
       REGISTERED            REGISTERED     PRICE PER UNIT OFFERING PRICE REGISTRATION FEE
- -------------------------------------------------------------------------------------------
<S>                       <C>               <C>            <C>            <C>
Common Stock, par value
 $.01 per share of UAL.   14,463,093 shares      (1)            (1)       $700,462.52(1)(2)
- -------------------------------------------------------------------------------------------
Series B Preferred Stock
 of UAL................     35,985 shares        (1)            (1)              (1)
- -------------------------------------------------------------------------------------------
Depositary Preferred
 Shares representing the
 Series B Preferred
 Stock.................   35,984,175 shares      (1)            (1)              (1)
- -------------------------------------------------------------------------------------------
Series D Redeemable
 Preferred Stock of
 UAL...................     28,927 shares        (1)            (1)              (1)
- -------------------------------------------------------------------------------------------
Series A Senior
 Debentures due 2004 of
 United................     $449,802,200        (1)(2)         (1)(2)          (1)(2)
- -------------------------------------------------------------------------------------------
Series B Senior
 Debentures due 2014 of
 United................     $449,802,200        (1)(2)         (1)(2)          (1)(2)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
 
   
(1) This Registration Statement covers the shares of Common Stock, par value
    $0.01 per share, of UAL (the "New Shares") and the shares of Series D
    Redeemable Preferred Stock of UAL to be issued in exchange for, and upon
    conversion of the shares of the Common Stock, par value $5 per share, of
    UAL (the "Old Shares") in connection with the Recapitalization.
    Immediately upon issuance, the Series D Redeemable Preferred Stock will be
    redeemed for (i) $25.80 in cash, and (ii) either (a) Series A Debentures
    due 2004 of United, Series B Debentures due 2014 of United (collectively,
    the "Debentures") and Depositary Preferred Shares representing shares of
    Series B Preferred Stock of UAL, (b) the cash proceeds from the sale of
    such securities or (c) a mixture of cash proceeds and securities. For the
    purposes of calculating the registration fee pursuant to Rule 457(f)(1),
    (i) the number of Old Shares to be exchanged and converted is 28,926,185
    and (ii) $746,295,573 of cash ($25.80 per Old Share), which will be paid
    by UAL in connection with the Recapitalization, has been subtracted
    (pursuant to Rule 457(f)(3)) from the aggregate market value of Old Shares
    to be exchanged and converted in the Recapitalization. The aggregate
    market value of the Old Shares has been computed by taking the average of
    the high and low prices for the Old Shares on the New York Stock Exchange,
    Inc. on April 6, 1994 ($127.125).     
(2) As noted below, the Debentures were registered as Debt Securities of
    United pursuant to the Registration Statement on Form S-3 (No. 33-57192)
    filed on January 21, 1993. Of the aggregate fee calculated pursuant to
    Rule 457(f), $310,208.41 is attributable to the Debentures, and the amount
    of the registration fee has been reduced by such amount. The net
    registration fee was paid upon the original filing.
 
                                ---------------
 
  THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
 
  AS PROVIDED UNDER RULE 429, THE DEBENTURES TO BE OFFERED HEREUNDER WERE
REGISTERED AS DEBT SECURITIES OF UNITED PURSUANT TO THE REGISTRATION STATEMENT
ON FORM S-3 (NO. 33-57192) FILED ON JANUARY 21, 1993.
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

<PAGE>
 
                                UAL CORPORATION
                             UNITED AIR LINES, INC.
 
                             CROSS-REFERENCE SHEET
 
                  PURSUANT TO ITEM 501(B) OF REGULATION S-K 
         SHOWING THE LOCATION IN THE PROXY STATEMENT/JOINT PROSPECTUS 
              OF THE INFORMATION REQUIRED TO BE INCLUDED THEREIN
                       IN RESPONSE TO PART I OF FORM S-4
 

<TABLE>
<CAPTION>
                                               LOCATION OR HEADING IN
    S-4 ITEM NUMBER AND CAPTION           PROXY STATEMENT/JOINT PROSPECTUS
    ---------------------------           --------------------------------
<S>                                  <C>
 1. Forepart of Registration
    Statement and Outside Front                                                
    Cover Page of Prospectus.......  FACING PAGE; CROSS-REFERENCE SHEET; OUTSIDE
                                     FRONT COVER PAGE                          

 2. Inside Front and Outside Back
    Cover Pages of Prospectus......  AVAILABLE INFORMATION; TABLE OF CONTENTS

 3. Risk Factors, Ratio of Earnings
    to Fixed Charges, and Other                                                
    Information....................  SUMMARY OF PROXY STATEMENT/JOINT          
                                     PROSPECTUS; --The Plan of                 
                                     Recapitalization--Certain Risk Factors;-- 
                                     Selected Consolidated Historical and Pro  
                                     Forma Operating Information; SPECIAL      
                                     FACTORS--Certain Risk Factors; SELECTED   
                                     CONSOLIDATED FINANCIAL AND OPERATING      
                                     INFORMATION; UNAUDITED PRO FORMA FINANCIAL
                                     INFORMATION                               

 4. Terms of the Transaction.......  SUMMARY OF THE PROXY STATEMENT/JOINT
                                     PROSPECTUS--The Plan of Recapitalization;
                                     --The Plan of Recapitalization--Background
                                     of the Recapitalization; --The Plan of
                                     Recapitalization--Opinions of the Financial
                                     Advisors to the Board; --Certain Federal
                                     Income Tax Consequences; BACKGROUND OF THE
                                     PLAN OF RECAPITALIZATION; SPECIAL FACTORS--
                                     Opinions of the Financial Advisors to the
                                     Board;--Purpose and Structure of the
                                     Recapitalization;--Certain Effects of the
                                     Recapitalization; CERTAIN FEDERAL INCOME
                                     TAX CONSEQUENCES; THE PLAN OF
                                     RECAPITALIZATION--Terms and Conditions;--
                                     Establishment of ESOPs; DESCRIPTION OF
                                     SECURITIES
 5. Pro Forma Financial                                                        
    Information....................  SUMMARY OF PROXY STATEMENT/JOINT          
                                     PROSPECTUS--Selected Consolidated and Pro 
                                     Forma Operating Information; UNAUDITED PRO
                                     FORMA FINANCIAL INFORMATION               

 6. Material Contacts with the
    Company Being Acquired.........  SUMMARY OF PROXY STATEMENT/JOINT
                                     PROSPECTUS--The Plan of Recapitalization--
                                     Background of the Recapitalization;
                                     BACKGROUND OF THE RECAPITALIZATION
</TABLE>


<PAGE>
 

<TABLE>
<CAPTION>
                                                LOCATION OR HEADING IN
    S-4 ITEM NUMBER AND CAPTION            PROXY STATEMENT/JOINT PROSPECTUS
    ---------------------------            --------------------------------
<S>                                   <C>
 7. Additional Information Required
    for Reoffering by Persons and
    Parties Deemed to be
    Underwriters....................  NOT APPLICABLE
 8. Interests of Named Experts and    
    Counsel.........................  SPECIAL FACTORS--Opinions of the Financial 
                                      Advisors to the Board; EXPERTS; LEGAL      
                                      OPINION                                     
  9. Disclosure of Commission  
    Position on Indemnification for
    Securities Act Liability........  NOT APPLICABLE
10. Information With Respect to S-3
    Registrants.....................  NOT APPLICABLE
11. Incorporation of Certain
    Information by Reference........  NOT APPLICABLE
12. Information With Respect to S-2
    or S-3 Registrants..............  NOT APPLICABLE
13. Incorporation of Certain
    Information by Reference........  NOT APPLICABLE
14. Information With Respect to
    Registrants Other Than S-3 or S-  
    2 Registrants...................  SUMMARY OF PROXY STATEMENT/JOINT         
                                      PROSPECTUS; MARKET PRICES OF THE OLD     
                                      SHARES; DIVIDENDS; SELECTED CONSOLIDATED 
                                      FINANCIAL AND OPERATING INFORMATION;     
                                      EXHIBIT 13.1; EXHIBIT 13.2                
15. Information With Respect to S-3
    Companies.......................  NOT APPLICABLE
16. Information With Respect to S-2
    or S-3 Companies................  NOT APPLICABLE
17. Information With Respect to
    Companies Other Than S-2 or S-3
    Companies.......................  NOT APPLICABLE
18. Information if Proxies, Consents
    or Authorizations Are to be       
    Solicited.......................  SUMMARY OF PROXY STATEMENT/JOINT            
                                      PROSPECTUS--Date, Time and Place of         
                                      Meeting; --Vote Required; --The Plan of     
                                      Recapitalization--Interests of Certain      
                                      Persons in the Recapitalization; --No       
                                      Appraisal Rights; INTRODUCTION; --Voting    
                                      Rights and Proxy Information; --No          
                                      Appraisal Rights; SPECIAL FACTORS--         
                                      Interests of Certain Persons in the         
                                      Recapitalization; --Management              
                                      Arrangements; THE PLAN OF                   
                                      RECAPITALIZATION--Revised Governance        
                                      Structure; ELECTION OF DIRECTORS;           
                                      BENEFICIAL OWNERSHIP OF SECURITIES;         
                                      EXECUTIVE COMPENSATION                       
19. Information if Proxies, Consents
    or Authorizations are not to be
    Solicited, or in an Exchange
    Offer...........................  NOT APPLICABLE
</TABLE>


<PAGE>
 
                                      
                                   LOGO     
                                                                 
                                                              June 10, 1994     
 
Dear Stockholder:
   
  At a Meeting of Stockholders of UAL Corporation scheduled to be held in the
Imperial Ballroom at the Fairmont Hotel, 200 North Columbus Drive, Chicago,
Illinois on July 12, 1994, common stockholders will be asked to approve a
recapitalization transaction that substantially alters the cost structure of
UAL's principal subsidiary, United Airlines, a change that is intended to
immediately strengthen the carrier's competitive position in worldwide aviation
markets while improving its long-term financial viability well into the future.
    
  As part of the transaction, employees will make an investment, which is
estimated by the Company to have a net present value of approximately $4.9
billion, in the form of wage and benefit reductions, work-rule changes and
related savings. In return, through the establishment of Employee Stock
Ownership Plans, participating employees will hold, initially, approximately 55
percent of the equity in the Company with current stockholders, initially,
retaining approximately 45 percent of the equity in the Company, subject to
adjustment in certain circumstances. In addition, current common stockholders
will receive additional consideration in the form of cash, or a combination of
cash, debentures and preferred stock as described below.
 
  We believe that the transaction directly addresses the major problem facing
United and virtually all mature air carriers in the United States: a high cost
structure that impedes effective competition with newer, low-cost carriers that
have increased significantly their U.S. domestic market share over the past
five years and that are continuing to make significant inroads into United's
traditional markets.
 
  The employee investment is expected to reduce costs substantially throughout
United's worldwide route system. The investment specifically addresses the
critical challenge facing United in U.S. domestic markets by facilitating the
creation of a new operation--an "airline-within-an-airline"--that is intended
to compete more effectively with low-cost carriers in short-haul markets where
they are most predominant.
 
  In addition--and importantly in a service business such as an airline--this
transaction should enhance the commitment of employees by providing a tangible
link between the Company's operating performance and the resulting rewards that
can be realized by employee-owners of the Company.
   
  The transaction will take the form of a recapitalization. At the same time,
United will be making a public offering of its debt securities and the Company
will be making a public offering of depositary shares representing Company
preferred stock. If all of the offerings are consummated, current common
stockholders will receive an amount of cash equal to the sum of (i) $25.80,
(ii) the proceeds (without deducting the underwriting discount or other costs)
from the sale by United of $31.10 face amount of its debt securities and (iii)
the proceeds (without deducting the underwriting discount or other costs) from
the sale by the Company of depositary shares representing interests in $31.10
liquidation preference of preferred stock. If none of the offerings is
consummated, current common stockholders will receive (i) $25.80 in cash, (ii)
$31.10 face amount of United's debt securities and (iii) depositary shares
representing interests in $31.10 liquidation preference of the Company's
preferred stock. If some but not all of the offerings are consummated, current
common stockholders will receive $25.80 in cash and a combination of the cash
proceeds from the offerings and securities that will vary depending upon which
securities are sold in the applicable offering. Current common stockholders
also will retain a significant ongoing equity interest in the Company that will
be the same regardless of whether any or all of the offerings are consummated.
Under various circumstances, however, the value of the consideration to be
received by common stockholders could be less than the stated face amount of
the debt securities or the liquidation preference of the preferred stock
interests.     
 
                                      LOGO

<PAGE>
 
  The attached Proxy Statement/Joint Prospectus details the proposed
transaction, including the establishment of a revised corporate governance
structure that will be implemented through, among other things, amendments to
the Company's Restated Certificate of Incorporation and Bylaws.
 
  The Board of Directors has approved the recapitalization plan and has
determined that the proposed recapitalization is fair to the holders of the
Company's common stock. The Board of Directors recommends that holders of
common stock vote FOR approval of the recapitalization plan and the related
matters identified as Items 2 through 8 on the enclosed proxy card.
   
  You are urged to read the information concerning the proposed
recapitalization contained in the attached Proxy Statement/Joint Prospectus,
including pages 15 through 27 that outline the benefits that the Company
expects to achieve as a result of the employee investment, including the
opinions of the Company's financial advisors, CS First Boston Corporation and
Lazard Freres & Co. The Proxy Statement/Joint Prospectus also describes a
number of other matters to be voted upon by holders of common stock at the
Meeting.     
 
  We ask you to fill out, sign and mail promptly the enclosed proxy. If you
plan to attend, please request an admission card by marking the proxy card in
the space provided. If you attend the meeting, you may vote your shares in
person whether or not you have previously submitted a proxy.
 
  Thank you for your cooperation.
 
                                          Very truly yours,
 
                                          Stephen M. Wolf
                                          Chairman of the Board
                                          and Chief Executive Officer
 
                                       2

<PAGE>
 
                                UAL CORPORATION
                                 P.O. BOX 66919
                            CHICAGO, ILLINOIS 60666
 
                               ----------------
 
                       NOTICE OF MEETING OF STOCKHOLDERS
 
To the Stockholders:
   
  A Meeting of stockholders of UAL Corporation, a Delaware corporation (the
"Company"), will be held in the Imperial Ballroom at the Fairmont Hotel, 200
North Columbus Drive, Chicago, Illinois, on July 12, 1994, at 8:30 a.m., local
time, for the following purposes:     
     
    1. To approve the Amended and Restated Agreement and Plan of
  Recapitalization, dated as of March 25, 1994 (the "Plan of
  Recapitalization"). The Plan of Recapitalization provides for the
  reclassification of the Company's outstanding common stock and other
  amendments to the Company's Restated Certificate of Incorporation and
  Bylaws, as a result of which each outstanding share of common stock, par
  value $5.00 per share, of the Company (the "Old Shares") will be
  reclassified as, and exchanged for, one half (0.5) of a share of new common
  stock, par value $.01 per share, of the Company (the "New Shares") and one
  one-thousandth of a share of Series D Redeemable Preferred Stock, without
  par value, of the Company (the "Series D Redeemable Preferred Stock").
  Concurrently with the solicitation of proxies in connection with the Plan
  of Recapitalization, United Air Lines, Inc. ("United") expects to offer up
  to $382.5 million principal amount of its Series A Debentures due 2004 (the
  "Series A Debentures") (the "United Series A Offering") and up to $382.5
  million principal amount of its Series B Debentures due 2014 (the "Series B
  Debentures") (the "United Series B Offering") and the Company expects to
  offer up to 30,600,000 depositary shares (the "Depositary Preferred
  Shares") representing interests in $765.0 million liquidation preference of
  Series B Preferred Stock of the Company (the "Public Preferred Stock") (the
  "UAL Preferred Offering"). Immediately upon issuance, the Company will
  redeem each one one-thousandth of a share of Series D Redeemable Preferred
  Stock for:     
       
      (i) $25.80 in cash,     
       
      (ii) either (a) $15.55 principal amount of Series A Debentures or (b)
    if the United Series A Offering is consummated, the cash proceeds
    (without deducting any underwriting discount or other costs) from the
    sale thereof by United pursuant to the United Series A Offering,     
       
      (iii) either (a) $15.55 principal amount of Series B Debentures or
    (b) if the United Series B Offering is consummated, the cash proceeds
    (without deducting any underwriting discount or other costs) from the
    sale thereof by United pursuant to the United Series B Offering, and
        
       
      (iv) either (a) Depositary Preferred Shares representing interest in
    $31.10 liquidation preference of Public Preferred Stock or (b) if the
    UAL Preferred Offering is consummated, the cash proceeds (without
    deducting any underwriting discount or other costs) from the sale
    thereof by the Company pursuant to the UAL Preferred Offering.     
 
    2. Subject to and conditioned upon approval of the Plan of
  Recapitalization, to approve the amendment and restatement of the Company's
  Restated Certificate of Incorporation and Bylaws as set forth in the Plan
  of Recapitalization (the "Charter and Bylaw Amendments").
     
    3. Subject to and conditioned upon approval of the Plan of
  Recapitalization and the Charter and Bylaw Amendments, to approve the
  issuance of (a) shares of Class 1 ESOP Convertible Preferred Stock to State
  Street Bank and Trust Company ("State Street"), as trustee of the UAL
  Corporation Employee Stock Ownership Plan Trust, from time to time, (b)
  shares of Class 2 ESOP Convertible Preferred Stock (or the common shares
  into which they are convertible) to State Street, as trustee of the UAL
  Corporation Employee Stock Ownership Plan Trust (or in limited
  circumstances as trustee of the UAL Corporation Supplemental Employee Stock
  Ownership Plan Trust), or to participants in the UAL Corporation
  Supplemental Employee Stock Ownership Plan, from time to time, (c) shares
  of (i) Class P ESOP Voting Junior Preferred Stock, (ii) Class M ESOP Voting
  Junior Preferred Stock and (iii) Class S     

<PAGE>
 
     
  ESOP Voting Junior Preferred Stock to State Street, as trustee of the UAL
  Corporation Employee Stock Ownership Plan Trust and the UAL Corporation
  Supplemental ESOP Trust, (d) shares of Class I Junior Preferred Stock to
  certain individuals to be named as directors of the Company, (e) a share of
  Class Pilot MEC Junior Preferred Stock to the United Airlines Pilots Master
  Executive Council of the Air Line Pilots Association, International, (f) a
  share of Class IAM Junior Preferred Stock to the International Association
  of Machinists and Aerospace Workers or its designee and (g) shares of Class
  SAM Preferred Stock to an individual to be named as a director of the
  Company on behalf of its salaried and management employees and to an
  additional designated stockholder.     
 
    4. Subject to and conditioned upon approval of the Plan of
  Recapitalization and the Charter and Bylaw Amendments, to elect four
  directors to serve as "Public Directors" of the Company until their
  successors are duly elected and qualified.
 
    5. Subject to and conditioned upon approval of the Plan of
  Recapitalization and the Charter and Bylaw Amendments, to amend the
  Company's 1981 Incentive Stock Program.
 
    6. Subject to and conditioned upon approval of the Plan of
  Recapitalization and the Charter and Bylaw Amendments, to amend the
  Company's 1988 Restricted Stock Plan.
     
    7. Subject to and conditioned upon approval of the Plan of
  Recapitalization and the Charter and Bylaw Amendments, to amend the
  Company's Incentive Compensation Plan.     
 
    8. To consider and act upon three stockholder proposals.
 
    9. To ratify the selection of Arthur Andersen & Co. as the Company's
  independent accountants for the year ending December 31, 1994.
 
    10. To transact such other business as may properly come before the
  Meeting or any adjournment or postponement thereof.
 
  If the Plan of Recapitalization is approved and directors are elected at the
Meeting, the Meeting will be deemed to constitute the Company's 1994 annual
meeting. If the Plan of Recapitalization is not approved and/or if directors
are not elected at the Meeting, an annual meeting of stockholders for 1994 will
be scheduled in the near future.
   
  Only holders of record of Old Shares at the close of business on June 9, 1994
are entitled to notice of, and to vote at, the Meeting and at any adjournment
or postponement thereof. A list of such holders will be open for examination
during ordinary business hours by any stockholder for any purpose germane to
the meeting at 625 North Michigan Avenue, Chicago, Illinois for a period of ten
days prior to the meeting. The list will also be available on July 12, 1994 at
the place of the Meeting.     
 
  Stockholders will not be entitled to appraisal rights in connection with any
of the matters to be voted on at the Meeting.
 
  Stockholders are urged to fill out, sign and mail promptly the enclosed proxy
in the accompanying envelope, which requires no postage if mailed in the United
States. Proxies forwarded by or for brokers or fiduciaries should be returned
as directed. The prompt return of proxies will save the expense involved in
further communication.
 
                                          By Order of the Board of Directors.
 
                                          Francesca M. Maher,
                                          Secretary
 
Chicago, Illinois
   
June 10, 1994     
 
  PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY PROMPTLY, WHETHER OR NOT YOU
INTEND TO BE PRESENT AT THE MEETING.
 
                                       2

<PAGE>
 
       
                                UAL CORPORATION
                             UNITED AIR LINES, INC.
 
                        PROXY STATEMENT/JOINT PROSPECTUS
 
  This Proxy Statement/Joint Prospectus (the "Proxy Statement/Prospectus") is
being furnished in connection with the solicitation of proxies by the Board of
Directors of UAL Corporation, a Delaware corporation (the "Company"), from
holders of the outstanding shares of common stock, par value $5.00 per share,
of the Company ("Old Shares") for use at the Meeting of Stockholders of the
Company (the "Meeting") to be held at the time and place and for the purposes
set forth in the accompanying Notice.
   
  At the Meeting, the holders of Old Shares will be asked to consider and to
vote upon (i) the Amended and Restated Agreement and Plan of Recapitalization,
dated as of March 25, 1994 (the "Plan of Recapitalization"), which contemplates
certain transactions collectively referred to as the "Recapitalization," (ii)
subject to and conditioned upon approval of the Plan of Recapitalization, the
amendment and restatement of the Company's Restated Certificate of
Incorporation and Bylaws (the "Charter and Bylaw Amendments"), (iii) subject to
and conditioned upon approval of the Plan of Recapitalization and the Charter
and Bylaw Amendments, the approval of the issuance of (a) shares of Class 1
ESOP Convertible Preferred Stock to State Street Bank and Trust Company ("State
Street"), as trustee of the UAL Corporation Employee Stock Ownership Plan
Trust, from time to time, (b) shares of Class 2 ESOP Convertible Preferred
Stock (or the common shares into which they are convertible) to State Street,
as trustee of the UAL Corporation Employee Stock Ownership Plan Trust (or, in
limited circumstances, as trustee of the UAL Corporation ESOP Trust), or to
participants in the UAL Corporation Supplemental Employee Stock Ownership Plan
Trust from time to time, (c) shares of (1) Class P ESOP Voting Junior Preferred
Stock, (2) Class M ESOP Voting Junior Preferred Stock and (3) Class S ESOP
Voting Junior Preferred Stock to State Street, as trustee of the UAL
Corporation Employee Stock Ownership Plan Trust and the UAL Corporation
Supplemental ESOP Trust, (d) shares of Class I Junior Preferred Stock to
certain individuals to be named as directors of the Company, (e) a share of
Class Pilot MEC Junior Preferred Stock to the United Airlines Pilots Master
Executive Council ("ALPA-MEC") of the Air Line Pilots Association,
International ("ALPA"), (f) a share of Class IAM Junior Preferred Stock to the
International Association of Machinists and Aerospace Workers (the "IAM") or
its designee, and (g) shares of Class SAM Junior Preferred Stock to an
individual to be named as a director of the Company on behalf of salaried and
management employees and to an additional designated stockholder, (iv) subject
to and conditioned upon approval of the Plan of Recapitalization and the
Charter and Bylaw Amendments, the election of four "Public Directors" of the
Company, (v) subject to and conditioned upon approval of the Plan of
Recapitalization and the Charter and Bylaw Amendments, the amendment of the
Company's 1981 Incentive Stock Program, (vi) subject to and conditioned upon
approval of the Plan of Recapitalization and the Charter and Bylaw Amendments,
the amendment of the Company's 1988 Restricted Stock Plan, (vii) subject to and
conditioned upon approval of the Plan of Recapitalization, the amendment of the
Company's Incentive Compensation Plan, (viii) three stockholder proposals, and
(ix) ratification of the selection of Arthur Andersen & Co. as the Company's
independent accountants for the year ending December 31, 1994.     
          
  The Plan of Recapitalization provides for the reclassification (the
"Reclassification") of the Company's outstanding common stock and other
amendments to the Company's Restated Certificate and Bylaws as a result of
which each outstanding share of common stock, par value $5.00 per share, of the
Company (the "Old Shares") will be reclassified as, and exchanged for, one half
(0.5) of a share of new common stock, par value $0.01 per share, of the Company
(the "New Shares") and one one-thousandth of a share of Series D Redeemable
Preferred Stock, without par value, of the Company (the "Series D Redeemable
Preferred Stock"). Concurrently with the solicitation of proxies in connection
with the Plan of Recapitalization, United Air Lines, Inc. ("United") expects to
offer up to $382.5 million principal amount of its Series A Debentures due 2004
(the "Series A Debentures") (the "United Series A Offering") and up to $382.5
million principal amount of its Series B Debentures due 2014 (the "Series B
Debentures" and, together with the Series A Debentures, the "Debentures") (the
"United Series B Offering" and, together with the United Series A Offering, the
"United Debt Offerings") and the Company expects to offer up to 30,600,000
depositary shares (the "Depositary Preferred Shares") representing interests in
$765.0 million liquidation preference of Series B Preferred Stock of the
Company (the "Public Preferred Stock") (the "UAL Preferred Offering" and,
together with the United Debt Offerings, the "Offerings"). Immediately upon
issuance pursuant to the Reclassification, the Company will redeem each one
one-thousandth of a share of Series D Redeemable Preferred Stock (the
"Redemption") for:     
     
    (i) $25.80 in cash,     
     
    (ii) either (a) $15.55 principal amount of Series A Debentures or (b) if
  the United Series A Offering is consummated, the cash proceeds (without
  deducting any underwriting discount or other costs) from the sale thereof by
  United pursuant to the United Series A Offering,     
     
    (iii) either (a) $15.55 principal amount of Series B Debentures or (b) if
  the United Series B Offering is consummated, the cash proceeds (without
  deducting any underwriting discount or other costs) from the sale thereof by
  United pursuant to the United Series B Offering, and     
     
    (iv) either (a) Depositary Preferred Shares representing interests in
  $31.10 liquidation preference of Public Preferred Stock or (b) if the UAL
  Preferred Offering is consummated, the cash proceeds (without deducting any
  underwriting discount or other costs) from the sale thereof by the Company
  pursuant to the UAL Preferred Offering.     

<PAGE>
 
   
Under various circumstances, however, the value of the consideration to be
received by stockholders could be less than the stated principal amount of the
Debentures or the liquidation preference represented by the Depositary
Preferred Shares.     
 
  The interest rates on the Debentures and the dividend rate on the Public
Preferred Stock have been set provisionally and are subject to adjustment prior
to the Meeting. See "THE PLAN OF RECAPITALIZATION--Terms and Conditions--
Pricing the Securities."
   
  On the business day following the establishment of the adjusted rates, which
shall be not greater than ten calendar days nor less than five business days
prior to the Meeting as specified by the Company (the "Announcement Date"), the
Company will (i) issue a press release setting forth certain information
(described below) relating to the Debentures and the Public Preferred Stock and
(ii) send a mailgram to all holders of Old Shares as of the Record Date setting
forth such information. On the first business day following the Announcement
Date, the Company will publish such information in an advertisement in the
national edition of The Wall Street Journal. In addition, a toll-free number
(800-223-2064) has been established from which all holders of Old Shares can
obtain general recorded information concerning the Announcement Date. As of the
Announcement Date, holders of the Old Shares can call the toll-free number to
obtain the information relating to the Debentures and the Public Preferred
Stock. See "SPECIAL FACTORS--Certain Risk Factors--Pricing of Public Preferred
Stock and Debentures." On or promptly following the Announcement Date, the
Company will also file with the Securities and Exchange Commission an amendment
to the Registration Statement on Form S-4 to reflect the final pricing
information.     
   
  The press release, newspaper advertisement, mailgram and recorded information
described in the previous paragraph will include (i) a statement of whether the
Company expects all or any of the Offerings to be consummated, (ii) if so, the
amount of the cash proceeds to be received from the sale of the Debentures
and/or Depositary Preferred Shares that are otherwise issuable in respect of
each Old Share if any of such Offerings are consummated and (iii) a statement
of the interest rates and/or dividend rate for the Debentures or Depositary
Preferred Shares if the Offering relating to any such securities is not
consummated. To the extent the Company has announced that it expects any or all
of the Offerings to be consummated and it is subsequently determined that any
of such Offerings will not be consummated, the Company will disseminate such
information promptly in the same manner that the Company used to disseminate
the information set forth in the previous sentence and will cause the Meeting
to be rescheduled such that at least five business days will occur between the
release of such information and the Meeting. ANY STATEMENT IN CONNECTION WITH
THE FOREGOING THAT THE COMPANY EXPECTS ANY OR ALL OF THE OFFERINGS TO BE
CONSUMMATED WILL NOT BE AN ASSURANCE THAT ANY OF THE OFFERINGS WILL BE
CONSUMMATED.     
   
  Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked at any time
(including between the Announcement Date and the date of the Meeting) by (i)
filing with the Secretary of the Company, before the polls are closed with
respect to the vote, a written notice of revocation bearing a later date than
the proxy, (ii) duly executing a subsequent proxy relating to the same Old
Shares and delivering it to the Secretary of the Company or (iii) attending the
Meeting and voting in person (although attendance at the Meeting will not in
and of itself constitute a revocation of proxy). Any written notice revoking a
proxy in accordance with clause (i) above should be sent to: UAL Corporation,
P.O. Box 66919, Chicago, Illinois 60666, Attention: Francesca M. Maher,
Secretary. In addition, both proxies and revocations of proxy may be given by
delivering to Georgeson & Co. by means of facsimile at (212) 440-9009, before
the close of business on the day before the Meeting, both sides of an executed
form of proxy or a notice of revocation bearing a later date than the proxy.
See "SUMMARY OF PROXY STATEMENT/JOINT PROSPECTUS--The Plan of
Recapitalization."     
   
  One half of a New Share will represent an equity interest (based on Fully
Diluted Old Shares, as defined in "THE PLAN OF RECAPITALIZATION--Terms and
Conditions--General") immediately after consummation of the Recapitalization of
45% of one Old Share's current percentage equity interest in the Company,
subject to possible reduction. See "THE PLAN OF RECAPITALIZATION--Establishment
of ESOPs--Additional Shares." The funds (other than the proceeds of the
Offerings, if applicable) required to effect the Recapitalization, to pay
related expenses (including certain expenses of ALPA and the IAM) and to
provide for the Company's working capital needs after the Recapitalization are
expected to be provided from the Company's internal resources.     
 
  The Plan of Recapitalization provides for amendments to the Company's
Restated Certificate of Incorporation and Bylaws, which will provide, among
other things, for a restructuring of the entire Board of
 
                                       ii

<PAGE>
 
   
Directors of the Company. If the Recapitalization is consummated, these
amendments, together with the obligation to convey ownership initially of at
least 55% of the Company's common equity interests by a trust, the crediting
of certain shares for future issuance for certain of its employees and
provisions that will preserve the majority voting power of the employee groups
so long as their percentage economic interest in the Company remains above
certain levels, will have the effect of a change in control of the Company and
may make more difficult a future change in control of the Company. See "THE
PLAN OF RECAPITALIZATION--Revised Governance Structure."     
 
  IN ASSESSING THE RECAPITALIZATION, EACH STOCKHOLDER SHOULD BE AWARE THAT
CERTAIN FACTORS INVOLVED IN THE RECAPITALIZATION MAY INCREASE THE RISK
ASSOCIATED WITH, AND MAY OTHERWISE ADVERSELY AFFECT THE VALUE OF, MAINTAINING
AN EQUITY INVESTMENT IN THE COMPANY. THESE FACTORS INCLUDE AN IMMEDIATE CHANGE
OF THE COMPANY'S CAPITALIZATION TO ONE THAT IS MORE LEVERAGED. SEE "SPECIAL
FACTORS--CERTAIN RISK FACTORS" AND "--CERTAIN EFFECTS OF THE
RECAPITALIZATION."
   
  Consummation of the Recapitalization is subject to certain conditions,
including approval of the Plan of Recapitalization by holders of at least a
majority of the outstanding Old Shares. See "THE PLAN OF RECAPITALIZATION--
Terms and Conditions." Consummation of the Recapitalization is not conditioned
on, or subject to, consummation of the Offerings, although consummation of the
Offerings is conditioned on, and subject to, consummation of the
Recapitalization. In addition, none of the Offerings is conditioned on, or
subject to, the consummation of any of the other Offerings.     
   
  The address of the principal executive offices of the Company and United is
1200 East Algonquin Road, Elk Grove Township, Illinois 60007, their telephone
number at such address is (708) 952-4000 and the mailing address of the
Company and United is P.O. Box 66919, Chicago, Illinois 60666.     
   
  The Company and United have filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), covering the New Shares, the Depositary Preferred Shares,
the Public Preferred Stock, the Redeemable Preferred Stock and the Debentures
to be issued, if required, in the Recapitalization. This Proxy
Statement/Prospectus, which is first being mailed to stockholders of the
Company on or about June 10, 1994, constitutes the joint prospectus of the
Company and United included as part of the Registration Statement. The Company
has also filed a Rule 13e-3 Transaction Statement on Schedule 13E-3 (the
"Schedule 13E-3") in connection with the Recapitalization. Copies of the
Registration Statement and the Schedule 13E-3 may be obtained as set forth
below under "AVAILABLE INFORMATION."     
 
  No person is authorized in connection with any offering made hereby to give
any information or to make any representations other than those contained in
this Proxy Statement/Prospectus and, if given or made, such other information
or representations must not be relied upon as having been authorized. This
Proxy Statement/Prospectus does not constitute an offer to sell, or a
solicitation of any offer to buy, by any person in any jurisdiction in which
it is unlawful for such person to make such offer or solicitation. This Proxy
Statement/Prospectus has been prepared for use by holders of Old Shares in
determining how to vote on the matters to be presented for a vote at the
Meeting, and its use for any other purpose is not authorized. Neither the
delivery of this Proxy Statement/Prospectus nor any sale made hereunder shall
under any circumstances create any implication that information herein is
correct as of any time subsequent to the date hereof.
 
                               ----------------
   
  Like many other carriers, United overflies Cuba in order to serve other
destinations in Central and South America and the Caribbean and is required by
the Cuban government to pay fees for such overflight which United does
pursuant to a license which it has obtained from the U.S. government. This
information is accurate as of the date of this Prospectus and current
information concerning business dealings of United with the government of Cuba
or with any person or affiliate located in Cuba may be obtained from the
Florida Department of Banking and Finance, Plaza Level, The Capitol,
Tallahassee, Florida 32399-0350, telephone number (904) 488-9530.     
 
                               ----------------
   
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS PASSED UPON THE FAIRNESS OR MERITS OF THIS
TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.     
 
                               ----------------
         
      The date of this Proxy Statement/Prospectus is June 10, 1994.     
 
                                      iii

<PAGE>
 
                             AVAILABLE INFORMATION
  The Company and United are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Commission. The reports, proxy statements and other information filed by
the Company and United with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the
Commission at Seven World Trade Center, 13th Floor, New York, New York 10048
and at Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material also can be obtained by mail from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. In addition, material filed by the
Company can be inspected at the offices of the New York Stock Exchange, Inc.,
20 Broad Street, New York, New York 10005, the Chicago Stock Exchange, 440
South LaSalle Street, Chicago, Illinois 60605 and the Pacific Stock Exchange,
301 Pine Street, San Francisco, California 94104.
   
  The Company and United have filed with the Commission a Registration
Statement under the Securities Act, with respect to the New Shares, the
Depositary Preferred Shares, the Public Preferred Stock, the Series D
Redeemable Preferred Stock, and the Debentures to be issued, if required,
pursuant to or as contemplated by the Recapitalization as described in this
Proxy Statement/Prospectus. This Proxy Statement/Prospectus does not contain
all the information set forth or incorporated by reference in the Registration
Statement and the exhibits and schedules relating thereto, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement and the exhibits filed or incorporated as a part thereof, which are
on file at the offices of the Commission and may be obtained upon payment of
the fee prescribed by the Commission, or may be examined without charge at the
offices of the Commission. Statements contained in this Proxy
Statement/Prospectus as to the contents of any contract or other document
referred to herein are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement or such other document, and each such statement is
qualified in all respects by such reference.     
   
  The Company has filed a separate registration statement under the Securities
Act with respect to the Depositary Preferred Shares and the Public Preferred
Stock proposed to be sold in the UAL Preferred Offering, and United has filed a
separate registration statement under the Securities Act with respect to the
Debentures proposed to be sold in the United Debt Offerings.     
                 
              INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE     
   
  The following documents filed with the Commission by the Company and United
pursuant to the Exchange Act are incorporated by reference in this Proxy
Statement/Prospectus.     
     
  1. The Company's Annual Report on Form 10-K for the year ended December 31,
     1993, as amended.     
     
  2. The Company's Quarterly Report on Form 10-Q for the period ended March
     31, 1994.     
     
  3. The Company's Current Reports on Form 8-K dated March 28, 1994, March
     29, 1994, April 28, 1994, May 3, 1994 and June 3, 1994.     
     
  4. United's Annual Report on Form 10-K for the year ended December 31,
     1993.     
     
  5. United's Quarterly Report on Form 10-Q for the period ended March 31,
     1994, as amended.     
     
  6. United's Current Reports on Form 8-K dated March 29, 1994 (two reports),
     April 21, 1994, April 28, 1994, May 3, 1994 and June 3, 1994.     
   
  All documents and reports subsequently filed by the Company or United
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Proxy Statement/Prospectus and prior to the date of the Meeting of
Stockholders of the Company shall be deemed to be incorporated by reference in
this Proxy Statement/Prospectus and to be a part hereof from the date of filing
of such documents or reports. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Proxy Statement/Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.     
   
  THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST FROM UAL CORPORATION, P.O. BOX 66919, CHICAGO, ILLINOIS 60666
(TELEPHONE NUMBER (708) 952-4000), ATTENTION: FRANCESCA M. MAHER, SECRETARY. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUESTS SHOULD BE MADE
BY JULY 5, 1994.     
 
                                       iv

<PAGE>
 
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          -----
<S>                                                                       <C>
SUMMARY OF PROXY STATEMENT/JOINT PROSPECTUS..............................    ix
  The Company and United.................................................    ix
  Date, Time and Place of Meeting........................................    ix
  Purpose of the Meeting.................................................    ix
  Record Date; Stockholders Entitled to Vote.............................     x
  Vote Required..........................................................     x
  The Plan of Recapitalization...........................................    xi
    Effective Time of the Recapitalization...............................   xiv
    Conditions to the Recapitalization...................................   xiv
    Payment for Old Shares...............................................    xv
    Background of the Recapitalization...................................    xv
    Recommendation of the Board..........................................  xvii
    Opinions of the Financial Advisors to the Board...................... xviii
    Interests of Certain Persons in the Recapitalization.................   xix
    Certain Risk Factors.................................................   xix
  Certain Federal Income Tax Consequences................................ xxvii
  No Appraisal Rights.................................................... xxvii
  Market Prices of the Old Shares; Dividends............................. xxvii
  Unaudited Pro Forma Consolidated Financial Position....................  xxix
    UAL Corporation and Subsidiary Companies.............................  xxix
    United Air Lines, Inc. and Subsidiary Companies......................  xxxv
  Selected Consolidated Historical and Pro Forma Operating Information...    xl
    UAL Corporation and Subsidiary Companies.............................    xl
    United Air Lines, Inc. and Subsidiary Companies......................  xlii
  Summary of Terms of Securities.........................................  xliv
INTRODUCTION.............................................................     1
  Purpose of the Meeting.................................................     1
  Voting Rights and Proxy Information....................................     4
  No Appraisal Rights....................................................     5
BACKGROUND OF THE PLAN OF RECAPITALIZATION...............................     5
SPECIAL FACTORS..........................................................    15
  Certain Company Analyses...............................................    15
  Certain Revenue and Earnings Scenarios.................................    20
  Effect of the Recapitalization on Income Statement, Book Equity and
   Cash Flow.............................................................    21
  Implementation of the "Airline-Within-an-Airline" (U2).................    23
  Unit Costs.............................................................    26
  Recommendation of the Board............................................    27
  Opinions of the Financial Advisors to the Board........................    29
    Opinion of CS First Boston...........................................    29
    Opinion of Lazard....................................................    34
  Opinion of Valuation Firm..............................................    39
  Purpose and Structure of the Recapitalization..........................    43
  Interests of Certain Persons in the Recapitalization...................    43
  Certain Risk Factors...................................................    45
  Certain Effects of the Recapitalization................................    55
  Management Arrangements................................................    55
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................................    57
LITIGATION...............................................................    62
</TABLE>

 
 
                                       v

<PAGE>
 

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
THE PLAN OF RECAPITALIZATION..............................................  63
  Investment for Unionized Employees......................................  63
  Investment for Salaried and Management Employees........................  66
  Revised Governance Structure............................................  67
    Composition of the Board..............................................  67
    Public Directors......................................................  67
    Independent Directors.................................................  68
    Employee Directors....................................................  68
    Quorum................................................................  69
    Required Board Action.................................................  69
    Term of Office; Resignation; Removal..................................  69
    Officers..............................................................  70
    Stockholder Approval Matters..........................................  70
    ESOP Voting...........................................................  70
    Extraordinary Matters.................................................  71
    Special Voting Provisions with Respect to Purchase and Sale of Common
     Stock................................................................  73
    Rights Plan...........................................................  73
    Nondilution...........................................................  73
    Sunset................................................................  73
    Committees............................................................  74
    Amendment and Restatement of the Bylaws...............................  76
  Terms and Conditions....................................................  77
    General...............................................................  77
    Effective Time........................................................  78
    Payment for Shares....................................................  78
    Stock Options.........................................................  79
    Convertible Company Securities........................................  80
    Treasury Shares.......................................................  80
    Pricing the Securities................................................  80
    Record and Payment Dates..............................................  82
    Purchase of ESOP Preferred Stock......................................  82
    Representations and Warranties........................................  82
    Certain Covenants.....................................................  82
    Conditions............................................................  84
    Termination...........................................................  86
    Survival..............................................................  87
    Amendments; No Waivers................................................  88
    Fees and Expenses; Indemnification....................................  88
    Parties in Interest...................................................  90
    Specific Performance..................................................  90
  Establishment of ESOPs..................................................  90
    General...............................................................  90
    Sales of ESOP Preferred Stock.........................................  93
    Additional Shares.....................................................  96
    Additional Contributions..............................................  98
    Control Transactions..................................................  98
    Participation and Vesting.............................................  99
    Federal Income Tax Matters............................................  99
    Plan Administration...................................................  99
ELECTION OF DIRECTORS..................................................... 100
  Nominees for Election as Public Directors............................... 100
  Public Directors........................................................ 100
</TABLE>

 
                                       vi

<PAGE>
 

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
  Independent and Employee Directors...................................... 101
    Independent Directors................................................. 101
    ALPA Director......................................................... 101
    IAM Director.......................................................... 101
    Salaried and Management Director...................................... 101
MARKET PRICES OF THE OLD SHARES; DIVIDENDS................................ 102
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING
 INFORMATION.............................................................. 103
  UAL Corporation and Subsidiary Companies................................ 103
  United Air Lines, Inc. and Subsidiary Companies......................... 105
UNAUDITED PRO FORMA FINANCIAL INFORMATION................................. 107
  UAL Corporation and Subsidiary Companies................................ 107
  United Air Lines, Inc. and Subsidiary Companies......................... 123
CAPITALIZATION............................................................ 134
  UAL Corporation and Subsidiary Companies................................ 134
  United Air Lines, Inc. and Subsidiary Companies......................... 135
BENEFICIAL OWNERSHIP OF SECURITIES........................................ 136
  Five Percent Beneficial Owners.......................................... 136
  Securities Beneficially Owned by Directors and Executive Officers....... 137
CERTAIN INFORMATION CONCERNING THE BOARD OF DIRECTORS..................... 139
  Executive Committee..................................................... 139
  Audit Committee......................................................... 139
  Compensation Committee.................................................. 139
  Nominating Committee.................................................... 140
  Pension and Welfare Plans Oversight Committee........................... 140
  Compensation of Directors; Effect of "Change in Control"................ 140
  Certain Relationships and Related Transactions.......................... 141
EXECUTIVE COMPENSATION.................................................... 141
  Philosophy.............................................................. 141
  Components.............................................................. 141
  CEO Compensation........................................................ 142
  Compensation for the Other Named Officers............................... 143
  Committee Actions Regarding Changes in Control.......................... 143
  Omnibus Budget Reconciliation Act of 1993............................... 143
  Compensation Consultant and Competitive Data............................ 143
  Employment Contracts and Change in Control Arrangements................. 146
  Rule 405 Disclosure..................................................... 147
APPROVAL OF AMENDMENTS TO THE 1981 INCENTIVE STOCK PROGRAM................ 147
APPROVAL OF AMENDMENTS TO THE 1988 RESTRICTED STOCK PLAN.................. 149
APPROVAL OF AMENDMENTS TO THE INCENTIVE COMPENSATION PLAN................. 151
DESCRIPTION OF SECURITIES................................................. 152
  The Debentures.......................................................... 152
  The Capital Stock of the Company........................................ 156
  The Public Preferred Stock.............................................. 158
  The Depositary Preferred Shares......................................... 163
  The Series D Redeemable Preferred Stock................................. 165
  The ESOP Preferred Stock................................................ 167
</TABLE>

 
                                      vii

<PAGE>
 

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
  The Voting Preferred Stock.............................................. 170
  The Director Preferred Stock............................................ 171
  The Common Stock, the Series A Preferred Stock and the Junior
   Participating Preferred Stock.......................................... 174
STOCKHOLDER PROPOSALS..................................................... 179
  Proposal Concerning Cumulative Voting................................... 179
  Proposal Concerning Contingent Executive Compensation Agreements........ 180
  Proposal Concerning Confidential Voting................................. 181
FEES AND EXPENSES......................................................... 183
INDEPENDENT PUBLIC ACCOUNTANTS............................................ 183
DISCRETIONARY AUTHORITY OF PROXIES........................................ 183
EXPERTS................................................................... 184
LEGAL OPINION............................................................. 184
PROXY SOLICITATION........................................................ 184
PROPOSALS FOR 1995 ANNUAL MEETING......................................... 184
OTHER MATTERS............................................................. 184
ANNEX I--Opinion of CS First Boston Corporation
ANNEX II--Opinion of Lazard Freres & Co.
ANNEX III--Amendment to the 1981 Incentive Stock Program
ANNEX IV--Amendment to the 1988 Restricted Stock Program
ANNEX V--UAL Corporation Incentive Compensation Plan
ANNEX VI--Amendment to the UAL Corporation Incentive Compensation Plan
EXHIBITS--Volume I
  Amended and Restated Agreement and Plan of Recapitalization.............  A1
  Restated Certificate of Incorporation...................................  B1
  Restated Bylaws.........................................................  C1
</TABLE>

 
                                      viii

<PAGE>
 
                  SUMMARY OF PROXY STATEMENT/JOINT PROSPECTUS
   
  The following summary is intended only to highlight certain information
contained in the Proxy Statement/Joint Prospectus (the "Proxy
Statement/Prospectus"). This summary is not intended to be a complete statement
of all material features of the proposed Recapitalization (defined below) and
is qualified in its entirety by reference to the detailed information contained
elsewhere in this Proxy Statement/Prospectus, the Annexes and Exhibits to this
Proxy Statement/Prospectus and the other documents referred to herein.
Stockholders are urged to read this Proxy Statement/Prospectus and the Annexes
and Exhibits hereto in their entirety.     
 
THE COMPANY AND UNITED
   
  UAL Corporation, a Delaware corporation (the "Company"), is a holding company
and its primary subsidiary is United Air Lines, Inc., a Delaware corporation
("United"), which is wholly-owned. At the end of 1993, United served 159
airports in the United States and 32 foreign countries. During 1993, United
averaged 2,040 departures daily, flew a total of 101 billion revenue passenger
miles and carried an average of 191,000 passengers per day. At the end of 1993,
United's fleet of aircraft totaled 544. United's major hub operations are
located at Chicago, Denver, San Francisco, Washington D.C., London and Tokyo.
    
  The address of the principal executive offices of the Company and United is
1200 East Algonquin Road, Elk Grove Township, Illinois 60007, their telephone
number at such address is (708) 952-4000 and the mailing address of the Company
and United is P.O. Box 66919, Chicago, Illinois 60666.
 
DATE, TIME AND PLACE OF MEETING
   
  The Meeting of Stockholders of the Company (the "Meeting") is scheduled to be
held in the Imperial Ballroom at the Fairmont Hotel, 200 North Columbus Drive,
Chicago, Illinois on July 12, 1994 at 8:30 A.M.     
 
PURPOSE OF THE MEETING
 
  Holders of shares of common stock, par value $5 per share, of the Company
(the "Old Shares") are being asked to consider and vote upon:
     
    (i) the Amended and Restated Agreement and Plan of Recapitalization,
  dated as of March 25, 1994 (the "Plan of Recapitalization"), pursuant to
  which, among other things, each Old Share that is outstanding at the
  Effective Time (as defined below) will be converted into, and become a
  right to receive one half (0.5) of a share of new common stock, par value
  $0.01 per share, of the Company (the "New Shares") and one one-thousandth
  of a share of Series D Redeemable Preferred Stock, without par value, of
  the Company (the "Series D Redeemable Preferred Stock"). Concurrently with
  the solicitation of proxies in connection with the Plan of
  Recapitalization, United expects to offer up to $382.5 million principal
  amount of its Series A Debentures due 2004 (the "Series A Debentures") (the
  "United Series A Offering") and up to $382.5 million principal amount of
  its Series B Debentures due 2014 (the "Series B Debentures" and, together
  with the Series A Debentures, the "Debentures") (the "United Series B
  Offering" and, together with the United Series A Offering, the "United Debt
  Offerings") and the Company expects to offer up to 30,600,000 depositary
  shares (the "Depositary Preferred Shares") representing interests in $765.0
  million liquidation preference of Series B Preferred Stock, without par
  value, of the Company (the "Public Preferred Stock") (the "UAL Preferred
  Offering" and, together with the United Debt Offerings, the "Offerings").
  Immediately upon issuance pursuant to this reclassification the
  ("Reclassification"), the Company will redeem each one one-thousandth of a
  share of Series D Redeemable Preferred Stock (the "Redemption") for:     
       
      (a) $25.80 in cash,     
       
      (b) either (1) $15.55 principal amount of Series A Debentures or (2)
    if the United Series A Offering is consummated, the cash proceeds
    (without deducting any underwriting discount or other costs) from the
    sale thereof by United pursuant to the United Series A Offering,     
       
      (c) either (1) $15.55 principal amount of Series B Debentures or (2)
    if the United Series B Offering is consummated, the cash proceeds
    (without deducting any underwriting discount or other costs) from the
    sale thereof by United pursuant to the United Series B Offering, and
        
                                       ix

<PAGE>
 
       
      (d) either (1) Depositary Preferred Shares representing interests in
    $31.10 liquidation preference of Public Preferred Stock or (2) if the
    UAL Preferred Offering is consummated, the cash proceeds (without
    deducting any underwriting discount or other costs) from the sale
    thereof by the Company pursuant to the UAL Preferred Offering.     
       
     
  The combination of New Shares and cash and, if applicable, Series A
  Debentures, Series B Debentures and/or Depositary Preferred Shares to be
  distributed in respect of the Old Shares pursuant to the Recapitalization
  is referred to herein as the "Recapitalization Consideration."     
     
  The consummation of the Recapitalization is not conditioned on, or subject
  to, the consummation of any of the Offerings. In addition, none of the
  Offerings is conditioned on, or subject to, the consummation of any of the
  other Offerings.     
     
  Under various circumstances, the value of the consideration to be received
  by common stockholders could be less than the stated principal amount of
  the Debentures or the liquidation preference represented by the Depositary
  Preferred Shares.     
 
    (ii) certain amendments to the Company's Certificate of Incorporation and
  Bylaws (the "Charter and Bylaw Amendments") that will effectuate the
  Recapitalization and put into place a revised corporate governance
  structure that is contemplated by the Plan of Recapitalization;
     
    (iii) the issuance of new classes of preferred stock that will (a)
  transfer 55% (based on Fully Diluted Old Shares (as defined below, see "THE
  PLAN OF RECAPITALIZATION--Terms and Conditions-- General)) (which, under
  certain circumstances, may be increased to up to a maximum of 63%) of the
  common equity and voting power (after giving effect to the possible
  issuance or the reservation for future issuance, a year after the Effective
  Time (as defined below), of additional shares of preferred stock that are
  convertible into New Shares) of the Company to employee stock ownership
  plans to be established for the benefit of certain groups of employees (the
  "ESOPs") and (b) effectuate the corporate governance structure referred to
  above by permitting different constituent groups to elect members of the
  Company's Board of Directors (the "Board");     
     
    (iv) the election of four directors, designated as "Public Directors," to
  the Board, as contemplated by the corporate governance structure referred
  to above;     
 
    (v) certain amendments to the Company's 1981 Incentive Stock Program;
 
    (vi) certain amendments to the Company's 1988 Restricted Stock Plan;
 
    (vii) certain amendments to the Company's Incentive Compensation Plan;
 
    (viii) three stockholder proposals;
 
    (ix) ratification of the selection of the Company's independent
  accountants for the year ending December 31, 1994; and
 
    (x) such other business as may properly come before the Meeting or any
  adjournment or postponement thereof.
   
  The approval of matter (ii) will be subject to the approval of the Plan of
Recapitalization, and the approval of matters (iii) through (vii) will be
subject to the approval of the Plan of Recapitalization and the Charter and
Bylaw Amendments. See "INTRODUCTION--Purpose of the Meeting," "BACKGROUND OF
THE PLAN OF RECAPITALIZATION" and "THE PLAN OF RECAPITALIZATION."     
       
RECORD DATE; STOCKHOLDERS ENTITLED TO VOTE
   
  Only holders of record of Old Shares at the close of business on June 9, 1994
(the "Record Date") will be entitled to notice of, and to vote at, the Meeting
and any adjournment or postponement thereof. Stockholders of record on the
Record Date are entitled to one vote per Old Share held as of that date on any
matter that may properly come before the Meeting. See "INTRODUCTION--Voting
Rights and Proxy Information."     
 
VOTE REQUIRED
 
  Under the Delaware General Corporation Law (the "DGCL"), the affirmative vote
of the holders of a majority of the Old Shares outstanding on the Record Date
will be required in order to approve and adopt
 
                                       x

<PAGE>
 
   
the Plan of Recapitalization and the Charter and Bylaw Amendments, the
affirmative vote of the holders of a plurality of Old Shares present in person
or represented by proxy at the Meeting will be required to elect each of the
Public Directors and the affirmative vote of the holders of a majority of Old
Shares present in person or represented by proxy at the Meeting will be
required to approve or adopt each of the other matters identified in this Proxy
Statement/Prospectus as being presented to holders of Old Shares at the
Meeting. None of the votes described above requires the separate approval of at
least a majority of the Company's unaffiliated stockholders. The Company's
directors (other than Dr. Brimmer) and executive officers, and their
affiliates, have sole or shared voting power and beneficial ownership with
respect to approximately 1.6 percent of the outstanding Old Shares, which they
intend to vote in favor of the Plan of Recapitalization and the Charter and
Bylaw Amendments. Accordingly, the affirmative vote of the holders of
approximately 48.4 percent of the outstanding Old Shares (other than directors
and executive officers and their affiliates) is required for approval of the
Plan of Recapitalization. Dr. Brimmer expects to vote his 450 Old Shares
against the Plan of Recapitalization and the Charter and Bylaw Amendments. See
"INTRODUCTION--Voting Rights and Proxy Information."     
 
THE PLAN OF RECAPITALIZATION
 
  The Plan of Recapitalization provides for the following transactions (the
"Recapitalization"):
   
  (i) Reclassification--Upon the Effective Time, each outstanding Old Share,
including each share of restricted stock issued pursuant to the Company's 1988
Restricted Stock Plan, together with up to 1,000,000 Old Shares held by the
Company as treasury stock or owned by any wholly-owned subsidiary of the
Company, will be reclassified as, and converted into, one half (0.5) of a New
Share and one one-thousandth of a share of Series D Redeemable Preferred Stock.
Concurrently with the solicitation of proxies in connection with the Plan of
Recapitalization, United expects to offer up to $382.5 million principal amount
of its Series A Debentures and up to $382.5 million principal amount of its
Series B Debentures and the Company expects to offer up to 30,600,000
Depositary Preferred Shares representing interests in $765.0 million
liquidation preference of Public Preferred Stock. Immediately upon issuance
pursuant to the Reclassification, the Company will redeem each one one-
thousandth of a share of Series D Redeemable Preferred Stock for:     
     
    (a)$25.80 in cash,     
     
    (b)either (1) $15.55 principal amount of Series A Debentures or (2) if
  the United Series A Offering is consummated, the cash proceeds (without
  deducting any underwriting discount or other costs) from the sale thereof
  by United pursuant to the United Series A Offering,     
     
    (c)either (1) $15.55 principal amount of Series B Debentures or (2) if
  the United Series B Offering is consummated, the cash proceeds (without
  deducting any underwriting discount or other costs) from the sale thereof
  by United pursuant to the United Series B Offering, and     
     
    (d)either (1) Depositary Preferred Shares representing interests in
  $31.10 liquidation preference of Public Preferred Stock or (2) if the UAL
  Preferred Offering is consummated, the cash proceeds (without deducting any
  underwriting discount or other costs) from the sale thereof by the Company
  pursuant to the UAL Preferred Offering.     
   
  The consummation of the Recapitalization is not conditioned on, or subject
   to, the consummation of any of the Offerings. In addition, none of the
   Offerings is conditioned on, or subject to, the consummation of any of the
   other Offerings.     
       
   
One half of a New Share will represent an equity interest (based on Fully
Diluted Old Shares) immediately after consummation of the Recapitalization of
45% of one Old Share's current percentage equity interest in the Company,
although, under certain circumstances that percentage may be reduced to a
minimum of approximately 37%. See "THE PLAN OF RECAPITALIZATION--Establishment
of ESOPs--Additional Shares." The interest rate on the Series A Debentures has
been fixed provisionally at 9.00%, the interest rate on the Series B Debentures
has been fixed provisionally at 9.70% and the dividend rate on the Public
Preferred Stock has been fixed provisionally at 10.25%. The interest rates on
the Debentures and the dividend rate on the Public Preferred Stock will be
adjusted not less than five business nor more than ten calendar days before the
date of the Meeting (the "Announcement Date") to rates (which, in each case, if
there is an upward adjustment, may not be more than 112.5 basis points (i.e.,
1.125 percentage points) higher than the     
 
                                       xi

<PAGE>
 
   
respective provisional rates, but which in the case of a downward adjustment
are not limited) that, in the opinion of the certain financial advisors to the
Company and the Unions (as defined below) and, in the case of a deadlock, based
on a process involving a third financial advisor, would permit the Debentures
and the Public Preferred Stock to trade at par on such date on a fully
distributed basis. See "THE PLAN OF RECAPITALIZATION--Terms and Conditions--
Pricing the Securities." Based on current market conditions, the Company
believes that the interest rates on the Series A Debentures and the Series B
Debentures and the dividend rate on the Depositary Preferred Shares to be
established by certain financial advisors to the Company and the Unions and, in
the case of a deadlock, based on a process involving a third financial advisor,
would not be less than the initial pricing of 9.00% for the Series A
Debentures, 9.70% for the Series B Debentures and 10.25% for the Depositary
Preferred Shares. In connection with the establishment of the final interest
and dividend rates for the Debentures and the Depositary Preferred Shares, the
financial advisors to be involved in the establishment of the interest rates on
the Series A Debentures and the Series B Debentures and the dividend rate on
the Depositary Preferred Shares may or may not deliver written statements,
reports or opinions with respect to their determination.     
   
  The underwriting agreements relating to the several Offerings are expected to
provide, as applicable, that if such Offerings are consummated, the interest
rates on the Debentures and the dividend rate on the Public Preferred Stock
represented by Depositary Preferred Shares, respectively, may be adjusted to
permit such securities to be sold at or closer to par, but if that is done, the
principal amount of the series of Debentures affected or the number of
Depositary Preferred Shares representing interests in the Public Preferred
Stock, as the case may be, will be reduced so that the aggregate amount of
interest payable annually by United on such series of Debentures or the
aggregate amount of dividends payable annually by the Company on the Public
Preferred Stock will not exceed certain maximum amounts calculated with
reference to such caps. If the Offerings are not consummated, the interest
rates borne by the Debentures and the dividend rate borne by the Public
Preferred Stock will be subject to the caps. See "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--Pricing the Securities."     
   
  On the Announcement Date, the Company will (i) issue a press release setting
forth certain information (described below) relating to the Debentures and the
Public Preferred Stock and (ii) send a mailgram to all holders of Old Shares as
of the Record Date setting forth such information. On the first business day
following the Announcement Date, the Company will publish such rates in an
advertisement in the national edition of The Wall Street Journal. In addition,
a toll-free number (800-223-2064) has been established from which all holders
of Old Shares can obtain general recorded information concerning the
Announcement Date. As of the Announcement Date, holders of the Old Shares can
call the toll-free number to obtain the information relating to the Debentures
and the Public Preferred Stock. See also "SPECIAL FACTORS--Certain Risk
Factors--Pricing of Public Preferred Stock and Debentures." On or promptly
following the Announcement Date, the Company will also file with the Securities
and Exchange Commission an amendment to the Registration Statement on Form S-4
to reflect the final pricing information.     
   
  The press release, newspaper advertisement, mailgram, and recorded
information described in the previous paragraph will include (i) a statement of
whether the Company expects all or any of the Offerings to be consummated, (ii)
if so, the amount of the cash proceeds to be received from the sale of the
Debentures and/or Depositary Preferred Shares that are otherwise issuable in
respect of each Old Share if any of such Offerings are consummated and (iii) a
statement of the interest rates and/or dividend rate for the Debentures or
Depositary Preferred Shares if the Offering relating to any such securities is
not consummated. To the extent the Company has announced that it expects any or
all of the Offerings to be consummated and it is subsequently determined that
any of such Offerings will not be consummated, the Company will disseminate
such information promptly in the same manner that the Company used to
disseminate the information set forth in the previous sentence and will cause
the Meeting to be rescheduled such that at least five business days will occur
between the release of such information and the Meeting. ANY STATEMENT IN
CONNECTION WITH THE FOREGOING THAT THE COMPANY EXPECTS ANY OR ALL OF THE
OFFERINGS TO BE CONSUMMATED WILL NOT BE AN ASSURANCE THAT ANY OF THE OFFERINGS
WILL BE CONSUMMATED.     
   
  Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked at any time
(including between the Announcement Date and the date of the Meeting) by (i)
filing with the Secretary of the Company, before the polls are closed     
 
                                      xii

<PAGE>
 
   
with respect to the vote, a written notice of revocation bearing a later date
than the proxy, (ii) duly executing a subsequent proxy relating to the same Old
Shares and delivering it to the Secretary of the Company or (iii) attending the
Meeting and voting in person (although attendance at the Meeting will not in
and of itself constitute a revocation of proxy). Any written notice revoking a
proxy in accordance with clause (i) above should be sent to: UAL Corporation,
P.O. Box 66919, Chicago, Illinois 60666, Attention: Francesca M. Maher,
Secretary. In addition, both proxies and revocations of proxy may be given by
delivering to Georgeson & Co. by means of facsimile at (212) 440-9009, before
the close of business on the day before the Meeting, both sides of an executed
form of proxy or a notice of revocation bearing a later date than the proxy.
See "SUMMARY OF PROXY STATEMENT/JOINT PROSPECTUS--The Plan of
Recapitalization."     
 
  (ii) Charter and Bylaw Amendments--The Plan of Recapitalization provides for
the Charter and Bylaw Amendments that will, among other things, effectuate the
Recapitalization and put into place the revised corporate governance structure
contemplated by the Plan of Recapitalization. See "THE PLAN OF
RECAPITALIZATION--Revised Governance Structure."
   
  (iii) The Stock Issuance--Pursuant to the Plan of Recapitalization, the
Company will issue, in addition to the securities issued as part of the
Recapitalization Consideration, (a) the Class 1 ESOP Convertible Preferred
Stock ("Class 1 ESOP Preferred Stock") to the trustee (the "ESOP Trustee") and
the Class 2 ESOP Convertible Preferred Stock ("Class 2 ESOP Preferred Stock"
and, together with the Class 1 ESOP Preferred Stock, the "ESOP Preferred
Stock") (or the New Shares into which they are convertible) to the ESOP Trustee
or for the benefit of employees pursuant to the ESOPs that will be established
for the benefit of the employee groups that will be making wage, benefit and
work-rule changes in connection with the Plan of Recapitalization, (b) the
Class P ESOP Voting Junior Preferred Stock (the "Class P Voting Preferred
Stock"), the Class M ESOP Voting Junior Preferred Stock (the "Class M Voting
Preferred Stock") and the Class S ESOP Voting Junior Preferred Stock (the
"Class S Voting Preferred Stock" and, together with the Class P Voting
Preferred Stock and the Class M Voting Preferred Stock, the "Voting Preferred
Stock") to the ESOP Trustee, (c) the Class I Junior Preferred Stock (the "Class
I Preferred Stock") to the initial independent directors who will enter into a
stockholders' agreement to vote their shares to elect the future independent
directors to the Board, (d) one share of the Class Pilot MEC Junior Preferred
Stock (the "Class Pilot MEC Preferred Stock") to the United Airlines Pilots
Master Executive Council (the "ALPA-MEC") of the Air Line Pilots Association,
International ("ALPA"), which will have the right to elect a director to the
Board (the "ALPA Director"), (e) one share of the Class IAM Junior Preferred
Stock (the "Class IAM Preferred Stock") to the International Association of
Machinists and Aerospace Workers (the "IAM" and, together with ALPA, the
"Unions"), or its designee, which will have the right to elect a director to
the Board (the "IAM Director" and together with the ALPA Director, the "Union
Directors") and (f) two shares of Class SAM Junior Preferred Stock (the "Class
SAM Preferred Stock" and, together with the Class I Preferred Stock, the Class
Pilot MEC Preferred Stock and the Class IAM Preferred Stock, the "Director
Preferred Stock") to the person nominated to serve as the salaried and
management employees' director (the "Salaried and Management Director" and,
together with the Union Directors, the "Employee Directors" ) and one share to
an additional designated stockholder, which will have the right to vote as a
class to elect the Salaried and Management Director to the Board. See "THE PLAN
OF RECAPITALIZATION--Establishment of ESOPs," "--Revised Governance Structure"
and "DESCRIPTION OF SECURITIES." The ESOP Preferred Stock is nonvoting. The
Voting Preferred Stock was established in order to allocate voting power to the
respective employee groups in proportion to the agreed upon allocation and in a
manner which was consistent with applicable law. The ESOP Preferred Stock and
the Voting Preferred Stock will initially represent a 55% equity interest
(based on Fully Diluted Old Shares), including voting interest on all matters
presented to holders of New Shares other than the election of Public Directors
(as defined below), immediately after consummation of the Recapitalization,
although under certain conditions the percentage may be increased to up to a
maximum of approximately 63%. See "THE PLAN OF RECAPITALIZATION--Establishment
of ESOPs--Additional Shares." The holders of the Voting Preferred Stock will
continue to command the same adjusted percentage of voting power (if and as so
adjusted) of the Company following the Recapitalization until the economic
interest represented by the stock held in Company sponsored benefit and
retirement plans (including stock to be issued in the future under the ESOPs)
becomes less than 20% of the common equity of the Company calculated as
described under "THE PLAN OF RECAPITALIZATION--Revised Governance Structure--
Sunset."     
 
                                      xiii

<PAGE>
 
 
  (iv) Employee Investment--Certain amendments to the existing ALPA collective
bargaining agreement and the IAM collective bargaining agreements, and creation
of a salaried and management employees cost reduction program, all of which
will become effective at the Effective Time, are estimated to provide United
with approximately $8.2 billion in improved operating earnings over a twelve-
year period, which earnings are expected to have a net present value of
approximately $4.9 billion. Approximately $5.2 billion of such improvement is
expected to arise from savings in labor costs, while the remaining
approximately $3.0 billion is expected to arise from the startup of a new
short-haul "airline-within-an-airline" referred to herein as "U2", which is
expected to compete effectively against other low-cost, short-haul carriers.
See "SPECIAL FACTORS--Certain Company Analyses," and "--Implementation of the
"Airline-Within-an-Airline' (U2)."
 
  (v) Employee Benefit Plans--Certain employee benefit plans maintained by the
Company and United will be amended to permit employees to acquire substantial
amounts of the New Shares, Depositary Preferred Shares and the Debentures. See
"THE PLAN OF RECAPITALIZATION--Terms and Conditions--Certain Covenants."
 
 Effective Time of the Recapitalization
   
  The Recapitalization will be consummated at such time as the Company's
amended and restated Certificate of Incorporation (the "Restated Certificate"),
which provides for the reclassification of the Old Shares, is duly filed with
the Secretary of State of the State of Delaware or at such later time as may be
mutually agreed upon by the Company and each of the Unions and as is specified
in the Restated Certificate (the "Effective Time"). The filing of the Restated
Certificate is currently anticipated to be made as promptly as practicable
after the Meeting. Such filing will be made, however, only upon satisfaction
or, where permissible, waiver of all conditions contained in the Plan of
Recapitalization and provided that the Plan of Recapitalization has not been
terminated. See "THE PLAN OF RECAPITALIZATION--Terms and Conditions--
Termination." If any of the Offerings are consummated, it is expected that they
will be consummated at the Effective Time.     
 
 Conditions to the Recapitalization
   
  Pursuant to the Plan of Recapitalization, the obligation of the Company to
file the Restated Certificate at the Effective Time and the obligations of each
of the Unions to enter into the revised collective bargaining agreements at the
Effective Time are subject to the satisfaction of the following conditions,
among others: (i) holders of Old Shares have approved and adopted the Plan of
Recapitalization and related transactions, as identified in "INTRODUCTION--
Purpose of the Meeting," (ii) all material actions by or in respect of or
filings with any governmental body, agency, official, or authority required to
permit the consummation of the Recapitalization have been obtained, (iii) the
New Shares issuable as part of the Recapitalization have been authorized for
listing on the New York Stock Exchange, Inc. (the "NYSE"), subject to official
notice of issuance, (iv) the ESOP Trustee has received the written opinion of
Houlihan Lokey Howard & Zukin, to the effect that, as of the Effective Time,
the acquisition of the ESOP Preferred Stock by the ESOP is fair, from a
financial point of view, to the ESOP participants, (v) the Board has received
an updated solvency opinion from American Appraisal Associates, Inc. ("American
Appraisal"), (vi) all the agreements required to be executed and delivered at
the Effective Time are legal, valid and binding agreements of the Company and
the other parties thereto from and after the Effective Time, enforceable
against the Company and such other parties in accordance with their terms,
including the stock purchase agreement pursuant to which the ESOP Trustee will
purchase Class 1 ESOP Preferred Stock at the Effective Time, (vii) Mr. Gerald
Greenwald (or such other person as proposed by the Unions prior to the
Effective Time and not found unacceptable by the Company) is ready, willing and
able to assume the office of Chief Executive Officer ("CEO") of the Company and
United, (viii) the Board has received updated written opinions of each of CS
First Boston Corporation ("CS First Boston") and Lazard Freres & Co. ("Lazard")
confirming their earlier opinions, to the effect that the Recapitalization
Consideration, taken as a whole, is fair from a financial point of view to the
holders of Old Shares, (ix) the revised collective bargaining agreements have
been executed and delivered by the Unions and United and will be in full force
and effect as of the Effective Time, (x) the Board has received satisfactory
opinions of counsel, and (xi) the Company has determined that the Company will
be reasonably likely to have sufficient surplus (whether revaluation surplus or
earned surplus) or net profits under the Delaware General Corporation Law (the
"DGCL") to permit the legal payment of dividends on the ESOP Preferred Stock
and the Public Preferred Stock when due. See "THE PLAN OF RECAPITALIZATION--
Terms and     
 
                                      xiv

<PAGE>
 
   
Conditions--Conditions." The Recapitalization is not conditioned upon the
consummation of any of the Offerings.     
 
 Payment for Old Shares
   
  To receive the Recapitalization Consideration, each holder of Old Shares must
surrender his certificates representing Old Shares, together with a duly
executed letter of transmittal, to First Chicago Trust Company of New York (the
"Exchange Agent"). Instructions regarding the surrender of certificates,
together with a form of transmittal letter to be used for this purpose, will be
forwarded to stockholders promptly after the Effective Time. STOCKHOLDERS
SHOULD NOT FORWARD CERTIFICATES WITH THE ENCLOSED PROXY CARD. STOCKHOLDERS
SHOULD SURRENDER CERTIFICATES ONLY AFTER RECEIVING INSTRUCTIONS FROM THE
EXCHANGE AGENT. In lieu of any fractional interests of New Shares and, if any
or all of the Offerings are not consummated, fractional Debentures and/or
fractional Depositary Preferred Shares, as the case may be, that each former
holder of Old Shares would otherwise be entitled to receive, the Exchange Agent
will make a pro rata distribution of the cash proceeds received by the Exchange
Agent from the sale of the aggregate fractional interests of New Shares and, if
the Offerings are not consummated, such fractional Debentures and/or such
fractional Depositary Preferred Shares. No interest will be paid or accrued in
favor of any stockholder on the amounts payable upon surrender of certificates.
Each stockholder will be responsible for the payment of transfer and other
taxes, if any. See "THE PLAN OF RECAPITALIZATION--Terms and Conditions--Payment
for Shares."     
 
 Background of the Recapitalization
 
  Since the mid 1980s, in response to enhanced competition from low-cost air
carriers resulting from the industry's deregulation and discordant relations
between the Company and its principal unions, ALPA, the IAM and the Association
of Flight Attendants ("AFA"), several attempts to effect a potential change in
corporate control or the sale of substantial assets of the Company have
occurred or were proposed, many of which involved the participation of one or
more of the Company's unions.
 
  In recent years, including during 1992, the Company has noted a fundamental
shift in consumer behavior, with an increased focus on the price/value
relationship. Travel preference has continued to shift to low-cost travel as
provided by carriers such as Southwest Airlines, Morris Air and Reno Air. The
Company believed that this trend was long-term and would continue even if the
weak economic conditions of the early 1990s improved. The Company determined
that its ability to be competitive in such an environment required a
substantial reduction of its operating costs.
 
  Thus, on January 6, 1993, the Company announced a $400 million cost reduction
program, including the sub-contracting of certain services and the furlough of
2,800 employees. It also significantly reduced its aircraft purchase
commitments through 1996, with a net effect of reducing the Company's planned
capital spending through 1996 by over $6.2 billion. The Company determined that
it was necessary to reduce its single largest expense, labor costs, to be
competitive in the changed environment of the 1990s. Thus, in addition to the
subcontracting, furloughs and the implementation of a 5% salary reduction
program for certain management employees, the Company requested concessions
from its three principal unions. However, this request was rejected by the IAM
and the AFA, and ALPA requested a financial review of the Company. In light of
the unwillingness of the Unions to participate in the Company's cost-cutting
efforts, the Company thereafter announced its intention to undertake various
other cost-cutting actions, including selling its flight kitchens and
subcontracting certain ground services, opening a flight attendant domicile in
Taiwan, and evaluating the sale of the Denver flight training center. The
Company also discussed the possibility of selling its jet engine over-haul
maintenance facility in San Francisco, subcontracting its components business,
subcontracting its ground equipment over-haul business and subcontracting its
line maintenance work, building maintenance work and computer terminal
technician work.
 
  In reports presented to the Board of Directors by Booz . Allen & Hamilton
("BAH"), BAH advised the Board that it seemed unlikely that carriers such as
United could achieve sufficient cost reductions without a major restructuring.
The report also suggested that subcontracting jet engine repair could result in
substantial cost savings. In a presentation to the Board on June 24, 1993, BAH
indicated that, in the absence of labor cooperation, the Company had four
options: (i) restructure and downsize to focus on those markets where
 
                                       xv

<PAGE>
 
United could be profitable in the long term, (ii) restructure and grow to
create a stronger domestic and international competitive position, (iii) return
value to stockholders by monetizing flying assets, services and/or other hard
assets and (iv) sell the airline in whole or in parts. On August 5, 1993, the
Board considered a presentation by BAH and members of Company's management
concerning ways to improve the Company's profitability and provide additional
shareholder value, with specific focus on establishment of one or more domestic
short-haul carriers which would be owned independently of the Company and
United and which would virtually eliminate short-haul flying by United, along
with other fundamental alterations of the Company's business and structure (the
"Fundamental Restructuring Plan").
 
  As a result of considering the various alternatives presented to the Board
over the past several years and realizing that, in order to achieve a long term
cost reduction program, the employees of the Company must be involved in any
major restructuring of the Company, the Company's management concluded that
long term stockholder value would be maximized through the proposed
Recapitalization.
 
  Since the spring of 1993, the Company has been engaged in extensive
discussions and negotiations with ALPA, the IAM and the AFA with respect to a
"shared solution" that would enable the Company to reduce costs and allow
certain employee groups to gain significant ownership of the Company. In
September of 1993, the AFA ceased to participate in the negotiations, which
continued with ALPA and the IAM (the "Coalition"). On December 22, 1993, an
agreement in principle was reached among the Company, ALPA and the IAM pursuant
to which (i) employee trusts would acquire approximately 53% of the common
equity and voting power of the Company, subject to increase to up to
approximately 63% based on stock price performance in the year after closing,
(ii) holders of Old Shares would receive cash, debt securities, preferred stock
and common stock, (iii) participating employees of the Company would provide
wage and benefit reductions and various work-rule changes and (iv) a new
corporate governance structure would be implemented. A definitive agreement was
signed on March 25, 1994 (the "Initial Plan of Recapitalization") reflecting
the terms of the agreement in principle.
   
  In light of prevailing market prices for the Old Shares in May 1994 and in
view of provisions in the Initial Plan of Recapitalization which enabled the
Coalition to assert that pricing conditions to consummation of the
Recapitalization relating to the purchase of the ESOP Preferred Stock would not
be satisfied, the Coalition determined to approach the Company over possible
adjustments to the financial terms of the transaction. At the same time, the
Company felt that the Offerings, if successful, would benefit the Company's
stockholders as part of the Recapitalization and would provide greater
certainty of completion of the Recapitalization. In response to a proposal to
modify the definitive documentation from the Coalition, on May 20, 1994, the
Board determined to make an alternative proposal to the Coalition. The
Coalition accepted the Company's alternative proposal on May 22, 1994. On June
2, 1994, the Company and the Coalition executed an amendment to the definitive
documentation (the "Definitive Documentation Amendment") providing for, among
other things, (i) an increase in the percent of the common equity and voting
power initially to be acquired by the ESOPs from 53% to 55%; (ii) a decrease in
the range of average stock prices of the New Shares for the one year following
the Effective Time which would result in an increase, to up to 63%, in the
percent of common equity and voting power to be received by the ESOPs (prior to
the Definitive Documentation Amendment, the range had been $170.00 - $178.44
per share and it was decreased to $136.00 - $149.10 per share (giving effect to
the 1 for 2 common stock exchange ratio)) (see "THE PLAN OF RECAPITALIZATION--
Terms and Conditions--Additional Shares"); (iii) the inclusion of the
Offerings; (iv) revisions to the manner in which the Class 1 ESOP Preferred
Stock will be purchased by the ESOP Trustee (see "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs"); and (v) establishment of a
procedure whereby the Chief Operating Officer of the Company may be identified
subsequent to the Effective Time if not identified at or prior to the Effective
Time. In addition, certain changes were made to the optional redemption terms
of the Public Preferred Stock and the Debentures to facilitate the Offerings
(see "DESCRIPTION OF SECURITIES--The Debentures" and "--The Depositary
Preferred Stock"). As a result of the Definitive Documentation Amendment, the
purchase price of the ESOP Preferred Stock to be acquired at the Effective Time
will be determined using a market price-based formula and, accordingly, the
Coalition is not entitled to assert that the Recapitalization may not be
consummated based on the market price of the Old Shares or the expected market
price of the New Shares. See "BACKGROUND OF THE PLAN OF RECAPITALIZATION."     
 
                                      xvi

<PAGE>
 
 
  Amendments to the collective bargaining agreements with ALPA and the IAM, to
be entered into upon consummation of the Plan of Recapitalization, and a
salaried and management employee cost reduction program, to be established upon
consummation of the Plan of Recapitalization, are estimated to provide United
with approximately $8.2 billion of improved operating earnings over a twelve
year period, which earnings are estimated to have a net present value of
approximately $4.9 billion. Approximately $5.2 billion of such improvement is
expected to arise from savings in labor costs, while the remaining
approximately $3.0 billion is expected to arise from earnings of a new short-
haul "airline-within-an-airline," referred to herein as "U2," which is expected
to compete effectively with low-cost short-haul carriers.
 
 Recommendation of the Board
   
  THE BOARD HAS APPROVED THE INITIAL PLAN OF RECAPITALIZATION AND THE PLAN OF
RECAPITALIZATION AND HAS DETERMINED THAT THE RECAPITALIZATION IS FAIR TO THE
HOLDERS OF OLD SHARES. THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PLAN
OF RECAPITALIZATION AND THE RELATED MATTERS IDENTIFIED IN CLAUSES (II) THROUGH
(VII) UNDER "PURPOSE OF THE MEETING" ABOVE.     
   
  The Board noted that the Recapitalization permits the holders of Old Shares
to receive in exchange for each Old Share (i) one half of a New Share, (ii)
$25.80 in cash, (iii) either (a) $15.55 principal amount of Series A Debentures
or (b) if the United Series A Offering is consummated, the cash proceeds
(without deducting and underwriting discount or other costs) from the sale
thereof by United pursuant to the United Series A Offering, (iv) either (a)
$15.55 principal amount of Series B Debentures or (b) if the United Series B
Offering is consummated, the cash proceeds (without deducting any underwriting
discount or other costs) from the sale thereof by United pursuant to the United
Series B Offering and (v) either (a) Depositary Preferred Shares representing
interests in $31.10 liquidation preference of Public Preferred Stock or (b) if
the UAL Preferred Offering is consummated, the cash proceeds (without deducting
any underwriting discount or other costs) from the sale thereof by the Company
pursuant to the UAL Preferred Offering. Current holders of Old Shares also will
retain a significant ongoing equity interest in the Company that will be the
same regardless of whether any or all of the Offerings are consummated. Under
various circumstances, however, the value of the consideration to be received
by stockholders could be less than the stated principal amount of the
Debentures or the liquidation preference of the Depositary Preferred Shares. In
approving the Initial Plan of Recapitalization and the Plan of
Recapitalization, the Board also considered that the majority equity position
of the employee stock ownership trusts is designed to provide additional
incentives for the Company's employees to promote the success of the Company,
which should, in part, inure to the benefit of the holders of Old Shares. All
directors, other than Dr. Brimmer, voted in favor of the Initial Plan of
Recapitalization. Dr. Brimmer has indicated that he dissented from such vote
because under current economic conditions, he did not think there were
compelling reasons to effect such a transaction at this time. With respect to
the Definitive Documentation Amendment, the Board voted in favor of the
Definitive Documentation Amendment, with Dr. Brimmer abstaining. It was
mentioned at the meeting that Mr. Olson, who was not in attendance, had
requested that his opposition to the Definitive Documentation Amendment be
noted. Mr. Olson has not expressed to the Company any reason for his position.
       
  In reaching its decision to approve the Initial Plan of Recapitalization and
the Plan of Recapitalization, its determination that the Recapitalization is
fair to the holders of Old Shares and its decision to recommend that the
holders of Old Shares vote for approval and adoption of the Plan of
Recapitalization and related matters, the Board consulted with its legal and
financial advisors as well as the Company's management, and considered numerous
factors, including, but not limited to: (i) the business, operations, earnings,
properties and prospects of the Company and United and the perceived need for
the Company to obtain wage and benefit reductions and work-rule changes in
order to permit United to compete effectively in the aviation marketplace, (ii)
the alternatives potentially available to the Company to achieve a reduction of
wages and benefits and work-rule changes, as well as a comparison of the risks
that would be associated with the Recapitalization and with such other
alternatives, (iii) the terms of the employee investment contemplated by the
Initial Plan of Recapitalization and the Plan of Recapitalization, including
the reduction in cost expense, the favorable tax treatment of ESOP
transactions, the long-term labor contracts which limit salary increases and
the ability to establish U2, (iv) the fact that the Recapitalization will
provide the holders of Old Shares with an opportunity to receive cash, and, if
any of the Offerings are not consummated, Debentures     
 
                                      xvii

<PAGE>
 
   
and/or Depositary Preferred Shares representing interests in Public Preferred
Stock, as applicable, for a portion of the value of their Old Shares while
retaining a significant ongoing equity interest in the Company through
ownership of New Shares, (v) the terms of the proposed corporate governance
structure, which contains both certain provisions required by the Coalition and
certain provisions designed for the protection of the holders of New Shares,
(vi) the identity of the new CEO and the new Board (especially the initial
Independent Directors (as defined below)) and the Board's assessment of such
individuals, (vii) recent market prices for the Old Shares as well as market
prices for the past several years, (viii) the Federal income tax consequences
of the Recapitalization under existing law, (ix) with respect to the Plan of
Recapitalization, the terms of the Definitive Documentation Amendment providing
for an increase in the percentage of common equity and voting power initially
to be acquired by the employee trusts and a decrease in the range of average
stock prices determined one year after the Effective Time which would result in
an increase in the percent of common equity and voting power to be held by the
employee trusts, (x) with respect to the Plan of Recapitalization, the terms of
the Definitive Documentation Amendment providing for the Offerings and the
resulting potential to distribute cash, instead of Debentures and Depositary
Preferred Shares, to holders of Old Shares if the Offerings are consummated,
(xi) with respect to the Plan of Recapitalization, the use of a market price-
based formula for the purchase of the ESOP Preferred Stock to be purchased at
the Effective Time, and (xii) the opinions of CS First Boston, a nationally
recognized investment banking firm, and the opinions of Lazard, another
nationally recognized investment banking firm, that, based upon the matters
described therein, as of the date of each such opinion, the consideration to be
received by the holders of Old Shares pursuant to the Recapitalization for each
Old Share, taken as a whole, is fair to such stockholders from a financial
point of view. See "SPECIAL FACTORS--Opinions of the Financial Advisors to the
Board," "--Certain Risk Factors" and "--Certain Revenue and Earnings
Scenarios," "THE PLAN OF RECAPITALIZATION" and "MARKET PRICES OF THE SHARES;
DIVIDENDS." The Board also considered (i) the fact that the repayment of the
Debentures and the payment of dividends on the Public Preferred Stock will be
dependent on the Company's operations, assets, credit, cash flow and earning
power, (ii) that, as a result of the Recapitalization, there will be a
significant increase in the Company's long-term indebtedness, as well as a
substantial negative balance in stockholders' equity and a significant
reduction in cash reserves and (iii) the opinion of American Appraisal with
respect to certain solvency and surplus matters. See "SPECIAL FACTORS--Certain
Risk Factors," "THE PLAN OF RECAPITALIZATION" and "UNAUDITED PRO FORMA
FINANCIAL INFORMATION."     
 
  In view of the circumstances and the wide variety of factors considered in
connection with this evaluation of the Recapitalization, the Board did not find
it practicable to assign relative weights to the factors considered in reaching
its decision.
 
 Opinions of the Financial Advisors to the Board
 
   On July 20, 1993, the Company retained CS First Boston to assist it in
evaluating the Coalition proposals. By letter dated November 30, 1993, the
Company retained Lazard as an additional financial advisor. On December 22,
1993, March 14, 1994, March 24, 1994 and May 20, 1994, CS First Boston and
Lazard delivered to the Board their oral opinions (which in the case of the
December 22, 1993, March 24, 1994 and May 20, 1994 opinions were later
confirmed to the Board by CS First Boston and Lazard in writing) that, as of
such dates, the consideration to be received by holders of Old Shares of the
Company in connection with the Recapitalization (as constituted as of each such
date), taken as a whole, was fair to such holders of Old Shares from a
financial point of view. For further details concerning the engagement of CS
First Boston and Lazard, including fees payable to them, see "SPECIAL FACTORS--
Opinions of the Financial Advisors to the Board."
   
  THE FULL TEXT OF THE WRITTEN OPINIONS OF CS FIRST BOSTON AND LAZARD, EACH
DATED MAY 20, 1994, THAT SET FORTH THE ASSUMPTIONS MADE, THE MATTERS CONSIDERED
AND THE REVIEW UNDERTAKEN WITH REGARD TO EACH SUCH OPINION, ARE ATTACHED AS
ANNEXES I AND II RESPECTIVELY TO THIS PROXY STATEMENT/PROSPECTUS. STOCKHOLDERS
ARE URGED TO READ SUCH OPINIONS IN THEIR ENTIRETY FOR A DESCRIPTION OF THE
PROCEDURES FOLLOWED, MATTERS CONSIDERED, ASSUMPTIONS MADE AND LIMITATIONS ON
THE REVIEW UNDERTAKEN BY SUCH FIRMS. THE OPINIONS ARE DIRECTED ONLY TO THE
FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF OLD SHARES AND
DO NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF OLD SHARES AS TO HOW SUCH
HOLDER OF OLD SHARES SHOULD VOTE.     
 
                                     xviii

<PAGE>
 
 
 Interests of Certain Persons in the Recapitalization
 
  In considering the Plan of Recapitalization, stockholders should be aware
that the executive officers and the Board members have certain interests that
present them with potential conflicts of interest in connection with the
Recapitalization. The Board was aware of these potential conflicts and
considered them among the other matters described under "SPECIAL FACTORS--
Recommendation of the Board." See "SPECIAL FACTORS--Interests of Certain
Persons in the Recapitalization."
 
 Certain Risk Factors
 
  In addition to the other information contained in this Proxy
Statement/Prospectus, holders of Old Shares should carefully consider the
following risk factors concerning the New Shares, the Debentures and the
Depositary Preferred Shares representing interests in the Public Preferred
Stock.
   
  Financial Effects; Delaware Law Considerations. The Recapitalization will
immediately change the Company's capitalization to one that is more highly
leveraged. In this regard, the following discussion compares the pro forma book
effect of the Recapitalization on long-term debt, stockholder's equity and
income/loss from continuing operations with recent historical financial
information of the Company. On a pro forma book basis at March 31, 1994, the
Company would have had approximately $3.451 billion of long-term debt and a
deficit of approximately $448 million of stockholders' equity, as compared to
the approximately $2.693 billion of long-term debt and approximately $1.097
billion of stockholders' equity that was shown on the Company's balance sheet
on such date. In addition, if the Recapitalization had occurred as of January
1, 1993, the Company would have reported, on a pro forma basis, a loss from
continuing operations of approximately $38 million for the year ended December
31, 1993 and a loss from continuing operations of approximately $58 million for
the three months ended March 31, 1994, as compared to losses from continuing
operations of $31 million for the year ended December 31, 1993 and $71 million
for the three months ended March 31, 1994 that were reported for each period.
See "UNAUDITED PRO FORMA FINANCIAL INFORMATION."     
   
  The Company's earnings were inadequate to cover fixed charges and preferred
stock dividends by $98 million in 1993, by $748 million in 1992 and by $599
million in 1991. On a pro forma basis, the Company's earnings in 1993 were
inadequate to cover fixed charges and preferred stock dividends by $109
million. In addition, the Company's earnings were inadequate to cover fixed
charges and preferred stock dividends for the three month period ended March
31, 1994 by $118 million, and on a pro forma basis they were inadequate by $97
million. United's earnings were inadequate to cover fixed charges by $77
million in 1993, by $694 million in 1992 and by $604 million in 1991. On a pro
forma basis, United's earnings in 1993 were inadequate to cover fixed charges
by $63 million. In addition, United's earnings were inadequate to cover fixed
charges for the three month period ended March 31, 1994 by $130 million, and on
a pro forma basis they were inadequate by $102 million. Non-cash depreciation
and amortization are deducted in computing earnings before fixed charges. Such
non-cash charges do not significantly affect the ability of United to fund
operations, service debt, or provide funds to service the Company's preferred
stock dividends. Depreciation and amortization of United were $722 million in
1993, $695 million in 1992, $604 million in 1991 and $178 million for the three
month period ended March 31, 1994.     
   
  The DGCL requires that the payments to holders of Old Shares in the
Recapitalization be made from "surplus." In addition, the DGCL requires that
dividends, including future dividends on the Public Preferred Stock, may only
be made from surplus or the net profits of the Company for the fiscal year in
which the dividend is declared and/or the preceding fiscal year. For purposes
of the DGCL, surplus equals the excess, if any, at any given time, of the net
assets of the corporation over stated capital. In addition, such payments would
not be permitted if after giving effect to them the Company would not be able
to pay its debts as they become due in the usual course of business. The Board
believes that the Company will be able to pay such debts, based in part on the
revenue and earnings scenarios set forth below under "SPECIAL FACTORS--Certain
Revenue and Earnings Scenarios" and on American Appraisal's opinion referred to
below. See "THE PLAN OF RECAPITALIZATION--Terms and Conditions," and "UNAUDITED
PRO FORMA FINANCIAL INFORMATION."     
 
 
                                      xix

<PAGE>
 
   
  Given the more leveraged financial structure of the Company following the
Recapitalization, certain industry risks could have a greater adverse impact on
the Company after the Recapitalization than prior to the Recapitalization.     
 
  Governance Structure; Ability of Holders of Voting Preferred Stock to
Exercise More than 50% of the Voting Power of the Company. Although the Company
has attempted to achieve a balanced approach to its corporate governance
structure after the Recapitalization, such structure is very unusual in the
management of a large, complex public corporation, and it is not certain that
the actual operation of the corporate governance process will not result in
disputes or fail to achieve results that are in the best interests of the
Company or the holders of New Shares.
 
  Under the terms of the Restated Certificate, the participants in the ESOPs
(and in certain circumstances the ALPA-MEC, the IAM and the Salaried and
Management Director) will hold and will be entitled to exercise approximately
55% (which under certain circumstances may be increased to up to approximately
63%) of the voting power of the Company until the common equity held by (or
credited to) the ESOPs and other employee benefit plans sponsored by the
Company is less than 20% of the common equity of the Company, all as more fully
described in "THE PLAN OF RECAPITALIZATION--Revised Governance Structure--
Nondilution" and "DESCRIPTION OF SECURITIES--The Voting Preferred Stock." The
termination of the right to exercise 55% or more of the voting power of the
Company is referred to herein as the "Sunset." See "THE PLAN OF
RECAPITALIZATION--Revised Governance Structure--Sunset." Under current
actuarial assumptions, the Company estimates that this Sunset provision will
not become operative until 2016 if additional purchases are not made by
eligible employee benefit plans. However, such plans will have the right, and
may be expected, to make additional purchases, thereby delaying the occurrence
of the Sunset. In addition, the Restated Certificate contains provisions which
may prevent the Company prior to the Sunset from taking certain specified
actions without the consent of one or both of the members of the Board elected
by ALPA and the IAM or a 75% vote of holders of New Shares and Voting Preferred
Stock. See "THE PLAN OF RECAPITALIZATION--Revised Governance Structure."
 
  Currently, the Board is comprised of thirteen members elected annually by
holders of the Old Shares. While the existing Board may in its deliberations
consider the interests of employee groups, there is no direct representation on
the Board of specific employee groups. As more fully described below (see "THE
PLAN OF RECAPITALIZATION--Revised Governance Structure"), the Plan of
Recapitalization contemplates that directors elected by representatives of the
employee groups will participate in the governance of the Company. Following
consummation of the Recapitalization and until the Sunset, the Board will
consist of twelve members, comprised of (i) five public directors elected by
holders of the New Shares, who will include (a) three members of the existing
Board or other individuals with no previous material contact with the Company
other than as directors (the "Outside Public Directors") and (b) two
substantially full-time employees of the Company who, to the extent permitted
by law, will be the CEO and an additional senior executive (the "Management
Public Directors" and with the Outside Public Directors, the "Public
Directors"), (ii) four independent directors (the "Independent Directors")
elected by the holders of Class I Junior Preferred Stock, and intended to be a
quasi-self-perpetuating body, (iii) three directors representing various
employee groups elected as follows: (a) the ALPA Director elected by the Class
Pilot MEC Junior Preferred Stock, which will be held by the ALPA-MEC, (b) the
IAM Director elected by the Class IAM Junior Preferred Stock, which will be
held by the IAM or its designee, and (c) the Salaried and Management Director
elected by the Class SAM Preferred Stock, which will be held by the Salaried
and Management Director and an additional designated stockholder. See "THE PLAN
OF RECAPITALIZATION--Revised Governance Structure--Composition of the Board--
Public Directors," "--Independent Directors," "--Employee Directors" and
"ELECTION OF DIRECTORS."
 
  Generally, Board actions will require a majority vote of the votes present at
a meeting at which a quorum is present. Special quorum requirements apply to
meetings of the Board. However, approval of certain extraordinary matters
generally will require, subject to certain exceptions, approval of either
three-quarters of the Board (including the concurrence of one Union Director)
or three-quarters of the shares present and voting at a stockholder meeting at
which a quorum is present. Certain extraordinary matters will require
 
                                       xx

<PAGE>
 
approval of the Public Directors, the Independent Directors or a majority of
New Shares not held by the ESOPs. See "THE PLAN OF RECAPITALIZATION--Revised
Governance Structure--Quorum," "--Required Board Action" and "--Extraordinary
Matters."
 
  The Restated Certificate provides that until the Sunset the following
committees will be constituted: the Audit Committee, the Competitive Action
Plan ("CAP") Committee, the Compensation Committee, the Compensation
Administration Committee, the Executive Committee, the Independent Director
Nomination Committee, the Labor Committee, the Outside Public Director
Nomination Committee and the Transaction Committee (collectively, the
"Committees"). In addition, the Board may, by resolution passed by the
affirmative vote of 80% of the votes of the entire Board, including the
affirmative vote of at least one Union Director, designate one or more other
committees of the Board. Subject to certain exceptions, any act of a Committee
will require the affirmative vote of a majority of the votes entitled to be
cast by the Directors present at a meeting of such Committee and entitled to
vote on the matter in question. The Restated Certificate contains certain
provisions relating to the required quorum for committee action. See "THE PLAN
OF RECAPITALIZATION--Revised Governance Structure--Committees."
 
  The CAP Committee will consist of eight Directors, including four Public
Directors, two Independent Directors and the two Union Directors. Of the four
Public Directors, three will be Outside Public Directors and one will be the
CEO (if the CEO is a Public Director). The function of the CAP Committee will
be, subject to certain exceptions, to oversee implementation of the Company's
Competitive Action Plan which will involve implementation of U2. The CAP
Committee will have the exclusive authority to approve on behalf of the Company
any and all modifications of or amendments to the Competitive Action Plan and
to approve on behalf of the Company any and all modifications of or amendments
to the salaried and management employee investment described in "THE PLAN OF
RECAPITALIZATION--Investment for Salaried and Management Employees."
 
  The Executive Committee will be comprised of two Independent Directors, two
Public Directors (the CEO, if the CEO is a Public Director, and one Outside
Public Director) and two Union Directors. Subject to the DGCL, the Executive
Committee will have all the powers of the Board to manage the affairs of the
Company, except that it would not have the authority (i) to act with respect to
"Extraordinary Matters," discussed under "THE PLAN OF RECAPITALIZATION--Revised
Governance Structure--Extraordinary Matters," (ii) to take any action as to
matters specifically vested in other Committees or (iii) to take any action
that may be taken by the Board only with a vote greater than or additional to a
majority of the Board.
 
  The Labor Committee will consist of three or more Directors, including one
Outside Public Director, at least one Independent Director and at least one
other Director, as designated by the Board, but will not include any Employee
Directors. The Labor Committee will have the exclusive authority on behalf of
the Board to approve on behalf of the Company the entering into, or any
modification of or amendment to, a collective bargaining agreement to which the
Company or any of its Subsidiaries is a party.
 
  The Compensation Administration Committee will be comprised of two
Independent Directors and one Outside Public Director and its members will be
responsible for administering certain stock option plans and executive
compensation programs of the Company.
 
  Fraudulent Conveyance. If a court in a lawsuit by an unpaid creditor or
representative of creditors, such as a trustee in bankruptcy, were to find
that, at the time the Company distributed to holders of Old Shares the cash and
Debentures that such holders are to receive in the Recapitalization, the
Company (i) was insolvent, (ii) was rendered insolvent by reason of such
distributions, (iii) was engaged in a business or transaction for which the
assets remaining with the Company constituted unreasonably small capital to
carry on its business or (iv) intended to incur, or believed that it would
incur, debts beyond its ability to pay as such debts matured, such court may
void the distributions to stockholders and require that such holders return the
same (or equivalent amounts) to the Company or to a fund for the benefit of its
creditors. If a
 
                                      xxi

<PAGE>
 
court were to make similar findings about United's issuance of the Debentures,
such court could avoid United's obligations under the Debentures or order the
Debentures to be subordinated to all existing and future indebtedness of
United. The measure of insolvency for purposes of the foregoing would vary
depending upon the law of the jurisdiction that was being applied. Generally,
the Company would be considered insolvent if at the time of the
Recapitalization the fair value of the Company's assets is less than the amount
of the Company's total debts and liabilities or if the Company has incurred
debt beyond its ability to repay as such debt matures. In order to assist the
Board to determine the solvency of the Company, the Company retained American
Appraisal.
 
  As stated in "SPECIAL FACTORS--Opinion of Valuation Firm," the American
Appraisal Opinion stated that, based upon and subject to the conditions and
assumptions contained therein, (a) the fair value of the aggregate assets of
each of the Company (on a consolidated basis) and United (on a consolidated
basis) will exceed their total respective liabilities (including, without
limitation, subordinated, unmatured, unliquidated and contingent liabilities),
(b) the present fair salable value of the aggregate assets of each of the
Company (on a consolidated basis) and United (on a consolidated basis) will be
greater than their respective probable liabilities on their debts as such debts
become absolute and matured, (c) each of the Company (on a consolidated basis)
and United (on a consolidated basis) will be able to pay their respective debts
and other liabilities, including contingent liabilities and other commitments,
as they mature, (d) the capital remaining in each of the Company (on a
consolidated basis) and in United (on a consolidated basis) after consummation
of the Recapitalization will not be unreasonably small for the businesses in
which the Company and United are engaged, as management of the Company and
United has indicated such businesses are conducted and as management has
indicated the businesses are proposed to be conducted following the
consummation of the Recapitalization, and after giving due consideration to the
prevailing practices in the industry in which the Company and United will be
engaged, (e) the excess of the fair value of the total assets of the Company
over the total liabilities, including contingent liabilities, of the Company,
is equal to or exceeds the value of the Recapitalization Consideration to
stockholders plus the stated capital of the Company and (f) the excess of the
fair value of the total assets of United over the total liabilities, including
contingent liabilities, of United, is equal to or exceeds the value of the
stated capital of United.
 
  American Appraisal also indicated that it believed the excess of total assets
over pro forma liabilities was approximately $2.5 billion at December 31, 1993,
compared to approximately $1.203 billion in stockholders' equity as of such
date, determined according to generally accepted accounting principles, so
that, giving effect to the Recapitalization, the indicated excess assets of the
Company for purposes of Delaware law exceeded $1 billion. See "SPECIAL
FACTORS--Certain Risk Factors--Fraudulent Conveyance," "--Certain Revenue and
Earnings Scenarios" and "UNAUDITED PRO FORMA FINANCIAL INFORMATION."
   
  Certain Anti-Takeover Effects. Certain provisions of the governance structure
will make it extremely difficult to acquire the Company in a transaction that
was not approved by at least one of the Union Directors or a 75% vote of the
New Shares and the Voting Preferred Stock, even if such transaction might be
beneficial to the Company's stockholders. See "THE PLAN OF RECAPITALIZATION--
Revised Governance Structure."     
   
  Pricing of Public Preferred and Debentures. As described in "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--Pricing of the Securities," the final
interest rates on the Debentures and the final dividend rate on the Public
Preferred Stock will be established shortly prior to the Meeting. Although the
procedure for establishing such final rates is designed to determine the rates
that such securities should bear for the Debentures and the Depositary
Preferred Shares representing interests in the Public Preferred Stock to trade
at par assuming such securities were fully distributed, the Plan of
Recapitalization provides that such rates may not exceed certain caps. The
underwriting agreements relating to the several Offerings will provide, as
applicable, that if such Offerings are consummated, the interest rates on the
Debentures and the dividend rate on the Public Preferred Stock respectively,
may be adjusted to permit such securities to be sold     
 
                                      xxii

<PAGE>
 
   
at or closer to par, but if that is done, the principal amount of the series of
Debentures affected or the number of Depositary Preferred Shares representing
interests in the Public Preferred Stock, as the case may be, will be reduced so
that the aggregate amount of interest payable annually by United on such series
of Debentures or the aggregate amount of dividends payable annually by the
Company on the Public Preferred Stock will not exceed certain maximum amounts
calculated with reference to such caps. If the Offerings are not consummated,
the interest rates borne by the Debentures and the dividend rate borne by the
Public Preferred Stock will be subject to the caps. See "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--Pricing the Securities." If the
prevailing market interest and dividend rates for securities comparable to the
Debentures and the Depositary Preferred Shares are higher than the rate caps
applicable to the Debentures or the Public Preferred Stock, as the case may be,
the Debentures or the Depositary Preferred Shares representing interests in the
Public Preferred Stock, as the case may be, may trade at a discount to par.
Accordingly, if the rate caps are imposed for either or both series of the
Debentures or the Depositary Preferred Shares, (a) the proceeds from an
Offering, if consummated, would be less than the face amount thereof or (b) if
the Offerings are not consummated, the securities constituting a part of the
Recapitalization Consideration would have a trading value of less than the face
amount thereof. Based on the current general market conditions, the Company
believes that the rates for either or both series of the Debentures or the
Depositary Preferred Shares may approach or exceed the maximum rates.     
 
  Investment Values; Future Investment. Cost savings envisioned by the
agreements with ALPA and the IAM and the anticipated productivity increases
could be difficult to achieve, and even if all proposed plans for employee
investment are implemented, the value of the reductions in wages and benefits
and work-rule changes and anticipated productivity increases may not be as
significant as currently calculated. Mandated job guarantees may make it
difficult to achieve significant additional productivity improvements, and, if
additional reductions in wages and benefits and work-rule changes become
desirable in management's view, such reductions in wages and benefits and work-
rule changes may be more difficult to achieve in light of the long-term nature
of the revised collective bargaining agreements that constitute elements of the
Recapitalization.
   
  Lack of Employee Consensus. Certain employee groups may not be in favor of
the changes arising from the Recapitalization and may react in a manner that
does not facilitate achievement of the desired result. For example, the AFA has
declined to date to participate in the transaction, certain other employees who
will be participating in the wage and benefit reductions and work-rules changes
were not in favor of the transaction, and certain union organizing activity,
based on opposition to certain aspects of the transaction, has occurred. This
lack of consensus may reduce the value of the increased employee commitment
that the Company expects to achieve by virtue of the Recapitalization.     
   
  Management Change. The new CEO, Mr. Gerald Greenwald, will be required to
implement reductions in wages and benefits and work-rule changes that were
negotiated by the current management, certain members of which will retire at
the Effective Time, in an industry in which he has not previously been engaged.
In addition, it is possible that the Company may face attrition by officers and
other members of management and that the Company's new senior management may
face difficulties in implementing the new strategies or attracting additional
management employees. It is expected that a Chief Operating Officer of the
Company and United will not be identified prior to the Meeting or the Effective
Time. If this occurs, the Company would expect that members of existing senior
management would perform the functions of the Chief Operating Officer after the
Effective Time until such a person is identified in accordance with the
procedures specified in the Restated Certificate. See "THE PLAN OF
RECAPITALIZATION--Revised Governance Structure--Officers."     
 
  Reduced Flexibility. The corporate governance structure and collective
bargaining agreements with ALPA and the IAM may inhibit management's ability to
alter strategy in a volatile, competitive industry. Among the more significant
constraints are (i) a prohibition on domestic code sharing in excess of 1% of
domestic block hours, excluding several small existing agreements, without
ALPA's consent, (ii) a no layoff guarantee for all currently employed
participating union employees during the five- to six-year investment
 
                                     xxiii

<PAGE>
 
period and for pilots while U2 remains in operation, (iii) restrictions on
international code sharing, unless the Company can demonstrate that
international code sharing arrangements do not cause a reduction in
international flying and as long as the Company does not expand code sharing
unless the Company reduces international flying below a certain level and (iv)
an agreement not to sell the Company's Denver pilot training facility and
certain maintenance facilities. In addition, the Restated Certificate contains
significant limitations on the ability of the Company and United to sell assets
and issue equity securities absent certain specified Board or stockholder
approvals. In most circumstances, the issuance of additional equity securities
would not be counted in determining whether the Sunset has occurred.
 
  Limitations on asset sales and equity issuances included in the Company's
Restated Certificate might make it more difficult to raise cash, even if
management desired to do so to take advantage of a perceived opportunity.
 
  Implementation of U2. Although the Company expects to develop "an airline
within-an-airline" for short-haul markets at reduced operational costs ("U2")
as an important component of its competitive posture and has ascribed a
significant portion of the value of the transaction to the ability to implement
U2, no assurance can be given that the Company will be able to do so
effectively or to realize the financial benefits expected to be received by the
Company from implementation of U2. See "SPECIAL FACTORS--Implementation of the
"Airline Within-an-Airline' (U2)" and "--Certain Risk Factors--Implementation
of U2."
 
  Competitive Response. Even if the Company is able to achieve cost reductions
and productivity enhancements, the Company's higher cost competitors may be
able to achieve comparable agreements with their labor groups or otherwise
reduce their operating costs and the Company's low-cost competitors may modify
their operations in response to the competitive threat posed by U2 and thus, in
such cases, may eliminate or reduce the competitive gain sought by the Company
and lead to reductions in fares and earnings. In this regard, for example,
Continental Airlines (which already has a low cost structure) has implemented a
short haul service with lower costs which would be competitive with U2, and
Delta Airlines has announced its intent to lower its overall costs
substantially. If the Company's higher cost competitors, such as Delta, were to
achieve more significant reductions in wages and benefits and work-rule changes
than those achieved by the Company, the Company's ability to respond to
competition would be hampered by the fixed long-term nature of the agreements
that constitute elements of the Recapitalization.
   
  Labor Protective Provisions. The Company will continue in effect, or amend to
include, certain provisions of agreements with ALPA and the IAM that (i)
provide certain rights in the event of a change in control of the Company and
(ii) prohibit furloughs, within certain conditions, if the Company disposes of
25 percent or more of its assets or assets which produce 25 percent or more of
its block hours. The revised collective bargaining agreements obligate the
Company to require any carrier purchasing route authority or aircraft that
produce 25 percent or more of the Company's operating revenues or block hours
to hire and integrate an appropriate number of United employees represented by
ALPA or the IAM with seniority credit.     
 
  Tax Deductibility of Employee Stock Ownership Plan Contributions and
Dividends. Although the Company has attempted to structure the ESOPs so that
all amounts contributed thereto and dividends paid with respect to the stock
held thereunder will be deductible to the Company for Federal income tax
purposes, there are no regulations governing the deductibility of dividends
paid on the ESOP Preferred Stock and there can be no assurance that one or more
limitations under the Internal Revenue Code of 1986, as amended, will not
adversely impact the deductibility of such amounts and dividends.
 
  Amendments to Collective Bargaining Agreements; Future Labor
Agreements. There can be no assurance that the new management of the Company in
the future will not agree to amend the collective bargaining agreements with
ALPA and the IAM in a manner that reduces or eliminates the cost savings that
are the basis for the Recapitalization. However, any such amendment must be
approved by the Labor Committee of the Board (which will not include any Union
Directors). See "THE PLAN OF
 
                                      xxiv

<PAGE>
 
RECAPITALIZATION--Revised Governance Structure--Committees." In addition, at
the end of the current employee investment period, there can be no assurance
that the Company's labor agreements will be renegotiated in a manner that
continues in subsequent periods the cost savings that are being sought through
the Recapitalization or that does not reverse the effect of any cost savings
that will have been obtained thereby.
 
  Possible Effect of Organization of Additional Employees. In the event that
any portion of the salaried and management employees who are not currently
represented by a union elects union representation pursuant to the Railway
Labor Act, the Company would be obligated to bargain with such union over the
terms and conditions of employment applicable to such employees, including the
terms, if any, of such employees' continuing participation in the ESOPs. This
obligation to bargain requires the Company to "exert every reasonable effort"
to reach an agreement but does not require it to agree to any change or
particular term or condition sought by the union. During the period of
negotiation, the Company would be entitled to maintain the then-existing terms
of such employees' participation in the ESOPs.
 
  The ESOPs provide that if any group of employees who are not currently
represented by a union becomes covered by a new collective bargaining
agreement, such group of employees will not be covered under the ESOPs unless
the collective bargaining agreement so provides. Whether any new collective
bargaining agreement would provide for continuing participation in the ESOPs by
such group of employees is a matter that would be subject to mutual agreement
between the Company and the applicable union. The ESOPs provide, however, that
if the terms of any employee's employment no longer reflect all of the
reductions in wage and benefits and work-rule changes set forth in the Plan of
Recapitalization, then such employee shall cease to be covered by the ESOPs.
 
  As a result, if any new collective bargaining agreement did not reflect the
reductions in wage and benefits and work-rule changes required by the Plan of
Recapitalization for particular employees, the Company could not agree, without
amending the ESOPs, to allow such employees to participate in the ESOPs. If any
currently unrepresented employees ceased to participate in the ESOPs under such
circumstances, the ESOPs provide that the unrepresented employees remaining in
the ESOPs would receive the shares previously intended for that newly-
represented group. The employment terms, except base pay, for the unrepresented
employees remaining in the ESOPs will be subject to change, at the Company's
discretion, so long as the net economic value of the unrepresented employees'
employment terms is not altered.
 
  Employee Ownership and Influence. No assurance can be given that the Company,
which will be subject to significant influence by employee groups (including
through the right to voting representation in excess of economic equity
ownership, Board and Board committee representation, the requirement of
approval of certain matters by a Union Director or a 75% vote of the holders of
New Shares and Voting Preferred Stock, and participation by Union Directors in
the nomination of the Independent Directors), might not take actions that are
more favorable to such employee groups than might be taken by a company that
was not subject to such influence. The corporate governance structure after the
Recapitalization will not, however, relieve the members of the Board of their
fiduciary obligations under the DGCL.
 
  Effect of Adjustment on Trading. As described under "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--Additional Shares," the ESOP
Preferred Stock which the Company is initially obligated to issue or credit to
the ESOPs is convertible into approximately 55% of the New Shares but, based on
the trading prices of the New Shares in the twelve months after the Effective
Time (the "Measuring Period"), may be increased to up to a maximum of
approximately 63% of the New Shares. Such potential additional issuance may
adversely limit the trading prices of the New Shares during the Measuring
Period.
   
  Additional Issuances of Recapitalization Consideration. United has registered
under the Securities Act $449,802,200 aggregate principal amount of each series
of Debentures and the Company has registered 35,984,175 Depositary Preferred
Shares representing interests in $899,604,375 aggregate liquidation value of
the Public Preferred Stock for issuance to holders of Old Shares, Options (as
defined below) and Convertible     
 
                                      xxv

<PAGE>
 
   
Company Securities (as defined below) in connection with the Recapitalization.
If any of the Offerings are not consummated, United and the Company may be
required to issue a larger number of Debentures and/or Depositary Preferred
Shares in connection with the exercise of Options in the event holders thereof
fail to use a cashless exercise feature or in connection with the conversion of
certain Convertible Company Securities. However, the failure of Option holders
to utilize a cashless exercise feature would have the effect of increasing the
Company's available cash by an amount equal to the aggregate exercise price.
See "DESCRIPTION OF SECURITIES--The Debentures--General" and "--The Public
Preferred Stock--General." If any of the Offerings are not consummated, the
Company currently intends to register in the future additional securities
originally issued (or distributed following repurchase in the market), to
satisfy the exercise or conversion of Options or Convertible Company
Securities.     
 
  Financial Reporting; Market Assessment. The accounting rules governing
employers accounting for employee stock ownership plans require that
compensation expense be recorded for the ESOP Preferred Stock that is
"committed to be released" during an accounting period based on the fair value
of the ESOP Preferred Stock during such period. The difference between the fair
value and the initial recorded cost of the ESOP Preferred Stock "committed to
be released" is recorded as an adjustment to stockholders' equity. The ESOP
Preferred Stock that has been "committed to be released" is considered to be
outstanding in the if-converted earnings per share calculation for primary and
fully diluted earnings per share if the effect is dilutive. The circular
relationship between the employee stock ownership plan accounting charge and
the Company's stock price, coupled with the size of the contemplated ESOPs,
make future earnings difficult to forecast. In addition, reported book earnings
will be depressed in early years due to a mismatch between the term of employee
investments (which increase earnings) of from five years, nine months to twelve
years and the shorter period of only six years over which employee stock
ownership plan accounting charges will occur. While it is possible that the
equity research community and investors may look through employee stock
ownership plan accounting charges, it is also possible that the trading price
of the New Shares may be negatively impacted by such accounting treatment.
       
  Complexity. Given the complex nature of the various provisions affecting the
operation of the Company after the Effective Time, it is possible that the
equity research community and investors may find the Company difficult to
evaluate, which may have the effect of reducing the trading price of the New
Shares from levels that might otherwise prevail.
   
  Redistribution. If any of the Offerings are not consummated, in the
Recapitalization, holders of Old Shares (an equity security) will receive
Debentures and/or Depositary Preferred Shares representing interests in Public
Preferred Stock in addition to New Shares and cash. It is expected that there
will exist a period, perhaps of a lengthy duration, during which certain
recipients of such securities, concluding that the characteristics thereof are
not consistent with their investment criteria, distribute such securities into
the marketplace. During such distribution period, the supply of such securities
in the market may exceed levels that might otherwise prevail, which would
likely have the effect of depressing the price of such securities from levels
that might otherwise prevail if such securities were held solely by persons or
institutions for whom such securities satisfied their investment criteria. The
Debentures and the Depositary Preferred Shares have been approved for listing
on the NYSE subject to official notice of issuance, although there can be no
assurance that at or following the Effective Time any trading market for these
securities will develop.     
 
  Industry Conditions and Competition. The airline industry is highly
competitive and susceptible to price discounting. United's competitors include
both domestic and international carriers some of which have low cost
structures. In addition, airline profit levels are highly sensitive to elements
outside the control of the airline industry such as fuel costs, passenger
demand, taxes and terrorist activities.
 
  Regulatory Matters. In the last several years, the Federal Aviation
Administration (the "FAA") has issued a number of maintenance directives and
other regulations relating to, among other things, collision avoidance systems,
airborne windshear avoidance systems, noise abatement and increased inspection
requirements. The Company expects to continue incurring costs to comply with
the FAA's regulations. Additional laws and regulations have been proposed from
time to time that could significantly increase the
 
                                      xxvi

<PAGE>
 
cost of airline operations by, for instance, imposing additional requirements
or restrictions on operations. Laws and regulations have also been considered
from time to time that would prohibit or restrict the ownership and/or transfer
of international airline routes or takeoff and landing slots. Also, the award
of international routes to U.S. carriers (and their retention) is regulated by
treaties and related agreements between the United States and foreign
governments, which are amended from time to time. For example, there are
significant aviation issues between the United States and such foreign
governments as Germany, Japan and the United Kingdom that, depending on their
resolution, may significantly impact the Company's existing operations or
curtail potential expansion opportunities in important regions of the world.
The Company cannot predict what laws and regulations will be adopted or what
changes to international air transportation treaties will be effected, if any,
or how they will affect United.
   
  Holding Company Structure. The Company is a holding company that conducts
operations solely through its subsidiaries, principally United. The Company
will rely on dividends from its subsidiaries to meet its cash requirements,
including cash requirements in connection with dividends on or redemptions of
Depositary Preferred Shares (and the Public Preferred Stock interest). As a
result of the Recapitalization, United will have substantial debt in relation
to its stockholder's equity, as determined on a pro forma basis pursuant to the
application of generally accepted accounting principles.     
 
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
 
  The Recapitalization is expected not to be a taxable transaction to the
Company but will be a taxable transaction to the Company's stockholders. A
summary of certain Federal income tax consequences of the Recapitalization for
stockholders is set forth under "CERTAIN FEDERAL INCOME TAX CONSEQUENCES." See
also "SPECIAL FACTORS--Certain Risk Factors--Taxation of Recapitalization to
Stockholders."
 
NO APPRAISAL RIGHTS
 
  Stockholders of the Company will not be entitled to appraisal rights in
connection with any of the matters to be voted upon at the Meeting. For a
description of pending litigation related to the Recapitalization, see
"LITIGATION."
 
MARKET PRICES OF THE OLD SHARES; DIVIDENDS
   
  The Company's Old Shares are listed and traded, under the symbol UAL, on the
New York Stock Exchange, the Chicago Stock Exchange and the Pacific Stock
Exchange. At June 9, 1994, based on reports by the Company's transfer agent for
the Company's Old Shares, there were 19,156 holders of record and there were
24,572,182 Old Shares outstanding. The high and low sales prices per share for
its common stock for each quarterly period during the past two fiscal years as
reported on the NYSE Composite Tape are as follows:     

<TABLE>
<CAPTION>
                                                                 HIGH     LOW
                                                               -------- --------
      <S>                                                      <C>      <C>
      1992:
      1st quarter............................................. $159     $139 1/4
      2nd quarter.............................................  143 3/4  111
      3rd quarter.............................................  119 3/4  103
      4th quarter.............................................  128 1/8  106 1/4
      1993:
      1st quarter............................................. $132 1/4 $110 3/4
      2nd quarter.............................................  149 3/4  118
      3rd quarter.............................................  150 1/2  121 5/8
      4th quarter.............................................  155 1/2  135 7/8
      1994:
      1st quarter............................................. $150     $123 3/4
      2nd quarter (through June 10, 1994).....................  130 1/2  --
</TABLE>

 
  No dividends have been declared on the Old Shares since 1987.
 
                                     xxvii

<PAGE>
 
   
  On December 22, 1993, the last trading day prior to the public announcement
of the Agreement in Principle, the closing sales price for the Old Shares as
reported on the NYSE Composite Tape was $148 1/2 per share. On March 24, 1994,
the last trading day prior to the public announcement of the execution of the
Plan of Recapitalization, the closing sales price for the Old Shares as
reported on the NYSE Composite Tape was $123 3/4 per share. On June 10, 1994,
the date of this Proxy Statement/Prospectus, the closing sales price for the
Old Shares as reported on the NYSE Composite Tape was $  . STOCKHOLDERS SHOULD
OBTAIN CURRENT MARKET QUOTATIONS FOR THE OLD SHARES AS ONE OF THE FACTORS
RELEVANT TO ASSESSING THE VALUE OF THE NEW SHARES BEFORE VOTING ON THE PLAN OF
RECAPITALIZATION. The New Shares have been approved for listing on the NYSE
subject to official notice of issuance.     
 
  The Board does not expect to declare the regular dividend for the second
quarter of 1994, and if the Recapitalization is consummated, the Company does
not expect to pay dividends in the foreseeable future on the New Shares. See
"SPECIAL FACTORS--Certain Risk Factors."
       
                                     xxviii

<PAGE>
 
   
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL POSITION     
   
  The following are the unaudited Pro Forma Condensed Statements of
Consolidated Financial Position for each of the Company and United. These
statements are based on an assumed purchase price for the Class 1 ESOP
Preferred Stock at the Effective Time of $120 per share. The $120 per share
assumed purchase price of Class 1 ESOP Preferred Stock is based on an assumed
market price of a New Share at the Effective Time of approximately $87. (The
assumption is based upon (i) an assumed market price of an Old Share at the
Effective Time of approximately $131.5 per share, (ii) an assumed value of the
non-New Share portion of the Recapitalization Consideration of $88 per Old
Share, and (iii) a purchase price premium for the Class 1 ESOP Preferred Stock
over the assumed value of a New Share of 38%.) The actual purchase price for
the Class 1 ESOP Preferred Stock at the Effective Time will be determined
pursuant to the terms of the purchase agreement with the ESOP Trustee, which
provides for a purchase price equal to 1.38 times the Closing Price (as defined
below), except that if the Closing Price is less than 98% of the average of the
Adjusted Old Share Price (as defined below) for the five trading days
immediately preceding the Effective Date (as defined below), the purchase price
shall equal the product of 1.38 and such average price. See "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--Sale of ESOP Preferred Stock--
Leveraged ESOP." There can be no assurance as to the actual purchase price of
the Class 1 ESOP Preferred Stock, the Closing Price, or the Adjusted Old Share
Price. These statements do not purport to be indicative of the financial
position that may be obtained in the future or that would actually have been
obtained had the Recapitalization occurred on the dates indicated.     
 
                    UAL CORPORATION AND SUBSIDIARY COMPANIES
   
  The following statement sets forth the unaudited consolidated financial
position of the Company and its subsidiaries at March 31, 1994, and the
unaudited pro forma consolidated financial position of the Company and its
subsidiaries after giving effect to the Recapitalization and the Offerings, and
the payment of fees and expenses incurred in connection with the
Recapitalization. The pro forma adjustments are based upon available
information and upon certain assumptions that the Company believes are
reasonable. The statement should be read in conjunction with the selected
consolidated financial and operating information, the unaudited pro forma
financial information and the respective related notes thereto appearing
elsewhere herein. See "SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL
AND OPERATING INFORMATION--UAL Corporation and Subsidiary Companies" and
"UNAUDITED PRO FORMA FINANCIAL INFORMATION--UAL Corporation and Subsidiary
Companies." In addition, the statement should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 1993, as
amended, and Quarterly Report on Form 10-Q for the quarter ended March 31,
1994, which are incorporated in this Proxy Statement/Prospectus by reference,
and which include the Company's Consolidated Financial Statements, the related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Current Report on Form 8-K dated
May 3, 1994, which is incorporated in this Proxy Statement/Prospectus by
reference.     
 
  The pro forma statement assumes the Recapitalization is not accounted for as
an acquisition or merger and, accordingly, UAL's assets and liabilities have
not been revalued. The reclassification of Old Shares into New Shares results
in the elimination of the par value of the Old Shares and recognition of the
par value of the New Shares. The distribution of cash to holders of Old Shares
is charged to additional capital invested and retained earnings.
   
  The ESOPs are being accounted for in accordance with the American Institute
of Certified Public Accountants Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans" ("SOP"). For the Leveraged ESOP
(as defined below, see "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs"),
the Company will issue Class 1 ESOP Preferred Stock through seven ESOP     
 
                                      xxix

<PAGE>
 
   
Tranches (as defined below, see "THE PLAN OF RECAPITALIZATION--Establishment of
ESOPs") at the Effective Time, approximately thirteen months following the
Effective Time, annually thereafter for four years and on January 1, 2000. As
the shares are issued to the Leveraged ESOP, the Company will report the
issuance of shares as a credit to additional capital invested based on the fair
value of the stock when such issuance occurs and report a corresponding charge
to unearned ESOP Preferred Stock. As consideration for the shares, the Company
will receive from the ESOP Trustee a series of promissory notes and cash. The
notes will not be recorded in the Company's Statement of Consolidated Financial
Position and the related interest income will also not be recorded in the
Company's Statement of Consolidated Operations. As shares of Class 1 ESOP
Preferred Stock are earned or committed to be released, an employee stock
ownership plan accounting charge will be recognized equal to the average fair
value of the shares committed to be released with a corresponding credit to
unearned ESOP Preferred Stock. Any differences between the fair value of the
shares committed to be released and the cost of the shares to the ESOP will be
charged or credited to additional capital invested. For the Non-Leveraged
Qualified ESOP (as defined below, see "THE PLAN OF RECAPITALIZATION--
Establishment of ESOPs"), a credit for the shares of Class 2 ESOP Preferred
Stock will be recorded as the shares are committed to be contributed to the
ESOP, with the offsetting entry to compensation expense. Compensation expense
will be recorded based on the fair value of the shares committed to be
contributed to the ESOP, in accordance with the SOP. The pro forma financial
statements assume that the Supplemental ESOP (as defined below, see "THE PLAN
OF RECAPITALIZATION--Establishment of ESOPs") is accounted for the same as the
Non-Leveraged Qualified ESOP (i.e., pursuant to the SOP). It is possible that,
because the Supplemental ESOP is a non-qualified plan, the Company may account
for it under Accounting Principles Board Opinion 25, "Accounting for Stock
Issued to Employees," instead. The Company would not expect this to result in a
material difference. The shares committed to be contributed to the Supplemental
ESOP will be reported outside of equity because the employees can elect to
receive their "book entry" shares from the Company in cash upon termination of
employment.     
   
  The ESOP Preferred Stock is considered to be a common stock equivalent for
accounting purposes since the shares cannot remain outstanding indefinitely and
participants cannot withdraw their shares from the plan. Under the SOP, when
computing primary and fully diluted earnings per share, only those shares
committed to be released in the case of Class 1 ESOP Preferred Stock and shares
committed to be contributed in the case of Class 2 ESOP Preferred Stock are
considered outstanding as common stock equivalents. Prospectively, as dividends
are paid by the Company to the ESOP, only dividends on allocated shares will be
recorded as a charge to equity. Since the Company controls the use of dividends
on unallocated ESOP Preferred Stock, such dividends will not be considered
dividends for financial reporting purposes. Any dividends on unallocated shares
added to participant accounts would be reported as compensation expense.     
 
                                      xxx

<PAGE>
 
       
                    UAL CORPORATION AND SUBSIDIARY COMPANIES
        
     PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION     
 
                                 MARCH 31, 1994
                        (IN MILLIONS, EXCEPT SHARE DATA)
 

<TABLE>
<CAPTION>
                  ASSETS                     HISTORICAL ADJUSTMENTS    PRO FORMA
                  ------                     ---------- -----------    ---------
<S>                                          <C>        <C>            <C>
Current assets:
 Cash and cash equivalents.................   $ 1,046     $ 1,498 (1a)  $
                                                           (2,208)(1b)
                                                             (140)(2)
                                                                8 (11)      204
 Short-term investments....................     1,020                     1,020
 Other.....................................     1,837          44 (3)     1,881
                                              -------     -------       -------
                                                3,903        (798)        3,105
                                              -------     -------       -------
Operating property and equipment...........    12,226                    12,226
Less: Accumulated depreciation
 and amortization..........................    (5,177)                   (5,177)
                                              -------     -------       -------
                                                7,049                     7,049
                                              -------     -------       -------
Other assets:
 Other.....................................     1,937                     1,937
                                              -------     -------       -------
                                              $12,889     $  (798)      $12,091
                                              =======     =======       =======
<CAPTION>
   LIABILITIES AND SHAREHOLDERS' EQUITY
   ------------------------------------
<S>                                          <C>        <C>            <C>
Current liabilities:
 Short-term borrowings, long-term debt
  maturing within one year and current
  obligations under capital leases.........   $   486     $             $   486
 Other.....................................     4,502         (11)(11)    4,491
                                              -------     -------       -------
                                                4,988         (11)        4,977
                                              -------     -------       -------
Long-term debt.............................     2,693         758 (1c)    3,451
                                              -------     -------       -------
Long-term obligations under capital leases.       777                       777
                                              -------     -------       -------
Other liabilities, deferred credits and
 minority interest.........................     3,334                     3,334
                                              -------     -------       -------
Class 2 ESOP Preferred Stock, $.01 par,
 none issued...............................                   --  (13)
                                              -------     -------       -------
Shareholders' equity:
 Series A Preferred Stock, $.01 stated
  value, 6,000,000 shares issued, $100
  liquidation value........................       --          --            --
 Series B Preferred Stock, $.01 stated
  value, 30,566 shares issued, $25,000
  liquidation value........................                   --  (1d)      --
 Class 1 ESOP Preferred Stock, $.01 par,
  1,899,059 shares issued, $120 liquidation
  value....................................                   --  (4)       --
 Class 2 ESOP Preferred Stock, $.01 par,
  none issued .............................                   --  (4)       --
 Voting Preferred Stocks, $.01 par, 3
  shares issued, $.01 liquidation value....                   --  (5)       --
 Common stock, $5 par value, 25,500,662
  shares issued and outstanding--
  historical...............................       128        (128)(1e)      --
 Common stock, $.01 par value, 13,006,564
  shares issued and outstanding--pro
  forma(12)................................                  --   (1e)      --
 Additional capital invested...............       963        (963)(1e)
                                                              740 (1d)
                                                              228 (4)
                                                               13 (6)       981
 Retained earnings (deficit)...............       142      (1,117)(1e)
                                                             (108)(7)    (1,083)
 Pension liability adjustment..............       (53)                      (53)
 Unearned compensation.....................       (14)         14 (8)       --
 Unearned ESOP Preferred Stock.............                  (228)(4)      (228)
 Unrealized loss on investments............        (2)        --             (2)
 Common stock held in treasury, 929,631
  shares--historical, 439,816 shares--pro
  forma ...................................       (67)          4 (9)       (63)
                                              -------     -------       -------
                                                1,097      (1,545)         (448)
                                              -------     -------       -------
                                              $12,889     $  (798)      $12,091
                                              =======     =======       =======
</TABLE>

     
  See the accompanying notes to Pro Forma Condensed Statement of Consolidated
                            Financial Position.     
 
                                      xxxi

<PAGE>
 
                    UAL CORPORATION AND SUBSIDIARY COMPANIES
    
 NOTES TO PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION     
   
(1) To record the Recapitalization (as described in "THE PLAN OF
    RECAPITALIZATION--Terms and Conditions"). The entries assume that (i) the
    Offerings of Debentures and Depositary Preferred Shares representing
    interests in Public Preferred Stock are consummated, (ii) all in-the-money
    Options are vested and exercised at the Effective Time using a cashless
    exercise mechanism, (iii) treasury stock held by the Company immediately
    prior to the Effective Time will convert into New Shares that remain
    outstanding after the Recapitalization and (iv) Convertible Company
    Securities that are outstanding immediately prior to the Effective Time
    will not convert into the Recapitalization Consideration at the Effective
    Time. The cashless exercise feature permits holders of Options to exercise
    them by surrendering to the Company a portion of the proceeds of the Option
    in lieu of paying the exercise price in cash. When the cashless exercise
    feature is used, each element of the Recapitalization Consideration that is
    issuable upon the exercise of such Options is reduced proportionately, and
    the net Recapitalization Consideration (including the New Shares) that is
    issued is equal in value to the spread value of the Options exercised. See
    footnote 8 to the Pro Forma Condensed Statement of Consolidated Operations
    for the year ended December 31, 1993.     
     
  (a) To record the proceeds from the Offerings of approximately $765 million
      of Debentures and approximately $765 million of Depositary Preferred
      Shares representing interests in Public Preferred Stock, net of
      underwriting discount of $7 million for the Debentures and $25 million
      for the Public Preferred Stock. (If the Offerings are not consummated,
      the Debentures and the Depositary Preferred Shares included in entry
      1(c) and 1(d) will be issued to the holders of Old Shares upon
      redemption of the Series D Redeemable Preferred Stock.)     
     
  (b) To record the cash payment to holders of Old Shares upon the redemption
      of the Redeemable Preferred Stock. The cash payment includes $25.80 per
      share plus proceeds from the sales of $31.10 face amount of Debentures
      and Depositary Preferred Shares representing interests in $31.10
      liquidation preference of Public Preferred Stock (before deducting
      underwriting discount), and assumes that the proceeds of the sales
      equals the face amount of the securities. The pro forma adjustment also
      includes the cash payment of $88 per share upon exercise of Options.
      (If the amount to be sold in the Offerings is reduced as discussed in
      entry 1(c) and 1(d), the amount paid to holders of Old Shares will be
      reduced.)     
     
  (c) To record the issuance of $382.5 million of principal amount of Series
      A Debentures and $382.5 million of principal amount of Series B
      Debentures. The Debentures are being recorded at their face amount on
      the assumption that they will be priced to trade at par, less the
      underwriting discount of $7 million. The actual rates on the Debentures
      will be reset prior to the Effective Time and the Debentures are
      subject to a maximum interest rate of 112.5 basis points above the
      Initial Pricing. The underwriting agreements for the United Debt
      Offerings are expected to provide that if either or both of the United
      Debt Offerings are consummated, the interest rates on the Debentures
      being offered may be adjusted in order for the Debentures to be sold at
      or closer to par, in which case the principal amount of the Debentures
      will be reduced so that the annual interest expense will not exceed the
      stated maximum which was calculated based upon the rate cap. If either
      or both of the United Debt Offerings are not consummated and the
      applicable interest rate exceeds the cap, the Debentures will be
      recorded at a discount.     
 
  (d) To record the issuance of Depositary Preferred Shares representing
      interests in $765 million liquidation preference of Public Preferred
      Stock, net of underwriting discount of $25 million. The Public
      Preferred Stock is recorded at its stated value of $.01 per share, with
      the excess of liquidation value over stated value and net of
      underwriting discount recorded as additional capital invested. The
      dividend rate on the Public Preferred Stock will be reset prior to
      Closing and is subject to a
 
                                     xxxii

<PAGE>
 
                                                                             
      maximum of 11.375%. The underwriting agreement for the UAL Preferred   
      Offering is expected to provide that if the UAL Preferred Offering is  
      consummated, the dividend rate may be adjusted in which case the number
      of Depositary Preferred Shares will be reduced so that the annual      
      dividends will not exceed the stated maximum which was calculated based
      on the rate cap.                                                        
     
  (e) To record the reclassification of Old Shares into New Shares and Series
      D Redeemable Preferred Stock. The Series D Redeemable Preferred Stock
      is assumed to immediately convert to cash, including proceeds from the
      sale of Debentures and Depositary Preferred Shares representing
      interests in Public Preferred Stock. (The pro forma adjustments do not
      reflect the Series D Redeemable Preferred Stock issued to the Company
      upon reclassification of the treasury stock because such shares are
      surrendered for cancellation immediately after issuance.)     
 
      The New Shares are recorded at their par value of $.01 per share.
      Following is a summary of the entries to additional capital invested and
      retained earnings (in millions):
 

<TABLE>
<CAPTION>
                                                            ADDITIONAL
                                                             CAPITAL   RETAINED
                                                             INVESTED  EARNINGS
                                                            ---------- --------
     <S>                                                    <C>        <C>
     Cancellation of Old Shares............................   $  128   $   --
     Distribution of Cash..................................   (1,091)   (1,117)
                                                              ------   -------
     Pro forma adjustment..................................   $ (963)  $(1,117)
                                                              ======   =======
</TABLE>

 
(2) To record the cash impact of the estimated fees and transaction expenses,
    including expenses for the Company, ALPA and the IAM, severance payments to
    terminated officers and flight kitchen employees and payments relating to
    the employment agreement with Mr. Greenwald.
 
(3) To record the tax effects relating to nonrecurring charges recognized as a
    result of the Recapitalization.
   
(4) To record the initial issuance of Class 1 ESOP Preferred Stock to the
    Leveraged ESOP for an aggregate purchase price of $228 million. The $228
    million was determined based on (i) 1,899,059 shares of Class 1 ESOP
    Preferred Stock expected to be issued in the first ESOP Tranche as of the
    Effective Time and (ii) an assumed purchase price of $120 per share. The
    Company and the Unions may, prior to the Effective Time, agree to increase
    or decrease the number of shares of Class 1 ESOP Preferred Stock sold at
    the Effective Time. The agreement with the ESOP Trustee provides that the
    number of shares of Class 1 ESOP Preferred Stock sold at the Effective Time
    shall be no more than 2,088,965 and no fewer than 1,709,153; provided,
    however, that the number of shares sold in the first ESOP Tranche will be
    adjusted if the Effective Time is before or after July 1, 1994. The actual
    price per share for the first ESOP Tranche will be calculated as provided
    in the ESOP Stock Purchase Agreement. Thus, the ultimate amount recorded at
    the Effective Time will differ from the pro forma adjustment in order to
    reflect the actual number of shares issued and the purchase price
    calculated under the ESOP Stock Purchase Agreement.     
                                                                               
    Six additional ESOP Tranches will be issued to the Leveraged ESOP during   
    the 69 months subsequent to the Effective Time, with the total shares of   
    Class 1 ESOP Preferred Stock issued in the seven ESOP Tranches aggregating 
    approximately 14,000,000 shares (subject to increase, see "THE PLAN OF     
    RECAPITALIZATION--Establishment of ESOPs--Additional Shares"). The price   
    for the subsequent ESOP Tranches will be as agreed between the Company and 
    the ESOP Trustee at the time of each sale. As the subsequent ESOP Tranches 
    are issued, the shares will be reported as a credit to additional capital  
    invested based on the fair value of the stock when such issuances occur    
    with a corresponding charge to "Unearned ESOP Preferred Stock."            
                                                                               
    The unearned ESOP Preferred Stock recorded in the pro forma adjustment     
    together with the unearned ESOP Preferred Stock recorded from subsequent   
    ESOP Tranches will be recognized as compensation expense over the          
    approximately six year investment period as the shares are committed to be 
    released.                                                                   
  
                                     xxxiii

<PAGE>
 
    The difference between the compensation expense recorded, which is based
    on the fair value of the stock during an accounting period, and the
    recorded cost of the unearned ESOP Preferred Stock will be recorded to
    additional capital invested.
                                                                                
    The shares of Class 2 ESOP Preferred Stock will be recorded over the        
    approximately six year investment period as the shares are committed to be  
    contributed to the Non-Leveraged Qualified ESOP and credited to employees   
    pursuant to the Supplemental ESOP with the offsetting entry being to        
    compensation expense. The number of shares of Class 2 ESOP Preferred Stock  
    that will be issued will be equal to 17,675,345 less the number of shares   
    of Class 1 ESOP Preferred Stock that will be sold to the Qualified ESOP (as 
    defined below, see "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs"). 
        
                                                                            
    The ESOP Preferred Stock is convertible into New Shares at any time at the  
    election of the ESOP Trustee at a rate of one New Share for each share of   
    ESOP Preferred Stock (subject to adjustment). Primarily because of          
    limitations imposed by the Internal Revenue Code, the ESOP consists of      
    three major portions: the Leveraged ESOP, the Non-Leveraged Qualified ESOP, 
    and the Supplemental ESOP. Shares of ESOP Preferred Stock issued under the  
    Leveraged ESOP and the Non-Leveraged Qualified ESOP will be held by the     
    ESOP Trustee under the Qualified Trust (as defined below, see "THE PLAN OF  
    RECAPITALIZATION--Establishment of ESOPs"). Under the Supplemental ESOP,    
    shares will be credited as Book-Entry Shares when earned by employees, and  
    will be issued to employees as New Shares, generally upon termination of    
    employment. ALPA has the right to elect at any time, before or after the    
    Effective Time, that the Supplemental ESOP be maintained by the actual      
    issuance of Class 2 ESOP Preferred Stock to a non-qualified trust           
    established under the Supplemental Plan. In general, the Plan of            
    Recapitalization is designed to maximize the number of shares of ESOP       
    Preferred Stock that may be sold to the Qualified Trust. However, because   
    of certain limitations imposed by the Internal Revenue Code, a portion of   
    the equity interest to be obtained by the ESOP Trustee may not be sold to   
    the Qualified Trust. The Class 1 ESOP Preferred Stock contains a fixed      
    dividend feature which is intended to maximize the number of shares of      
    Class 1 ESOP Preferred Stock that may be sold to the Qualified Trust        
    consistent with the applicable provisions of the Internal Revenue Code. To  
    the extent the Qualified Trust is unable to purchase the Class 1 ESOP       
    Preferred Stock, Class 2 ESOP Preferred Stock will be issued, to the extent 
    permitted by the limitations of the Internal Revenue Code, to the ESOP      
    Trustee pursuant to the Non-Leveraged Qualified ESOP. Class 2 ESOP          
    Preferred Stock will not contain a fixed dividend. To the extent that Class 
    2 ESOP Preferred Stock cannot be issued to the ESOP Trustee because of the  
    limitations of the Internal Revenue Code, the Company will credit Book-     
    Entry Shares to accounts established for the employees pursuant to the      
    Supplemental ESOP.      
   
(5) To record the issuance at par of one share of Class P Voting Preferred
    Stock, one share of Class M Voting Preferred Stock, and one share of Class
    S Voting Preferred Stock to the Qualified ESOP. The remaining Voting
    Preferred Stock will be issued when it is contributed to the Qualified ESOP
    and the Supplemental ESOP. The Class P Voting Preferred Stock, the Class M
    Voting Preferred Stock and the Class S Voting Preferred Stock, which are
    referred to collectively as the "Voting Preferred Stock", represent and
    permit, in connection with the establishment of the ESOPs, the exercise of
    the voting power representing 55% (which under certain circumstances may be
    increased to up to 63%) of the voting power of the Company. See
    "DESCRIPTION OF SECURITIES--The Voting Preferred Stock." The Restated
    Certificate provides that upon the conversion of all the ESOP Preferred
    Stock into New Shares, each share of Voting Preferred Stock will be
    converted into one ten-thousandth of a New Share.     
   
(6) To account for the cashless exercise of options in the event of the
    Recapitalization. (Amount of the entry is based on an assumed Old Share
    price at the Effective Time of approximately $131.5 per share.)     
 
(7) Represents the offset to entries (2), (3), (6), (8), (9) and (11).
 
(8) To record the vesting of the unvested restricted stock as a result of the
    Recapitalization.
 
                                     xxxiv

<PAGE>
 
 
(9)  To record 25,000 restricted shares to Mr. Greenwald that will vest at the
     Effective Time.
   
(10) Does not reflect the issuance of four shares of Class I Preferred Stock,
     one share of Class Pilot MEC Preferred Stock, one share of Class IAM
     Preferred Stock, and three shares of Class SAM Preferred Stock. These
     stocks have a $.01 par value and nominal economic value. The Class I
     Preferred Stock will be issued to the Independent Directors and will have
     the power to elect such directors to the Board. The Class Pilot MEC
     Preferred Stock will be issued to the ALPA-MEC and will have the power to
     elect the ALPA Director. The Class IAM Preferred Stock will be issued to
     the IAM or its designee and will have the power to elect the IAM Director.
     The Class SAM Preferred Stock will be issued to the Salaried and
     Management Director and to the senior executive at United who has primary
     responsibility for human resources and will have the power to elect the
     Salaried and Management Director. Such classes of stock are referred to
     collectively as the Director Preferred Stock. See "DESCRIPTION OF
     SECURITIES--The Director Preferred Stock." Upon the occurrence of an
     Uninstructed Trustee Action (as defined below), the Class Pilot MEC
     Preferred Stock will succeed to the voting power previously held by the
     Class P Voting Preferred Stock, the Class IAM Preferred Stock will succeed
     to the voting power previously held by the Class M Voting Preferred Stock
     and the Class SAM Preferred Stock will succeed to the voting power
     previously held by the Class S Voting Preferred Stock. See "DESCRIPTION OF
     SECURITIES--The Director Preferred Stock--Uninstructed Trustee Actions."
         
(11) To reverse $19 million of transaction fees and expenses recorded during
     the first quarter of 1994 because these expenses are included in entry
     (2).
 
(12) The number of New Shares issued on a pro forma basis is based on Fully
     Diluted Old Shares assuming the Convertible Company Securities do not
     convert. See "The PLAN OF RECAPITALIZATION--Terms and Conditions--
     General."
   
(13) The Class 2 ESOP Preferred Stock committed to be contributed to the
     Supplemental ESOP will be reported outside of equity because the employees
     can elect to receive their "book entry" shares from the Company in cash
     upon termination of employment.     
 
                UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
   
  The following statement sets forth the unaudited consolidated financial
position of United and its subsidiaries at March 31, 1994 and the unaudited pro
forma consolidated financial position of United and its subsidiaries after
giving effect to the Recapitalization and the Offerings, and the payment of
fees and expenses incurred in connection with the Recapitalization. The pro
forma adjustments are based upon available information and upon certain
assumptions that the Company believes are reasonable. The statement should be
read in conjunction with the selected consolidated financial and operating
information, the unaudited pro forma financial information and the respective
related notes thereto appearing elsewhere herein. See "SELECTED CONSOLIDATED
HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING INFORMATION--United Air Lines,
Inc. and Subsidiary Companies" and "UNAUDITED PRO FORMA FINANCIAL INFORMATION--
United Air Lines, Inc. and Subsidiary Companies." In addition, the statement
should be read in conjunction with United's Annual Report on Form 10-K for the
year ended December 31, 1993 and Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994, as amended, which are incorporated in this Proxy
Statement/Prospectus by reference and which include United's Consolidated
Financial Statements, the related notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and the
Company's Current Report on Form 8-K dated May 3, 1994 which is incorporated in
this Proxy Statement/Prospectus by reference.     
   
  The pro forma statement assumes the Recapitalization is not accounted for as
an acquisition or merger and, accordingly, United's assets and liabilities have
not been revalued. The distribution to UAL of proceeds from the United Debt
Offerings of Debentures is charged to additional capital invested.     
 
                                      xxxv

<PAGE>
 
   
  The ESOPs are being accounted for in accordance with the American Institute
of Certified Public Accountants Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans" ("SOP"). For the Leveraged ESOP,
the Company will issue Class 1 ESOP Preferred Stock through seven ESOP
tranches, at the Effective Time, approximately thirteen months following the
Effective Time, annually thereafter for four years and on January 1, 2000. As
the shares are issued to the Leveraged ESOP, United will report the issuance of
shares as a credit to ESOP capital based on the fair value of the stock when
such issuance occurs and report a corresponding charge to unearned ESOP
Preferred Stock. As shares of Class 1 ESOP Preferred Stock are earned or
committed to be released, compensation expense will be recognized equal to the
average fair value of the shares committed to be released with a corresponding
credit to unearned ESOP Preferred Stock. Any differences between the fair value
of the shares committed to be released and the cost of the shares to the ESOP
will be charged or credited to ESOP capital. For the Non-Leveraged Qualified
ESOP, the shares of Class 2 ESOP Preferred Stock will be recorded as the shares
are committed to be contributed to the ESOP, with the offsetting entry to
compensation expense. Compensation expense will be recorded based on the fair
value of the shares committed to be contributed to the ESOP, in accordance with
the SOP. The pro forma financial statements assume that the Supplemental ESOP
is accounted for the same as the Non-Leveraged Qualified ESOP (i.e. pursuant to
the SOP). It is possible that, because the Supplemental ESOP is a non-qualified
plan, the Company may account for it under Accounting Principles Board Opinion
25, "Accounting for Stock Issued to Employees," instead. The Company would not
expect this to result in a material difference. The unearned ESOP Preferred
Stock, ESOP capital and employee stock ownership accounting charge will be
recorded on United's books since participants in the ESOP are employees of
United.     
 
                                     xxxvi

<PAGE>
 
                UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
        
     PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION     
 
                                 MARCH 31, 1994
                        (IN MILLIONS, EXCEPT SHARE DATA)
 

<TABLE>
<CAPTION>
                   ASSETS                    HISTORICAL ADJUSTMENTS   PRO FORMA
                   ------                    ---------- -----------   ---------
<S>                                          <C>        <C>           <C>
Current assets:
  Cash and cash equivalents.................  $   666      $(140)(1)   $
                                                             758 (3)
                                                            (765)(3)
                                                               8 (9)       527
  Short-term investments....................      542                      542
  Other.....................................    2,241         44 (2)     2,285
                                              -------      -----       -------
                                                3,449        (95)        3,354
                                              -------      -----       -------
Operating property and equipment............   12,211                   12,211
Less: Accumulated depreciation
    and amortization........................   (5,164)                  (5,164)
                                              -------      -----       -------
                                                7,047                    7,047
                                              -------      -----       -------
Other assets:
  Other.....................................    1,700                    1,700
                                              -------      -----       -------
                                              $12,196      $ (95)      $12,101
                                              =======      =====       =======
<CAPTION>
    LIABILITIES AND SHAREHOLDER'S EQUITY
    ------------------------------------
<S>                                          <C>        <C>           <C>
Current liabilities:
  Short-term borrowings, long-term debt
   maturing within one year and current
   obligations under capital leases.........  $   466      $           $   466
  Other.....................................    4,473        (11) (9)    4,462
                                              -------      -----       -------
                                                4,939        (11)        4,928
                                              -------      -----       -------
Long-term debt..............................    2,596        758 (3)     3,354
                                              -------      -----       -------
Long-term obligations under capital leases..      774                      774
                                              -------      -----       -------
Other liabilities, deferred credits and
 minority interest..........................    3,317                    3,317
                                              -------      -----       -------
Shareholder's equity:
  Common stock, $5 par value; 1,000 shares
   authorized; 200 shares outstanding.......      --                       --
  Additional capital invested...............      839       (765)(3)
                                                              13 (5)
                                                               4 (6)        91
  Retained earnings (deficit)...............     (200)      (108)(7)      (308)
  ESOP capital..............................                 228 (4)       228
  Unearned ESOP Preferred Stock.............                (228)(4)      (228)
  Unearned compensation.....................      (14)        14 (8)       --
  Pension liability adjustment .............      (53)                     (53)
  Unrealized loss on investments............       (2)       --             (2)
                                              -------      -----       -------
                                                  570       (842)         (272)
                                              -------      -----       -------
                                              $12,196      $ (95)      $12,101
                                              =======      =====       =======
</TABLE>

     
  See the accompanying notes to Pro Forma Condensed Statement of Consolidated
                            Financial Position.     
 
                                     xxxvii

<PAGE>
 
                UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
    
 NOTES TO PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION     
 
(1) To record the cash impact of the estimated fees and transaction expenses,
    including expenses for United, ALPA and the IAM, severance payments to
    terminated officers and flight kitchen employees, and payments relating to
    the employment agreement with Mr. Greenwald.
 
(2) To record the tax effects relating to nonrecurring charges recognized as a
    result of the transaction.
   
(3) To record the Offerings of $382.5 million principal amount of Series A
    Debentures and $382.5 million principal amount of Series B Debentures and
    to record the distribution of proceeds to UAL. The Debentures are being
    recorded at their face amount based on the assumption that they will be
    priced to trade at par, less the underwriting discount of $7 million. The
    actual rates on the Debentures will be reset prior to the Effective Time
    and the Debentures are subject to a maximum interest rate of 112.5 basis
    points above the Initial Pricing. The underwriting agreements are expected
    to provide that if either or both of the United Debt Offerings are
    consummated, the interest rates may be adjusted in order for the Debentures
    to be sold at or closer to par, in which case the principal amount of the
    Debentures will be reduced so that the annual interest expense will not
    exceed the stated maximum which was calculated based upon the rate cap. If
    either or both of the United Debt Offerings are not consummated and the
    interest rate exceeds the cap, the Debentures will be recorded at a
    discount.     
   
(4) To record the ESOP capital as a result of the initial issuance of shares of
    UAL's Class 1 ESOP Preferred Stock to the Leveraged ESOP for an aggregate
    purchase price of $228 million and to record the related charge to unearned
    ESOP Preferred Stock. The $228 million was determined based on (i)
    1,899,059 shares of Class 1 ESOP Preferred Stock expected to be issued in
    the first ESOP Tranche as of the Effective Time and (ii) an assumed
    purchase price of $120 per share. The Company and the Unions may, prior to
    the Effective Time, agree to increase or decrease the number of shares of
    Class 1 ESOP Preferred Stock sold at the Effective Time. The agreement with
    the ESOP Trustee provides that the number of shares of Class 1 ESOP
    Preferred Stock sold at the Effective Time shall be no more than 2,088,965
    and no fewer than 1,709,153; provided, however, that the number of shares
    sold in the first ESOP Tranche will be adjusted if the Effective Time is
    before or after July 1, 1994. The actual price per share for the first ESOP
    Tranche will be calculated as provided in the ESOP Stock Purchase
    Agreement. Thus, the ultimate amount recorded at the Effective Time will
    differ from the pro forma adjustment in order to reflect the actual number
    of shares issued and the purchase price calculated under the ESOP Stock
    Purchase Agreement.     
       
    Six additional ESOP Tranches will be issued to the Leveraged ESOP during the
    69 months subsequent to the Effective Time, with the total shares of Class 1
    ESOP Preferred Stock issued in the seven ESOP Tranches aggregating
    approximately 14,000,000 shares (subject to increase, see "THE PLAN OF
    RECAPITALIZATION--Establishment of ESOPs--Additional Shares"). The price for
    the subsequent ESOP Tranches will be as agreed between the Company and the
    ESOP Trustee at the time of each sale. As the subsequent ESOP Tranches are
    issued, the shares will be reported as a credit to additional capital
    invested based on the fair value of the stock when such issuances occur with
    a corresponding charge to "Unearned ESOP Preferred Stock."     
       
    The unearned ESOP Preferred Stock recorded in the pro forma adjustment
    together with the unearned ESOP Preferred Stock recorded from subsequent
    ESOP Tranches will be recognized as compensation expense over the
    approximately six year investment period as the shares are committed to be
    released. The difference between the compensation expense recorded, which is
    based on the fair value of the stock during an accounting period, and the
    initial recorded cost of the unearned ESOP Preferred Stock will be recorded
    to ESOP capital.     
 
                                    xxxviii

<PAGE>
  
       
    ESOP capital will also be recorded over the approximately six year
    investment period as the shares of UAL's Class 2 ESOP Preferred Stock are
    committed to be contributed to the Non-Leveraged Qualified ESOP and credited
    to employees pursuant to the Supplemental ESOP with the offsetting entry
    being to compensation expense. The number of shares of Class 2 ESOP
    Preferred Stock that will be issued will be equal to 17,675,345 less the
    number of shares of Class 1 ESOP Preferred Stock that will be sold to the
    Qualified ESOP.     
   
(5) To account for the cashless exercise of options in the event of the
    Recapitalization. (Amount of the entry is based on an assumed Old Share
    price at the Effective Time of approximately $131.5 per share.)     
 
(6) To record 25,000 restricted shares to Mr. Greenwald that will vest at the
    Effective Time.
 
(7) Represents the offset to entries (1), (2), (5), (6), (8) and (9).
 
(8) To record the vesting of the unvested restricted stock as a result of the
    Recapitalization.
 
(9) To reverse $19 million of transaction fees and expenses recorded during the
    first quarter of 1994 because these expenses are included in entry (1).
 
                                     xxxix

<PAGE>
 
   
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING
INFORMATION     
 
                    UAL CORPORATION AND SUBSIDIARY COMPANIES
   
  The following consolidated financial information has been derived from the
Company's consolidated financial statements, for each of the fiscal years in
the five year period ended December 31, 1993, which statements have been
audited by Arthur Andersen & Co., independent public accountants, as indicated
in their reports incorporated by reference herein. Reference is made to said
reports for the years 1993 and 1992 which include an explanatory paragraph with
respect to the changes in methods of accounting for income taxes and
postretirement benefits other than pensions as discussed in the notes to the
consolidated financial statements for such years. The consolidated financial
information for the three months ended March 31, 1994 and 1993 is unaudited but
in the opinion of management includes all adjustments necessary for a fair
presentation. The table also sets forth certain information on a pro forma
basis giving effect to the Recapitalization and the Offerings. The following
should be read in conjunction with the selected consolidated financial and
operating information and the unaudited pro forma financial statements and the
respective related notes thereto appearing elsewhere herein. See "SELECTED
CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING INFORMATION--UAL
Corporation and Subsidiary Companies" and "UNAUDITED PRO FORMA FINANCIAL
INFORMATION--UAL Corporation and Subsidiary Companies." In addition, this table
should be read in conjunction with the Company's Annual Report on Form 10-K for
the year ended December 31, 1993, as amended, and Quarterly Report on Form 10-Q
for the quarter ended March 31, 1994, as amended, which are incorporated in
this Proxy Statement/Prospectus by reference and which include the Company's
Consolidated Financial Statements, the related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Current Report on Form 8-K dated May 3, 1994 which is
incorporated in this Proxy Statement/Prospectus by reference.     
 

<TABLE>
<CAPTION>
                                          YEAR ENDED DECEMBER 31,
                          -------------------------------------------------------------
                             1993
                           PRO FORMA    1993     1992     1991     1990     1989
                          -----------  -------  -------  -------  -------  -------
                          (UNAUDITED)
                                           (DOLLARS IN MILLIONS)
<S>                       <C>          <C>      <C>      <C>      <C>      <C>      <C>
STATEMENT OF
 CONSOLIDATED OPERATIONS
 DATA:
 Operating revenues(a)..    $13,297    $13,325  $11,853  $10,706  $10,296  $ 9,288
 Earnings (loss) from
  operations............        354(e)     263     (538)    (494)     (36)     465
 Earnings (loss) before
  extraordinary item and
  cumulative effect of
  accounting changes....        (38)       (31)    (417)    (332)      94      324
 Net earnings (loss)....       N.A.        (50)    (957)    (332)      94      324
STATEMENT OF
 CONSOLIDATED FINANCIAL
 POSITION DATA (at end
 of period):
 Total assets...........         (b)   $12,840  $12,257  $ 9,876  $ 7,983  $ 7,194
 Total long-term debt
  and capital lease ob-
  ligations, including
  current portion.......         (b)     3,735    3,783    2,531    1,327    1,405
 Shareholders' equity...         (b)     1,203      706    1,597    1,671    1,564
OTHER DATA:
 Ratio of earnings to
  fixed charges.........         (c)        (c)      (c)      (c)    1.16     1.95
 Ratio of earnings to
  fixed charges and
  preferred stock
  dividends.............         (c)        (c)      (c)      (c)    1.16     1.95
UNITED OPERATING DATA:
 Revenue passengers
  (millions)............         70         70       67       62       58       55
 Average length of a
  passenger trip in
  miles.................      1,450      1,450    1,390    1,327    1,322    1,269
 Revenue passenger miles
  (millions)............    101,258    101,258   92,690   82,290   76,137   69,639
 Available seat miles
  (millions)............    150,728    150,728  137,491  124,100  114,995  104,547
 Passenger load factor..       67.2%      67.2%    67.4%    66.3%    66.2%    66.6%
 Break even passenger
  load factor...........       65.0%      65.5%    70.6%    69.7%    66.5%    62.8%
 Revenue per passenger
  mile..................       11.6c      11.6c    11.3c    11.5c    11.8c    11.6c
 Cost per available seat
  mile..................        8.5c       8.5c     8.9c     9.0c     9.0c     8.4c
 Average price per
  gallon of jet fuel....       63.6c      63.6c    66.4c    71.6c    80.4c    63.6c
</TABLE>

 
                                       x1

<PAGE>
 

<TABLE>
<CAPTION>
                                                 (UNAUDITED) THREE MONTHS
                                                      ENDED MARCH 31,
                                                 -----------------------------
                                                   1994
                                                 PRO FORMA     1994     1993
                                                 ---------    -------  -------
                                                   (DOLLARS IN MILLIONS)
<S>                                              <C>          <C>      <C>
STATEMENT OF CONSOLIDATED OPERATIONS DATA:
 Operating revenues(a)..........................  $ 3,193     $ 3,195  $ 3,053
 Loss from operations...........................       (8)(e)     (36)    (121)
 Loss before extraordinary item and cumulative
  effect of accounting changes..................      (58)        (71)    (138)
 Net Loss.......................................     N.A.         (97)    (157)
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
 DATA
 (at end of period):
 Total assets...................................  $12,091     $12,889  $13,288
 Total long-term debt and capital lease obliga-
  tions, including current portion..............    4,445       3,687    4,017
 Shareholders' equity...........................     (448)      1,097    1,137
OTHER DATA:
 Ratio of earnings to fixed charges.............       (d)         (d)      (d)
 Ratio of earnings to fixed charges and pre-
  ferred stock dividends........................       (d)         (d)      (d)
UNITED OPERATING DATA:
 Revenue passengers (millions)..................       16          16       16
 Average length of a passenger trip in miles....    1,471       1,471    1,433
 Revenue passenger miles (millions).............   23,289      23,289   22,443
 Available seat miles (millions)................   35,598      35,598   35,220
 Passenger load factor..........................     65.4%       65.4%    63.7%
 Break even passenger load factor...............     65.8%       66.5%    66.3%
 Revenue per passenger mile.....................     11.9c       11.9c    12.0c
 Cost per available seat mile...................      9.0c        9.0c     8.8c
 Average price per gallon of jet fuel...........     58.6c       58.6c    65.9c
</TABLE>

- --------
   
(a) In the first quarter of 1994, United began recording certain air
    transportation price adjustments, which were previously recorded as
    commission expense, as adjustments to revenue. Operating revenues and
    certain operating statistics for periods prior to 1994 have been adjusted
    to conform with the current presentation. See the Company's Current Report
    on Form 8-K dated May 3, 1994, which is incorporated by reference in this
    Proxy Statement/Prospectus.     
(b) The Pro Forma Statement of Consolidated Financial Position assumes the
    transaction occurred at March 31, 1994. Therefore, pro forma information at
    December 31, 1993 is not applicable.
   
(c) Earnings were inadequate to cover both fixed charges and fixed charges and
    preferred stock dividends by $98 million in 1993, by $748 million in 1992
    and by $599 million in 1991. On a pro forma basis, earnings were inadequate
    to cover both fixed charges and fixed charges and preferred stock dividends
    by $109 million in 1993.     
   
(d) Earnings were inadequate to cover both fixed charges and fixed charges and
    preferred stock dividends by $118 million and $224 million for the three
    month periods ended March 31, 1994 and 1993, respectively. On a pro forma
    basis, earnings were inadequate to cover both fixed charges and fixed
    charges and preferred stock dividends by $97 million for the three months
    ended March 31, 1994.     
(e) The loss from operations includes an ESOP accounting charge which is
    dependent on the fair market value of the ESOP Preferred Stock during the
    period. The pro forma amount is based on an assumed fair value of $120 per
    share. See note 4 to the Pro Forma Condensed Statement of Consolidated
    Operations for both the year ended December 31, 1993 and the three months
    ended March 31, 1994 for the effects of different fair value assumptions on
    the ESOP accounting charge.
 
                                      x1i

<PAGE>
 
                UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
   
  The following consolidated financial information has been derived from
United's consolidated financial statements, for each of the fiscal years in the
five year period ended December 31, 1993, which statements have been audited by
Arthur Andersen & Co., independent public accountants, as indicated in their
reports incorporated by reference herein. Reference is made to said reports for
the years 1993 and 1992 which include an explanatory paragraph with respect to
the changes in methods of accounting for income taxes and postretirement
benefits other than pensions as discussed in the notes to the consolidated
financial statements for such years. The consolidated financial information for
the three months ended March 31, 1994 and 1993 is unaudited but in the opinion
of management includes all adjustments necessary for a fair presentation. The
table also sets forth certain information on a pro forma basis giving effect to
the Recapitalization and the Offerings. The following should be read in
conjunction with the selected consolidated financial and operating information
and the unaudited pro forma financial statements and the respective related
notes thereto included elsewhere herein. See "SELECTED CONSOLIDATED HISTORICAL
AND PRO FORMA FINANCIAL AND OPERATING INFORMATION--United Air Lines, Inc. and
Subsidiary Companies" and "UNAUDITED PRO FORMA FINANCIAL INFORMATION--United
Air Lines, Inc. and Subsidiary Companies." In addition, this table should be
read in conjunction with United's Annual Report on Form 10-K for the year ended
December 31, 1993 and Quarterly Report on Form 10-Q for the quarter ended March
31, 1994, which are incorporated in this Proxy Statement/Prospectus by
reference and which include United's Consolidated Financial Statements, the
related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and United's Current Report on Form 8-K
dated May 3, 1994 which is incorporated by reference in this Proxy
Statement/Prospectus.     
 

<TABLE>
<CAPTION>
                                       YEAR ENDED DECEMBER 31,
                         --------------------------------------------------------
                            1993
                          PRO FORMA    1993     1992     1991     1990     1989
                         -----------  -------  -------  -------  -------  -------
                         (UNAUDITED)
                                        (DOLLARS IN MILLIONS)
<S>                      <C>          <C>      <C>      <C>      <C>      <C>
STATEMENT OF CONSOLI-
 DATED OPERATIONS DATA:
 Operating revenues(a)..   $13,140    $13,168  $11,688  $10,703  $10,282  $ 9,267
 Earnings (loss) from
  operations............       386(e)     295     (496)    (491)     (41)     464
 Earnings (loss) before
  extraordinary item and
  cumulative effect of
  accounting changes....        (8)       (17)    (386)    (335)      96      358
 Net earnings (loss)....      N.A.        (36)    (933)    (335)      96      358
STATEMENT OF CONSOLI-
 DATED FINANCIAL POSI-
 TION DATA (at end of
 period):
 Total assets...........        (b)   $12,153  $12,067  $ 9,907  $ 8,001  $ 7,217
 Total long-term debt
  and capital lease ob-
  ligations, including
  current portion.......        (b)     3,614    3,628    2,531    1,326    1,404
 Shareholder's equity...        (b)       674      738    1,613    1,769    1,665
OTHER DATA:
 Ratio of earnings to
  fixed charges.........        (c)        (c)      (c)      (c)    1.16     2.08
UNITED OPERATING DATA:
 Revenue passengers
  (millions)............        70         70       67       62       58       55
 Average length of a
  passenger trip in
  miles.................     1,450      1,450    1,390    1,327    1,322    1,269
 Revenue passenger miles
  (millions)............   101,258    101,258   92,690   82,290   76,137   69,639
 Available seat miles
  (millions)............   150,728    150,728  137,491  124,100  114,995  104,547
 Passenger load factor..      67.2%      67.2%    67.4%    66.3%    66.2%    66.6%
 Break even passenger
  load factor...........      65.0%      65.5%    70.6%    69.7%    66.5%    62.8%
 Revenue per passenger
  mile..................      11.6c      11.6c    11.3c    11.5c    11.8c    11.6c
 Cost per available seat
  mile..................       8.5c       8.5c     8.9c     9.0c     9.0c     8.4c
 Average price per gal-
  lon of jet fuel.......      63.6c      63.6c    66.4c    71.6c    80.4c    63.6c
</TABLE>

 
                                      xlii

<PAGE>
 

<TABLE>
<CAPTION>
                                                 (UNAUDITED) THREE MONTHS
                                                      ENDED MARCH 31,
                                                 -----------------------------
                                                   1994
                                                 PRO FORMA     1994     1993
                                                 ---------    -------  -------
                                                   (DOLLARS IN MILLIONS)
<S>                                              <C>          <C>      <C>
STATEMENT OF CONSOLIDATED OPERATIONS DATA:
 Operating revenues(a)..........................  $ 3,171     $ 3,173  $ 3,001
 Loss from operations...........................      (16)(e)     (44)    (107)
 Loss before extraordinary item and cumulative
  effect of accounting changes..................      (62)        (79)    (129)
 Net Loss.......................................     N.A.        (105)    (148)
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
 DATA
 (at end of period):
 Total assets...................................  $12,101     $12,196  $12,515
 Total long-term debt and capital lease obliga-
  tions, including current portion..............    4,325       3,567    3,864
 Shareholders' equity...........................     (272)        570      592
OTHER DATA:
 Ratio of earnings to fixed charges.............       (d)         (d)      (d)
UNITED OPERATING DATA:
 Revenue passengers (millions)..................       16          16       16
 Average length of a passenger trip in miles....    1,471       1,471    1,433
 Revenue passenger miles (millions).............   23,289      23,289   22,443
 Available seat miles (millions)................   35,598      35,598   35,220
 Passenger load factor..........................     65.4%       65.4%    63.7%
 Break even passenger load factor...............     65.8%       66.5%    66.3%
 Revenue per passenger mile.....................     11.9c       11.9c    12.0c
 Cost per available seat mile...................      9.0c        9.0c     8.8c
 Average price per gallon of jet fuel...........     58.6c       58.6c    65.9c
</TABLE>

- --------
   
(a) In the first quarter of 1994, United began recording certain air
    transportation price adjustments, which were previously recorded as
    commission expense, as adjustments to revenue. Operating revenues and
    certain operating statistics for periods prior to 1994 have been adjusted
    to conform with the current presentation. See United's Current Report on
    Form 8-K dated May 3, 1994 which is incorporated by reference in this Proxy
    Statement/Prospectus.     
(b) The Pro Forma Statement of Consolidated Financial Position assumes the
    transaction occurred at March 31, 1994. Therefore, pro forma information at
    December 31, 1993 is not applicable.
(c) Earnings were inadequate to cover fixed charges by $77 million in 1993, by
    $694 million in 1992 and by $604 million in 1991. On a pro forma basis,
    earnings were inadequate to cover fixed charges by $63 million in 1993.
(d) Earnings were inadequate to cover fixed charges by $130 million and $211
    million for the three month periods ended March 31, 1994 and 1993,
    respectively. On a pro forma basis, earnings were inadequate to cover fixed
    charges by $102 million for the three months ended March 31, 1994.
(e) The loss from operations includes an ESOP accounting charge which is
    dependent on the fair market value of the ESOP Preferred Stock during the
    period. The pro forma amount is based on an assumed fair value of $120 per
    share. See Note 4 to the Pro Forma Condensed Statement of Consolidated
    Operations for both the year ended December 31, 1993 and the three months
    ended March 31, 1994 for the effects of different fair value assumptions on
    the ESOP accounting charge.
 
                                     xliii

<PAGE>
 
                         SUMMARY OF TERMS OF SECURITIES
   
  The following table summarizes the terms of the securities of the Company and
United that will be issued in connection with the Recapitalization and that
will remain outstanding upon consummation of the Recapitalization. For a more
complete description of such securities, see "DESCRIPTION OF SECURITIES." If
all of the Offerings are consummated, Debentures will be sold pursuant to the
United Debt Offerings and Depositary Preferred Shares representing interests in
the Public Preferred Stock will be sold pursuant to the UAL Preferred Offering.
If none of the Offerings are consummated, the securities that will constitute
part of the Recapitalization Consideration will consist of the Debentures, the
Depositary Preferred Shares representing interests in the Public Preferred
Stock and the New Shares. If some but not all of the Offerings are consummated,
the securities that constitute part of the Recapitalization Consideration will
vary depending upon which securities are sold in the Offerings.     
 
                                      xliv

<PAGE>
 
 
 
                      [THIS PAGE INTENTIONALLY LEFT BLANK]
 
 
 
                                      xlv

<PAGE>
 
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
TITLE                     ISSUER DIVIDENDS/INTEREST   MATURITY     REDEMPTION
- -----                     ------ -------------------- -----------  -------------------
<S>                       <C>    <C>                  <C>          <C>
DEBENTURES
  Series A Debentures...  United 9.00% (provisional,  2004         at maturity (if the
                                 not to be adjusted                United Series A
                                 above 10.125%; the                Offering is not
                                 cap can be exceeded               consummated and the
                                 if the United Series              Unions request
                                 A Debt Offering is                prior to the
                                 consummated or, if                Meeting, an
                                 not, if the optional              optional redemption
                                 redemption feature                feature may be
                                 is added)                         added)
  Series B Debentures...  United 9.70% (provisional,  2014         at maturity (if the
                                 not to be adjusted                United Series B
                                 above 10.825%; the                Offering is not
                                 cap can be exceeded               consummated and the
                                 if the United Series              Unions request
                                 B Debt Offering is                prior to the
                                 consummated or, if                Meeting, an
                                 not, if the optional              optional redemption
                                 redemption feature                feature may be
                                 is added)                         added)
Depositary Preferred      UAL    10.25% (provisional, perpetual    after tenth
 Shares, each                    not to be adjusted   unless       anniversary (or
 representing 1/1,000 of         above 11.375% unless redeemed     fifth anniversary
 a share of Public               the UAL Preferred                 if the UAL
 Preferred Stock                 Offering is                       Preferred Offering
 (without par value)....         consummated)                      is not consummated)
                                                                   of issuance at
                                                                   liquidation value
                                                                   plus accrued and
                                                                   unpaid dividends
ESOP PREFERRED STOCK
  Class 1 ESOP Preferred
   Stock (par value       
   $0.01 per share).....  UAL    fixed dividend (rate perpetual    not redeemable       
                                 to be determined,    unless                            
                                 not to exceed 7% of  converted                         
                                 the price paid for                                     
                                 the Class 1 ESOP                                       
                                 Preferred Stock by                                     
                                 the ESOP Trustee at                                    
                                 the Effective Time)                                    
                                 accrues until March                                    
                                 31, 2000,                                              
                                 participates in all                                    
                                 distributions to New                                   
                                 Shares if in excess                                    
                                 of the fixed                                           
                                 dividend but subject                                   
                                 to an annual cap of                                    
                                 12 1/2% of the value                                   
                                 of the New Shares                                       

  Class 2 ESOP Preferred
   Stock (par value       
   $0.01 per share).....  UAL    no fixed dividend;   perpetual    not redeemable     
                                 participates in all  unless                          
                                 distributions to New converted                       
                                 Shares subject to an                                 
                                 annual cap of 12                                     
                                 1/2% of the value of                                 
                                 the New Shares                                        

VOTING PREFERRED STOCK
  Class P Voting
   Preferred Stock (par
   value $0.01 per
   share)...............
  Class M Voting                                                   
   Preferred Stock (par   UAL    none                 perpetual    not redeemable 
   value $0.01 per                                    unless
   share)...............                              converted
  Class S Voting
   Preferred Stock (par
   value $0.01 per
   share)...............

DIRECTOR PREFERRED STOCK
  Class Pilot MEC
   Preferred Stock (par
   value $0.01 per
   share)...............
  Class IAM Preferred
   Stock (par value                                   perpetual    automatically
   $0.01 per share).....  UAL    none                 unless       redeemed
  Class SAM Preferred                                 redeemed     under certain
   Stock (par value                                                circumstances,      
   $0.01 per share).....                                           including           
                                                                   upon termination of 
                                                                   voting              
                                                                   rights, for         
                                                                   liquidation value    

  Class I Preferred                                                
   Stock (par value     
   $0.01 per share).....  UAL    none                 perpetual    automatically
                                                      unless       redeemed under
                                                      redeemed     certain
                                                                   circumstances,
                                                                   including at
                                                                   Sunset, for
                                                                   liquidation value
New Shares (par value
 $0.01 per share).......  UAL    as declared          perpetual    not redeemable
</TABLE>

 
- -------
* See "DESCRIPTION OF SECURITIES--The Debentures--Consolidation, Merger or Sale
  by United."
 
                                      xlvi

<PAGE>
 
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
LIQUIDATION
PREFERENCE/PRINCIPAL                                                         CONVERSION   CONSOLIDATION,
AMOUNT PER SECURITY      RANK                VOTING RIGHTS                   RIGHTS       MERGER ETC.
- --------------------     ----                -------------                   ----------   --------------
<S>                      <C>                 <C>                             <C>          <C>
$100                     pari passu with all none                            none         contains merger
                         senior, unsecured                                                provision*
                         debt of United

$100                     pari passu with all none                            none         contains merger
                         senior, unsecured                                                provision*
                         debt of United

$25 per Depositary       parity with Series  when six quarterly dividends    none         no special
Preferred Share plus     A Preferred Stock;  are in arrears, Public                       rights
accrued and unpaid       senior to all other Preferred Stock votes as a
dividends                preferred stock and class with Series A Preferred
                         New Shares          Stock to elect two directors

amount to be determined  junior to Public    none                            each share   holder receives
plus accrued and unpaid  Preferred Stock and                                 convertible  either (i)
dividends                Series A Preferred                                  into one     preferred stock
                         Stock; on parity                                    New Share,   with the same
                         with Class 2 ESOP                                   subject to   characteristics
                         Preferred Stock as                                  adjustment   as Class 1 ESOP
                         to participating                                                 Preferred Stock
                         dividends and                                                    or (ii) same
                         liquidation; senior                                              consideration as
                         to other preferred                                               New Shares into
                         stock, New Shares,                                               which Class 1
                         and as to fixed                                                  ESOP Preferred
                         dividends, Class 2                                               Stock is
                         ESOP Preferred                                                   convertible
                         Stock

amount to be determined  junior to Public    none                            each share   holder receives
plus accrued and unpaid  Preferred Stock,                                    convertible  either (i)
dividends                Series A Preferred                                  into one     preferred stock
                         Stock and as to                                     New Share,   with the same
                         fixed dividends,                                    subject to   characteristics
                         Class 1 ESOP                                        adjustment   as Class 2 ESOP
                         Preferred Stock; on                                              Preferred Stock
                         parity with Class 1                                              or (ii) same
                         ESOP Preferred                                                   consideration as
                         Stock as to                                                      New Shares into
                         participating                                                    which Class 2
                         dividends and                                                    ESOP Preferred
                         liquidation; senior                                              Stock is
                         to other preferred                                               convertible
                         stock and New
                         Shares

                                             votes as a class with the New   each share   holder receives
                                             Shares on all matters except    convertible  either (i)
                                             election of directors on which  into 0.0001  preferred stock
                         junior to Public    it does not have a vote; until  New Share,   with the same
                         Preferred Stock,    Sunset, Class P, Class M and    subject to   characteristics
                         Series A Preferred  Class S Preferred Stock         adjustment   as Voting
                         Stock and ESOP      represent approximately 25.4%,               Preferred Stock
                         Preferred Stock; on 20.4% and 9.2%, respectively,                held or (ii)
$0.01                    parity with other   of the votes that may be cast                same
                         Voting Preferred    (prior to adjustment for                     consideration as
                         Stock; senior to    Additional Shares); after                    New Shares into
                         other preferred     Sunset, Class P, Class M and                 which Voting
                         stock and New       Class S Preferred Stock                      Preferred Stock
                         Shares              represent the votes of New                   held is
                                             Shares issuable upon conversion              convertible
                                             of outstanding ESOP Preferred
                                             Stock

                                             Class Pilot MEC, Class IAM and  none         holder receives
                                             Class SAM Preferred Stock vote               preferred stock
                                             to elect the ALPA Director, the              with the same
                                             IAM Director and the SAM                     characteristics
                                             Director, respectively; right                as Director
                                             to elect ALPA Director                       Preferred Stock
                                             terminates after Sunset when                 held
                         junior to Public    there are no longer ALPA
                         Preferred Stock,    members employed by the
                         Series A Preferred  Company; right to elect IAM
                         Stock, ESOP         Director terminates after the
                         Preferred Stock and sunset when there are no longer
$0.01                    Voting Preferred    IAM members employed by the
                         Stock; on parity    Company; right to elect SAM
                         with other Director Director terminates after
                         Preferred Stock;    Sunset on the earlier of when
                         senior to other     members of ALPA or IAM are no
                         preferred stock and longer employees of the
                         New Shares          Company; under certain
                                             circumstances, Class Pilot MEC,
                                             Class IAM and Class SAM
                                             Preferred Stock succeed to the
                                             voting rights represented by
                                             Class P, Class M and Class S
                                             Preferred Stock, respectively

$0.01                    junior to Public    votes to elect Independent      none         no special
                         Preferred Stock,    Directors                                    rights
                         Series A Preferred
                         Stock, ESOP
                         Preferred Stock and
                         Voting Preferred
                         Stock; on parity
                         with other Director
                         Preferred Stock;
                         senior to other
                         preferred stock and
                         New Shares

na                       junior to all       until the Sunset, votes as a    none         no special
                         preferred stock     class with the Voting Preferred              rights
                                             Stock on all matters except the
                                             election of directors and
                                             elects the Public Directors as
                                             a class without the
                                             Voting Preferred Stock; after
                                             the Sunset, votes on all
                                             matters as a class with the
                                             Voting Preferred Stock
</TABLE>

 
                                     xlvii

<PAGE>
 
                       PROXY STATEMENT/JOINT PROSPECTUS
 
                               ----------------
 
                                UAL CORPORATION
                            UNITED AIR LINES, INC.
 
                               ----------------
 
                            MEETING OF STOCKHOLDERS
                            
                         TO BE HELD JULY 12, 1994     
 
                                 INTRODUCTION
   
  This Proxy Statement/Joint Prospectus (the "Proxy Statement/Prospectus") is
being furnished in connection with the solicitation of proxies by the Board of
Directors of UAL Corporation, a Delaware corporation ("UAL" or the "Company"),
for use at the Meeting of Stockholders of the Company to be held on July 12,
1994, at 8:30 a.m., local time, in the Imperial Ballroom at the Fairmont
Hotel, 200 North Columbus Drive, Chicago, Illinois, and at any adjournment or
postponement thereof (the "Meeting"). This Proxy Statement/Prospectus, the
attached Notice of Meeting and the enclosed form of proxy are being first
mailed to holders of shares of common stock, par value $5 per share, of the
Company ("Old Shares") of the Company on or about June 13, 1994.     
 
PURPOSE OF THE MEETING
   
  The principal purpose of the Meeting is to consider and vote upon a proposal
to recapitalize the Company as hereinafter described. Holders of Old Shares
are being asked to consider and vote upon (i) the Amended and Restated
Agreement and Plan of Recapitalization, dated as of March 25, 1994 (the "Plan
of Recapitalization"), which contemplates certain transactions collectively
referred to as the "Recapitalization," (ii) subject to and conditioned upon
approval of the Plan of Recapitalization, the amendment and restatement of the
Company's Certificate of Incorporation and Bylaws (the "Charter and Bylaw
Amendments"), (iii) subject to and conditioned upon approval of the Plan of
Recapitalization and the Charter and Bylaw Amendments, the approval of the
issuance of (a) shares of Class 1 ESOP Convertible Preferred Stock (the "Class
1 ESOP Preferred Stock") to State Street Bank and Trust Company ("State
Street"), as trustee of the UAL Corporation Employee Stock Ownership Plan
Trust, (b) shares of Class 2 ESOP Convertible Preferred Stock (the "Class 2
ESOP Preferred Stock" and, together with the Class 1 ESOP Preferred Stock, the
"ESOP Preferred Stock") (or the common shares into which they convert) to
State Street, as trustee of the UAL Corporation Employee Stock Ownership Plan
Trust (or in limited circumstances as trustee of the UAL Corporation
Supplemental ESOP Trust) or underlying New Shares to participants in the UAL
Corporation Supplemental ESOP, (c) shares of (1) Class P ESOP Voting Junior
Preferred Stock, (2) Class M ESOP Voting Junior Preferred Stock and (3) Class
S ESOP Voting Junior Preferred Stock to State Street, as trustee of the UAL
Corporation Employee Stock Ownership Plan Trust and the UAL Corporation
Supplemental ESOP Trust, (d) shares of Class I Junior Preferred Stock to
certain individuals to be named as directors of the Company, (e) a share of
Class Pilot MEC Junior Preferred Stock to the United Airlines Pilots Master
Executive Council ("ALPA-MEC") of the Air Line Pilots Association,
International ("ALPA"), (f) a share of Class IAM Junior Preferred Stock to the
International Association of Machinists and Aerospace Workers (the "IAM") or
its designee and (g) shares of Class SAM Junior Preferred Stock to an
individual to be named as a director of the Company on behalf of salaried and
management employees of the Company (the "Salaried and Management Employees")
and to an additional designated stockholder (collectively, the "Stock
Issuance"), (iv) subject to and conditioned upon approval of the Plan of
Recapitalization and the Charter and Bylaw Amendments, the election of four
"Public Directors" of the Company, (v) subject to and conditioned upon
approval of the Plan of Recapitalization and the Charter and Bylaw Amendments,
the amendment of the Company's 1981 Incentive Stock Program, as amended (the
"1981 Stock Program"), (vi) subject to and conditioned upon approval of the
Plan of Recapitalization and the Charter and Bylaw Amendments, the amendment
of the Company's 1988 Restricted Stock Plan (the "1988 Restricted Stock
Plan"), (vii) subject to and conditioned upon approval of the Plan of
Recapitalization, the amendment     
 
                                       1

<PAGE>
 
of the Company's Incentive Compensation Plan (the "Incentive Plan"), (viii)
three stockholder proposals, (ix) ratification of the selection of Arthur
Andersen & Co. ("Arthur Andersen") as the Company's independent accountants
for the year ending December 31, 1994 and (x) such other business as may
properly come before the Meeting or any adjournment or postponement thereof.
See "BACKGROUND OF THE PLAN OF RECAPITALIZATION" and "THE PLAN OF
RECAPITALIZATION." A copy of the Plan of Recapitalization and copies of the
proposed Amended and Restated Certificate of Incorporation of the Company (the
"Restated Certificate") and the Amended and Restated Bylaws of the Company are
included elsewhere in this Proxy Statement/Prospectus.
   
  The approval of matter (ii) will be subject to the approval of the Plan of
Recapitalization, and the approval of matters (iii) through (vii) will be
subject to the approval of the Plan of Recapitalization and the Charter and
Bylaw Amendments.     
   
  The Plan of Recapitalization provides, among other things, for the
reclassification (the "Reclassification") of the Company's Old Shares. As a
result of the Reclassification, each Old Share outstanding at the consummation
of the Recapitalization (the "Effective Time"), including each share of
restricted stock issued pursuant to the 1988 Restricted Stock Plan (which will
vest upon the Effective Time if not vested prior thereto), together with up to
1,000,000 Old Shares held by the Company as treasury stock or owned by any
wholly-owned subsidiary of the Company immediately prior to the Effective
Time, will be reclassified as, and exchanged for, one half (0.5) of a new
share of common stock, par value $0.01 per share, of the Company (the "New
Shares") and one one-thousandth of a share of Series D Redeemable Preferred
Stock, without par value, of the Company (the "Series D Redeemable Preferred
Stock"). Concurrently with the solicitation of proxies in connection with the
Plan of Recapitalization, United Air Lines, Inc. ("United") expects to offer
up to $382.5 million principal amount of its Series A Debentures due 2004 (the
"Series A Debentures") (the "United Series A Offering") and up to $382.5
million principal amount of its Series B Debentures due 2014 (the "Series B
Debentures" and, together with the Series A Debentures, the "Debentures") (the
"United Series B Offering" and, together with the United Series A Offering the
"United Debt Offerings") and the Company expects to offer up to 30,600,000
depositary shares (the "Depositary Preferred Shares") representing interests
in $765.0 million liquidation preference of Series B Preferred Stock, without
par value, of the Company (the "Public Preferred Stock") (the "UAL Preferred
Offering" and, together with the United Debt Offerings, the "Offerings").
Immediately upon issuance pursuant to the Reclassification, each one one-
thousandth of a share of Series D Redeemable Preferred Stock will be redeemed
(the "Redemption") for:     
     
    (i) $25.80 in cash,     
     
    (ii) either (a) $15.55 principal amount of Series A Debentures or (b) if
  the United Series A Offering is consummated, the cash proceeds (without
  deducting any underwriting discount or other costs) from the sale thereof
  by United pursuant to the United Series A Offering,     
     
    (iii) either (a) $15.55 principal amount of Series B Debentures or (b) if
  the United Series B Offering is consummated, the cash proceeds (without
  deducting any underwriting discount or other costs) from the sale thereof
  by United pursuant to the United Series B Offering, and     
     
    (iv) either (a) Depositary Preferred Shares representing interests in
  $31.10 liquidation preference of Public Preferred Stock or (b) if the UAL
  Preferred Offering is consummated, the cash proceeds (without deducting any
  underwriting discount or other costs) from the sale thereof by the Company
  pursuant to the UAL Preferred Offering     
   
  The combination of New Shares and cash and, if applicable, Series A
Debentures, Series B Debentures and Depositary Preferred Shares to be
distributed in respect of the Old Shares pursuant to the Recapitalization is
referred to herein as the "Recapitalization Consideration." Under various
circumstances, the value of the consideration to be received by stockholders
could be less than the stated principal amount of the Debentures or the
liquidation preference of the Depositary Preferred Shares.     
 
                                       2

<PAGE>
 
   
  The consummation of the Recapitalization is not conditioned on, or subject
to, the consummation of any of the Offerings. In addition, none of the
Offerings is conditioned on, or subject to, the consummation of any of the
other Offerings.     
   
  The terms of the Debentures, the Public Preferred Stock and the Depositary
Preferred Shares are described under "DESCRIPTION OF SECURITIES--The
Debentures," "--The Public Preferred Stock" and "--The Depositary Preferred
Shares." Under the Plan of Recapitalization, the interest rate on the Series A
Debentures has been fixed provisionally at 9.00%, the interest rate on the
Series B Debentures has been fixed provisionally at 9.70% and the dividend rate
on the Public Preferred Stock has been fixed provisionally at 10.25%. Under the
Plan of Recapitalization, the interest rates on the Debentures and the dividend
rate on the Public Preferred Stock will be adjusted not less than five business
nor more than ten calendar days before the date of the Meeting (the
"Announcement Date") to rates (which in each case, if there is an upward
adjustment, may not be more than 112.5 basis points (i.e., 1.125 percentage
points) higher than the respective provisional rates, but which in the case of
a downward adjustment are not limited) that, in the opinion of certain
financial advisors to the Company and the Unions and in the case of a deadlock,
based on a process involving a third financial advisor identified by the
Company and the Unions, would permit the Debentures and the Depositary
Preferred Shares representing interests in the Public Preferred Stock to trade
at par on such date on a fully distributed basis. See "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--Pricing the Securities." Based on
current market conditions, the Company believes that the interest rates on the
Series A Debentures and the Series B Debentures and the dividend rate on the
Depositary Preferred Shares to be established by certain financial advisors to
the Company and the Unions and, in the case of a deadlock, based on a process
involving a third financial advisor, would not be less than the initial pricing
of 9.00% for the Series A Debentures, 9.70% for the Series B Debentures and
10.25% for the Depositary Preferred Shares.     
   
  The underwriting agreements relating to the several Offerings are expected to
provide, as applicable, that if such Offerings are consummated, the interest
rates on the Debentures and the dividend rate on the Public Preferred Stock,
respectively, may be adjusted (including in excess of their respective caps) to
permit such securities to be sold at or closer to par, but if that is done, the
principal amount of the series of Debentures affected and/or the number of
Depositary Preferred Shares representing interests in the Public Preferred
Stock, as the case may be, will be reduced so that the aggregate amount of
interest payable annually by United on the Debentures or the aggregate amount
of dividends payable annually by the Company on the Public Preferred Stock will
not exceed certain amounts calculated with reference to such caps. If the
Offerings are not consummated, the interest rates borne by the Debentures and
the dividend rate borne by the Public Preferred Stock will be subject to the
caps. See "THE PLAN OF RECAPITALIZATION--Terms and Conditions--Pricing the
Securities."     
   
  Each share of Series A Convertible Preferred Stock of the Company ("Series A
Preferred Stock") and each of the Air Wis Services, Inc. 7 3/4% Convertible
Subordinated Debentures Due 2010 and the Air Wis Services, Inc. 8 1/2%
Convertible Subordinated Notes Due 1995 outstanding immediately prior to the
Effective Time (each, a "Convertible Company Security") will remain
outstanding, and each holder of any such Convertible Company Security will have
the right to receive, upon conversion thereof from and after the Effective
Time, the Recapitalization Consideration with respect to each Old Share that
such holder would have been entitled to receive had such holder converted such
Convertible Company Security in full immediately prior to the Effective Time.
    
   
  At the Effective Time, each outstanding employee stock option of the Company
granted under the 1981 Stock Program or the Air Wis Services, Inc. 1987 Non-
Qualified Stock Option Plan will remain outstanding, each such option then held
by active employees and officers (including persons who were officers of the
Company or United as of July 1993) (collectively, the "Options") will become
fully vested and exercisable at the Effective Time and each such Option will
thereafter represent the right to receive, until the expiration thereof in
accordance with its terms, in exchange for the aggregate exercise price for
such Option, the Recapitalization Consideration with respect to each Old Share
that such holder would have been entitled to receive had such holder exercised
such Option in full immediately prior to the Effective Time.     
 
                                       3

<PAGE>
 
VOTING RIGHTS AND PROXY INFORMATION
   
  The Board of Directors of the Company has fixed the close of business on
June 9, 1994 as the record date (the "Record Date") for determining which
holders of Old Shares are entitled to notice of and to vote at the Meeting.
Accordingly, only holders of record of Old Shares at the close of business on
the Record Date will be entitled to vote at the Meeting. At the close of
business on June 9, 1994, there were 24,572,182 Old Shares outstanding and
entitled to vote, held by 19,156 stockholders of record. As of the close of
business on June 9, 1994, there were also 939,661 Old Shares held as treasury
stock by the Company, which Old Shares will not be voted at the Meeting.
Holders of Series A Preferred Stock will not be entitled to vote at the
Meeting.     
 
  Each holder of record of Old Shares on the Record Date is entitled to cast
one vote per Old Share, in person or by properly executed proxy, at the
Meeting. The presence in person or by properly executed proxy of the holders
of a majority of the outstanding Old Shares entitled to vote is necessary to
constitute a quorum at the Meeting.
   
  Under the Delaware General Corporation Law (the "DGCL"), the affirmative
vote of the holders of a majority of the Old Shares outstanding on the Record
Date will be required to approve and adopt the Plan of Recapitalization and
the Charter and Bylaw Amendments, the affirmative vote of the holders of a
plurality of Old Shares present in person or represented by proxy at the
Meeting will be required to elect each of the Public Directors and the
affirmative vote of the holders of a majority of Old Shares present in person
or represented by proxy at the Meeting will be required to approve or adopt
each of the other matters identified in this Proxy Statement/Prospectus as
being presented to holders of Old Shares at the Meeting. None of the votes
described above requires the separate approval by a majority of the shares
held by the Company's unaffiliated stockholders. The Company's directors
(other than Dr. Brimmer) and executive officers, and their affiliates, have
sole or shared voting power and beneficial ownership with respect to
approximately 1.6 percent of the outstanding Old Shares, which they intend to
vote in favor of the Plan of Recapitalization and the Charter and Bylaw
Amendments. Accordingly, the affirmative vote of the holders of approximately
48.4 percent of the outstanding Old Shares (other than directors and executive
officers and their affiliates) is required for approval of the Plan of
Recapitalization. Dr. Brimmer expects to vote his 450 Old Shares against the
Plan of Recapitalization and the Charter and Bylaw Amendments.     
   
  All Old Shares that are represented at the Meeting by properly executed
proxies received prior to or at the Meeting and not revoked will be voted at
the Meeting in accordance with the instructions indicated in such proxies. IF
NO INSTRUCTIONS ARE INDICATED, SUCH PROXIES WILL BE VOTED FOR APPROVAL OF THE
PLAN OF RECAPITALIZATION, THE CHARTER AND BYLAW AMENDMENTS, THE STOCK
ISSUANCE, THE AMENDMENT OF THE 1981 STOCK PROGRAM, THE AMENDMENT OF THE 1988
RESTRICTED STOCK PLAN AND THE AMENDMENT OF THE INCENTIVE PLAN; FOR THE
ELECTION OF FOUR PUBLIC DIRECTORS; FOR THE RATIFICATION OF ARTHUR ANDERSEN;
AND AGAINST THE STOCKHOLDER PROPOSALS. The Board of Directors of the Company
does not know of any matters, other than as described in the Notice of Meeting
attached to this Proxy Statement/Prospectus, that are to come before the
Meeting. IF A PROXY IS GIVEN TO VOTE IN FAVOR OF THE PLAN OF RECAPITALIZATION,
THE PERSONS NAMED IN SUCH PROXY WILL HAVE AUTHORITY TO VOTE IN ACCORDANCE WITH
THEIR BEST JUDGMENT ON ANY OTHER MATTER THAT IS PROPERLY PRESENTED AT THE
MEETING FOR ACTION, INCLUDING WITHOUT LIMITATION, ANY PROPOSAL TO ADJOURN THE
MEETING OR OTHERWISE CONCERNING THE CONDUCT OF THE MEETING.     
 
  Abstentions will have the effect of a vote against the Plan of
Recapitalization, the Charter and Bylaw Amendments and the other matters
presented for a vote of the stockholders (other than the election of
directors). With respect to abstentions, the Old Shares are considered present
at the Meeting. The abstentions are not, however, affirmative votes for the
matters presented for a vote and, therefore, they will have the same effect as
votes against any matter presented for a vote of the stockholders (other than
the election of directors). With respect to the election of directors,
abstentions and broker non-votes will be disregarded and
 
                                       4

<PAGE>
 
will have no effect on the outcome of the vote. Broker non-votes will have no
effect on the outcome and the vote on any of the matters presented for a vote
of stockholders at the Meeting, other than the Charter and Bylaw Amendments.
With respect to the Charter and Bylaw Amendments, broker non-votes are
considered present and, accordingly, will have the effect of a vote against the
Charter and Bylaw Amendments.
 
  In the event that a quorum is not present at the time the Meeting is
convened, or if for any other reason the Company believes that additional time
should be allowed for the solicitation of proxies, the Company may adjourn the
Meeting with a vote of the stockholders then present. The persons named in the
enclosed form of proxy will vote any Old Shares for which they have voting
authority in favor of such adjournment.
   
  Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of the Company, before the polls are closed with respect to
the vote, a written notice of revocation bearing a later date than the proxy,
(ii) duly executing a subsequent proxy relating to the same Old Shares and
delivering it to the Secretary of the Company or (iii) attending the Meeting
and voting in person (although attendance at the Meeting will not in and of
itself constitute a revocation of a proxy). Any written notice revoking a proxy
in accordance with clause (i) above should be sent to: UAL Corporation, P.O.
Box 66919, Chicago, Illinois 60666, Attention: Francesca M. Maher, Secretary.
In addition, both proxies and revocations of proxy may be given by delivering
to Georgeson & Co.by means of facsimile at (212) 440-9009, before the close of
business on the day before the Meeting, both sides of an executed form of proxy
or a notice of revocation bearing a later date than the proxy.     
 
  Stockholders are urged to read this Proxy Statement/Prospectus carefully in
its entirety before deciding how to vote their Old Shares.
 
NO APPRAISAL RIGHTS
 
  Stockholders of the Company will not be entitled to appraisal rights in
connection with any of the matters to be voted upon at the Meeting.
 
                   BACKGROUND OF THE PLAN OF RECAPITALIZATION
 
  In the years following a 29-day strike by ALPA in 1985, relations between the
Company and its principal unions, ALPA, the IAM and the Association of Flight
Attendants ("AFA"), have often been discordant. During this period, a number of
significant events involving a potential change in corporate control or the
sale of substantial assets of the Company have occurred or were proposed, many
of which events involved the participation of one or more of the Company's
unions, including (i) an offer by ALPA to acquire United and the Company's
computerized reservation system for $4.5 billion in April 1987, (ii) a consent
solicitation by a group including Coniston Partners in May 1987, (iii) a
planned recapitalization, announced by the Company in May 1987, that would have
resulted in the Company's stockholders receiving $60 per share while retaining
their shares, (iv) the adoption in June 1987, following the resignation of
Richard J. Ferris as chairman of the Company, of a restructuring plan involving
the sale of the Hertz Company, Westin Hotel Company and Hilton International
Co. and a distribution of cash, which led to such sales through a tender offer
by the Company for its own shares which was completed in March 1988, (v) a
proposal by a pilot-organized entity to acquire the Company for $110 per share
in May 1988, (vi) a proposal from Marvin Davis to acquire the Company for $240
per share in August 1989, (vii) the entry into a merger agreement with Airline
Acquisition Corp. (an entity which was intended to be owned 75% by employee
stock ownership plans for the benefit of the Company's employees, 15% by
British Airways and 10% by the Company's senior management) providing for
consideration of $300 per share, which agreement was entered into in September
1989 and thereafter failed due to an inability to obtain necessary financing,
and (viii) the entry into a merger agreement with United Employee Acquisition
Corp. (an entity formed by ALPA, the IAM and AFA) providing for consideration
of $155 per share in cash, $35 per share in Company debt securities and $13 per
share in debt securities of Covia Corp., which agreement was entered into in
April 1990 and terminated in October 1990 due to an inability to obtain
necessary financing following Iraq's invasion of Kuwait.
 
                                       5

<PAGE>
 
  During this period, earnings per share from continuing operations, helped by
both the strength of the global economy and operating improvements undertaken
by the Company, grew from a loss of $3.43 in 1985 to positive earnings of
$20.20 in 1988 and $14.96 in 1989. This improving earnings posture came to a
dramatic halt in 1990 when Iraq's invasion of Kuwait sent fuel prices
skyrocketing while simultaneously dampening consumer demand for air travel.
These events, combined with the downturn in the global economy, led to
disappointing earnings per share of $4.33 in 1990 and a per share loss of
$14.31 in 1991.
   
  In recent years, including during 1992, the Company has noted the emergence
of a fundamental shift in consumer behavior, with an increased focus on the
price/value relationship. Travel preference (of both business and leisure
travelers) has continued to shift to low-cost travel as provided by carriers
such as Southwest Airlines Co. ("Southwest"), Morris Air and Reno Air. The
Company believed that this trend was long-term and would continue even if the
weak economic conditions of the early 1990s improved. The Company determined
that its ability to be competitive in such an environment required a
substantial reduction of its operating costs.     
 
  Thus, on January 6, 1993, the Company, while recognizing that it had put in
place progressively leaner operating budgets over the prior few years,
nevertheless announced a further $400 million cost reduction program, including
the subcontracting of skycaps and certain janitorial services and the furlough
of 2,800 employees. Additionally, the Company restructured its fleet plan and
aircraft purchase commitments, cancelling firm orders for 49 Boeing aircraft,
deferring acceptance of 14 Airbus aircraft and accelerating the retirement of
25 older aircraft. The net effect of these changes was to reduce the Company's
planned capital spending through 1996 by over $6.2 billion and reduce the size
of the planned 1996 year-end fleet size by over 85 aircraft.
 
  The Company determined that even with these changes it would be necessary to
reduce its single largest expense, labor costs, to be competitive in the
changed environment of the 1990s. Thus, in addition to the subcontracting,
furloughs and the implementation of a 5% salary reduction program for certain
management employees, the Company requested concessions from its three
principal unions on January 14, 1993. AFA rejected such request on January 14,
1993 and the IAM rejected such request on January 19, 1993. ALPA indicated that
it desired to conduct a financial review of the Company.
 
  In light of the unwillingness of the Company's unions to participate in the
Company's cost-cutting efforts, the Company thereafter announced its intention
to undertake various other cost-cutting actions, including selling its flight
kitchens, subcontracting certain ground services, opening a flight attendant
domicile in Taiwan and evaluating the sale of the Denver flight training
center. CS First Boston Corporation ("CS First Boston") was retained February
12, 1993 to assist the Company in connection with the evaluation of a sale of
the United States flight kitchens. The Company also discussed the possibility
of subcontracting its jet repair work, selling its jet engine overhaul
maintenance facility in San Francisco, subcontracting its components business
and ground equipment overhaul business, and subcontracting its line maintenance
work, building maintenance work, and computer terminal technician work.
 
  In March, 1993, Booz . Allen & Hamilton ("BAH") was engaged by the Company to
provide a description of, and outlook for, the U.S. airline industry and
United. The assessment focused on the domestic airline industry as represented
by the thirteen leading carriers, who together represent 99% of the U.S.
airline industry's capacity. At a meeting of the Company's Board of Directors
(the "Board") held on April 28, 1993, BAH presented a report to the Board. In
its report, BAH noted "the U.S. airline industry has historically
underperformed, particularly since deregulation when overall financial returns,
in the aggregate, have been negative. Despite this poor performance, the
industry expanded rapidly after deregulation. However, to fill the rapidly
expanding capacity, the industry had to drop prices almost continuously.
Unfortunately, for a significant portion of the post-deregulation period--most
notable in the last three years--the industry has been unable to reduce costs
as rapidly as prices, which has led to significant industry-wide losses." The
report noted that it seemed unlikely that carriers such as United could achieve
sufficient cost reduction without a
 
                                       6

<PAGE>
 
major restructuring. The report concluded that United had to respond to major
industry imperatives by reducing competitive intensity, through redeploying
capacity into core segments and reducing costs to narrow the gap with its
principal low-cost competitors. BAH advised that to redeploy capacity to
defensible segments, United should (i) identify core capabilities as a basis
for market advantage, (ii) focus product, capacity and resource investments
into specific core areas to capitalize on those advantages, (iii) form
partnerships/alliances to serve complementary segments and (iv) withdraw from
non-core activities. In order to reduce its cost gap, United should (i) reduce
controllable costs wherever possible, (ii) work with labor to achieve wage
reductions and productivity improvements and (iii) pursue alternatives for
radical restructuring and product redesign.
 
  In a further presentation to the Board on June 24, 1993, BAH indicated that,
in the absence of labor cooperation, the Company had four options: (i)
restructure and downsize to focus on those markets where United could be
profitable in the long term, (ii) restructure and grow to create a stronger
domestic and international competitive position, (iii) return value to
stockholders by monetizing flying assets, services and/or other hard assets and
(iv) sell the airline in whole or in parts.
 
  On April 19, 1993, the Board received a letter from the United Airlines Union
Coalition (the "Coalition"), a group then composed of ALPA, the IAM and AFA,
expressing concern over asset sales and extensive restructuring. In response,
the Company sent a letter to the Coalition inviting a "shared solution" to the
Company's need to reduce operating costs. On June 2, 1993, Mr. Stephen M. Wolf,
Chairman of the Company, and Mr. Paul George, Senior Vice President--Human
Resources of United, met with Captain Roger D. Hall, Chairman, ALPA-MEC, Ms.
Diane Tucker, then President of the UAL/AFA Master Executive Council, and Mr.
Ken Thiede, President and General Chairman of IAM-District 141. At such
meeting, the Coalition indicated it was working on such a "shared solution". At
the time, the Company was engaged in discussions with potential purchasers of
its United States flight kitchens and final bids were due on July 20, 1993. The
Company agreed to defer any major restructuring action until July 19, 1993 and
requested that the Coalition submit a proposal by that time.
 
 July 16 Proposal
 
  On July 16, 1993, the Board received a letter from the Coalition (the
"Coalition July 16 Proposal") that stated that the Coalition's participation in
a cooperative restructuring was predicated on (i) employee investments by ALPA,
the IAM, AFA and United's salaried and management employees that would be
intended to produce an aggregate of $3.345 billion in employee cost savings
over five years, (ii) joint development over a 12-18 month period of a plan
intended to meet the competitive challenges facing United and projected to
provide at least $100 million in additional operating income in 1995, $200
million in 1996 and $300 million in 1997 and each year thereafter, (iii)
contribution of a substantial majority of the Company's common equity to a
trust or trusts for the benefit of the Company's employees, (iv) a
recapitalization of the Company (without additional external financing) in
which the existing stockholders would receive a substantial minority of the
Company's common stock and other consideration, (v) a balanced corporate
governance structure, (vi) a restructuring that was not dependent on third
parties (i.e., that did not require bank financing, a financial partner or a
strategic partner), (vii) a restructured Company that maintained a substantial
cash balance, (viii) negotiation of collective bargaining provisions intended
to protect the job security and work opportunities of United's employees and
(ix) preservation of the status quo during negotiation of the proposal. The
Coalition July 16 Proposal emphasized that such points were "all essential
elements of the restructuring" and "available only in the context of a
restructuring that meets the other characteristics outlined above."
 
  On July 20, 1993, the Company retained CS First Boston to assist it in its
evaluation of the Coalition program. On July 21, 1993, the Coalition publicly
confirmed that it had provided "several concepts" to the Company with respect
thereto. On the same day, the Company publicly confirmed it was in
communication with the Coalition regarding the concepts provided to the Company
by the Coalition. Thereafter, representatives of the Company and the Coalition
commenced a series of meetings to discuss the Coalition program.
 
                                       7

<PAGE>
 
 August 5 Board Meeting
 
  On August 5, 1993, the Board held a meeting at which it considered a
presentation by BAH and members of Company management concerning ways to
improve the Company's profitability and provide stockholder value, with
specific focus on establishment of one or more domestic short-haul carriers
which would be owned independently of the Company and United and which would
virtually eliminate short-haul flying by United, along with other fundamental
alterations of the Company's business and structure (the "Fundamental
Restructuring Plan"). The Board also received a report on the status of
discussions with the Coalition. The Board discussed the alternative of
proceeding with the Fundamental Restructuring Plan and declining participation
in the program outlined in the Coalition July 16 Proposal, the alternative of
proceeding with the Coalition program and deemphasizing the Fundamental
Restructuring Plan and the alternative of proceeding to develop both the
Coalition program and the Fundamental Restructuring Plan. The Board,
recognizing that the Coalition was offering very substantial concessions but
that significant structural matters limited the ability to provide value to
stockholders, determined both to work with the Coalition and to develop
additional details of the Coalition July 16 Proposal. The Board concluded that
a Coalition proposal should be considered only in light of, among other things,
its valuation compared to the going concern value of the Company not taking
into account any restructuring plan and the value to stockholders of other
alternatives. The Board also instructed management to continue to explore the
alternatives discussed by BAH and to pursue the sale of the United States
flight kitchens.
 
  On August 10, Mr. Wolf and Mr. George met with Captain Hall, Mr. Kevin Lum,
who had replaced Ms. Tucker as President of the UAL/AFA Master Executive
Council, and Mr. Thiede and on August 11 the Company's representatives met with
the Coalition's representatives. At both meetings the Company conveyed the view
that, although the Company had not completed its valuation analysis, after
reviewing the program outlined by the Coalition, particularly the limitations
it imposed, the Company did not see how the program as outlined by the
Coalition permitted the Company to satisfy its key requirement in any
transaction involving the transfer of control: to deliver an appropriate
premium over market to the holders of Old Shares in a transaction that was fair
to such stockholders. At the same time, the Company expressed to the Coalition
the Board's willingness to discuss actively a transaction that involved
majority employee ownership, substantial corporate governance protection and
comprehensive job protection provisions, provided that it also satisfied the
Company's key requirement of providing substantial value to holders of Old
Shares. At the meeting among representatives, some specific approaches were
expressed as to possible areas of modifications to or enhancements of the
Coalition program in order to bridge what appeared to the Company to be a
substantial value gap. See "SPECIAL FACTORS--Certain Revenue and Earnings
Scenarios."
 
 August 25 Board Meeting
 
  In a meeting held on August 25, 1993, the Board reviewed the process that was
being followed and the steps that had been taken to obtain additional details
and evaluate the Coalition proposal. The Board then reviewed in detail the
various alternatives if the Company did not engage in a transaction involving
the sale of a majority of the equity to its employees, including:
 
  . maintaining the "status quo" without undertaking extraordinary actions,
 
  . pursuing an alternative, referred to as the "enhanced status quo"
    alternative, whereby the Company would undertake certain extraordinary
    cost-cutting actions, including, for example, a sale of the flight
    kitchens, designed to enhance stockholder value over the "status quo"
    alternative without undertaking a major restructuring of the Company and
 
  . pursuing the Fundamental Restructuring Plan.
 
  In considering the "status quo" alternative, the Board considered as positive
factors the prospect of labor peace, the possibility that the aviation
environment might improve and the fact that this alternative preserved the
Company's opportunity to carry out a fallback strategy. It considered as
negative factors the fact that
 
                                       8

<PAGE>
 
this alternative did not address the Company's fundamental problems (especially
the continued expansion of low-cost carriers), and would result in continuing
unsatisfactory financial performance, the loss of a "window of opportunity"
before labor contracts reopened, the failure to provide sufficient incentive to
the unions to lower costs and the prospect of a declining price of the Old
Shares.
 
  The Board viewed the positive aspects of pursuing the "enhanced status quo"
alternative as improved financial performance versus the "status quo"
alternative and the use of a "window of opportunity" before labor contracts
reopened. It viewed as negative factors the potential labor disruption in the
workplace, the lack of sufficient improvement of financial performance, the
failure to address the low-cost carrier problem and the possibility that United
would be subject to some adverse media/political attention, which factors would
potentially reduce the positive effects on the stock price.
 
  Because the "enhanced status quo" alternative was viewed as preferable to the
"status quo" alternative in all aspects except the potential for labor
disruption, the Board felt the "enhanced status quo" alternative was the
appropriate comparison when evaluating the Fundamental Restructuring Plan and
other alternatives.
 
  In considering the Fundamental Restructuring Plan, the Board noted that
pursuit of such plan would significantly improve financial performance if
successful, significantly improve stock price if successful, and take advantage
of the "window of opportunity" before labor contracts reopened. The Board also
noted that the ability of the Company to implement successfully this
alternative was uncertain and that this alternative had the potential to cause
extreme labor disruption in the workplace, to place severe limits on the
Company's ability to pursue an acceptable fallback strategy, to subject United
to extreme adverse media/political attention and to significantly depress the
Company's stock price if not successful.
 
  The Board also recognized that the Fundamental Restructuring Plan was likely
to be challenged by the Company's unions both in Federal court and in
arbitration under the Railway Labor Act. Such a challenge could involve issues
such as (i) whether the Fundamental Restructuring Plan violated statutory
prohibitions against interference with union rights and/or unilateral carrier
actions, (ii) whether the Fundamental Restructuring Plan violated provisions in
the ALPA or AFA agreements that prohibit the Company from controlling, managing
or holding any equity interest in another carrier, (iii) whether the
Fundamental Restructuring Plan violated a provision in the AFA agreement that
prohibits establishment of an "alter ego" carrier and (iv) whether the
Fundamental Restructuring Plan violated a clause in the ALPA agreement that
restricts marketing agreements with United Express carriers. The Board
recognized that resolution of these issues could delay or prevent
implementation of the Fundamental Restructuring Plan. The Board also considered
the corporate taxation aspects of the Fundamental Restructuring Plan, including
whether the creation of one or more new short-haul carrier entities would
qualify as a tax-free reorganization under Section 355 of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code").
 
  Finally, the Board considered that a strategy involving a sale of a majority
of the Company's equity to employees would be expected to result in labor
peace, provide significant value to the stockholders, potentially address the
low-cost carrier problem and potentially preserve the Company's opportunity to
pursue a fallback strategy. The negative aspects of such a strategy were
determined to include the fact that, if not successful, the Company would lose
some of the "window of opportunity" and that the labor unions might initiate a
destructive public relations campaign coupled with significant disruptive job
action. The Board noted that such a strategy might provide potentially less
value to stockholders than a fully successful Fundamental Restructuring Plan,
although it would likely provide more value than a failed Fundamental
Restructuring Plan.
 
  At the August 25, 1993 Board meeting, CS First Boston made a presentation
summarizing its analyses of three alternatives to the Coalition program:
maintaining the "status quo", implementing the "enhanced status quo"
alternative (consisting of management actions that the Company believed would
increase labor force productivity or reduce labor costs but that would not
require a major restructuring) and implementing the Fundamental Restructuring
Plan, including an overview of the steps that would be required for
 
                                       9

<PAGE>
 
implementation of each. The presentation also included a preliminary valuation
analysis of the "enhanced status quo" alternative and the Fundamental
Restructuring Plan. In order to arrive at a range of values per share of the
Company assuming implementation of the "enhanced status quo" alternative, CS
First Boston used a discounted cash flow analysis to estimate the present value
of the future cash flows that the Company could be expected to produce over a
five-year period from 1994 through 1998 in accordance with management's
forecasts adjusted to reflect the cost reductions of the "enhanced status quo"
alternative. CS First Boston estimated a preliminary value range for the
Company, assuming the implementation of the "enhanced status quo" alternative,
by adding the present value of the five-year unleveraged free cash flows of the
Company under that scenario to the present value of the Company's 1998 terminal
value. The discount rates and terminal multiples reflected then-current market
conditions. This analysis resulted in a preliminary range of values per share
of the Company, assuming the implementation of the "enhanced status quo"
alternative, of from $150 to $180.
 
  CS First Boston's presentation included a preliminary range of values for the
Company assuming implementation of the Fundamental Restructuring Plan. CS First
Boston applied the same discounted cash flow methodology used in the "enhanced
status quo" case to the cash flows that the Company could be expected to
produce over the five-year period from 1994 through 1998 if the Fundamental
Restructuring Plan were adopted. This analysis resulted in a preliminary range
of values per share, if the Fundamental Restructuring Plan were successfully
implemented, of from $225 to $275. CS First Boston noted that this preliminary
range of values must be reduced by the expected costs of the transition to such
plan and the assumed costs of labor disruption related to the implementation of
the Fundamental Restructuring Plan, which were estimated to range from $22 to
$42 per share. After such reduction, this analysis resulted in a preliminary
range of values per share of the Company, if the Fundamental Restructuring Plan
were successfully implemented, of $183 to $253 per share. CS First Boston noted
that this range of values assumed that the transaction would not be taxable to
the Company or its stockholders and must be further reduced by the following
factors, which were not quantified: (i) the ownership share expected to be
retained by the new operators and accordingly not distributed to the Company's
stockholders, (ii) structural inefficiencies, (iii) national labor leadership
response, (iv) government reaction and (v) public relations risk.
 
  CS First Boston also presented a preliminary analysis of a range of values
for the Company if implementation of the Fundamental Restructuring Plan was
attempted by the Company, but was ultimately blocked as a result of legal
action, and the Company subsequently adopted the "enhanced status quo"
alternative described above. CS First Boston assumed for purposes of its
analysis that the Company would have absorbed the transition expenses and labor
disruption costs associated with the Fundamental Restructuring Plan during the
pendency of the legal action. Accordingly, this analysis resulted in a
preliminary range of values per share of the Company, if the "enhanced status
quo" alternative were adopted following an unsuccessful attempt to implement
the Fundamental Restructuring Plan, of from $108 to $158.
 
  For information relating to the qualifications of CS First Boston, the method
of its selection, the nature of, and purpose for, its analyses, the procedures
it followed in connection therewith and the compensation it has received or
will receive, see "SPECIAL FACTORS--Opinions of the Financial Advisors to the
Board."
 
  The Board then further discussed issues concerning the various alternatives,
including their potential impact on the Company and the factors influencing the
potential success of each alternative.
 
  At the conclusion of its deliberations, the Board determined that the Company
should identify for the Coalition a set of possible enhancements to the
Coalition program but at the same time management should proceed with the
development of various restructuring activities as and to the extent management
deemed appropriate.
 
  In a letter to the Coalition dated August 25, 1993, the Company stated that
since August 11, 1993, the Company and its financial advisors "had performed
further analysis which has provided the Company with a clearer view of value,
both as to the Company if no Coalition transaction occurs and as to the value
of the Coalition program as reflected in the July 16th letter. The Company's
analysis has confirmed that a substantial value gap exists between the
Coalition program and the inherent value of the Company."
 
                                       10

<PAGE>
 
  In the August 25th letter, the Company outlined an approach to enhance the
Coalition's program for a majority employee ownership transaction for
consideration by the Coalition. This approach involved the following components
to enhance the Coalition's proposed structure: (i) one or more trusts for the
benefit of the Company employees would acquire 50.1% of the economic and voting
power of the Company's equity, (ii) (a) employee investment as described in the
Coalition July 16 Proposal would be supplemented by additional employee
investment amounting to $120 million in year 1 and growing to $160 million in
year 8, (b) an extension of the duration of the employee investment period by
three years, (c) the entire investment would be by verifiable pay rate/defined
contribution reductions, unless the Company agreed to alternative achievable
work-rule changes of equal value, (d) there would be no "snap-backs" and
contracts would be amendable after 8 years pursuant to Section 6 of the Railway
Labor Act, (e) in each of years 6, 7 and 8 of the investment period, all
employees would be provided a general wage rate increase of 2% per year if the
Company achieved its earnings projections and there would be no other wage
rate, per diem, allowance/premium or benefit increases during the investment
period (other than step, longevity or comparable increases for non-contract
salaried and management employees or status/promotional increases) and (f) a
profit-sharing plan to provide potential for annual lump sum cash payments to
employees if corporate performance targets are met, (iii) contract revisions
allowing the establishment of a low-cost short-haul airline within United or
the Company would be made, (iv) collective bargaining terms designed to provide
reasonable job security provisions acceptable to the Company and to United's
employees, which would not impose additional costs on United, would be agreed
to, (v) upon consummation of the transaction, each existing Old Share would
receive one new share of common stock and $100 in additional consideration,
consisting of approximately $25 in cash and additional "cash equivalent value,"
consisting of approximately $37 in value of debt with specified terms and
approximately $37 in value of preferred stock with specified terms and (vi)
special governance provisions would be applicable to the "new company."
 
  The Company noted that the outlined approach was intended to provide a basis
for discussion and was not intended to be exhaustive and that the Company
"recognized that the [outlined] approach to enhancing the Coalition's program .
. . will require amplification, modification and amendment of various aspects
of the approach."
 
  On September 1, 1993, the Company delivered additional material to the
Coalition on the economics of an "airline-within-an-airline" then described as
"Friendship Express" (and subsequently referred to as "U2").
 
  On September 13, 1993, the Company announced that it had agreed to sell
certain of its United States flight kitchens to Dobbs International Services,
Inc. ("Dobbs") and Caterair International Corp. ("Caterair"). The Company also
stated that it retained the option to terminate such agreements at any time
prior to November 13, 1993.
 
  On September 30, 1993, AFA announced that it had "terminated its
participation in the negotiations" due to the Company's decision to open a
flight attendant domicile in Taiwan. The Company had previously delayed this
action on several occasions (despite the Company's belief that it would
meaningfully increase the Company's productivity) in order to permit AFA time
to consider its participation in the transaction. Following such withdrawal by
AFA, the Company continued to have discussions with representatives of ALPA and
the IAM. All references in this document to the "Coalition" or the "Unions"
following September 30, 1993 refer to ALPA and the IAM, but not AFA.
 
  On November 4, 1993, in response to media reports on the status of its
discussions with the Coalition, the Company announced that no definitive
proposal had been presented to the Company by the Coalition. On November 5,
1993, the Company announced it had sent a letter to the IAM containing a
proposal whereby, among other things, the Company and the IAM would enter into
a new seven-year contract relating to United States flight kitchens, in lieu of
a sale thereof, that would reduce the Company's current catering expense.
 
  On November 6, 1993, the Coalition delivered a draft proposal to the Company
with respect to a transaction. On November 8, 1993, a representative of the
Company delivered a response to the Coalition that stated, among other things,
that such draft presented significant deficiencies in addition to reflecting a
substantial shortfall in the level of employee investment.
 
                                       11

<PAGE>
 
 November 11 Proposal
 
  During the evening of November 11, 1993, the Coalition delivered a formal
proposal to the Company (the "Coalition November 11 Proposal"). The Coalition
November 11 Proposal provided, among other things, for the acquisition by one
or more employee stock ownership plans of securities representing 60% of the
equity interest and voting power of the Company, and receipt by the Company's
existing stockholders of a package comprised of an aggregate of $650 million in
cash paid by the Company, $500 million of debentures of the Company, $750
million of preferred stock of the Company, and common stock representing 40% of
the equity of the Company. The Coalition November 11 Proposal also stated that
it would be immediately withdrawn in the event the Company sold the flight
kitchens.
 
  Under the Coalition November 11 Proposal, ALPA, the IAM and salaried and
management employees would make wage concessions which the Coalition valued at
$3.496 billion in nominal amount, or $2.874 billion in present value (at a 9%
discount rate). Under collective bargaining agreement modifications provided
for in such proposal, the Company would be permitted to establish a unit to
compete with low-cost carriers in the domestic short-haul market. The Coalition
indicated that it believed that the present value (at a 9% discount rate) of
this competitive capability was approximately $2.7 billion and valued its
proposal at $165.67 per Old Share. CS First Boston analyzed the Coalition
November 11 Proposal and, at a Board meeting held on November 12, 1993,
indicated to the Board that it had concluded that the Coalition November 11
Proposal was substantially deficient from the standpoint of providing adequate
value to the Company's stockholders. CS First Boston indicated that, although
it had not completed a full analysis, it had calculated the value of the
Coalition November 11 Proposal as approximately $140 per Old Share.
 
  The Company communicated such conclusion to the Coalition on November 12,
1993 and further responded with a written alternative which sought to provide
"appropriate value" to stockholders while enabling the Coalition to achieve its
goal of majority employee ownership. Among other things, the Company's
alternative extended the employee investment period by two years, required
health insurance contributions and reduced many new hire rates. On November 12,
1993, the Coalition rejected such alternative, stating that it was willing to
continue negotiations subject to certain conditions.
 
  Based upon the Coalition response, the Board thereafter determined that the
interests of the Company's stockholders would be best served by not exercising
the right United had to terminate the flight kitchen sale contracts prior to
November 13, 1993. The Company was then advised by the Coalition that the
Coalition November 11 Proposal was withdrawn.
 
  On November 12, 1993, the Company issued a press release describing the
events of November 11 and 12 described above and stated that it remained
willing to continue to hold discussions with its labor unions and still
believed that a cooperative approach to solving a non-competitive labor cost
structure was in the best interests of all parties.
 
  On November 16, 1993, Mr. Wolf met in New York with Mr. Felix Rohatyn, a
general partner of Lazard Freres & Co. ("Lazard") and a member of the National
Commission to Ensure a Strong Competitive Airline Industry from June 1993
through September 1993, in order to explore the basis for renewed discussions
with the Company's labor unions. Thereafter, the Board authorized the retention
of Lazard. After the retention of Lazard, Lazard and CS First Boston contacted
advisors to the Coalition to see if a "firm basis for continued discussion" was
possible. On December 1, 1993, Company management and representatives met with
senior Coalition officials and discussed certain significant issues, including
a mechanism designed to help bridge the difference between the Company and the
Coalition of their respective valuations of the Company after giving effect to
the concessions.
 
  Thereafter, numerous meetings were held between representatives of the
Company and representatives of the Coalition to discuss elements of a possible
transaction.
 
                                       12

<PAGE>
 
 December 16 and 22 Board Meetings
 
  On December 16, 1993, the Board met to discuss the status of a revised
Coalition proposal (the "Revised Coalition Proposal"). The Revised Coalition
Proposal contemplated the acquisition by the employee trusts of a minimum of
53% of the common equity, subject to increase to up to 63% based on stock price
performance in the year after closing, a recapitalization in which the holders
of Old Shares would receive cash, debt and preferred stock valued at $88, and
$4.548 billion net present value of wage and benefits reductions and work-rule
changes relating to the Company's employees. In addition, the Revised Coalition
Proposal contained a mechanism for resolving differences between the Company
and the Coalition over the present value of the employee investment and the
"Competitive Action Plan" contained in the proposal. The Coalition believed
that the elements of the Revised Coalition Proposal provided a total market
value of $6.9 billion to the Company and its stockholders; applying the same
methodology used by the Coalition, the Company and its outside advisors
believed the elements of the Revised Coalition Proposal represented $5.2
billion in market value. To resolve this dispute, the Revised Coalition
Proposal contemplated an initial acquisition of 53% of the Company common
equity by trusts for the participating employees based on the Company's
valuation of the elements of the Revised Coalition Proposal at $5.2 billion.
However, the proposal also allowed the trusts for the participating employee
groups to obtain additional equity of the Company, up to 63% in total, if and
to the extent the average trading price of the New Shares over the initial year
following the Effective Time exceeded certain levels. At such meeting, the
Board reviewed, among other things, the amount and terms of the consideration
to be received by the public stockholders, the nature of the employee
concessions, other terms of a proposed Agreement in Principle (as defined
below) incorporating such Revised Coalition Proposal, including proposed
conditions, the impact of the proposed transaction on the Company's access to
financing, and other issues related to the structure of an employee stock
ownership plan, tax effects and earnings per share and other valuation effects.
During such meeting, representatives of both CS First Boston and Lazard
indicated that despite the publicity surrounding the proposed transaction, no
third party had indicated interest in acquiring the Company as an entirety and
noted that certain factors, including the state of the leveraged acquisition
market and the fundamental need to address cost factors, might be responsible
for the lack of third party acquisition interest. At the conclusion of such
meeting, the Board instructed the Company's representatives to continue to
negotiate the open issues in the proposed Agreement in Principle with a view
towards having a definitive proposal for presentation at a December 22, 1993
Board meeting.
 
  On December 22, 1993, the Board met again to discuss the substantially
completed Agreement in Principle with respect to the Revised Coalition
Proposal. During such meeting, the Board reviewed, among other things, the
proposed corporate governance structure of the Company going forward, issues
related to management and employee reaction to a transaction and the related
transition, the alternatives available to the Company, including potential
labor disruption (including the effect on public perception and relations with
governmental authorities) if other alternatives were pursued, and the financial
terms of the Revised
Coalition Proposal. The Board discussed the requirement of the unions that Mr.
Wolf, Mr. John C. Pope, President, and Mr. Lawrence M. Nagin, Executive Vice
President--Corporate Affairs and General Counsel, retire at the Effective Time
as well as the fact that the majority of the Board would be replaced, and
extensively discussed issues relating to management of the Company following
the transaction.
 
  At the December 22, 1993 Board meeting, CS First Boston and Lazard gave an
overview of the Revised Coalition Proposal, including the improvements from the
Coalition's November 11 Proposal. CS First Boston and Lazard described how the
Revised Coalition Proposal would affect the Company's balance sheet. CS First
Boston and Lazard also described how the accounting rules applicable to "stock
based compensation" (which require that stock compensation expense for periodic
stock allocations be measured by the then-current market value of the shares at
the time of allocation) would apply to the share allocations in the employee
stock ownership plans contemplated under the Revised Coalition Proposal, the
resulting complexities to forecasting earnings per share and how the investment
community might analyze the situation. CS First Boston and Lazard discussed
certain valuation issues related to the debentures and the preferred stock
proposed to be issued in the Revised Coalition Proposal (including
redistribution issues and, in the case of the preferred stock, the limited
precedent for a security of the size of the contemplated issue).
 
                                       13

<PAGE>
 
CS First Boston and Lazard described the possible impact of the proposed
transaction on the Company's credit ratings and the cash flow impact of the
proposed transaction (including the fact that the proposed employee investment
would exceed the incremental fixed charges). CS First Boston and Lazard also
described the structure and operation of the stock ownership adjustment
mechanism contained in the Revised Coalition Proposal that would increase the
employee trusts stock ownership percentage from 53% to a maximum of 63% if the
Company's average closing stock price for one year after the Effective Time
exceeded specified levels.
 
  At such meeting, CS First Boston and Lazard indicated to the Board that, as
of such date, the consideration that would be received by holders of the Old
Shares in connection with the transaction contemplated by the proposed
Agreement in Principle, taken as a whole, was fair to such holders of Old
Shares from a financial point of view. See "SPECIAL FACTORS--Opinions of the
Financial Advisors to the Board." Following the presentations and discussions,
the Board voted (with Dr. Andrew Brimmer dissenting) to approve the Agreement
in Principle.
 
  The Agreement in Principle (the "Agreement in Principle") was executed on
December 22, 1993 and thereafter the parties commenced preparation of
definitive documentation. The Agreement in Principle provided for a
preservation of the "status quo," subject to ratification of the transaction by
the ALPA-MEC and the IAM membership occur by January 31, 1994 and an automatic
termination of the agreement to preserve the "status quo" if definitive
documentation was not completed by March 15, 1994. The IAM membership ratified
the transaction on January 26, 1994 and the ALPA-MEC ratified the transaction
on January 28, 1994.
 
 March 14 Board Meeting
 
  On March 14, 1994, the Board met to discuss the status of the proposed
definitive documentation. At such meeting, the Board received presentations
from management and counsel with respect to such status, including the
documentation, the differences between such documentation and the Agreement in
Principle (including, without limitation, the issuance of the Debentures by
United rather than the Company, the inclusion of other employee plans in
calculating the 20% "Sunset" threshold as described below in "THE PLAN OF
RECAPITALIZATION--Revised Governance Structure--Sunset" and the provision for
payment of expenses of the Unions if the Plan of Recapitalization were
terminated because of another proposed transaction which was subsequently
consummated), the significant issues which remained unresolved (including,
without limitation, certain issues relating to indemnification of the IAM
relating to certain alleged claims by a former financial advisor, certain
issues relating to expenses of the Unions, certain issues relating to the
retention of a new CEO, certain issues related to the investment by Salaried
and Management Employees, the standard for Unions' review of the proxy, various
issues relating to the pricing of the Debentures and Public Preferred Stock and
to the "treasury stock method" of calculating the number of outstanding Old
Shares, and certain issues related to the ESOPs) and a discussion of the
employee stock ownership plan contemplated by the Agreement in Principle and
its relationship to the transaction, a presentation from American Appraisal
Associates, Inc. ("American Appraisal") with respect to issues of solvency and
surplus under Delaware law and a financial presentation from CS First Boston
and Lazard.
 
  Subsequent to such Board meeting, the parties continued to discuss various
issues, principally the salaried and management employees' contribution,
adjustments based on variances in share capitalization resulting from options
and convertible securities, the terms of the employment agreement for the new
chief executive officer and advisory fees. The Board had telephonic status
meetings on March 15 and March 16, where management advised the Board about
developments in the discussions with the Coalition.
 
 March 24 Board Meeting
 
  On March 24, 1994, the Board met telephonically to consider the definitive
Plan of Recapitalization. At such meeting, the Board discussed the proposed
transaction, focusing on issues that had either been resolved since the March
14 Board meeting or that remained unresolved, including the maximum final
pricing of the
 
                                       14

<PAGE>
 
   
Debentures and the Public Preferred Stock, the adjustments necessary to reflect
the treasury stock method of calculating fully diluted shares, the method of
pricing a call feature on the Debentures, the nature of the salaried and
management employee concession package and a proposed indemnity to the IAM
against certain alleged claims asserted against the IAM by a former financial
advisor. In addition, the proposed Independent Directors (as defined below)
were identified. After discussion, the Board voted (with Dr. Andrew Brimmer
dissenting) to approve the definitive documentation for the Recapitalization.
Dr. Brimmer has indicated that he dissented from the vote because under current
economic conditions, he did not think there were compelling reasons to effect
such a transaction at this time. See "SPECIAL FACTORS--Recommendation of the
Board." On March 25, 1994, the initial Plan of Recapitalization was executed by
the Company, ALPA and the IAM (the "Initial Plan of Recapitalization")
reflecting the terms of the Agreement in Principle.     
 
 Definitive Documentation Amendment
   
  In light of prevailing market prices for the Old Shares in May 1994 and in
view of provisions in the Initial Plan of Recapitalization which enabled the
Coalition to assert that pricing conditions to consummation of the
Recapitalization relating to the purchase of ESOP Preferred Stock would not be
satisfied, the Coalition determined to approach the Company over possible
adjustments to the financial terms of the transaction. At the same time, the
Company felt that the Offerings, if successful, would benefit the Company's
stockholders as part of the Recapitalization and would provide greater
certainty of completion of the Recapitalization. In response to a proposal to
modify the definitive documentation from the Coalition, at a meeting of the
Board on May 20, 1994, the Board determined to make an alternative proposal to
the Coalition. At the May 20, 1994 meeting, both CS First Boston and Lazard
confirmed their view that the consideration to be received by the holders of
Old Shares in connection with the Recapitalization, taken as a whole, was fair
to such holders of Old Shares from a financial point of view. At the meeting,
representatives of CS First Boston stated that its reference range of values
for the total consideration to be received by holders of Old Shares in the
Recapitalization for one Old Share was $142 to $146 and representatives of
Lazard stated that its reference range of values for the total consideration to
be received by holders of Old Shares in the Recapitalization for one Old Share
was similar to CS First Boston's reference range with an upper end of the range
of approximately $150 per share. See "SPECIAL FACTORS--Opinion of Financial
Advisors to the Board." The Coalition accepted the Company's alternative
proposal on May 22, 1994. On June 2, 1994, the Company and the Coalition
executed an amendment to the definitive documentation (the "Definitive
Documentation Amendment") providing for, among other things, (i) an increase in
the percent of the common equity and voting power initially to be acquired by
the ESOPs from 53% to 55%; (ii) a decrease in the range of average stock prices
of the New Shares for the one year following the Effective Time which would
result in an increase, to up to 63%, in the percent of common equity and voting
power to be received by the ESOPs (prior to the Definitive Documentation
Amendment, the range had been $170.00-$178.44 per share and it was decreased to
$136.00-$149.10 per share (giving effect to the 1 for 2 common stock exchange
ratio)) (see "THE PLAN OF RECAPITALIZATION--Terms and Condition--Additional
Shares"); (iii) the inclusion of the Offerings; (iv) revisions to the manner in
which the Class 1 ESOP Preferred Stock will be purchased by the ESOP Trustee
(see "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs") and; (v)
establishment of a procedure whereby the Chief Operating Officer of the Company
may be identified subsequent to the Effective Time if not identified at or
prior to the Effective Time. In addition, certain changes were made to the
optional redemption terms of the Public Preferred Stock and the Debentures to
facilitate the Offerings (see "DESCRIPTION OF SECURITIES--The Debentures" and
"--The Depositary Preferred Stock"). As a result of the Definitive
Documentation Amendment, the purchase price of the ESOP Preferred Stock to be
acquired at the Effective Time will be determined using a market price-based
formula and, accordingly, the Coalition is not entitled to assert that the
Recapitalization may not be consummated based on the market price of the Old
Shares or the expected market price of the New Shares.     
 
                                SPECIAL FACTORS
 
CERTAIN COMPANY ANALYSES
   
  In connection with the consideration of the Recapitalization, United's
internal financial analysis group prepared an analysis (the "Company Analysis")
of the expected present value of the employee investments. The Company Analysis
estimated the net present value (using a 10% discount rate) of such investment
to be approximately $4.9 billion. The employee investments are expected to be
in the form of wage and benefit reductions, work-rule changes and the startup
of a new short-haul "airline-within-an-airline" referred to herein as "U2" (see
"--Implementation of the "Airline-Within-an-Airline' (U2)").     
 
                                       15

<PAGE>
 
  THE COMPANY ANALYSIS IS BASED UPON A VARIETY OF ASSUMPTIONS THAT MAY NOT BE
REALIZED AND ARE SUBJECT TO SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES, MANY
OF WHICH ARE BEYOND THE COMPANY'S CONTROL. THE ACTUAL VALUE OF THE EMPLOYEE
INVESTMENTS MIGHT BE HIGHER OR LOWER THAN THE VALUE ESTIMATED IN THE COMPANY
ANALYSIS. THE COMPANY ANALYSIS HAS NOT BEEN UPDATED FOR PURPOSES OF THIS PROXY
STATEMENT/PROSPECTUS. NO ASSURANCE CAN BE GIVEN THAT THE ESTIMATED COST
SAVINGS IN THE COMPANY ANALYSIS WILL BE ACHIEVED OR THAT THE U2 OPERATION WILL
ACHIEVE THE POTENTIAL BENEFITS DESCRIBED BELOW. SEE "--CERTAIN RISK FACTORS--
INVESTMENT VALUES, FUTURE INVESTMENTS."
   
  The employee investment relating to wage, benefit and work-rule
modifications was estimated to have a net present value in excess of $3.3
billion, including modifications associated with U2. While the current
contracts for both ALPA and the IAM become amendable in November 1994, the
value of this portion of the employee investment was not based on any
"projected" future wage rates, but rather using wage scales under the existing
contracts. Additionally, the Plan of Recapitalization specifically does not
guarantee any "snap-back" in wages or benefits at the end of the investment
period. Further, the valuation of the employee investment was reduced by the
potential for certain wage adjustments (that were not contractually
guaranteed) beginning in 1997. Despite the absence of "snap-back" provisions,
as these contracts will become amendable at that time, no valuation was made
of the benefit associated with the lack of a "snap-back" provision in the
post-investment period. In addition to the employee investment relating to
wage, benefit and work-rule modifications, net benefits of U2 (excluding labor
savings) were estimated to have a net present value of approximately $1.6
billion.     
 
                                ALPA INVESTMENT
 
  The ALPA investment consists of savings that are system-wide in nature and
that will continue for five years, nine months, as well as an additional
investment applicable solely to those pilots in the U2 operation and that will
remain in force for twelve years.
 
  The base investment includes the following features:
 
    .Reduction in hourly wages for all pilots of 15.7%
 
    . Reduction in the Company contribution to the defined contribution
      retirement plan from current 9% of wages (ordinary earnings,
      excluding expense reimbursements) to 1% of post-transaction (reduced)
      wages
 
    .No pay raise during first three years other than existing seniority
    and promotion increases
 
  An additional investment that should assist United in competing against low-
   cost carriers on short-haul routes includes:
 
    .Further reduction of approximately 7.1% in hourly wage rates for B737
    pilots in the U2 operation
 
    . Adjustments in work-rules for U2 pilots to increase productivity vis-
      a-vis the mainline United operation
 
  Partially offsetting these investments were changes to the following
contract features:
 
    . Increased hourly rates for pilots flying the A320 aircraft
 
    . Potential increase in per diem and potential increase in wages in
      years 4 and 5 under an arbitrated settlement based on the Company's
      profitability, industry wage trends and wages at specified comparable
      carriers
 
  In addition, pilot benefits under the Company's defined benefit pension
plan, disability plan and life insurance plan will continue to be based on
pre-transaction "book" rates without regard to the 15.7% wage rate reduction.
 
 
                                      16

<PAGE>
 
                                 IAM INVESTMENT
 
  The IAM base investment will remain in force for six years. In lieu of
creating a separate U2 workforce, the IAM made additional system-wide work-rule
changes to improve productivity and competitiveness in all areas.
 
  The base investment includes the following features:
 
    .Reduction in hourly wage rates for all IAM employees of 9.7%
 
    . Elimination of the contractually provided May 1, 1994 wage increase
      of 5%
 
    .No pay raise during first three years other than existing seniority
    and promotion increases
 
  Additional work-rule changes that will remain in place for twelve years:
 
    . Elimination of the half-hour paid lunch period
 
    . Elimination of allowance for paid lunch period on overtime
 
    . Provide United with the ability to outsource up to 20% of maintenance
    work
 
  Partially offsetting these investments were:
 
    . Potential wage increase in years 4 and 5 under an arbitrated
     settlement based on the Company's profitability, industry wage trends
     and wages at specified comparable carriers
 
    . Improved severance package for IAM employees affected by the flight
     kitchen sale, including reemployment incentives
 
    . Increase in pension benefits
 
    . Inefficiencies due to the impact of job security provisions on
    functions with variable workloads
 
    . Reimbursement for relocations caused by involuntary transfers
 
    . Subject to certain conditions and exceptions, provide IAM
     representation for ramp employees at stations with greater than 40
     daily departures
 
                       SALARIED AND MANAGEMENT INVESTMENT
 
  The Salaried and Management Employee investment remains in force for five
years, nine months and consists of salary reductions and work-rule and policy
changes. In lieu of creating a separate U2 workforce, the Salaried and
Management Employee investment includes the introduction of a "market-based"
new hire program.
 
  The base investment includes the following features:
 
    . Reduction in wage rates of 8.25%
 
    . No pay raise during first three years other than promotion and
    existing progression increases
 
    . Reduction in force of 127 management positions
 
  Additional work-rule changes include:
 
    . Elimination of the half-hour paid lunch period on overtime
 
    . Reduced eligibility for shift differential pay
 
    . Reduction of compensation for extended medical leave
 
    . Reduced reimbursement for certain management relocations
 
    . Four holidays changed to "floating" status to eliminate premium pay
    for such holidays worked
 
    . Reduce salary guarantee for part-time employees
 
                                       17

<PAGE>
 
  The market-based new-hire program includes the following features:
 
    . Maximum compensation levels reduced to market rates at other
    comparable employers (40-55%  reduction)
 
    . Requirement of 25% employee copayment on medical coverage
 
    . Reductions in vacation, sick leave and dental insurance benefits
 
  Partially offsetting these investments was:
 
    . Potential wage increase in years 4 and 5, based on similar factors to
    those for the ALPA and  IAM-represented employees and taking into
    account wage increases, if any, for such represented  employees
 
  In addition, Salaried and Management Employee benefits under the Company's
defined benefit pension plan, disability plan and life insurance plan will be
based on each employee's pre-transaction hourly rate of pay (without regard to
the 8.25% wage rate reduction) until such time as such employee's actual
hourly rate exceeds that amount or until such employee is demoted, at which
time in either case such employee's actual hourly rate will be used from that
point forward.
 
                              TOTAL LABOR SAVINGS
 
  The changes to salaries, benefits and work-rules discussed above represented
approximately $5.2 billion in estimated savings, with an estimated net present
value of over $3.3 billion:
 
                             TOTAL LABOR SAVINGS*
                                  (MILLIONS)
 

<TABLE>
<CAPTION>
                         1994  1995  1996  1997  1998  1999  2000  2001  2002  2003  2004  2005  2006  TOTAL   NPV**
                         ----  ----  ----  ----  ----  ----  ----  ----  ----  ----  ----  ----  ----  ------  ------
<S>                      <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>     <C>
Salary Reduction ....... $190  $396  $420  $433  $452  $488  $204  $ 57  $ 71  $ 87  $105  $125  $ 67  $3,095  $2,150
Benefit Reductions......   62   129   139   149   158   171    78    45    52    59    67    74    39   1,222     801
Potential Midterm
 Increase...............    0     0     0   (32)  (90) (119)  (44)   (3)   (3)   (3)   (3)   (3)   (2)   (302)   (189)
Work-Rule Changes.......   12    39    73   101   120   134   138   148   154   159   165   171    87   1,501     792
Contract Improvements...  (33)  (53)  (41)  (43)  (46)  (47)  (25)   (9)   (9)   (9)   (9)   (9)   (4)   (337)   (240)
                         ----  ----  ----  ----  ----  ----  ----  ----  ----  ----  ----  ----  ----  ------  ------
  Total................. $231  $511  $591  $608  $594  $627  $351  $238  $265  $293  $325  $358  $187  $5,179  $3,313
</TABLE>

- --------
 * ESTIMATES WERE PREPARED BY THE COMPANY FOR ANALYSIS PURPOSES. ACTUAL
   RESULTS MAY VARY. SEE "--CERTAIN RISK FACTORS--INVESTMENT VALUES, FUTURE
   INVESTMENTS." ASSUMED CLOSING DATE OF RECAPITALIZATION IS JULY 1, 1994.
** NET PRESENT VALUE WAS BASED ON A DISCOUNT RATE OF 10%.
 
                              SHORT-HAUL SAVINGS
 
  With the emergence of low-cost, low-frills carriers such as Southwest,
United's cost structure has not been competitive in certain short-haul
markets. To date, United, burdened by higher costs than these carriers, has
maintained a full-service product in these markets to retain passengers
connecting to long-haul domestic and international flights, which are the core
of United's route network. See "--Implementation of the "Airline-Within-An-
Airline' (U2)".
 
  The employee investments are expected to provide United with wage rates and
work-rules that are believed to be competitive with low-cost carriers. This
should permit United to be more competitive on many short-haul routes. Given
these wage rates and work-rules, United should be able to implement a low-
frills, high-frequency
 
                                      18

<PAGE>
 
"airline-within-an-airline" that can compete for the extremely price-sensitive
local passenger. Lower labor costs and work-rule changes are the cornerstones
for achieving a variety of related cost saving actions. The combination of
labor, work-rule changes and other cost savings are intended to allow United
to be service, price and cost competitive with low-frills, low-cost carriers.
 
The U2 operation is expected to have the following features:
 
 . Improved Utilization Through a combination of reducing aircraft turnaround
    times, increasing frequency on existing routes and adding service in new
    markets, U2 is intended to operate with a greatly improved asset
    utilization. These enhancements are expected to allow United to leverage
    its fixed asset base--aircraft, airport space, ground equipment and both
    field and staff personnel--across a greater number of departures, and
    thereby to permit improvement in the profitability of marginal operations.
 
 . Limited Product Product and service levels will be reduced to more closely
    match the service levels offered by the competition on short-haul routes:
    beverage and peanuts service only, limited onboard amenities, streamlined
    reservations and airport check-in processes and a reduced Mileage Plus
    frequent flyer program.
 
 . Reduced Distribution Expense The experience of low-cost carriers has
    demonstrated that offering (and promoting) consistent, believably low
    fares and high-frequency service increases direct airline-to-customer
    ticketing. These and similar strategies employed by low-cost carriers are
    intended to be implemented to reduce distribution costs.
 
                              SHORT-HAUL SAVINGS*
                                  (MILLIONS)
 

<TABLE>
<CAPTION>
                         1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 TOTAL  NPV**
                         ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ------ ------
<S>                      <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>    <C>
Improved Utilization.... $11  $33  $ 53 $ 70 $ 80  $81 $ 85   95 $103 $115 $127 $140 $ 73 $1,066 $  557
Limited Product.........  10   32    52   67   77   78   82   91  100  111  123  135   70  1,028    538
Reduced Distribution....  10   28    46   60   69   70   73   81   89   99  109  120   63    917    478
                         ---  ---  ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ------ ------
  Total................. $31  $93  $151 $197 $226 $229 $240 $267 $292 $325 $359 $395 $206 $3,011 $1,573
</TABLE>

- --------
* ESTIMATES WERE PREPARED BY THE COMPANY FOR ANALYSIS PURPOSES. ACTUAL RESULTS
  MAY VARY. SEE "--CERTAIN RISK FACTORS--INVESTMENT VALUES, FUTURE
  INVESTMENTS." ASSUMED CLOSING DATE OF THE RECAPITALIZATION IS JULY 1, 1994.
**NET PRESENT VALUE WAS BASED ON A DISCOUNT RATE OF 10%.
 
                      SUMMARY OF INVESTMENTS AND SAVINGS
 
  In total, the Plan of Recapitalization was estimated to provide United with
approximately $8.2 billion in improved operating earnings over the twelve-year
period, equating to a net present value of approximately $4.9 billion.
Approximately $5.2 billion of the total improvement was expected to arise from
savings in labor costs, with the remaining approximately $3.0 billion expected
to arise from improvements associated with the U2 operation. Of course, future
financial results are inherently subject to significant business, economic and
competitive uncertainties and contingencies and to future business decisions
taken by corporate management, and no assurance can be given that the
estimated earnings improvement will be achieved.
 
                           SUMMARY OF TOTAL SAVINGS*
                                  (MILLIONS)
 

<TABLE>
<CAPTION>
                         1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 TOTAL  NPV**
                         ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ------ ------
<S>                      <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>    <C>
Labor Savings........... $231 $511 $591 $608 $594 $627 $351 $238 $265 $293 $325 $358 $187 $5,179 $3,313
Short-Haul Savings......   31   93  151  197  226  229  240  267  292  325  359  395  206  3,011  1,573
                         ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ------ ------
  Total Savings......... $262 $604 $742 $805 $820 $856 $591 $506 $557 $618 $684 $753 $393 $8,190 $4,886
</TABLE>

- --------
* ESTIMATES WERE PREPARED BY THE COMPANY FOR ANALYSIS PURPOSES. ACTUAL RESULTS
  MAY VARY. SEE "--CERTAIN RISK FACTORS--INVESTMENT VALUES, FUTURE
  INVESTMENTS." ASSUMED CLOSING DATE FOR THE RECAPITALIZATION IS JULY 1, 1994.
**NET PRESENT VALUE WAS BASED ON A DISCOUNT RATE OF 10%.
 
                                      19

<PAGE>
 
CERTAIN REVENUE AND EARNINGS SCENARIOS
 
  The Company does not as a matter of course publicly disclose projections or
forecasts as to future revenues or earnings. MANAGEMENT HAS NOT UPDATED AND
REVISED AND DOES NOT INTEND TO UPDATE FURTHER OR OTHERWISE REVISE THE REVENUE
OR EARNINGS SCENARIOS CONTAINED HEREIN TO REFLECT CIRCUMSTANCES EXISTING OR
CHANGES OCCURRING AFTER MARCH 1994.
 
  NONE OF THE COMPANY, BAH OR ANY OTHER PARTY ASSUMES ANY RESPONSIBILITY FOR
THE ACCURACY OF THE REVENUE AND EARNINGS SCENARIOS CONTAINED HEREIN. THESE
REVENUE AND EARNINGS SCENARIOS, WHILE PRESENTED WITH NUMERICAL SPECIFICITY,
ARE BASED UPON A VARIETY OF ASSUMPTIONS RELATING TO THE BUSINESSES OF THE
COMPANY THAT MAY NOT BE REALIZED AND ARE SUBJECT TO SIGNIFICANT UNCERTAINTIES
AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE COMPANY'S CONTROL. THERE CAN
BE NO ASSURANCE THAT ANY OF THE REVENUE AND EARNINGS SCENARIOS WILL BE
REALIZED, AND ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE SHOWN.
   
  The revenue and earnings scenarios should be read together with the
information contained in "Business of the Company," "Selected Consolidated
Financial and Operating Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements,
all of which are contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1993, as amended and Quarterly Report on Form 10-Q for
the quarter ended March 31, 1994, as amended, both of which are included
elsewhere in this Proxy Statement/Prospectus.     
 
  August 1993 Revenue Scenarios. In connection with its negotiations with the
Coalition, the Company delivered in August 1993 certain revenue scenarios to
the Coalition. All of such scenarios assumed that (i) United maintained status
quo operations, (ii) recovering worldwide economies would result in higher
yields and (iii) in the longer term, unit revenue growth would slow,
reflecting a tapering off of the economic recovery and the addition of
incremental capacity in the domestic system, principally due to continued
expansion of low-cost carriers.
 
  Such scenarios, which assumed average annual unit revenue growth rates for
the 1993-98 period ranging from 2.0% to 4.2%, were based upon certain
assumptions regarding highly uncertain variables, including but not limited to
sustained world economic upturn, absence of significant non-compensatory
competitive fare actions, absence of fuel price shocks, relatively constant
consumer propensity to spend on air travel and relatively stable industry
capacity growth. The various scenarios differed by the assumed intensity of
the early economic recovery and the severity of later economic slowdowns.
 
  Of the revenue scenarios developed, the Company's management assigned the
highest probability of occurrence to "Scenario C" which assumed medium unit
revenue growth. The other scenarios, which varied in assumed economic
conditions, growth rates, yields, capacities, and unit revenue growth were
used to test the sensitivity of the various valuations to revenue changes from
the baseline "Scenario C" case. The August 1993 version of "Scenario C" showed
operating profits increasing from $168 million in 1993 to $620 million in
1998. The highest growth scenario showed operating profit increasing to $1.182
billion in 1998. The August 1993 scenarios did not provide for any wage
increases other than promotion and progression increases, unless there existed
contractual raises, in which case the contract raise was included.
 
  "Scenario C" relied upon the following assumptions: (i) passenger unit
revenues growth of 5.5% in 1994 and 4.0% in 1995, reflecting a sustained
economic recovery, (ii) domestic airline industry capacity growth of 1%, (iii)
significant yield increases of 3.0% to 4.5%, reflecting a return of fares to
levels prevailing prior to Value Pricing (a pricing strategy introduced by
American Airlines ("American") in 1992 which led to significant discounting in
the airline industry) and prior to the recession, (iv) moderate traffic
increases of 2% and (v) unit revenue growth to slow to 3.0% in 1996, 2.5% in
1997 and 2.0% in 1998, reflecting industry capacity growth rising to 2% per
year, yield growth moderating to 2.0%, and traffic increases of 2%.
 
                                      20

<PAGE>
 
   
  March 1994 Revenue Scenario C. Subsequent to the initial development of the
revenue scenarios, the Company updated Scenario C for use in valuations
(including the valuations performed by American Appraisal and Houlihan Lokey
Howard & Zukin ("Houlihan Lokey"), the financial advisor to State Street, the
trustee (the "ESOP Trustee") of the employee stock ownership plans
contemplated by the Plan of Recapitalization (the "ESOPs"); and presentations
to rating agencies (including those given to Standard & Poor's and Moody's).
The status quo case ("Status Quo Scenario C") was based on the assumption that
(i) operations would continue as they were with no labor cost reductions and
(ii) no salary increases would be granted to any labor group (other than
promotion and progression increases) unless there existed contractual raises
in which case the contractual raise was included.     
   
  THE MOST RECENT STATUS QUO SCENARIO C MODEL WAS PREPARED AS OF MARCH 29,
1994. THIS MODEL, WHICH WAS SUBJECT TO VARIOUS ASSUMPTIONS THAT MAY NOT BE
REALIZED, HAS NOT BEEN UPDATED SINCE MARCH 29, 1994 AND IS SUBJECT TO
SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES. THERE HAVE BEEN SIGNIFICANT
DEVELOPMENTS IN THE AIRLINE INDUSTRY SINCE MARCH 29, 1994 THAT ARE NOT
REFLECTED IN THE STATUS QUO SCENARIO C MODEL SET FORTH BELOW. THE COMPANY IS
INCLUDING THIS TABLE HEREIN BECAUSE OF RULE 13E-3 OF THE EXCHANGE ACT AND
OTHER LEGAL CONSIDERATIONS AND NOT AS A FORECAST OF THE COMPANY'S REVENUES
UNDER ANY CIRCUMSTANCES. NO STOCKHOLDER OR OTHER PERSON SHOULD RELY ON SUCH
MODEL IN MAKING AN INVESTMENT DECISION WITH RESPECT TO ANY SECURITIES OF THE
COMPANY.     
 
                    STATUS QUO SCENARIO C INCOME STATEMENT
                                  (MILLIONS)
 

<TABLE>
<CAPTION>
                              1994     1995     1996     1997     1998     1999     2000
                             -------  -------  -------  -------  -------  -------  -------
<S>                          <C>      <C>      <C>      <C>      <C>      <C>      <C>
Operating Revenues.........  $14,725  $15,794  $16,970  $17,840  $18,760  $19,684  $20,649
Operating Expenses.........   14,476   15,417   16,468   17,308   18,288   19,148   20,017
                             -------  -------  -------  -------  -------  -------  -------
Operating Income...........      249      377      502      532      472      536      632
Interest Expense...........     (318)    (302)    (288)    (273)    (259)    (243)    (232)
Interest Capitalized.......       51       33       42       27       18       15       15
Interest Income............       73       73       94      113      150      184      225
Other, Net.................      (10)      10       44       52       60       79       41
                             -------  -------  -------  -------  -------  -------  -------
Earnings Before Taxes......       45      191      394      451      441      571      681
Provision For Income Taxes.       17       73      150      171      168      217      259
                             -------  -------  -------  -------  -------  -------  -------
Net Income.................       28      118      244      280      273      354      422
Addback
 Depreciation/Amortization.      745      756      812      872      942      974    1,023
                             -------  -------  -------  -------  -------  -------  -------
Cash From Operations.......  $   773  $   874  $ 1,056  $ 1,152  $ 1,215  $ 1,328  $ 1,445
</TABLE>

 
EFFECT OF THE RECAPITALIZATION ON INCOME STATEMENT, BOOK EQUITY AND CASH FLOW
   
  The effect of the Recapitalization on the Company's equity will be to
immediately reduce it by approximately $1.5 billion due primarily to the
distribution of cash and Debentures as part of the Recapitalization
Consideration, vesting of unvested restricted stock and transaction costs.
Based on the Company's analyses, the reduction in book equity was expected to
be earned back by year end 1997. The reasons for the rapid recovery of the
reduction in equity were increases in net income and the effect of employee
stock ownership plan accounting. Additionally, the Company's cash balance was
expected to grow to be $3.7 billion greater than what it would have otherwise
been had the Recapitalization not been consummated.     
   
  The following analysis shows the anticipated effect on income statement,
book equity and cash flow resulting from the Recapitalization. This analysis
is based on an assumed purchase price for the Class 1 ESOP Preferred Stock at
the Effective Time of $120 per share. The analysis for subsequent purchases of
such Stock assumes a 14% compounded growth rate for the market price of New
Shares and a purchase price premium for the Class 1 ESOP Preferred Stock in
excess of the market price for the New Shares which is initially approximately
38%, declining in each successive year. The $120 per share assumed purchase
price of Class 1 ESOP Preferred Stock at the Effective Time is based on an
assumed market price of a New Share at     
 
                                      21

<PAGE>
 
   
the Effective Time of approximately $87. The assumption is based upon (i) an
assumed market price of an Old Share at the Effective Time of approximately
$131.5 per share, (ii) an assumed value of the non-New Share portion of the
Recapitalization Consideration of $88 per Old Share, and (iii) a purchase
price premium for the Class 1 ESOP Preferred Stock over the assumed value of a
New Share of 38%. The actual purchase price for the Class 1 ESOP Preferred
Stock at the Effective Time will be determined pursuant to the terms of the
purchase agreement with the ESOP Trustee, which provides for a purchase price
equal to 1.38 times the Closing Price (as defined below), or except that if
the closing price is less than 98% of the average of the Adjusted Old Share
Price (as defined below) for the five trading days immediately preceding the
Effective Date, the purchase price shall equal the product of 1.38 and such
average price. See "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs--Sale
of ESOP Preferred Stock--Leveraged ESOP." There can be no assurance as to the
purchase price of the Class 1 ESOP Preferred Stock either at or subsequent to
the Effective Time, the Closing Price, or the Adjusted Old Share Price or the
actual growth rate, if any, for the market price of the New Shares during the
six year wage investment period. This analysis does not purport to be
indicative of the results of operations that may be obtained in the future. A
change in the purchase price of the Class 1 ESOP Preferred or the New Share
market price growth rate will effect the analysis set forth below. For
example, a change in the assumed purchase price of the Class 1 ESOP Preferred
Stock to $130 would increase the cumulative change in the cash balance in the
year 2000 by $80 million. Changing the New Share market price growth rate
assumption from 14% to 10% has the effect of reducing cumulative cash by
approximately $70 million.     
                 CHANGES TO INCOME, BOOK EQUITY AND CASH FLOW*
 
                                 (IN MILLIONS)
                
             RECAPITALIZATION BETTER/(WORSE) THAN STATUS QUO     

<TABLE>
<CAPTION>
                           1994   1995   1996    1997    1998    1999    2000
                           -----  ----  ------  ------  ------  ------  ------
<S>                        <C>    <C>   <C>     <C>     <C>     <C>     <C>
Flight Kitchen Sale
 Savings (Net)............ $  16  $ 38  $   49  $   49  $   45  $   48  $   50
Employee Investment
 Savings..................   262   604     742     805     820     856     591
ESOP Accounting Charge....  (191) (390)   (391)   (393)   (397)   (405)    (99)
                           -----  ----  ------  ------  ------  ------  ------
Operating Income..........    87   252     400     461     468     499     542
Interest Expense**........   (37)  (73)    (80)    (84)    (84)    (84)    (84)
Interest Income...........    (7)   (3)     16      36      60      84     100
                           -----  ----  ------  ------  ------  ------  ------
Earnings Before Taxes.....    43   176     334     413     444     499     558
Income Taxes***...........   (16)  (67)   (127)   (157)   (169)   (190)   (212)
                           -----  ----  ------  ------  ------  ------  ------
Net Income................    27   109     207     256     275     309     346
Non-Cash ESOP Accounting
 Charge****...............   191   390     391     393     397     405      99
Deferred Taxes............     1    16      43      59      67      82      40
                           -----  ----  ------  ------  ------  ------  ------
Funds From Operations.....   219   515     641     708     739     796     485
Series A and B Preferred
 Stock Dividends..........   (40)  (80)    (64)    (55)    (55)    (55)    (55)
                           -----  ----  ------  ------  ------  ------  ------
Net Cash Flow............. $ 179  $435  $  578  $  653  $  684  $  741  $  430
Change in Cash Balance
 (cumulative)............. $ 179  $614  $1,192  $1,845  $2,529  $3,270  $3,700
Change in Book Equity
 (cumulative)............. $ 178  $597  $1,132  $1,726  $2,343  $3,002  $3,391
</TABLE>

 
- --------
*   ASSUMES EXISTING SERIES A PREFERRED STOCK IS CONVERTED ON THE FIRST
    REDEMPTION DATE (MAY 1996). EXCLUDES EFFECTS OF NON-RECURRING CHARGES WITH
    THE EXCEPTION OF SEVERANCE BENEFITS PAID TO FLIGHT KITCHEN WORKERS WHICH
    WERE NETTED FROM EMPLOYEE INVESTMENT. SEE "UNAUDITED PRO FORMA FINANCIAL
    INFORMATION." ASSUMES CLOSING DATE OF THE RECAPITALIZATION IS JULY 1,
    1994.
**  INTEREST AND DIVIDEND RATES ON THE DEBENTURES AND THE PREFERRED STOCK HAVE
    NOT BEEN ADJUSTED FROM THE INITIAL PRICING (AS DEFINED BELOW, SEE "THE
    PLAN OF RECAPITALIZATION--TERMS AND CONDITIONS--PRICING THE SECURITIES").
    IF THE RATES WERE TO BE ADJUSTED TO THEIR MAXIMUM RATES (ASSUMING NO CALL
    FEATURE IS INCLUDED), THE EFFECT WOULD BE, AFTER FULL CONVERSION OF THE
    SERIES A PREFERRED STOCK, TO INCREASE ANNUAL INTEREST EXPENSES BY $10
    MILLION AND ANNUAL DIVIDENDS PAYABLE BY $10 MILLION AND REDUCE CUMULATIVE
    CASH FLOW OVER THE SEVEN YEAR PERIOD PRESENTED BY APPROXIMATELY $100
    MILLION.
*** FOR PURPOSES OF THIS ANALYSIS, INCOME TAXES WERE COMPUTED USING THE
    STATUTORY RATES.
**** SEE "--CERTAIN RISK FACTORS--FINANCIAL REPORTING; MARKET ASSESSMENT."
 
                                      22

<PAGE>
 
   
  As shown above, the Recapitalization is expected to result in an improvement
to cash flow averaging over $550 million per year through the year 2000. This
improvement, aggregating $3.7 billion (excluding the cash consideration
distributed to stockholders as part of the Recapitalization Consideration), is
expected to result from (i) the employee investment which reduces cash expenses
an average of $700 million per year, (ii) favorable tax treatment on ESOP
transactions, which is expected to provide over $400 million in annual tax
deductions during the ESOP allocation period, and (iii) partially offsetting
the factors described above, the additional interest expense on the Debentures,
dividends on the Depositary Preferred Shares and foregone interest on the cash
consideration distributed to stockholders in the Recapitalization. The Company
expects that at the Effective Time, taking into account the distribution of
cash in the Recapitalization, it will have an opening cash balance of
approximately $1.6 billion (assuming the Effective Time occurs on June 30,
1994). Cash generated after the Effective Time is assumed to accumulate in a
cash account; if the available cash was used to repay debt, free cash flow
would improve further.     
 
  Due to the accounting rules for stock-based compensation such as the ESOPs,
it is expected to be difficult to compare the financial performance of the
Company to companies without significant stock-based compensation. In addition
to this, since there is a circular relationship between the Company's financial
results and its stock price (See "--Certain Risk Factors--Financial Reporting;
Market Assessment" and "--Opinions of the Financial Advisors to the Board"), it
is expected that certain financial analysts may adjust the way they analyze the
Company's performance. While there can be no assurances the Company's financial
performance will be considered other than as reported under generally accepted
accounting principles, the Company believes that the following analysis is
consistent with the manner in which certain analysts will evaluate the
Company's performance.
 
                          EARNINGS PER SHARE ANALYSIS*
 

<TABLE>
<CAPTION>
                                                              1995    PER SHARE
                                                           (MILLIONS)  BASIS**
                                                           ---------- ---------
<S>                                                        <C>        <C>
Net Income (Status Quo Scenario C)........................    $118     $ 3.67
Change in Net Income due to Recapitalization..............     109       3.39
                                                              ----     ------
Net Income (Post-Recapitalization)........................     227       7.06
Preferred Stock Dividends Requirements***.................     (92)     (2.86)
                                                              ----     ------
Net Income Available to Common............................     135       4.20
Employee Stock Ownership Plan Accounting Charge (after-
 tax)****.................................................     242       7.53
                                                              ----     ------
Net Income Available to Common (adjusted).................    $377     $11.73
                                                              ====     ======
</TABLE>

- --------
   * THE FIRST FULL YEAR OF THE RECAPITALIZATION (1995) WAS USED FOR
     ILLUSTRATIVE PURPOSE.
  ** PER SHARE AMOUNTS ASSUMES 32.14 MILLION FULLY DILUTED SHARES.
 *** PREFERRED STOCK DIVIDEND REQUIREMENTS REPRESENT PUBLIC PREFERRED STOCK
     WHICH IS NOT CONVERTIBLE TO COMMON STOCK.
**** FOR PURPOSES OF THIS ANALYSIS, INCOME TAXES WERE COMPUTED USING STATUTORY
     RATES.
 
IMPLEMENTATION OF THE "AIRLINE-WITHIN-AN-AIRLINE " (U2)
 
 Background
 
  In recent years, low-cost carriers, especially Southwest, have grown rapidly.
These carriers offer the consumer air travel service with frequent departures,
minimal inflight service, and simplified fares that are substantially below
standard industry pricing. The consumer acceptance of such carriers has been
especially strong in short-haul markets (markets under 750 miles) in which
consumers readily opt for reliable, low-priced air transportation over the full
service product (typically at higher prices) traditionally offered by carriers.
 
                                       23

<PAGE>
 
  Due to its current cost structure, United has experienced difficulty
competing with low-cost carriers in short-haul markets. When a low-cost carrier
enters a short-haul market, it typically does so with fares substantially below
those existing prior to its entry and with the expectation of stimulating
demand and gaining market share. When a low-cost carrier enters a short-haul
market where United operates, United is faced with three choices:
 
  Do Nothing    Continue service and do not match the lower fares. Traffic
                that is connecting to other United flights would be retained.
                However, without competitive fares in the non-stop short-haul
                market, lost market share as well as a decline in revenues
                would occur. As a result, the economics of the segment would
                deteriorate and it almost certainly would become very
                unprofitable.
 
  Abandon       Discontinue service in the market. This would alleviate losses
                on the non-stop, short-haul segment, assuming the aircraft can
                be profitably redeployed or sold. However, it would also
                deprive United of traffic that connects from the short-haul
                segment to the carrier's long-haul operations. The loss of
                these passengers would hurt the profitability of "beyond"
                segments that rely on the connecting traffic. Typically, this
                decrease in profitability on all "beyond" segments more than
                offsets the benefit from abandoning a short-haul market.
 
  Match Fares   Continue service and match the new low fares. Revenue and
                profitability would decline, but the retention of both local
                and connecting traffic would generally result in less
                deterioration to earnings than either the "Do Nothing" or
                "Abandon" choices.
 
  Accordingly, United often elects to remain in markets following the entrance
of low-cost competition and match the lower fares even though doing so results
in operating losses.
 
  While United believes that matching lower fares is the optimal strategy in
the short-run, it recognizes that it cannot suffer losses in these markets
indefinitely. The ideal strategy, which would allow United to compete
profitably in markets with low-cost competition, is an alternative which is not
currently available to United, that is, to compete with low-cost carriers on a
cost basis. This strategy requires a cost structure similar to that of the low-
cost carriers. United would need to reduce both labor and non-labor costs and
increase productivity in order to establish a competitive cost structure that
would allow United to profitably retain and increase market share. In order to
achieve a competitive cost structure productivity increases are important
elements of the Recapitalization.
 
  The Plan of Recapitalization permits the implementation of the low-cost
strategy described above by providing for the establishment of U2, an airline-
within-an-airline. U2 provisions of the labor agreements permit reduced labor
rates and work-rule changes which are expected to lower costs and improve
productivity. To maximize the benefits associated with those provisions, the
Company will establish separate pilot positions for the U2 operation as well as
a set of U2 routes that are intended to fully leverage potential productivity
and cost savings. The product, pricing, and distribution attributes of U2
markets will be altered from United's to resemble those of a low-cost airline.
U2 markets are expected to be flown as a branded product feature of United
bearing its own distinct name. THERE CAN BE NO ASSURANCE THAT THE U2 OPERATION
WILL BE SUCCESSFULLY IMPLEMENTED OR, IF IMPLEMENTED, THAT THE RESPONSES OF
VARIOUS COMPETITORS WILL NOT REDUCE OR ELIMINATE THE BENEFITS SOUGHT TO BE
OBTAINED.
 
 Operations and Route Systems
 
  Key operational elements of U2 are expected to be as follows:
 
    Short-haul missions  U2 will operate within the contiguous United States
                         in non-stop city pairs of up to 750 nautical miles in
                         "stage length," other than flying between United's
                         hubs and/or international gateway cities (except for
                         Los Angeles basin to San Francisco bay area service
                         which may be flown by U2). At
 
                                       24

<PAGE>
 
                         least 10% of U2 flying must be in city pairs that
                         United has not served for 24 months prior to the
                         introduction of U2 service into that city pair.
 
    High frequency       One of the key characteristics of an efficient short-
                         haul operation is high frequency scheduling within a
                         market. United intends to schedule U2 to average
                         approximately ten frequencies per day in most
                         markets.
 
    Rapid turn-arounds   United intends to reduce aircraft turn-around time in
                         the U2 operation to 20 minutes as compared to
                         United's current 40 to 45 minutes. The rapid turn-
                         around time is expected to be achieved through
                         product simplification (e.g., reduced food service
                         deliveries) and the streamlining of customer and ramp
                         service procedures.
 
    Increased            By combining high frequency with faster turn-arounds,
    utilization          utilization of aircraft, facilities and other
                         equipment is expected to increase, thereby lowering
                         unit costs. As compared with United's fleet, the
                         utilization goal of the U2 fleet is anticipated to
                         improve 16% to 11.0 hours per day from 9.5 hours per
                         day. The increased utilization should allow more
                         trips to be flown by the same fleet of aircraft.
 
 Product
 
  U2 is expected to be marketed as a branded product of United with its own
distinct name (such as "Business One" and "Connoisseur Class" are today).
Travel between U2 and United should appear seamless to the consumer. U2 flights
are expected to feed United long-haul domestic and international flights and
connect with United Express flights.
 
  U2 is expected to offer a simplified, lower-frills product as compared to
mainline United service and will be cost competitive with other low-cost
carriers. Key product features that will differentiate U2 from the mainline
product are:
 
  . Reduced food service
 
  . Reduced onboard amenities
 
  . Expedited customer airport check-in
 
  While the U2 product clearly should be different from mainline United, it is
also expected to be distinguishable from other low-cost carriers.
 
  . Unlike some short-haul carriers, U2 may offer added value to the consumer
    by providing seat assignments
 
  . To help retain high yield connecting traffic to mainline United, U2
    currently plans to offer first class seating
 
  . Capitalizing on United's marketing strength and global route network, U2
    consumers will be able to participate in one of the industry's highest
    rated frequent flyer programs--United's Mileage Plus program. While the
    program may be adjusted somewhat for U2 travel, the program's benefits
    are expected to help to generate a U2 revenue premium over the
    competition.
 
 Fare Structure
 
  In most markets in which U2 is expected to compete, fares have already been
reduced by other low-cost carriers, and United's fares have been reduced to
competitive levels. U2 intends to maintain United's current pricing practice of
matching competitors' low fares, although U2 intends to heavily promote low
fare levels. The objective in maintaining and promoting the low fares is to
build customer trust so that when they purchase a ticket on a U2 flight, they
know they are obtaining competitive value in the market and do not need to shop
the fare.
 
                                       25

<PAGE>
 
 Distribution
 
  The experience of low-cost carriers has demonstrated that offering and
promoting consistent, believably low fares and high-frequency service increases
direct airline-to-customer ticketing. These and similar strategies employed by
low-cost carriers are expected to be implemented to reduce distribution costs.
 
 Roll-out
 
  The Company expects that U2 will be rolled out no later than four to six
months after the Effective Time and will be implemented in the short-haul
markets as quickly as possible. It is currently expected that by year 5, U2
will operate approximately 130 aircraft and represent approximately 20% of
system "block hours". Block hours is a measure of the time an aircraft is in
motion (i.e. from the time it pushes back from the gate at the departing
airport until it pulls up to the gate upon arrival). Factors affecting the rate
of roll-out include market conditions, pilot attrition, growth of the airline
and changes in the fleet plan.
 
  B737 aircraft are expected to be utilized in the U2 operations. To maximize
fleet efficiency and to have the flexibility of swapping aircraft between the
U2 and United fleet, no changes are expected to be made to livery or interior
configuration.
 
UNIT COSTS
 
  Unit cost, a common industry measure of cost effectiveness, measures the cost
of flying one airplane seat one mile. Due principally to the base employee
investments, increased productivity, the U2 labor provisions and the other
savings associated with the U2 operation, U2's unit costs (calculated on an
incremental basis for short-haul markets) are expected to drop by 30% from
United's existing costs on short-haul routes:
 
                            U2 UNIT COST COMPARISON
                           (PER AVAILABLE SEAT MILE)
 

<TABLE>
<CAPTION>
                                                    U2 BETTER/(WORSE) THAN
                                                    ------------------------------
                                      CURRENT
                                      UNITED          UNITED         SOUTHWEST
                                      SHORT-        -------------   --------------
                         SOUTHWEST(1) HAUL(2) U2(2) AMT.    PCT.    AMT.     PCT.
                         ------------ ------- ----- ------  -----   ------   -----
<S>                      <C>          <C>     <C>   <C>     <C>     <C>      <C>
Expense Category
  Wages & Benefits(3)...     2.4c       3.5c   2.6c    0.9c    25%    (0.2)c    (9)%
  Fuel & Oil............     1.1        1.1    1.1     --     --       --      --
  Aircraft Ownership(4).     0.7        0.8    0.7     0.1     16      --      --
  Aircraft Mainte-
   nance(5).............     0.6        0.3    0.2     0.1     22      0.4      64
  Commissions(6)........     0.5        1.0    0.6     0.4     36     (0.1)    (21)
  Advertising...........     0.2        0.2    0.3    (0.1)   (12)    (0.1)    (10)
  Food & Beverage.......     0.0        0.5    0.0     0.5     98      --      --
  Other.................     1.7        3.1    1.9     1.2     41     (0.2)    (11)
                             ---       ----    ---  ------          ------
                             7.2c      10.5c   7.4c    3.1c    30%    (0.2)c    (2)%
</TABLE>

- --------
(1) SOUTHWEST'S RESULTS ARE FOR 1993 (EXCLUDING MORRIS AIR).
(2) UNITED AND U2 STEADY-STATE UNIT COSTS REFLECTING OPERATING ECONOMICS ON
    ROUTES COMPARABLE TO SOUTHWEST'S AND ARE ADJUSTED TO REFLECT AN ALL-COACH
    CONFIGURATION.
(3) DUE TO THE NON-CASH NATURE OF THE EMPLOYEE STOCK OWNERSHIP PLAN ACCOUNTING
    CHARGE AND IN ORDER TO MAKE THE COMPANY'S UNIT EXPENSES MORE COMPARABLE TO
    SOUTHWEST'S UNIT EXPENSE LEVELS, THE EMPLOYEE STOCK OWNERSHIP PLAN
    ACCOUNTING CHARGE HAS BEEN EXCLUDED. THE INCLUSION OF SUCH CHARGE WOULD
    HAVE THE AFFECT OF INCREASING U2 WAGES AND BENEFITS EXPENSES BY 0.23c
    ASSUMING AN ESOP PREFERRED STOCK PURCHASE PRICE OF $120.
(4) NORMALIZED TO SOUTHWEST LEVEL.
(5) SOUTHWEST OUTSOURCES A HIGHER PERCENTAGE OF MAINTENANCE WORK THAN UNITED
    DOES. THUS WHILE SOUTHWEST'S AIRCRAFT MAINTENANCE UNIT COST IS MUCH HIGHER
    THAN UNITED'S, ITS UNIT LABOR EXPENSE RELATED TO MAINTENANCE IS LOWER.
(6) FOR COMPARABILITY PURPOSES, UNITED AND U2 COMMISSION EXPENSE EXCLUDES
    INTERNATIONAL "OVERRIDE" COMMISSIONS.
 
                                       26

<PAGE>
 
  System-wide labor unit costs are expected to be reduced by 11% as a result of
the Recapitalization. The impact of this expected reduction is a 4% drop in
United's total unit cost which would result in a unit cost 10% lower than the
industry average.
 
                 UNITED VS. INDUSTRY AVERAGE NET UNIT COSTS(1)
                        (CENTS PER AVAILABLE SEAT MILE)
 

<TABLE>
<CAPTION>
                                                             POST-TRANSACTION
                                                            BETTER/(WORSE) THAN
                                                            ----------------------
                                                   POST-     CURRENT     AVERAGE
                               INDUSTRY CURRENT TRANSACTION ----------  ----------
                               AVERAGE  UNITED   UNITED(2)  AMT.  PCT.  AMT.  PCT.
                               -------- ------- ----------- ----  ----  ----  ----
<S>                            <C>      <C>     <C>         <C>   <C>   <C>   <C>
Expense Category
  Wages & Benefits(3).........   3.3c     3.1c      2.8c    0.3c   11%  0.5c   16%
  Fuel & Oil..................   1.2      1.2       1.2     --    --    --    --
  Rentals & Landing Fees......   1.0      1.0       1.0     --    --    --    --
  Depr. & Amortization........   0.6      0.5       0.5     --    --    0.1    12
  Aircraft Maintenance........   0.3      0.2       0.2     --    --    0.1    29
  Other.......................   1.8      1.7       1.7     --    --    0.1     5
                                 ---      ---       ---     ---   ---   ---   ---
                                 8.2c     7.7c      7.4c    0.3c    4%  0.8c   10%
</TABLE>

- --------
(1) FULL YEAR 1993 RESULTS FOR THE "INDUSTRY" (DEFINED AS AMERICAN, DELTA,
    NORTHWEST, UNITED AND USAIR) BASED ON THE FINANCIAL RESULTS ANNOUNCED BY
    SUCH AIR CARRIERS.
(2) INCLUDES IMPACT OF FIRST FULL YEAR OF EMPLOYEE CONCESSIONS, BUT EXCLUDES
    "OTHER SAVINGS" ASSOCIATED WITH U2.
(3) DUE TO THE NON-CASH NATURE OF THE EMPLOYEE STOCK OWNERSHIP PLAN ACCOUNTING
    CHARGE AND TO IMPROVE COMPARABILITY TO THE INDUSTRY AVERAGE UNIT EXPENSE
    LEVELS, THE EMPLOYEE STOCK OWNERSHIP PLAN ACCOUNTING CHARGE HAS BEEN
    EXCLUDED. THE INCLUSION OF SUCH CHARGE WOULD HAVE THE AFFECT OF INCREASING
    POST-TRANSACTION WAGES AND BENEFITS EXPENSES BY 0.24c ASSUMING AN ESOP
    PREFERRED STOCK PURCHASE PRICE OF $120. SEE "--CERTAIN RISK FACTORS--
    FINANCIAL REPORTING; MARKET ASSESSMENT."
 
RECOMMENDATION OF THE BOARD
 
  The Board has approved the Initial Plan of Recapitalization and the Plan of
Recapitalization and has determined that the Recapitalization is fair to the
holders of Old Shares. The Board recommends that stockholders vote FOR the Plan
of Recapitalization and the related matters identified in clauses (ii) through
(vii) in the first paragraph under "INTRODUCTION--Purpose of the Meeting."
   
  The Board noted that the Recapitalization permits the holders of Old Shares
to receive in exchange for each Old Share (i) one half of a New Share, (ii)
$25.80 in cash, (ii) either (a) $15.55 principal amount of Series A Debentures
or (b) if the United Series A Offering is consummated, the cash proceeds
(without deducting any underwriting discount or other costs) from the sale
thereof by United pursuant to the United Series A Offering, (iii) either (a)
$15.55 principal amount of Series B Debentures or (b) if the United Series B
Offering is consummated, the cash proceeds (without deducting any underwriting
discount or other costs) from the sale thereof by United pursuant to the United
Series B Offering and (iv) either (a) Depositary Preferred Shares representing
interests in $31.10 liquidation preference of Public Preferred Stock or (b) if
the UAL Preferred Offering is consummated, the cash proceeds (without deducting
any underwriting discount or other costs) from the sale thereof by the Company
pursuant to the UAL Preferred Offering. Current holders of Old Shares also will
retain a significant ongoing equity interest in the Company that will be the
same regardless of whether any or all of the Offerings are consummated. Under
various circumstances, the value of the consideration to be received by
stockholders could be less than the principal face amount of the Debentures or
the liquidation preference of the Depositary Preferred Shares. In approving the
Initial Plan of Recapitalization and the Plan of Recapitalization, the Board
also considered that the majority equity position of the employee stock
ownership plans is designed to provide additional incentives for the Company's
employees to promote the success of the Company, which should, in part, inure
to the benefit of the holders of Old Shares. The Board noted that no third
party had expressed an interest in acquiring the Company as an entirety and
considered the fact that the Initial Plan of Recapitalization and the Plan of
Recapitalization     
 
                                       27

<PAGE>
 
   
would not prevent the Company from pursuing such an alternative if it arose. At
the March 24, 1994 Board Meeting, the Board (with Dr. Brimmer dissenting) voted
in favor of the Initial Plan of Recapitalization. Dr. Brimmer has indicated
that he dissented from such vote because under current economic conditions, he
did not think there were compelling reasons to effect such a transaction at
this time. With respect to the Definitive Documentation Amendment, the Board
voted in favor of the Definitive Documentation Amendment, with Dr. Brimmer
abstaining. It was mentioned at the meeting that Mr. Olson, who was not in
attendance, had requested that his opposition to the Definitive Documentation
Amendment be noted. Mr. Olson has not expressed to the Company any reason for
his position.     
   
  In reaching its decisions to approve the Initial Plan of Recapitalization and
the Plan of Recapitalization, its determination that the Recapitalization is
fair to the holders of Old Shares and its decision to recommend that the
holders of Old Shares vote for approval and adoption of the Plan of
Recapitalization, the Board consulted with its legal and financial advisors as
well as the Company's management, and considered numerous factors, including,
but not limited to: (i) the business, operations, earnings, properties and
prospects of the Company and United and the perceived need for the Company to
obtain wage and benefit reductions and work-rule changes in order to permit
United to compete effectively in the aviation marketplace, (ii) the
alternatives potentially available to the Company to achieve wage and benefit
reductions and work-rule changes, as well as a comparison of the risks that
would be associated with the Recapitalization and with such other alternatives,
(iii) the terms of the employee investments contemplated by the Initial Plan of
Recapitalization and the Plan of Recapitalization, including the reduction in
cash expense, the favorable tax treatment of the ESOP transactions, the long-
term labor contracts which limit salary increases and the ability to establish
U2, (iv) the fact that the Recapitalization will provide the holders of Old
Shares with an opportunity to receive cash and, if any of the Offerings are not
consummated, Debentures and Depositary Preferred Shares representing interests
in Public Preferred Stock, as applicable, for a portion of the value of their
Old Shares while retaining a significant ongoing equity interest in the Company
through ownership of New Shares, (v) the terms of the proposed corporate
governance structure, which contains both certain provisions required by the
Coalition and certain provisions designed for the protection of the holders of
New Shares, (vi) the identity of the new chief executive officer and the new
Board (especially the Independent Directors) and the Board's assessment of such
individuals, (vii) recent market prices for the Old Shares as well as market
prices for the past several years, (viii) the Federal income tax consequences
of the Recapitalization under existing law, (ix) with respect to the Plan of
Recapitalization, the terms of the Definitive Documentation Amendment providing
for an increase in the percentage of common equity and voting power initially
to be acquired by the employee trusts and a decrease in the range of average
stock prices determined one year after the Effective Time which would result in
an increase in the percent of common equity and voting power to be held by the
employee trusts, (x) with respect to the Plan of Recapitalization, the terms of
the Definitive Documentation Amendment providing for the Offerings and the
potential to distribute cash, instead of Debentures and/or Depositary Preferred
Shares, to holders of Old Shares if the Offerings are consummated, (xi) with
respect to the Plan of Recapitalization, the use of a market price-based
formula for the purchase of the ESOP Preferred Stock to be purchased at the
Effective Time, and (xii) the opinions of CS First Boston, a nationally
recognized investment banking firm, and the opinions of Lazard, another
nationally recognized investment banking firm, that, based upon the matters
described therein, as of the date of each such opinion, the consideration to be
received by the holders of Old Shares pursuant to the Recapitalization for each
Old Share, taken as a whole, was fair to such stockholders from a financial
point of view. See "--Opinions of the Financial Advisors to the Board," "--
Certain Risk Factors" and "--Certain Revenue and Earnings Scenarios," "THE PLAN
OF RECAPITALIZATION" and "MARKET PRICES OF THE OLD SHARES; DIVIDENDS." In
connection with considering such factors, the Board generally viewed factors
(i) through (iv), (vii), (viii) and (x) through (xii) as supporting the Board's
fairness belief and factor (vi) as neutral (however, the Board was favorably
impressed with the identity of the Independent Directors). With respect to
factor (v), while the Board generally viewed such factor as supporting the
Board's fairness belief, the Board did consider that certain aspects of the
governance provisions, such as the ability of the participants in the ESOP to
continue to hold more than 50% of the voting power of the Company until the
economic equity interest held by the ESOPs and other employee benefit plans
sponsored by the Company becomes less than 20% of the value of the common
equity of the     
 
                                       28

<PAGE>
 
Company (see "THE PLAN OF RECAPITALIZATION--Revised Governance Structure--
Nondilution"), would not support the Board's fairness belief. With respect to
factor (ix), while the Board viewed this factor as not supporting its fairness
belief, it recognized that in order to obtain the benefits of the Definitive
Documentation Amendment, it was necessary to make such changes. The Board also
considered (a) the fact that the repayment of the Debentures and the payment of
dividends on the Public Preferred Stock will be dependent on the Company's
operations, assets, credit, cash flow and earning power, (b) that, as a result
of the Recapitalization, there will be a significant increase in the Company's
long-term indebtedness, as well as a substantial negative balance in
stockholders' equity and a significant reduction in cash reserves and (c) the
opinion of American Appraisal with respect to certain solvency and surplus
matters. See "--Certain Risk Factors," "THE PLAN OF RECAPITALIZATION" and
"UNAUDITED PRO FORMA FINANCIAL INFORMATION." In connection with considering
such factors, the Board generally viewed factors (a) and (b) as not supporting
the Board's fairness belief and factor (c) as neutral.
 
  In view of the circumstances and the wide variety of factors considered in
connection with this evaluation of the Recapitalization, the Board did not find
it practicable to assign relative weights to the factors considered in reaching
its decision.
 
OPINIONS OF THE FINANCIAL ADVISORS TO THE BOARD
 
 Opinion of CS First Boston
   
  On December 22, 1993, March 14, 1994, March 24, 1994 and May 20, 1994, CS
First Boston delivered to the Board its oral opinion that, as of such dates,
the consideration to be received by holders of Old Shares of the Company in
connection with the Recapitalization (as constituted as of each date), taken as
a whole, was fair to such holders of Old Shares from a financial point of view.
On December 22, 1993, March 24, 1994 and May 20, 1994, CS First Boston
delivered to the Board its written opinions that, as of such dates, the
consideration to be received by holders of Old Shares in connection with the
Recapitalization, taken as a whole, was fair to such holders of Old Shares from
a financial point of view.     
   
  THE FULL TEXT OF THE WRITTEN OPINION OF CS FIRST BOSTON DATED MAY 20, 1994
WHICH SETS FORTH THE ASSUMPTIONS MADE, THE MATTERS CONSIDERED AND THE REVIEW
UNDERTAKEN WITH REGARD TO SUCH OPINION, IS ATTACHED AS ANNEX I TO THIS PROXY
STATEMENT/PROSPECTUS. STOCKHOLDERS ARE URGED TO READ SUCH OPINION IN ITS
ENTIRETY. CS FIRST BOSTON'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE
CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF OLD SHARES AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF OLD SHARES AS TO HOW SUCH HOLDER
SHOULD VOTE. THE SUMMARY OF THE OPINION OF CS FIRST BOSTON SET FORTH IN THIS
PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINION. THE TEXTS OF THE WRITTEN OPINIONS OF CS FIRST BOSTON
DATED DECEMBER 22, 1993 AND MARCH 24, 1994 ARE SUBSTANTIALLY THE SAME AS THE
TEXT OF THE MAY 20, 1994 OPINION (EXCEPT WITH RESPECT TO CHANGES TO THE PLAN OF
RECAPITALIZATION EFFECTED PURSUANT TO THE DEFINITIVE DOCUMENTATION AMENDMENT).
THE TEXT OF THE CS FIRST BOSTON OPINION DATED MAY 20, 1994 (AND THE DESCRIPTION
OF SUCH OPINION SET FORTH HEREIN) DOES NOT REFLECT A CHANGE TO THE PLAN OF
RECAPITALIZATION MADE SUBSEQUENT TO MAY 20, 1994, WHICH MADE EACH OF THE
OFFERINGS INDEPENDENT OF THE OTHER OFFERINGS (I.E., NONE OF THE OFFERINGS IS
NOW CONDITIONED ON, OR SUBJECT TO, THE CONSUMMATION OF ANY OF THE OTHER
OFFERINGS). CS FIRST BOSTON HAS ADVISED THE COMPANY, HOWEVER, THAT HAD SUCH
CHANGE BEEN MADE PRIOR TO THE DATE OF ITS OPINION, IT WOULD NOT HAVE AFFECTED
CS FIRST BOSTON'S ABILITY TO DELIVER ITS OPINION OR THE CONCLUSION SET FORTH
THEREIN.     
 
  In arriving at its opinions, CS First Boston (i) reviewed the Plan of
Recapitalization and its related schedules, (ii) reviewed certain publicly
available business and financial information relating to the Company, (iii)
reviewed certain other information, including financial forecasts, provided to
CS First Boston by the Company and (iv) met with the Company's management to
discuss the business of the Company. CS First Boston also considered certain
financial and stock market data for the Company and compared that data with
similar data for other publicly held companies in businesses similar to those
of the Company, and it considered the financial terms of certain other business
combinations that have recently been effected. CS First Boston also considered
such other information, financial studies, analyses and investigations and
 
                                       29

<PAGE>
 
financial, economic and market criteria that it deemed relevant. CS First
Boston also reviewed the alternative of not effecting the Recapitalization and
of implementing the Fundamental Restructuring Plan described under "BACKGROUND
OF THE PLAN OF RECAPITALIZATION," which, if fully implemented, might result in
a greater value to stockholders than the Recapitalization; however, the opinion
assumed that the Board determined, in light of various factors relating to the
implementation of the Fundamental Restructuring Plan and the availability of
the Recapitalization, not to pursue such implementation. CS First Boston did
assume, however, for purposes of the analyses described below, that, if the
Recapitalization were not effected, the Company would implement the "enhanced
status quo" alternative described under "BACKGROUND OF THE PLAN OF
RECAPITALIZATION," consisting of a variety of significant actions to reduce
costs and, therefore, to enhance profitability and stockholder value.
 
  In connection with its review, CS First Boston did not independently verify
any of the foregoing information and CS First Boston relied on such information
being complete and accurate in all material respects. With respect to the
financial forecasts, CS First Boston assumed that they had been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the Company's management as to the future financial performance of
the Company. In addition, CS First Boston did not make an independent
evaluation or appraisal of any of the assets of the Company, nor was it
furnished with any such appraisals. CS First Boston was not requested to, and
did not, solicit third party offers to acquire all or any part of the Company,
nor, to CS First Boston's knowledge, has any interest in making such an offer
been presented by any third party, including in response to the public
disclosure regarding discussions between the Company and the Coalition. CS
First Boston assumed that the results expected by the Company's management to
be obtained from the Recapitalization, including those arising from the
employee investment contemplated by the Plan of Recapitalization, will be
realized. CS First Boston's opinion was necessarily based solely upon
information available to it and business, market, economic and other conditions
as they existed on, and could be evaluated as of, the date of such opinion. CS
First Boston's opinion did not address the Company's underlying business
decision to effect the Recapitalization.
 
  The following is a summary of the analyses that CS First Boston utilized in
arriving at its opinion as to the fairness of the consideration to be received
by the holders of Old Shares of the Company in connection with the
Recapitalization, taken as a whole, from a financial point of view and that CS
First Boston discussed with the Board at the December 22, 1993, March 14, 1994,
March 24, 1994 and May 20, 1994 Board meetings.
 
  Valuation of the Company
   
  For purposes of its opinion as to the fairness of the consideration to be
received by holders of Old Shares in connection with the Recapitalization,
taken as a whole, from a financial point of view, CS First Boston arrived at a
reference range of values for the Company using three principal valuation
methodologies: a discounted cash flow analysis, a publicly traded comparable
company analysis and a comparable acquisitions analysis. At the December 22,
1993 Board meeting, CS First Boston advised the Board that its overall
reference range per share was $160 to $200. CS First Boston did not update its
overall reference range at the March 14, 1994 or March 24, 1994 Board meetings
but it advised the Board at those meetings that if it had updated its reference
range, the updated range would have been somewhat lower than the range given in
December. As of May 20, 1994, CS First Boston had determined that its overall
reference range per share was $135 to $175. CS First Boston advised the Board
that the changes in the reference range resulted from changes in a number of
factors, including, but not limited to, higher interest rates, lower airline
stock prices and updated financial forecast information. The methodologies used
by CS First Boston and the resulting ranges of values, which were described to
the Board at the December 22, 1993 Board meeting but which were not updated for
the Board at the March 14, 1994, March 24, 1994 or May 20, 1994 Board meetings,
are described below. If CS First Boston had updated these analyses, the
resulting ranges of values would have been lower than the ranges that resulted
from CS First Boston's December 22, 1993 analyses.     
 
  Discounted Cash Flow Analysis. Using a discounted cash flow analysis, CS
First Boston estimated the present value of the future cash flows that the
Company could be expected to produce over a five-year period from 1994 through
1998 under various assumptions and in accordance with management's forecasts.
The
 
                                       30

<PAGE>
 
analysis assumed that the "enhanced status quo" alternative would be
implemented. CS First Boston determined an equity market value reference range
for the Company by adding (i) the present value (using discount rates
determined on the basis of an industry weighted average cost of capital
ranging from 8.0% to 10.0%) of the five-year unleveraged free cash flows of
the Company and (ii) the present value of the Company's 1998 terminal value.
The terminal values were determined by multiplying 1998 projected earnings
before interest, taxes, depreciation and amortization ("EBITDA") and 1998
projected net income by a range of multiples determined based on comparable
companies and comparable acquisitions (ranging from 3.5 times to 5.5 times
1998 EBITDA and 11.0 times to 15.0 times 1998 net income). This analysis
resulted in a range of values per Old Share of the Company on December 22,
1993 of from $160 to $200.
 
  Publicly Traded Comparable Company Analysis. CS First Boston reviewed and
compared the financial, operating and market performance of the following
group of five domestic commercial airline companies with that of the Company:
AMR Corporation, Continental Airlines, Delta Air Lines, Southwest Airlines and
USAir Group (the "Comparable Group"). CS First Boston examined certain
publicly available or estimated financial data of the Comparable Group,
including total revenue, operating cash flow, operating income, net income to
common shares, earnings per share, depreciation and amortization, interest
expense and capitalized interest, rental expense and net cash flow per share.
CS First Boston also examined and compared various operating ratios and
certain capitalization data. CS First Boston also reviewed market data,
including various trading multiples such as stock price to earnings per share,
equity market capitalization to net cash flow (net income plus depreciation
and amortization) and enterprise value to EBITDA (before and after adjusting
for off-balance sheet operating rental payments). CS First Boston also
considered other financial data (including margins and growth rates) as well
as certain operating information, such as yields and load factors, for the
Comparable Group. This analysis resulted in a range of values per Old Share of
the Company on December 22, 1993 of from $130 to $135.
 
  Comparable Acquisition Analysis. CS First Boston also reviewed selected
acquisitions in the airline industry, including Continental Air/Air Canada,
Trans World Airlines/Carl Icahn and NWA Inc./Wings Holdings, including the
multiples of enterprise value to revenues (ranging from .85 times to 1.10
times) and equity market value to net cash flow (ranging from 1.5 times to 7.6
times) represented by the consideration in those transactions. This analysis
resulted in a range of values per Old Share of the Company on December 22,
1993 of from $120 to $200.
 
  Recapitalization Consideration
   
  For purposes of its opinion as to the fairness of the consideration to be
received by holders of Old Shares in connection with the Recapitalization,
taken as a whole, from a financial point of view, CS First Boston arrived at a
reference range of values for the consideration to be received by the holders
of Old Shares in the Recapitalization, consisting of cash, New Shares and, if
the Offerings are not consummated, Debentures and Depositary Preferred Shares
representing the interests in, Public Preferred Stock. The interest rates on
the Debentures and the dividend rate on the Public Preferred Stock were
initially set upon the execution of the Plan of Recapitalization. The interest
or dividend rate on each such security will be reset, as of a date to be
determined that is not fewer than five calendar days and not greater than ten
calendar days prior to the Meeting to the rate required to cause each such
security to trade at 100% of its aggregate principal amount (in the case of
the Debentures) or at 100% of its aggregate liquidation preference (in the
case of the Public Preferred Stock) (collectively, "par"), on a fully
distributed basis, as of such date (subject to a maximum potential increase,
in each case, of 112.5 basis points (1.125 percentage points)). Accordingly,
CS First Boston's opinion was based on the assumption that (if the Offerings
are not consummated) the final rates to be borne by such securities would be
set so that the Debentures and the Public Preferred Stock would trade, as of
such date, on a fully distributed basis, at par. CS First Boston advised the
Board at the March 24, 1994 meeting that the reduction of the maximum
potential increase in the interest rates on the Debentures and the dividend
rate on the Public Preferred Stock from 150 basis points (1.5 percentage
points) (which was the size of the rate cap arrangement provided for in the
Agreement in Principle) to 112.5 basis points (1.125     
 
                                      31

<PAGE>
 
   
percentage points) (the size of the rate cap arrangement provided for in the
Plan of Recapitalization) could reduce the value of the Debentures and the
Public Preferred Stock to be received by the holders of Old Shares in the
Recapitalization by an amount that CS First Boston advised the Board was not
material to the consideration to be received by the holders of Old Shares in
the Recapitalization, taken as a whole. CS First Boston's opinion does not
represent CS First Boston's view, if the Offerings are not consummated, as to
what the trading value of the securities actually will be when the securities
are issued to the holders of the Old Shares following consummation of the
Recapitalization. The actual trading values of such securities could be higher
or lower depending upon changes in interest rates, dividend rates, market
conditions, general economic conditions and other factors that generally
influence the price of securities. Because of the large aggregate amount of the
securities (particularly the Public Preferred Stock) that would be issued to
holders of Old Shares if the Offerings are not consummated and other factors,
such securities may trade initially, and for an extended period thereafter, at
prices below those at which they would trade on a fully distributed basis.
Furthermore, any valuation of securities is only an approximation, subject to
uncertainties and contingencies. If the Offerings are consummated, the interest
rates on the Debentures and the dividend rate on the Public Preferred Stock may
be set at rates that are in excess of the limitations contained in the
Recapitalization Agreement, in which event the principal amount of the series
of Debentures affected or the number of Depositary Preferred Shares, as the
case may be, will be reduced so that the aggregate amount of interest payable
by United or dividends payable by UAL, as the case may be, with respect to such
security will not exceed amounts specified in the Recapitalization Agreement,
and the amount of the proceeds from the sale of such securities to be received
by holders of Old Shares will be reduced accordingly. In addition, in certain
other circumstances such proceeds could be less than the stated face amount or
liquidation preference of such securities. CS First Boston's opinion was based
on the assumption that, if the Offerings are consummated, the proceeds of the
Debentures and the Depositary Preferred Shares to be received by the holders of
Old Shares will not be less than the principal amounts of Debentures and the
number of Depositary Preferred Shares that would have been distributed to the
holders of Old Shares had the Offerings not been consummated.     
 
  Valuation of the New Shares
 
  The principal valuation methodology used by CS First Boston with respect to
the New Shares to be received by holders of Old Shares in the Recapitalization
was the earnings and cash flow multiple method. A supplemental method referred
to as the "gives/gets" method was also analyzed. These methodologies are
described below:
 
  Earnings and Cash Flow Multiple Method. CS First Boston arrived at a range of
values for the New Shares by reviewing the public market multiples of the
Comparable Group and applying a range of multiples to the Company's estimated
1994 and 1995 earnings per share and net cash flow per share pro forma for the
consummation of the Recapitalization. Because of the way the accounting rules
applicable to "stock based compensation" (which require that stock compensation
expense for periodic stock allocations be measured by the then-current market
value of the shares at the time of allocation) will apply to the share
allocations within the ESOPs, there are complexities as to forecasting future
earnings per share of the Company. The size of the employee stock ownership
plan accounting charge will be affected by the stock price, and the employee
stock ownership plan accounting charge will reduce reported earnings per share
which, in turn, may affect the stock price. In light of this, for purposes of
its analyses, CS First Boston applied a range of multiples to forecasted
results based on two cases: one assuming ratable allocation of the shares
within the ESOPs over the period of the concessions and the other assuming
immediate, full allocation (the latter methodology eliminates the need to
estimate future stock price performance in order to project the Company's
earnings per share). CS First Boston applied a discount to the resulting values
to reflect the potential dilution from the equity collar arrangement (which
will operate to increase the employee trusts' equity ownership from 55% to a
maximum of 63% if the Company's average stock closing price for one year
exceeds certain levels specified in the Plan of Recapitalization). This
analysis resulted in a public market equity value reference range for the
portion of a New Share to be received as part of the Recapitalization
Consideration for one Old Share on December 22, 1993 of $80 to $82, on March
14, 1994 of $73 to $77 and
 
                                       32

<PAGE>
 
   
on May 20, 1994 of $55 to $59. CS First Boston advised the Board that the
change in the reference range resulted from changes in a number of factors,
including, but not limited to, higher interest rates, lower airline stock
prices, updated financial forecast information and the amendments to the Plan
of Reorganization. Based on the assumptions described above under
"Recapitalization Consideration", the other assumptions described herein and
the equity value reference range for the New Shares set forth above, on May 20,
1994, CS First Boston's reference range of values for the total consideration
to be received by holders of Old Shares in the Recapitalization for one Old
Share was $142 to $146.     
 
  "Gives/Gets" Method
 
  "Gives/Gets" is a summary valuation methodology whereby the impact of the
employee investment and the distribution of the Debentures and Public Preferred
Stock on the Company's unaffected stock price (i.e., unaffected by the
possibility of an extraordinary transaction) is considered. The "gives/gets"
analysis started with the trading value of Old Shares, reduced by the increase
in the stock price attributable, in CS First Boston's view, to market
speculation about a possible employee investment transaction (minus the present
value of the enhancements contained in the "enhanced status quo" alternative
that the Company would have implemented if it had pursued such alternative but
would not implement if the Recapitalization were effected) and added to this
pre-transaction value the present value of the employee investment and the
incremental value realized on the sale of the flight kitchens to arrive at an
implied total equity value. CS First Boston subtracted from this amount the
cash and securities (other than the New Shares) to be delivered to the holders
of Old Shares to arrive at an implied post-transaction market value. Using this
methodology, CS First Boston arrived at a valuation for the portion of a New
Share to be received as part of the Recapitalization Consideration for one Old
Share on December 22, 1993 of $85, which was presented to the Board primarily
for the purpose of describing the possible adjustment in the percent equity to
be held by the ESOPs based on the trading price of the New Shares during the
first year following the Effective Time (see "THE PLAN OF RECAPITALIZATION--
Establishment of ESOPs--Additional Shares"). CS First Boston did not update
this analysis at the March 14, 1994, March 24, 1994 or May 20, 1994 Board
meetings.
 
  In arriving at its written opinions dated December 22, 1993, March 24, 1994
or May 20, 1994 and in discussing its opinions with the Board, CS First Boston
performed certain financial analyses, portions of which are summarized above.
The summary set forth above does not purport to be a complete description of CS
First Boston's analyses. CS First Boston believes that its analyses must be
considered as a whole and that selecting portions of its analyses could create
an incomplete view of the process underlying the opinions. In addition, CS
First Boston may have given various analyses more or less weight than other
analyses, and may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be CS First Boston's
view of the actual value of the Company. No company or transaction used in the
publicly traded comparable company analysis or the comparable acquisition
analysis summarized above is identical to the Company or the Recapitalization.
Accordingly, any such analysis of the value of the Company involves complex
considerations and judgments concerning differences in the potential financial
and operating characteristics of the comparable companies as well as other
factors relating to the trading and the acquisition values of the comparable
companies. These and other limitations, including potential legal restrictions
on airline ownership, may detract from the usefulness of either publicly traded
comparable company multiples or purchase price multiples from prior airline
acquisitions as valuation methodologies. In performing its analyses, CS First
Boston made numerous assumptions with respect to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of the Company and all of which are beyond the
control of CS First Boston. The results of the analyses performed by CS First
Boston are not necessarily indicative of actual values, which may be
significantly more or less favorable than suggested by such analyses.
 
  The analyses described above were prepared solely as part of CS First
Boston's analysis of the fairness of the Recapitalization Consideration to the
holders of Old Shares. The analyses do not purport to be appraisals or to
reflect the prices at which a company might actually be sold or the actual
trading value of the Debentures, the Depositary Preferred Shares or the New
Shares.
 
                                       33

<PAGE>
 
  CS First Boston is an internationally recognized investment banking firm and
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes. The Board
selected CS First Boston to act as its financial advisor on the basis of CS
First Boston's international reputation and CS First Boston's familiarity with
the Company and the airline industry in general and its experience in the
restructuring of other public companies in similar types of transactions. CS
First Boston has previously acted as financial advisor to the Company in
connection with financing and other matters unrelated to the Recapitalization
for which it has received customary compensation. In the course of its
business, CS First Boston actively trades the debt and equity securities of the
Company for its own account and for the accounts of customers. Accordingly, CS
First Boston may at any time hold a long or short position in such securities.
 
  As compensation for rendering the opinion described above and assisting the
Company in evaluating, structuring, planning and negotiating the financial
aspects of the Recapitalization, the Company has paid CS First Boston a
retainer of $250,000 and since January 1994 CS First Boston has been receiving
an advisory fee of $100,000 per month, as well as reimbursement of reasonable
out-of-pocket expenses (including fees and disbursements). While the Company
agreed to pay CS First Boston a fee of $2 million contingent upon consummation
of the Recapitalization, CS First Boston's contingent fee is subject to
adjustment based upon amounts paid to other financial advisors in the
Recapitalization. Accordingly, the aggregate amount that CS First Boston will
receive if the Recapitalization is consummated, including retainer and advisory
fees and expense reimbursements paid by the Company, is $5 million (the success
fee to be paid to Lazard upon consummation of the Recapitalization, as
described below under "--Opinion of Lazard") plus the amount by which CS First
Boston's expense reimbursements exceed Lazard's expense reimbursements. The
Company has agreed to indemnify CS First Boston and its affiliates, their
respective directors, officers, partners, agents and employees and each person,
if any, controlling CS First Boston or any of its affiliates against certain
liabilities, including certain liabilities under the Federal securities laws,
relating to or arising out of its engagement.
 
 Opinion of Lazard
 
  On December 22, 1993, March 14, 1994, March 24, 1994 and May 20, 1994, Lazard
delivered to the Board its oral opinion that, as of such dates, the
consideration to be received by holders of Old Shares in connection with the
Recapitalization, taken as a whole, was fair to such holders of Old Shares from
a financial point of view. On December 22, 1993 March 24, 1993 and May 20,
1994, Lazard delivered to the Board its written opinions that, as of such
dates, the consideration to be received by holders of Old Shares in connection
with the Recapitalization, taken as a whole, was fair to such holders of Old
Shares from a financial point of view.
   
  THE FULL TEXT OF THE WRITTEN OPINION OF LAZARD DATED MAY 20, 1994, WHICH SETS
FORTH THE ASSUMPTIONS MADE, THE MATTERS CONSIDERED AND THE REVIEW UNDERTAKEN
WITH REGARD TO SUCH OPINION, IS ATTACHED AS ANNEX II TO THIS PROXY
STATEMENT/PROSPECTUS. HOLDERS OF OLD SHARES ARE URGED TO READ SUCH OPINION IN
ITS ENTIRETY. LAZARD'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE
CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF OLD SHARES AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF OLD SHARES AS TO HOW SUCH HOLDER
SHOULD VOTE. THE SUMMARY OF THE OPINION OF LAZARD SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION. THE TEXTS OF THE WRITTEN OPINIONS OF LAZARD DATED DECEMBER 22,
1993 AND MARCH 24, 1994, ARE SUBSTANTIALLY THE SAME AS THE TEXT OF THE MAY 20,
1994 OPINION (EXCEPT WITH RESPECT TO CHANGES TO THE PLAN OF RECAPITALIZATION
EFFECTED PURSUANT TO THE DEFINITIVE DOCUMENTATION AMENDMENT). THE TEXT OF THE
LAZARD OPINION DATED MAY 20, 1994 (AND THE DESCRIPTION OF SUCH OPINION SET
FORTH HEREIN) DOES NOT REFLECT A CHANGE TO THE PLAN OF RECAPITALIZATION MADE
SUBSEQUENT TO MAY 20, 1994, WHICH MADE EACH OF THE OFFERINGS INDEPENDENT OF THE
OTHER OFFERINGS (I.E., NONE OF THE OFFERINGS IS NOW CONDITIONED ON, OR SUBJECT
TO, THE CONSUMMATION OF ANY OF THE OTHER OFFERINGS). LAZARD HAS ADVISED THE
COMPANY, HOWEVER, THAT HAD SUCH CHANGE BEEN MADE PRIOR TO THE DATE OF ITS
OPINION, IT WOULD NOT HAVE AFFECTED LAZARD'S ABILITY TO DELIVER ITS OPINION OR
THE CONCLUSION SET FORTH THEREIN.     
 
                                       34

<PAGE>
 
  In arriving at its opinions, Lazard (i) reviewed the Plan of Recapitalization
and its related schedules, (ii) reviewed certain publicly available business
and financial information relating to the Company, (iii) reviewed certain other
information, including financial forecasts, provided to Lazard by the Company
and (iv) met with the Company's management to discuss the business of the
Company. Lazard also considered certain financial and stock market data for the
Company and compared that data with similar data for other publicly held
companies in businesses similar to those of the Company. Lazard also considered
such other information, financial studies, analyses and investigations and
financial, economic and market criteria that it deemed relevant. Lazard also
reviewed the alternative of not effecting the Recapitalization and of
implementing the Fundamental Restructuring Plan described under "BACKGROUND OF
THE PLAN OF RECAPITALIZATION," which, if fully implemented, might result in a
greater value to stockholders than the Recapitalization; however, the opinion
assumed that the Board determined, in light of various factors relating to the
implementation of the Fundamental Restructuring Plan and the availability of
the Recapitalization, not to pursue such implementation. Lazard did assume,
however, for purposes of the analyses described below, that, if the
Recapitalization were not effected, the Company would implement the "enhanced
status quo" alternative described under "BACKGROUND OF THE PLAN OF
RECAPITALIZATION," consisting of a variety of significant actions to reduce
costs and, therefore, to enhance profitability and stockholder value.
 
  In connection with its review, Lazard did not independently verify any of the
foregoing information and Lazard relied on such information being complete and
accurate in all material respects. With respect to the financial forecasts,
Lazard assumed that they had been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the Company's management as
to the future financial performance of the Company. In addition, Lazard did not
make an independent evaluation or appraisal of any of the assets of the
Company, nor was it furnished with any such appraisals. Lazard was not
requested to, and did not, solicit third party offers to acquire all or any
part of the Company, nor, to Lazard's knowledge, has any interest in making
such an offer been presented by any third party, including in response to the
public disclosure regarding discussions between the Company and the Coalition.
Lazard assumed that the results expected by the Company's management to be
obtained from the Recapitalization, including those arising from the employee
investment contemplated by the Plan of Recapitalization will be realized.
Lazard's opinion was necessarily based solely upon information available to it
and business, market, economic and other conditions as they existed on, and
could be evaluated as of, the date of such opinion. Lazard's opinion did not
address the Company's underlying business decision to effect the
Recapitalization.
 
  The following is a summary of the analyses that Lazard utilized in arriving
at its opinion as to the fairness of the consideration to be received by the
holders of Old Shares of the Company in connection with the Recapitalization,
taken as a whole, from a financial point of view and that Lazard discussed with
the Board at the December 22, 1993, March 14, 1994, March 24, 1994 and May 20,
1994 Board meetings.
 
  Valuation of the Company
   
  For purposes of its opinion as to the fairness of the consideration to be
received by holders of Old Shares in connection with the Recapitalization,
taken as a whole, from a financial point of view, Lazard arrived at a reference
range of values for the Company using three principal valuation methodologies:
a discounted cash flow analysis, a publicly traded comparable company analysis
and an unaffected trading value analysis. At the December 22, 1993 Board
meeting, Lazard advised the Board that its overall reference range per share
was $150 to $190. Lazard did not update its overall reference range at the
March 14, 1994 or March 24, 1994 Board meetings but it advised the Board at
those meetings that if it had updated its reference range, the updated range
would have been somewhat lower than the range given in December. As of May 20,
1994, Lazard had determined that its overall reference range per share was $135
to $160. Lazard advised the Board that the changes in the reference range
resulted from changes in a number of factors, including, but not limited to,
higher interest rates, lower airline stock prices and updated financial
forecast information. The methodologies used by Lazard and the resulting ranges
of values, which were described to the Board at the     
 
                                       35

<PAGE>
 
December 22, 1993 Board meeting but which were not updated for the Board at the
March 14, 1994, March 24, 1994 or May 20, 1994 Board meetings, are described
below. If Lazard had updated these analyses, the resulting ranges of values
would have been lower than the ranges that resulted from Lazard's December 22,
1993 analyses.
 
  Discounted Cash Flow Analysis. Using a discounted cash flow analysis, Lazard
estimated the present value of the future cash flows that the Company could be
expected to produce over a ten-year period from 1994 through 2003 under various
assumptions in accordance with management's forecasts. The analysis assumed
that the "enhanced status quo" alternative would be implemented. Lazard
determined a range of total values for the Company by adding (i) the present
value (using discount rates ranging from 8.0% to 12.0%) of the ten-year
unleveraged free cash flows of the Company and (ii) the present value of the
Company's 2003 terminal value. A range of terminal values was determined by
multiplying 2003 projected net income by a range of multiples determined based
on the trading multiples of selected publicly traded comparable companies (AMR
Corporation, Continental Airlines, Delta Air Lines, Southwest Airlines and
USAir Group (the "Comparable Group")) and other factors (ranging from 11.0
times to 15.0 times 2003 net income). This analysis resulted in a range of
values per Old Share for the Company on December 22, 1993 of from $170 to $210.
 
  Publicly Traded Comparable Company Analysis. Lazard reviewed and compared the
financial, market and operating performance of the companies in the Comparable
Group with that of the Company. Of the companies in the Comparable Group,
Lazard focused its analyses principally on AMR Corporation, Delta Air Lines and
Southwest Airlines. Lazard examined certain publicly available financial data,
including total revenue, EBITDA, earnings before interest and taxes, earnings
per share and net cash flow (net income plus depreciation) per share and
reviewed various trading multiples for the Comparable Group. Lazard also
considered other financial data (including margins and growth rates) as well as
certain operating information (such as yields and load factors) for the
Comparable Group. This analysis resulted in a range of appropriate multiples
for the Company, which, in turn, resulted in a range of values per Old Share of
the Company on December 22, 1993 of from $140 to $180.
 
  Unaffected Trading Value Analysis. Lazard reviewed the history of the trading
prices of the Company's common stock over various periods and at various times
(including prior to the first public disclosure of the Coalition's proposal for
a restructuring of the Company in July 1993) and compared such prices to the
prices of other airline companies over such periods and at such times in order
to estimate a normalized trading value for the Old Shares that would not
reflect a significant premium attributable to the disclosure of, or market
speculation about, a possible employee investment transaction. This analysis
resulted in an unaffected trading range per Old Share of the Company on
December 22, 1993 of from $130 to $135.
 
  Recapitalization Consideration
   
  For purposes of its opinion as to the fairness of the consideration to be
received by holders of Old Shares of the Company in connection with the
Recapitalization, taken as a whole, from a financial point of view, Lazard
arrived at a reference range of values for the consideration to be received by
the holders of Old Shares in the Recapitalization, consisting of cash, New
Shares and, if the Offerings are not consummated, Debentures and Depositary
Preferred Shares representing interests in the Public Preferred Stock. The
interest rates on the Debentures and the dividend rate on the Public Preferred
Stock were initially set upon the execution of the Plan of Recapitalization.
The interest or dividend rate on each such security will be reset, as of a date
to be determined that is not fewer than five calendar days and not greater than
ten calendar days prior to the Meeting, to the rate required to cause each such
security to trade at 100% of its aggregate principal amount (in the case of the
Debentures) or at 100% of its aggregate liquidation preference (in the case of
the Public Preferred Stock) (collectively, "par"), on a fully distributed
basis, as of such date (subject to a maximum potential increase, in each case,
of 112.5 basis points (1.125 percentage points)). Accordingly, Lazard's opinion
was based on the assumption that (if the Offerings are not consummated) the
final rates to be borne by such securities would be set so that the Debentures
and the Public Preferred Stock would trade, as of such     
 
                                       36

<PAGE>
 
   
date, on a fully distributed basis, at par. Lazard advised the Board at the
March 24, 1994 meeting that the reduction of the maximum potential increase in
the interest rates on the Debentures and the dividend rate on the Public
Preferred Stock from 150 basis points (1.5 percentage points) (which was the
rate cap provided for in the Agreement in Principle) to 112.5 basis points
(1.125 percentage points) (the rate cap provided for in the Plan of
Recapitalization) could reduce the value of the Debentures and the Public
Preferred Stock to be received by the holders of Old Shares in the
Recapitalization by an amount that Lazard advised the Board was not material to
the consideration to be received by the holders of Old Shares in the
Recapitalization, taken as a whole. Lazard's opinion does not represent
Lazard's view, if the Offerings are not consummated, as to what the trading
value of the securities actually will be when the securities are issued to
holders of the Old Shares following consummation of the Recapitalization. The
actual trading values of such securities could be higher or lower depending
upon changes in interest rates, dividend rates, market conditions, general
economic conditions and other factors that generally influence the price of
securities. Because of the large aggregate amount of the securities
(particularly the Public Preferred Stock) that would be issued to holders of
Old Shares if the Offerings are not consummated and other factors, such
securities may trade initially, and for an extended period thereafter, at
prices below those at which they would trade on a fully distributed basis.
Furthermore, any valuation of securities is only an approximation, subject to
uncertainties and contingencies. If the Offerings are consummated, the interest
rates on the Debentures and the dividend rate on the Public Preferred Stock may
be set at rates that are in excess of the limitation contained in the
Recapitalization Agreement, in which event the principal amount of the series
of Debentures affected or the number of Depositary Preferred Shares, as the
case may be, will be reduced so that the aggregate amount of interest payable
by United or dividends payable by UAL, as the case may be, with respect to such
security will not exceed amounts specified in the Recapitalization Agreement,
and the amount of the proceeds from the sale of such securities to be received
by holders of Old Shares will be reduced accordingly. In addition, in certain
other circumstances such proceeds could be less than the stated principal
amount or liquidation preference of such securities. Lazard's opinion was based
on the assumption that, if the Offerings are consummated, the proceeds of the
Debentures and the Depositary Preferred Shares to be received by the holders of
Old Shares will not be less than the principal amounts of Debentures and the
number of Depositary Preferred Shares that would have been distributed to the
holders of Old Shares had the Offerings not been consummated.     
 
  Valuation of the New Shares
 
  The principal valuation methodology used by Lazard with respect to the New
Shares to be received by holders of Old Shares in the Recapitalization was the
earnings and cash flow multiple method. The "gives/gets" method was also
analyzed. These methodologies are described below:
   
  Earnings and Cash Flow Multiple Method. Lazard arrived at a range of values
for the New Shares by reviewing the public market multiples of the Comparable
Group and the Company, and applying a range of multiples to the Company's
estimated 1994 and 1995 earnings per share and net cash flow per share pro
forma for the consummation of the Recapitalization. Because of the way the
accounting rules applicable to "stock based compensation" (which require that
stock compensation expense for periodic stock allocations be measured by the
then-current market value of the shares at the time of allocation) will apply
to the share allocations within the ESOPs, there are complexities to
forecasting future earnings per share of the Company. The size of the employee
stock ownership plan accounting charge will be affected by the stock price, and
the employee stock ownership plan accounting charge will reduce reported
earnings per share which, in turn, may affect the stock price. For purposes of
its analyses, Lazard applied a range of multiples to forecasted results based
on two cases: one assuming ratable allocation of the shares within the ESOPs
over the period of the concessions and the other assuming immediate, full
allocation (the latter methodology eliminates the need to estimate future stock
price performance in order to project the Company's earnings per share). Lazard
applied a discount to the resulting values to reflect the potential dilution
from the equity collar arrangement (which will increase the employee trusts'
equity ownership from 55% to a maximum of 63% if the Company's average stock
closing price for one year exceeds certain levels specified in the Plan of
Recapitalization). This analysis resulted in a public market equity value
reference range for the portion of a New Share to be received     
 
                                       37

<PAGE>
 
   
as part of the Recapitalization Consideration for one Old Share on December 22,
1993 of $80 to $82, on March 14, 1994 of $73 to $77 and on May 20, 1994 of $55
to $61. Lazard advised the Board that the changes in the reference range
resulted from changes in a number of factors, including but not limited to,
higher interest rates, lower airline stock prices, updated financial forecast
information and the amendments to the Plan of Reorganization. Based on the
assumptions described above under "Recapitalization Consideration", the other
assumptions described herein and the equity value reference range for the New
Shares set forth above, on May 20, 1994, Lazard's reference range of values for
the total consideration to be received by holders of Old Shares in the
Recapitalization for one Old Share was $141 to $149.     
 
  "Gives/Gets" Method
 
  "Gives/Gets" is a summary valuation methodology whereby the impact of the
employee investment and the distribution of the Debentures and Public Preferred
Stock on the Company's unaffected trading value is considered. The "gives/gets"
analysis started with the trading value of Old Shares, reduced by the increase
in the stock price attributable, in Lazard's view, to market speculation about
a possible employee investment transaction (determined as described under "--
Unaffected Trading Value Analysis" above) (minus the present value of the
enhancements contained in the "enhanced status quo" alternative that the
Company would have implemented but would not in the Recapitalization) and added
to this pre-transaction value the present value of the employee investment and
the incremental value realized on the sale of the flight kitchens to arrive at
an implied total equity value. Lazard subtracted from this amount the cash and
securities (other than the New Shares) to be delivered to the holders of the
Old Shares to arrive at an implied post-transaction market value. Using this
methodology, Lazard arrived at a valuation for the portion of a New Share to be
received as part of the Recapitalization Consideration for one Old Share on
December 22, 1993 of approximately $85, which was presented to the Board
primarily for the purpose of describing the possible adjustment in the percent
equity to be held by the ESOPs based on the trading price of the New Shares
during the first year following the Effective Time (See "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--Additional Shares"). Lazard did not
update this analysis at the March 14, 1994, March 24, 1994 or May 20, 1994
Board meetings.
 
  In arriving at its written opinions dated December 22, 1993, March 24, 1994
and May 20, 1994, and in discussing its opinions with the Board, Lazard
performed certain financial analyses, portions of which are summarized above.
The summary set forth above does not purport to be a complete description of
Lazard's analyses. Lazard believes that its analyses must be considered as a
whole and that selecting portions of its analyses could create an incomplete
view of the process underlying the opinions. In addition, Lazard may have given
various analyses more or less weight than other analyses, and may have deemed
various assumptions more or less probable than other assumptions, so that the
ranges of valuations resulting from any particular analysis described above
should not be taken to be Lazard's view of the actual value of the Company. No
company used in the publicly traded comparable company analysis summarized
above is identical to the Company. Accordingly, any such analysis of the value
of the Company involves complex considerations and judgments concerning
differences in the potential financial and operating characteristics of the
comparable companies as well as other factors relating to the trading values of
the Comparable Group. In performing its analyses, Lazard made numerous
assumptions with respect to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of the Company and all of which are beyond the control of Lazard. The
results of the analyses performed by Lazard are not necessarily indicative of
actual values, which may be significantly more or less favorable than suggested
by such analyses.
 
  The analyses described above were prepared solely as part of Lazard's
analysis of the fairness of the Recapitalization Consideration to the holders
of Old Shares. The analyses do not purport to be appraisals or to reflect the
prices at which a company might actually be sold or the actual trading value of
the Debentures, the Depositary Preferred Shares or the New Shares.
 
                                       38

<PAGE>
 
  Lazard is an internationally recognized investment banking firm and
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes. Lazard was
chosen by the Company to act as financial advisor in connection with the
negotiations with the Coalition and the Recapitalization because of its
familiarity with the Company and the airline industry in general, because of
its general experience in restructuring other public companies in similar
types of transactions and because it was believed that the experience of Mr.
Felix Rohatyn, a general partner of Lazard, who had been on the National
Commission to Ensure a Strong Competitive Airline Industry, would provide
additional valuable insight on the Company's situation and its discussions
with the Coalition.
 
  In consideration for Lazard's services, the Company paid Lazard a retainer
of $500,000 in January 1994 and agreed to pay Lazard a financial advisory fee
of $100,000 per month (prorated for any portion of a full month) payable on
the last day of each month beginning January 31, 1994. The Company has agreed
to reimburse Lazard for its out-of-pocket expenses, including reasonable fees
and disbursements of counsel. The Company has also agreed to pay Lazard a
success fee of $5 million upon the completion of the Recapitalization against
which the retainer and financial advisory fees and expense reimbursements will
be credited. The Company has agreed to indemnify Lazard and its affiliates,
their respective directors, officers, partners, agents and employees and each
person, if any, controlling Lazard or any of its affiliates against certain
liabilities, including certain liabilities under the Federal securities laws,
relating to or arising out of its engagement.
 
OPINION OF VALUATION FIRM
 
  In order to assist the Board, the Company retained American Appraisal, a
nationally recognized independent valuation firm. American Appraisal delivered
an oral report to the Board at the March 14, 1994 meeting and a written
opinion to the Board and the Company dated as of March 14, 1994 (the "American
Appraisal Opinion"). It is a condition to consummation of the Recapitalization
that the Board shall have received an updated opinion from American Appraisal
substantially similar to the American Appraisal Opinion as of the Effective
Time. See "THE PLAN OF RECAPITALIZATION--Terms and Conditions." The full text
of the American Appraisal Opinion, which sets forth the assumptions made, the
matters considered and the review undertaken with regard to such opinion is
filed as an Exhibit to the Registration Statement of which this Proxy
Statement/Prospectus is a part. The summary of the American Appraisal Opinion
set forth in this Proxy Statement/Prospectus is qualified in its entirety by
reference to the full text of such opinion.
 
  In rendering the American Appraisal Opinion, American Appraisal valued the
assets of the Company (on a consolidated basis) and United (on a consolidated
basis), as going concerns, both immediately before and after, and giving
effect to, the Recapitalization. The valuation included the aggregate assets
of the business enterprise of each of the Company (on a consolidated basis)
and United (on a consolidated basis), or total invested capital as represented
by the total net working capital, tangible plant, property and equipment and
intangible assets of the respective business enterprises. American Appraisal
stated that it believed this to be a reasonable basis on which to value the
Company and United and that nothing has come to its attention that caused it
to believe that each of the Company (on a consolidated basis) and United (on a
consolidated basis), before and after the Recapitalization, will not be going
concerns.
 
  The American Appraisal Opinion is subject to the conditions that (i) any
sale of each of the Company (on a consolidated basis) or United (on a
consolidated basis) will be completed as the sale of an ongoing business
entity within a commercially reasonable period and (ii) a "commercially
reasonable period" of time means at least twelve months for a willing buyer
and a willing seller to agree on price and terms, plus the time necessary to
complete the sale of the Company (on a consolidated basis) and United (on a
consolidated basis). In connection with the opinion of the fair value of each
of the Company (on a consolidated basis) and United (on a consolidated basis),
American Appraisal was provided historical and projected operating results. In
addition to this information, American Appraisal was provided other operating
data and information, all of which has been accepted by American Appraisal,
without independent verification, as representing a fair
 
                                      39

<PAGE>
 
statement of historical and projected results of each of the Company (on a
consolidated basis) and United (on a consolidated basis) in the opinion of the
management of each of the Company and United. However, the American Appraisal
Opinion states that, in the course of its investigation, nothing has led it to
believe that its acceptance and reliance on such operating data and information
was unreasonable.
 
  American Appraisal's determination of the fair value of each of the Company
(on a consolidated basis) and United (on a consolidated basis) was based on the
generally accepted valuation principles used in the market and discounted cash
flow approaches, described as follows:
 
    Market Approach--Based on current stock market prices of publicly held
  companies whose businesses are similar to that of the Company (on a
  consolidated basis) and United (on a consolidated basis) and premiums paid
  over market price by acquirors of total or controlling ownership in such
  businesses.
 
    Discounted Cash Flow Approach--Based on the present value of each of the
  Company's (on a consolidated basis) and United's (on a consolidated basis)
  future debt-free operating cash flow as estimated by the managements of
  each of the Company (on a consolidated basis) and United (on a consolidated
  basis) and contained in Status Quo Scenario C. The present value is
  determined by discounting the projected operating cash flow at a rate of
  return that reflects the financial and business risks of each of the
  Company (on a consolidated basis) and United (on a consolidated basis).
 
  In determining the amount that would be required to pay the total probable
liabilities on the respective dates that the Company's (on a consolidated
basis) and United's (on a consolidated basis) liabilities and contingent
liabilities become absolute and matured, for purposes of their opinion,
American Appraisal applied valuation techniques, including present value
analysis, using appropriate rates over appropriate periods to the amounts that
will be required from time to time to pay such liabilities and contingent
liabilities as they become absolute and matured based on their scheduled
maturities.
 
  In the course of its investigation of identified contingent liabilities, the
areas brought to the attention of American Appraisal by the managements of the
Company (on a consolidated basis) and United (on a consolidated basis)
included, (i) environmental matters, (ii) the adequacy of the corporate
insurance program, (iii) tax audit exposure, (iv) the liability for the pension
and welfare benefits program, (v) labor and collective bargaining issues and
(vi) various lawsuits and claims filed and/or pending against the Company (on a
consolidated basis) and United (on a consolidated basis).
 
  Reserves for contingent liabilities have been made in the pro forma
consolidated balance sheet prepared and furnished to American Appraisal by each
of the managements of the Company (on a consolidated basis) and United (on a
consolidated basis), and provisions for the ongoing expenses related to these
issues have been included with the projection of income and expenses presented
in the financial projections, and are considered in American Appraisal's
valuation study as ongoing business operating expenses. American Appraisal has
taken these identified contingent liabilities into account in rendering the
American Appraisal Opinion and has concluded that such liabilities and ongoing
expenses do not require any qualification of the American Appraisal Opinion.
American Appraisal's conclusion is based on: (i) its review of various
acquisition transactions, including leveraged transactions and significant
debt-financed recapitalization transactions, involving corporations engaged in
businesses similar to those of each of the Company (on a consolidated basis)
and United (on a consolidated basis), (ii) the opinion of the managements of
each of the Company (on a consolidated basis) and United (on a consolidated
basis) that the issues concerning various lawsuits, claims and other identified
contingent liabilities do not and are not reasonably likely to have a material
adverse effect on the consolidated financial position of each of the Company
(on a consolidated basis) and United (on a consolidated basis) and (iii) its
discussions with the managements, accountants, consultants and counsel of each
of the Company (on a consolidated basis) and United (on a consolidated basis),
concerning claims and other contingent liabilities and the possible effect of
the foregoing on each of the Company and United as well as its investigation of
the various lawsuits.
 
                                       40

<PAGE>
 
  American Appraisal assumed that the total liabilities of each of the Company
(on a consolidated basis) and United (on a consolidated basis) will be only
those liabilities set forth in the financial projections and the pro forma
balance sheet as of December 31, 1993 of each of the Company (on a consolidated
basis) and United (on a consolidated basis) and the identified contingent
liabilities referred to in the American Appraisal Opinion. The American
Appraisal Opinion states that, in the course of its investigation, nothing came
to American Appraisal's attention that caused American Appraisal to believe
such assumptions to be unreasonable. The pro forma balance sheet used by
American Appraisal is the unaudited pro forma condensed balance sheet as of
December 31, 1993 for each of the Company (on a consolidated basis) and United
(on a consolidated basis), each adjusted to give effect to the planned
financing of the Recapitalization and restated to reflect the fair value of
each of the Company (on a consolidated basis) and United (on a consolidated
basis).
 
  The Company's and United's management has represented to American Appraisal,
and American Appraisal has relied on the representations of the managements of
the Company and United, that no adverse changes have occurred since the
preparation of the Company's and United's pro forma balance sheet and financial
analyses that would materially impact its content. The American Appraisal
Opinion states that nothing has come to American Appraisal's attention that
would lead it to believe that its reliance on such representations is
unreasonable.
 
  In connection with the American Appraisal Opinion, American Appraisal made
such reviews, analyses and inquiries as it has deemed necessary and appropriate
under the circumstances. Among other things, American Appraisal (i) reviewed
the documents related to the Recapitalization and reporting documents filed
with the Commission, (ii) reviewed financial analyses and inquired of
managements of the Company and United as to the foundation for any such
analyses and the basic assumptions made in the preparation of Status Quo
Scenario C relating to the type of business, geographic markets, domestic and
international economic conditions and capital facilities and working capital
requirements, (iii) reviewed audited and unaudited historical income
statements, balance sheets and statements of sources and uses of funds of the
Company and United as provided by management and its accountants, (iv) visited
the Company's and United's headquarters and selected facilities to discuss
historical and estimated operating results and industry data, including the
impact of future trends on the industry and the Company and United, as well as
the effects of the Recapitalization, (v) reviewed internal financial analyses
and other internally generated data of the Company and United including asset
valuations, (vi) inquired of managements of the Company and United and their
respective financial advisors as to estimated levels of cash and working
capital required by the Company and United, (vii) reviewed certain publicly
available economic, financial and market information as it relates to the
business operations of the Company and United, (viii) reviewed information
regarding businesses similar to the Company and United and investigated the
financial terms and post-transaction performance of recent acquisitions, (ix)
consulted with industry, economic and statistical experts, as necessary, (x)
discussed all of the foregoing information, where appropriate, with managements
of the Company and United and their respective agents, accountants and
financial advisors and (xi) conducted such other studies, analyses and
investigations as American Appraisal deemed relevant or necessary for purposes
of the opinion.
 
  American Appraisal assumed, without independent verification, that the pro
forma balance sheet and financial analyses provided to American Appraisal have
been reasonably prepared and reflect the best available estimates, at the time
they were prepared, of the future financial results and condition of the
Company and United, and that there has been no material adverse change in the
assets, financial condition, business or prospects of the Company and United
since the date of the most recent financial statements made available to
American Appraisal. American Appraisal stated that nothing has come to its
attention that would lead it to believe that the foregoing assumption is
unreasonable.
 
  Although American Appraisal did not independently verify the accuracy and
completeness of the Status Quo Scenario C and forecasts, or any of the
assumptions, estimates or judgments referred to therein, or the basis therefor,
and although no assurances can be given that such Status Quo Scenario C and
forecasts can be
 
                                       41

<PAGE>
 
realized or that actual results will not vary materially from those projected,
American Appraisal stated that nothing had come to its attention during the
course of its engagement that lead it to believe that any information reviewed
by it or presented to it in connection with its rendering of the American
Appraisal Opinion is unreasonable or inaccurate in any material respect or that
it was unreasonable for it to utilize and rely upon the financial analyses,
financial statements, assumptions, description of the business and liabilities,
estimates and judgments or statements of the managements of the Company and
United and their respective counsel, accountants and financial advisors. The
American Appraisal Opinion is necessarily based on business, economic, market
and other conditions as they existed at the time of the opinion and as they
could be evaluated by American Appraisal at such time.
 
  The American Appraisal Opinion stated that, based upon and subject to the
conditions and assumptions contained therein, (a) the fair value of the
aggregate assets of each of the Company (on a consolidated basis) and United
(on a consolidated basis) will exceed their total respective liabilities
(including, without limitation, subordinated, unmatured, unliquidated and
contingent liabilities), (b) the present fair salable value of the aggregate
assets of each of the Company (on a consolidated basis) and United (on a
consolidated basis) will be greater than their respective probable liabilities
on their debts as such debts become absolute and matured, (c) each of the
Company (on a consolidated basis) and United (on a consolidated basis) will be
able to pay their respective debts and other liabilities, including contingent
liabilities and other commitments, as they mature, (d) the capital remaining in
each of the Company (on a consolidated basis) and in United (on a consolidated
basis) after consummation of the Recapitalization will not be unreasonably
small for the businesses in which the Company and United are engaged, as
management of the Company and United has indicated such businesses are
conducted and as management has indicated the businesses are proposed to be
conducted following the consummation of the Recapitalization, and after giving
due consideration to the prevailing practices in the industry in which the
Company and United will be engaged, (e) the excess of the fair value of the
total assets of the Company over the total liabilities, including contingent
liabilities, of the Company, is equal to or exceeds the value of the
Recapitalization Consideration to stockholders plus the stated capital of the
Company and (f) the excess of the fair value of the total assets of United over
the total liabilities, including contingent liabilities, of United, is equal to
or exceeds the value of the stated capital of United.
 
  American Appraisal indicated that it believed the excess of total assets over
pro forma liabilities was approximately $2.5 billion at December 31, 1993,
compared to approximately $1.203 billion in stockholders' equity as of such
date, determined according to generally accepted accounting principles, so
that, giving effect to the Recapitalization, the indicated excess assets of the
Company for purposes of Delaware law exceeded $1 billion.
 
  The American Appraisal Opinion will not be binding on creditors of the
Company. Accordingly, there can be no assurance that a court would value the
Company's assets on a going-concern basis in order to determine whether the
Company was insolvent at the time of the Recapitalization or that, regardless
of the method of valuation, a court would not determine that the Company was
insolvent at such time. The Board and management believe that the Debentures
will be incurred by the Company for proper purposes and in good faith, that the
Company will receive reasonably equivalent value or fair consideration for
incurring such indebtedness and that, based on present forecasts and other
financial information, at the time of the Recapitalization, the Company will be
solvent, will have sufficient capital to carry on its business and will be able
to pay its debts as they mature. See "--Certain Revenue and Earnings Scenarios"
and "UNAUDITED PRO FORMA FINANCIAL INFORMATION."
   
  As compensation for its services, American Appraisal received a fee of
$50,000 from the Company upon execution of the engagement agreement and
$110,000 plus expenses upon delivery of the final American Appraisal Opinion
and will receive $20,000 plus expenses upon delivery of the updated opinion. In
addition, the Company agreed to indemnify and hold harmless American Appraisal
with respect to any claim arising from any untrue information furnished by the
Company or from any services relating to the American Appraisal Opinion, except
in the case a loss is found to have resulted from American Appraisal's
negligence or misfeasance or willful or knowing violation of law or breach of
the engagement agreement.     
 
                                       42

<PAGE>
 
PURPOSE AND STRUCTURE OF THE RECAPITALIZATION
   
  The purpose of the Recapitalization is to recapitalize the Company and
thereby provide the holders of Old Shares with an opportunity to receive cash
or a combination of cash, Debentures and Depositary Preferred Shares
representing interests in Public Preferred Stock for a portion of their Old
Shares, while permitting the holders of Old Shares to retain a significant
ongoing equity interest in a Company that is expected to have a lower cost
structure and be more competitive and to provide performance incentives to the
Company's employees by providing them with significant equity participation in
the Company through the ESOPs. The Recapitalization is being effected at the
present time because the Board believes that it is the best available
alternative to maximize value to the Company's stockholders while achieving
significant wage and benefit reductions and work-rule changes that the Board
believes are necessary to position United to compete in the aviation
marketplace. See "BACKGROUND OF THE PLAN OF RECAPITALIZATION" and "--
Recommendation of the Board."     
   
  The use of shares of Series D Redeemable Preferred Stock has been chosen in
order to comply with technical aspects of Delaware law that may be applicable
to the Recapitalization. The Company does not intend to send certificates for
Series D Redeemable Preferred Stock to the holders of Old Shares, and, in lieu
thereof, cash (if the Offerings are consummated) or cash, Debentures (if either
or both of the United Debt Offerings are not consummated) and Depositary
Preferred Shares (if the UAL Preferred Offering is not consummated) will be
paid based upon the number of shares of Series D Redeemable Preferred Stock
issued in the Reclassification and the redemption price per one one-thousandth
of a share of Series D Redeemable Preferred Stock.     
 
  It is expected that if the Plan of Recapitalization is not approved by the
Company's stockholders, or if the Recapitalization is not consummated for any
other reason, the Company's current management, under the direction of the
Board, will continue to manage the Company as an ongoing business. In such
event, management would take other actions intended to achieve a lower cost
structure intended to allow the Company to compete effectively in the global
aviation marketplace, which may include actions described in this Proxy
Statement/Prospectus relating to the "enhanced status quo" alternative or
Fundamental Restructuring Plan described under "BACKGROUND OF THE PLAN OF
RECAPITALIZATION."
 
INTERESTS OF CERTAIN PERSONS IN THE RECAPITALIZATION
 
  In considering the Plan of Recapitalization, stockholders should be aware
that the executive officers and the Board members have certain interests,
described below, that present them with potential conflicts of interest in
connection with the Recapitalization. The Board was aware of these potential
conflicts and considered them among the other matters described under "--
Recommendation of the Board."
 
  The transactions contemplated by the Plan of Recapitalization will constitute
a "change in control" under the Employment Agreements (as defined below) with
Messrs. Wolf and Pope, the severance agreements entered into by United with all
other executive officers, the 1988 Restricted Stock Plan, and the 1981 Stock
Program as well as the Retirement Plan for outside directors and its related
trust. See "CERTAIN INFORMATION CONCERNING THE BOARD OF DIRECTORS--Compensation
of Directors; Effect of "Change in Control' " and "EXECUTIVE COMPENSATION--
Employment Contracts and Change in Control Arrangements."
 
  The Plan of Recapitalization provides that Messrs. Wolf, Pope and Nagin will
retire from all positions they hold with the Company and all of its
subsidiaries at or immediately prior to the Effective Time and that no other
officer of the Company or United may be terminated for a period of six months
following the Effective Time unless such termination is approved by at least
two Outside Public Directors (as defined below, see "THE PLAN OF
RECAPITALIZATION--Revised Governance Structure--Public Directors") and the
Chief Executive Officer (the "CEO") of the Company (Mr. Greenwald).
 
                                       43

<PAGE>
 
  Pursuant to agreements originally entered into upon the commencement of their
employment in 1987, 1988 and 1988, respectively, with the Company and United as
subsequently amended (the "Officer Agreements"), upon their retirements in
accordance with the Plan of Recapitalization, each of Messrs. Wolf, Pope and
Nagin will be entitled to receive: (1) a cash payment (based on a multiple of
three times current salary and deemed bonus) equal to approximately $4.3
million, $1.8 million and $1.1 million, respectively, (2) lifetime travel
privileges (and reimbursement of related taxes, with certain limitations in Mr.
Nagin's case) on United for each of them and their spouses and other eligible
dependents, (3) continued coverage under United's medical and other welfare
benefit plans (limited to three years in Mr. Pope's case) and (4) certain other
benefits, including certain pension-related benefits, see "EXECUTIVE
COMPENSATION--Pension Plan Table."
 
  The 1988 Restricted Stock Plan provides that all restricted shares awarded
thereunder shall vest upon the occurrence of a "change in control." As of May
16, 1994, Messrs. Wolf, Pope, Nagin, Guyette, O'Gorman and George beneficially
own 10,000, 26,500, 13,000, 11,000, 7,500 and 10,200 restricted shares,
respectively.
   
  Options to acquire Old Shares awarded under the 1981 Stock Program held by
executive officers become exercisable in connection with the occurrence of a
"change in control." Upon consummation of the transactions contemplated by the
Plan of Recapitalization, each such Option will automatically be converted into
an option to acquire (i) one half of a New Share, (ii) $25.80 in cash, (iii)
either (a) $15.55 principal amount of Series A Debentures or (b) if the United
Series A Offering is consummated, the cash proceeds (without deducting any
underwriting discount or other costs) from the sale thereof by United pursuant
to the United Series A Offering, (iv) either (a) $15.55 principal amount of
Series B Debentures or (b) if the United Series B Offering is consummated, the
cash proceeds (without deducting any underwriting discount or other costs) from
the sale thereof by United pursuant to the United Series B Offering and (v)
either (a) Depositary Preferred Shares representing interests in $31.10
liquidation preference of Public Preferred Stock or (b) if the UAL Preferred
Offering is consummated, the cash proceeds (without deducting any underwriting
discount or other costs) from the sale thereof by the Company pursuant to the
UAL Preferred Offering. As of May 31, 1994, Messrs. Wolf, Pope, Nagin, Guyette,
O'Gorman and George held such Options (with an exercise price of $131 or less)
to purchase respectively 125,000 Old Shares (all of which are exercisable as of
May 31, 1994 and with an average exercise price of $89.99) 150,000 Old Shares,
(all of which are exercisable as of May 31, 1994 with an average exercise price
of $95.81), 60,000 Old Shares (45,000 of which are exercisable as of May 31,
1994 and 15,000 of which will become exercisable immediately prior to the
Effective Time and with an average exercise price of $107.85), 82,120 Old
Shares (67,120 of which are exercisable as of May 31, 1994 and 15,000 of which
will become exercisable immediately prior to the Effective Time and with an
average exercise price of $101.59), 30,000 (15,000 of which are exercisable as
of May 31, 1994 and 15,000 of which will become exercisable immediately prior
to the Effective Time and with an average exercise price of $124) and 56,250
Old Shares (41,250 of which are exercisable as of May 31, 1994 and 15,000 of
which will become exercisable immediately prior to the Effective Time and with
an average exercise price of $108.69). In addition, Messrs. Wolf, Pope and
O'Gorman hold such Options to purchase 225,000, 60,000 and 30,000 Old Shares at
prices in excess of $131.     
 
  The Company has amended the 1988 Restricted Stock Plan, the 1981 Stock
Program and the Incentive Plan, in each case, subject to stockholders' approval
and consummation of the transactions contemplated by the Plan of
Recapitalization. Each of the amendments is intended to permit awards under the
related plan to continue to be deductible by the Company for Federal income tax
purposes under Section 162(m) of the Internal Revenue Code. In addition, the
amendment to the 1981 Stock Program reserves an additional 1,200,000 New Shares
(subject to increase in the event of an adjustment relating to the New Shares
described in "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs--Additional
Shares") for issuance upon the exercise of options granted thereunder, and the
amendment to the Incentive Plan permits each participant to elect to defer all
or any portion of any bonus otherwise payable thereunder.
 
  See "CERTAIN INFORMATION CONCERNING THE BOARD OF DIRECTORS--Compensation of
Directors; Effect of "Change in Control' " for certain information with respect
to the effect of the Recapitalization on benefits provided to members of the
Company's Board.
 
                                       44

<PAGE>
 
  See "THE PLAN OF RECAPITALIZATION--Terms and Conditions--Fees and Expenses;
Indemnification" for certain information with respect to indemnification and
insurance coverage to be provided by the Company to, among others, directors
and executive officers of the Company following the Effective Time.
 
CERTAIN RISK FACTORS
 
  In addition to the other information contained in this Proxy
Statement/Prospectus, holders of Old Shares should carefully consider the
following risk factors concerning the New Shares, the Debentures and the
Depositary Preferred Shares representing interests in the Public Preferred
Stock.
   
  Financial Effects; Delaware Law Considerations. The Recapitalization will
immediately change the Company's capitalization to one that is more highly
leveraged. In this regard, the following discussion compares the pro forma
book effect of the Recapitalization on long-term debt, stockholder's equity
and income/loss from continuing operations with recent historical financial
information of the Company. On a pro forma book basis at March 31, 1994, the
Company would have had approximately $3.451 billion of long-term debt and a
deficit of approximately $448 million of stockholders' equity, as compared to
the approximately $2.693 billion of long-term debt and approximately $1.097
billion of stockholders' equity that was shown on the Company's balance sheet
on such date. In addition, if the Recapitalization had occurred as of January
1, 1993, the Company would have reported, on a pro forma basis, a loss from
continuing operations of approximately $38 million for the year ended December
31, 1993 and a loss from continuing operations of approximately $58 million
for the three months ended March 31, 1994, as compared to losses from
continuing operations of $31 million for the year ended December 31, 1993 and
$71 million for the three months ended March 31, 1994 that were reported for
each period. See "UNAUDITED PRO FORMA FINANCIAL INFORMATION."     
   
  The Company's earnings were inadequate to cover fixed charges and preferred
stock dividends by $98 million in 1993, by $748 million in 1992 and by $599
million in 1991. On a pro forma basis, the Company's earnings in 1993 were
inadequate to cover fixed charges and preferred stock dividends by $109
million. In addition, the Company's earnings were inadequate to cover fixed
charges and preferred stock dividends for the three month period ended March
31, 1994 by $118 million, and on a pro forma basis they were inadequate by $97
million. United's earnings were inadequate to cover fixed charges by $77
million in 1993, by $694 million in 1992 and by $604 million in 1991. On a pro
forma basis, United's earnings in 1993 were inadequate to cover fixed charges
by $63 million. In addition, United's earnings were inadequate to cover fixed
charges for the three month period ended March 31, 1994 by $130 million, and
on a pro forma basis they were inadequate by $102 million. Non-cash
depreciation and amortization are deducted in computing earnings before fixed
charges. Such non-cash charges do not significantly affect the ability of
United to fund operations, service debt, or provide funds to service the
Company's preferred stock dividends. Depreciation and amortization of United
were $722 million in 1993, $695 million in 1992, $604 million in 1991 and $178
million for the three month period ended March 31, 1994.     
   
  The Delaware General Corporation Law (the "DGCL") requires that the payments
to holders of Old Shares in the Recapitalization be made from "surplus." In
addition, the DGCL requires that dividends, including future dividends on the
Public Preferred Stock, may only be made from surplus or the net profits of
the Company for the fiscal year in which the dividend is declared and/or the
preceding fiscal year. For purposes of the DGCL, surplus equals the excess, if
any, at any given time, of the net assets of the corporation over stated
capital. Valuation of the Company's assets at their fair value (as supported
by the American Appraisal Opinion referred to above) would create capital
surplus that under the DGCL may be used for such payments. In addition, such
payments would not be permitted if after giving effect to them the Company
would not be able to pay its debts as they become due in the usual course of
business. The Board believes that the Company will be able to pay such debts,
based in part on the revenue and earnings scenarios set forth above under "--
Certain Revenue and Earnings Scenarios" and on the American Appraisal Opinion
referred to above. See "THE PLAN OF RECAPITALIZATION--Terms and Conditions,"
and "UNAUDITED PRO FORMA FINANCIAL INFORMATION." Given the more leveraged
financial     
 
                                      45

<PAGE>
 
structure of the Company following the Recapitalization, certain industry
risks could have a greater adverse impact on the Company after the
Recapitalization than might have been the case prior to the Recapitalization.
 
 Governance Structure
 
  Although the Company has attempted to achieve a balanced approach to its
corporate governance structure after the Recapitalization, such structure is
very unusual in the management of a large, complex public corporation, and it
is not certain that the actual operation of the corporate governance process
will not result in disputes or inability to achieve results that are in the
best interests of the Company or holders of New Shares.
   
  Following consummation of the Recapitalization and until the Sunset, the
Board will be comprised of twelve members elected as follows: (i) five public
directors ("Public Directors") elected by holders of the New Shares, including
(a) three members of the existing Board or other individuals who previously
had no material contact with the Company other than as directors and (b) two
substantially full-time employees of the Company intended to be the CEO and an
additional senior executive of the Company, (ii) four independent directors
elected by the initial independent directors intended to be a quasi self-
perpetuating body, (iii) three directors representing various employee groups
elected as follows: (a) one director elected by the ALPA-MEC, (b) one director
elected by the IAM or its designee (the director elected by the ALPA-MEC and
the director elected by the IAM or its designee are referred to collectively
as the "Union Directors") and (c) one director (the "Salaried and Management
Director" and, with the Union Directors, the "Employee Directors") elected by
holders of the Class SAM Preferred Stock (the Salaried and Management Director
and an additional designated stockholder). Generally, approval of ordinary
Board actions will require a majority vote of the votes present at a meeting
at which a quorum is present and approval of certain extraordinary matters
will require, subject to certain exceptions, approval of either three-quarters
of the Board (including the concurrence of one Union Director) or three-
quarters of the shares present and voting at a stockholders' meeting at which
a quorum is present. In addition, certain extraordinary matters will require
approval of the Public Directors, the Independent Directors or a majority of
shares not held by the ESOPs. The following Committees will be constituted:
the Audit Committee, the Competitive Action Plan ("CAP") Committee, the
Compensation Committee, the Compensation Administration Committee, the
Executive Committee, the Independent Director Nomination Committee, the Labor
Committee, the Outside Public Director Nomination Committee and the
Transaction Committee. Public Directors and Independent Directors will be
represented on all committees and the Employee Directors will be represented
on the Executive Committee, the CAP Committee, the Independent Director
Nomination Committee and the Compensation Committee. See, "THE PLAN OF
RECAPITALIZATION-- Revised Governance Structure".     
 
  Under the terms of the Restated Certificate, the participants in the ESOPs
(and in certain circumstances the ALPA-MEC, the IAM and the Salaried and
Management Director ) will continue to hold more than 50% of the voting power
of the Company until the economic equity interest held by or credited to the
ESOPs and other employee benefit plans sponsored by the Company is less than
20% of the common equity of the Company, all as more fully described in "THE
PLAN OF RECAPITALIZATION--Revised Governance Structure--Sunset." The
termination of the right to exercise more than 50% of the voting power of the
Company is referred to herein as the "Sunset." See "THE PLAN OF
RECAPITALIZATION--Revised Governance Structure--Sunset." Under current
actuarial assumptions, the Company estimates that this Sunset provision will
not become operative until 2016 if additional purchases are not made by
eligible employee benefit plans. However, such plans will have the right, and
may be expected to, make additional purchases, thereby delaying the occurrence
of the Sunset. In addition, the Restated Certificate contains a number of
provisions which may prevent the Company prior to the Sunset from taking
certain specified actions without the consent of one or both of the members of
the Board elected by ALPA and the IAM or a 75% vote of holders of New Shares
and Voting Preferred Stock. See "THE PLAN OF RECAPITALIZATION--Revised
Governance Structure."
 
                                      46

<PAGE>
 
 Fraudulent Conveyance
   
  If a court in a lawsuit by an unpaid creditor or representative of creditors,
such as a trustee in bankruptcy, were to find that, at the time the Company
distributed to holders of Old Shares the cash and (unless the United Debt
Offerings are consummated) Debentures that such holders are to receive in the
Recapitalization, the Company (i) was insolvent, (ii) was rendered insolvent by
reason of such distributions, (iii) was engaged in a business or transaction
for which the assets remaining with the Company constituted unreasonably small
capital to carry on its business or (iv) intended to incur, or believed that it
would incur, debts beyond its ability to pay as such debts matured, such court
may void the distributions to stockholders and require that such holders return
the same (or equivalent amounts) to the Company or to a fund for the benefit of
its creditors. If a court were to make similar findings about United's issuance
of the Debentures, such court could avoid United's obligations under the
Debentures or order the Debentures to be subordinated to all existing and
future indebtedness of United.     
 
  The measure of insolvency for purposes of the foregoing would vary depending
upon the law of the jurisdiction that was being applied. Generally, however,
the Company would be considered insolvent if at the time of the
Recapitalization the fair value of the Company's assets is less than the amount
of the Company's total debts and liabilities or if the Company has incurred
debt beyond its ability to repay as such debt matures. As described in "SPECIAL
FACTORS--Opinion of Valuation Firm," the American Appraisal Opinion was
rendered orally to the Board at the March 14, 1994 meeting and in a written
opinion to the Board and the Company dated as of March 14, 1994. In rendering
the American Appraisal Opinion, American Appraisal valued the assets of the
Company (on a consolidated basis) and United (on a consolidated basis), as
going concerns, both immediately before and after, and giving effect to, the
Recapitalization. The valuation included the aggregate assets of the business
enterprise of each of the Company (on a consolidated basis) and United (on a
consolidated basis), or total invested capital as represented by the total net
working capital, tangible plant, property and equipment and intangible assets
of the respective business enterprises. American Appraisal stated that it
believed this to be a reasonable basis on which to value the Company and United
and that nothing has come to its attention that caused it to believe that each
of the Company (on a consolidated basis) and United (on a consolidated basis),
before and after the Recapitalization, will not be going concerns.
 
  As stated in "SPECIAL FACTORS--Opinion of Valuation Firm," the American
Appraisal Opinion stated that, based upon and subject to the conditions and
assumptions contained therein, (a) the fair value of the aggregate assets of
each of the Company (on a consolidated basis) and United (on a consolidated
basis) will exceed their total respective liabilities (including, without
limitation, subordinated, unmatured, unliquidated and contingent liabilities),
(b) the present fair salable value of the aggregate assets of each of the
Company (on a consolidated basis) and United (on a consolidated basis) will be
greater than their respective probable liabilities on their debts as such debts
become absolute and matured, (c) each of the Company (on a consolidated basis)
and United (on a consolidated basis) will be able to pay their respective debts
and other liabilities, including contingent liabilities and other commitments,
as they mature, (d) the capital remaining in each of the Company (on a
consolidated basis) and in United (on a consolidated basis) after consummation
of the Recapitalization will not be unreasonably small for the businesses in
which the Company and United are engaged, as management of the Company and
United has indicated such businesses are conducted and as management has
indicated the businesses are proposed to be conducted following the
consummation of the Recapitalization, and after giving due consideration to the
prevailing practices in the industry in which the Company and United will be
engaged, (e) the excess of the fair value of the total assets of the Company
over the total liabilities, including contingent liabilities, of the Company,
is equal to or exceeds the value of the Recapitalization Consideration to
stockholders plus the stated capital of the Company and (f) the excess of the
fair value of the total assets of United over the total liabilities, including
contingent liabilities, of United, is equal to or exceeds the value of the
stated capital of United.
 
  American Appraisal also indicated that it believed the excess of total assets
over pro forma liabilities was approximately $2.5 billion at December 31, 1993,
compared to approximately $1.203 billion in stockholders' equity as of such
date, determined according to generally accepted accounting principles, so
that, giving effect to the Recapitalization, the indicated excess assets of the
Company for purposes of Delaware law exceeded $1 billion.
 
                                       47

<PAGE>
 
   
 Certain Anti-Takeover Effects     
   
  Certain provisions of the governance structure will make it extremely
difficult to acquire the Company in a transaction that was not approved by at
least one of the Union Directors or 75% of the vote of the New Shares and the
Voting Preferred Stock (as defined below, see "DESCRIPTION OF THE SECURITIES--
The Voting Preferred Stock--General"), even if such transaction might be
beneficial to the Company's stockholders. In particular, the provision
described below in "THE PLAN OF RECAPITALIZATION--Revised Governance
Structure--Nondilution" will prevent the occurrence of an acquisition of the
Company for an extended period following the Effective Time if the holders of
over 90% of the Voting Preferred Stock disapprove such acquisition.     
 
 Pricing of Public Preferred Stock and Debentures
   
  Pricing of Public Preferred Stock and Debentures. As described in "THE PLAN
OF RECAPITALIZATION--Terms and Conditions--Pricing of the Securities," the
final interest rates on the Debentures and the final dividend rate on the
Public Preferred Stock will be established not less than five business nor more
than ten calendar days before the Meeting. Although the procedure for
establishing such final rates is designed to determine the rates that such
securities should bear for the Debentures and the Depositary Preferred Shares
representing interests in the Public Preferred Stock to trade at par assuming
such securities were fully distributed, the Plan of Recapitalization provides
that such rates may not exceed certain caps. The underwriting agreements
relating to the several Offerings are expected to provide, as applicable, that
if such Offerings are consummated, the interest rates on the Debentures and the
dividend rate on the Public Preferred Stock may be adjusted (including in
excess of their respective caps) to permit such securities to be sold at or
closer to par, but if that is done, the principal amount of the series of
Debentures affected or the number of Depositary Preferred Shares representing
interests in the Public Preferred Stock, as the case may be, will be reduced so
that the aggregate amount of interest payable annually by United on such series
of Debentures or the aggregate amount of dividends payable annually by the
Company on the Public Preferred Stock will not exceed certain maximum amounts
calculated with reference to such caps. The underwriting agreements for the
Offerings are expected to provide that if the Offerings are not consummated,
the interest rates borne by the Debentures and the dividend rate borne by the
Public Preferred Stock will be subject to the caps. See "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--Pricing the Securities." If the
prevailing market interest and dividend rates for securities comparable to the
Debentures and the Depositary Preferred Shares are higher than the rate caps
applicable to the Debentures or the Public Preferred Stock, as the case may be,
the Debentures or the Depositary Preferred Shares representing interests in the
Public Preferred Stock, as the case may be, may trade at a discount to par.
Accordingly, if the rate caps are imposed for either or both series of the
Debentures or the Depositary Preferred Shares, (a) the proceeds from an
Offering, if consummated, would be less than the face amount thereof, or (b) if
the Offerings are not consummated, the securities constituting a part of the
Recapitalization Consideration would have a trading value of less than the face
amount thereof. Based on the current general market conditions, the Company
believes that the rates for either or both series of the Debentures or the
Depositary Preferred Shares may approach or exceed the maximum rates.     
 
 Investment Values; Future Investments
 
  Cost savings envisioned by the agreements with ALPA and the IAM and the
anticipated productivity increases discussed herein are estimates prepared by
the Company for analytical purposes. Such cost savings and anticipated
productivity increases could be difficult to achieve, and, even if all proposed
plans for employee investments are implemented, the value of the reductions in
wages and benefits and work-rule changes and anticipated productivity increases
may not be as significant as currently calculated. Mandated job guarantees may
make it difficult to achieve significant additional productivity improvements,
and, if additional reductions in wages and benefits and work-rule changes
become desirable in management's view, such reductions in wages and benefits
and work-rule changes may be more difficult to achieve in light of the long-
term nature of the revised collective bargaining agreement with ALPA and the
IAM that constitute elements of the Recapitalization (the "Collective
Bargaining Agreements").
 
                                       48

<PAGE>
 
 Lack of Employee Consensus
   
  Certain employee groups may not be in favor of the changes arising from the
Recapitalization and may react in a manner that does not facilitate achievement
of the desired results. For example, the AFA has declined to date to
participate in the transaction, certain other employees who will be
participating in the wage and benefit reductions and work-rule changes were not
in favor of the transaction, and certain union organizing activity, based on
opposition to certain aspects of the transaction, has occurred. This lack of
consensus may reduce the value of the increased employee commitment the Company
expects to achieve by virtue of the Recapitalization.     
 
 Management Change
   
  The current Chairman and Chief Executive Officer of the Company, Mr. Stephen
M. Wolf, President, Mr. John C. Pope, and Executive Vice President--Corporate
Affairs and General Counsel, Mr. Lawrence M. Nagin, will retire at the
Effective Time. The new chief executive officer selected by ALPA and the IAM,
Mr. Gerald M. Greenwald, will be required to implement reductions in wages and
benefits and work-rule changes that he did not directly negotiate in an
industry in which he has not previously been engaged. In addition, it is
possible that the Company may face attrition by officers and other members of
management and that the Company's new senior management may face difficulties
in implementing strategies or attracting additional management employees. It is
expected that a Chief Operating Officer of the Company and United will not be
identified prior to the Meeting or the Effective Time. If this occurs, the
Company would expect that members of existing senior management would perform
the functions of the Chief Operating Officer after the Effective Time until
such a person is identified in accordance with the procedures specified in the
Restated Certificate. See "THE PLAN OF RECAPITALIZATION--Revised Governance
Structure--Officers."     
 
 Reduced Flexibility
 
  The corporate governance structure and Collective Bargaining Agreements with
ALPA and the IAM may inhibit management's ability to alter strategy in a
volatile, competitive industry. Among the more significant constraints are (i)
a prohibition on domestic code sharing in excess of 1% of domestic block hours,
excluding several small existing agreements, without ALPA's consent, (ii) a no
layoff promise for all currently employed participating union employees during
the five- to six-year investment period and, for pilots, while U2 remains in
operation (which constraint is ameliorated as normal attrition reduces the
impact of the no-layoff promise), (iii) restrictions on international code
sharing, unless the Company can demonstrate that international code sharing
arrangements do not cause a reduction in international flying and as long as
the Company does not expand code sharing once the Company reduces international
flying below a certain level and (iv) an agreement not to sell the Company's
Denver pilot training facility and certain maintenance facilities. In addition,
the Restated Certificate contains restrictions on the ability of the Company
and United to sell assets and issue equity securities absent certain specified
Board or stockholder approvals. In most circumstances, the issuance of
additional equity securities would not be counted in determining whether the
Sunset has occurred.
 
  Limitations on asset sales and equity issuances included in the Company's
Restated Certificate might make it more difficult to raise cash, even if
management desired to do so to take advantage of a perceived opportunity.
 
 Implementation of U2
 
  Although the Company expects to develop U2 as an important component of its
competitive posture and has ascribed a significant portion of the value of the
Recapitalization to the ability to implement U2, no assurance can be given that
the Company will be able to do so effectively or to realize the financial
benefits expected to be received by the Company from the implementation of U2.
The success of U2 will be based not only upon the nature of the Company's
business plan but also upon the strategies and plans implemented by existing
low-cost competitors and by new entrants into the low-cost market. In addition,
even if the business
 
                                       49

<PAGE>
 
concept of U2 is successful, (i) U2 will comprise no more than 20% of United's
system block hours up to two million block hours systemwide and no more than
25% of the system block hours in excess of two million, (ii) U2 can only
operate in markets in the lower 48 states with stage lengths up to 750
nautical miles and cannot fly between United's hub or international gateway
cities except for Los Angeles basin--San Francisco bay area service, which
excludes U2 from such heavily traveled routes as the transcontinental routes
and New York/Chicago, Chicago/Denver and Chicago/Washington Dulles, (iii) U2
cannot operate aircraft larger than a B737-300 and (iv) for the first six
years, U2 can only operate up to 90% of monthly block hours in markets
previously served (within 24 months) by United. If United's systemwide
widebody flying (i.e., flying performed in B-757 or larger aircraft) falls
below (i) 95% of the widebody block hours projected in the Company's October
1993 fleet plan for any twelve month period from the Effective Time through
1999 or (ii) a certain minimum level for any twelve month period between 2000
and 2006, the total flying performed in the U2 operation must be reduced by
the shortfall in widebody flying. Even if implemented as planned, U2 will not
have costs which are as low as those of certain low-cost competitors. U2 must
rely upon factors other than lowest cost to secure market share and be
successful.
 
 Competitive Response
 
  Even if the Company is able to achieve cost reductions and productivity
enhancements, the Company's higher cost competitors may be able to achieve
comparable agreements with their labor groups or otherwise reduce their
operating costs and the Company's low-cost competitors may modify their
operations in response to the competitive threat posed by U2 and thus, in each
case, may eliminate or reduce the competitive gain sought by the Company and
lead to reductions in fares and earnings. In this regard, for example,
Continental Airlines (which already has a low cost structure) has implemented
a low cost, short haul service which would be competitive with U2, and Delta
has announced its intent to lower its overall costs substantially. If the
Company's higher cost competitors were to achieve more significant reductions
in wages and benefits and work-rule changes than those achieved by the
Company, the Company's ability to respond to competition would be hampered by
the fixed long-term nature of the agreements that constitute elements of the
Recapitalization.
 
 Labor Protective Provisions
   
  The Company will continue in effect, or amend to include, certain provisions
of agreements with ALPA and the IAM that (i) provide certain rights in the
event of a change in control of the Company and (ii) prohibit furloughs,
within certain conditions, if the Company disposes of 25 percent or more of
its assets or assets which produce 25 percent or more of its block hours. The
revised Collective Bargaining Agreements obligate the Company to require any
carrier purchasing route authority or aircraft that produce 25 percent or more
of the Company's operating revenues or block hours to hire an appropriate
number of United employees represented by ALPA or the IAM with seniority
credit.     
 
 Tax Deductibility of Employee Stock Ownership Plan Contributions and
Dividends
 
  Although the Company has attempted to structure the ESOPs so that all
amounts contributed thereto and dividends paid with respect to the stock held
thereunder will be deductible to the Company for Federal income tax purposes,
there are no regulations governing the deductibility of dividends paid on the
ESOP Preferred Stock and there can be no assurance that one or more current or
future limitations under the Internal Revenue Code will not adversely impact
the deductibility of such amounts and dividends. The deductibility of such
amounts depends, to some extent, on the conclusions set forth in an opinion
rendered to the ESOP Trustee by Houlihan Lokey and there can be no assurance
that the Internal Revenue Service (the "IRS") will agree with the methodology
set forth in such opinion. With respect to tax deductions associated with the
Class 1 ESOP Preferred Stock, the amount of such deductions is directly
related to the purchase prices of the Class 1 ESOP Preferred Stock. See "THE
PLAN OF RECAPITALIZATION--Terms and Conditions--Purchase of ESOP Preferred
Stock." With respect to tax deductions associated with the Class 2 ESOP
Preferred Stock, the amount of such deductions is directly related to the
value of such stock in the future when such deductions will be available to
the Company. For additional information on the tax consequences relating to
the ESOPs, see "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs--Federal
Income Tax Matters."
 
                                      50

<PAGE>
 
 Amendments to Collective Bargaining Agreements; Future Labor Agreements
   
  There can be no assurance that the new management of the Company in the
future will not agree to amend the Collective Bargaining Agreements with ALPA
and the IAM in a manner that reduces or eliminates the cost savings that are
the basis of the Recapitalization. However, any such amendment must be approved
by the Labor Committee of the Board (which will not include any Union Directors
(as defined below)). See "THE PLAN OF RECAPITALIZATION--Revised Governance
Structure--Committees." In addition, at the end of the current employee
investment period, there can be no assurance that the Company's labor
agreements will be renegotiated in a manner that continues in subsequent
periods the cost savings that are being sought through the Recapitalization or
that does not reverse the effect of any cost savings that will have been
obtained thereby.     
 
 Possible Effect of Organization of Additional Employees
 
  In the event any portion of the management and salaried employees that are
not currently represented by a union elects union representation pursuant to
the Railway Labor Act, the Company would be obligated to bargain with such
union over the terms and conditions of employment applicable to such employees,
including the terms, if any, of such employees' continuing participation in the
ESOPs. This obligation to bargain requires the Company to "exert every
reasonable effort" to reach an agreement but does not require it to agree to
any change or particular term or condition sought by the union. During the
period of negotiation, the Company would be entitled to maintain the then-
existing terms of such employees' participation in the ESOPs.
 
  The ESOPs provide that if any group of employees that are not currently
represented by a union becomes covered by a new collective bargaining
agreement, such group of employees will not be covered under the ESOPs unless
the collective bargaining agreement so provides. Whether any new collective
bargaining agreement would provide for continuing participation in the ESOPs by
such group of employees is a matter that would be subject to mutual agreement
between the Company and the applicable union. The ESOPs provide, however, that
if the terms of any employee's employment no longer reflect all of the
reductions in wages and benefits and work-rule changes set forth in the Plan of
Recapitalization, then such employee shall cease to be covered by the ESOPs.
 
  As a result, if any new collective bargaining agreement did not reflect the
reductions in wages and benefits and work-rule changes required by the Plan of
Recapitalization for particular employees, the Company could not agree, without
amending the ESOPs, to allow such employees to participate in the ESOPs. If any
currently unrepresented employees ceased to participate in the ESOPs under such
circumstances, the ESOPs, however, provide that the unrepresented employees
remaining in the ESOPs would receive the shares previously intended for that
newly-represented group. The employment terms, except base pay, for the
unrepresented employees remaining in the ESOPs will be subject to change, at
the Company's discretion, so long as the net economic value of the
unrepresented employees' employment terms is not altered.
 
 Employee Ownership and Influence
 
  No assurance can be given that the Company, which will be subject to
significant influence by employee groups (including through the right to voting
representation in excess of economic equity ownership, Board and Board
committee representation, the requirement of approval of certain matters by a
Union Director or a 75% vote of the holders of New Shares and Voting Preferred
Stock, and participation by Union Directors in the nomination of the
Independent Directors (as defined below, see "THE PLAN OF RECAPITALIZATION--
Revised Governance Structure")), might not take actions that are more favorable
to such employee groups than might be taken by a company that was not subject
to such influence. The corporate governance structure after the
Recapitalization will not, however, relieve the members of the Board of their
fiduciary obligations under the DGCL.
 
 Effect of Adjustment on Trading
 
  As described under "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs--
Additional Shares," the ESOP Preferred Stock which the Company is initially
obligated to issue or credit to the ESOPs is
 
                                       51

<PAGE>
 
convertible into approximately 55% of the New Shares but, based on the trading
prices of the New Shares in the twelve months after the Effective Time (the
"Measuring Period"), may be increased up to a maximum of approximately 63% of
the New Shares. Such potential additional issuance may adversely limit the
trading prices of the New Shares during the Measuring Period.
 
 Additional Issuances of Recapitalization Consideration
   
  United has registered under the Securities Act of 1933 $449,802,200
aggregate principal amount of each series of Debentures and the Company has
registered 35,984,175 Depositary Preferred Shares representing interests in
$899,604,375 aggregate liquidation preference of the Public Preferred Stock
for issuance to holders of Old Shares, Options and Company Convertible
Securities in connection with the Recapitalization. If any of the Offerings
are not consummated, United and the Company may be required to issue a larger
number of Debentures and Depositary Preferred Shares representing interests in
Public Preferred Stock in connection with the exercise of Options in the event
holders thereof fail to use a cashless exercise feature or in connection with
the conversion of certain Convertible Company Securities (as defined below).
However, the failure of Options holders to utilize a cashless exercise feature
would have the effect of increasing the Company's available cash by an amount
equal to the aggregate exercise price. See "DESCRIPTION OF SECURITIES--The
Debentures--General" and "--The Public Preferred Stock--General." If the
Offerings are not consummated, the Company currently intends to register in
the future additional securities originally issued (or distributed following
repurchase in the market), to satisfy the exercise or conversion of Options or
Convertible Company Securities.     
 
 Financial Reporting; Market Assessment
 
  The accounting rules governing employers accounting for employee stock
ownership plans require that compensation expense be recorded for the ESOP
Preferred Stock "committed to be released" during an accounting period based
on the fair value of the ESOP Preferred Stock during such period. The
difference between the fair value and the initial recorded cost of the ESOP
Preferred Stock "committed to be released" is recorded as an adjustment to
stockholders' equity. The ESOP Preferred Stock that has been "committed to be
released" is considered to be outstanding in the if-converted earnings per
share calculation for primary and fully diluted earnings per share if the
effect is dilutive. The circular relationship between the employee stock
ownership plan accounting charges and the Company's stock price, coupled with
the size of the contemplated ESOPs, make future earnings difficult to
forecast. In addition, reported book earnings will be depressed in early years
due to the mismatch between the term of employee investments (which increase
earnings) of from five years, nine months to twelve years and the shorter
period of only six years over which employee stock ownership plans accounting
charges will occur. While it is possible that the equity research community
and investors may look through employee stock ownership plan accounting
charges, it is also possible that the trading price of the New Shares may be
negatively impacted by such accounting treatment.
       
 Complexity
 
  Given the complex nature of the various provisions affecting the operation
of the Company after the Effective Time, it is possible that the equity
research community and investors may find the Company difficult to evaluate,
which may have the effect of reducing the trading price of the New Shares from
levels that might otherwise prevail. In addition, equity issuances (other than
Permitted Bankruptcy Equity (as defined below, see "THE PLAN OF
RECAPITALIZATION--Revised Governance Structure--Extraordinary Matters"))
generally will be disregarded when calculating the percentage of Common Equity
(as defined below, see "THE PLAN OF RECAPITALIZATION--Revised Governance
Structure--Sunset") for Sunset purposes, which may negatively impact the
market value of the New Shares and other equity of the Company.
 
 Redistribution
   
  If any of the Offerings are not consummated, in the Recapitalization,
holders of Old Shares (an equity security) will receive Debentures and/or
Depositary Preferred Shares representing interests in Public     
 
                                      52

<PAGE>
 
   
Preferred Stock in addition to New Shares and cash. It is expected that there
will exist a period, perhaps of a lengthy duration, during which certain
recipients of such securities, concluding that the characteristics thereof are
not consistent with their investment criteria, distribute such securities into
the marketplace. During such distribution period, the supply of such securities
in the market may exceed levels that might otherwise prevail, which would
likely have the effect of depressing the price of such securities from levels
that might otherwise prevail if such securities were held solely by persons or
institutions for whom such securities satisfied their investment criteria. The
Debentures and the Depositary Preferred Shares have been approved for listing
on the New York Stock Exchange Inc. (the "NYSE"), subject to official notice of
issuance, although there can be no assurance that at or following the Effective
Time any trading market for these securities will develop.     
 
 Taxation of Recapitalization to Stockholders
   
  For United States Federal income tax purposes, the Recapitalization will be a
taxable transaction to public stockholders that are citizens or residents of
the United States. Such a stockholder whose Old Shares are exchanged for the
Recapitalization Consideration in the Recapitalization will realize gain or
loss in the Recapitalization measured by the difference, if any, between (i)
the fair market value of the Recapitalization Consideration received by such
stockholder in the Recapitalization, and (ii) such stockholder's tax basis
in the Old Shares exchanged in the Recapitalization. If the Offerings are
consummated, in whole or in part, gain realized by a public stockholder in the
Recapitalization will be recognized, but only to the extent such gain does not
exceed the amount of cash (or cash and Debentures, as the case may be) received
by such stockholder in the Recapitalization. If the Offerings are not
consummated, gain realized by a public stockholder in the Recapitalization will
be recognized, but only to the extent such gain does not exceed the sum of (i)
the fair market value of the Debentures and (ii) the amount of cash received by
such stockholder in the Recapitalization. If the Offerings are consummated, in
whole or in part, the maximum taxable gain associated with the transaction will
not exceed $88 per Old Share, or such lesser amount, if as a result of the
Offerings the amount of cash (or cash and Debentures, as the case may be)
exchanged in the Recapitalization is less than $88 per Old Share. If the
Offerings are not consummated, assuming that the Debentures have a fair market
value of $31.10 per Old Share, the maximum taxable gain associated with the
transaction will not exceed $56.90 per Old Share (i.e., the sum of the assumed
fair market value of the Debentures and the amount of cash received). The
character of any gain recognized by a public stockholder in the
Recapitalization may be ordinary income or capital gain depending upon whether
the receipt of cash (or Debentures and cash) by the stockholder has the effect
of a dividend distribution as to such stockholder or is treated as a sale or
exchange. Any loss realized by a public stockholder in the Recapitalization
will not be recognized. The operation of the basis allocation rules would
provide that any such loss would be effectively carried over into the basis of
the New Shares (and Depositary Preferred Shares if the Offerings are not
consummated) that are received in the Recapitalization. However, there can be
no assurance that any such loss would ultimately be recognized by any
particular stockholder. For a more detailed discussion of the Federal income
tax consequences of the Recapitalization, see "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES."     
 
 Industry Risks
 
  If the Recapitalization is accomplished, certain risks associated with the
aviation industry will continue to face the Company. Given the more leveraged
financial structure of the Company following the Recapitalization, certain of
these industry risks could have a greater adverse impact on the Company after
the Recapitalization than might have been the case prior to the
Recapitalization.
 
 Industry Conditions and Competition
 
  The airline industry is highly competitive and susceptible to price
discounting. United's competitors include major domestic carriers such as
American, Delta, and Northwest, major international carriers such as British
Airways and Japan Air Lines, and domestic carriers such as Southwest,
Continental and other
 
                                       53

<PAGE>
 
carriers with lower cost structures. Airline profit levels are highly sensitive
to, and during the last four years have been significantly impacted by, adverse
changes in fuel costs, average yield (fare levels) and passenger demand.
Passenger demand and yields have been adversely affected by, among other
things, the general state of the economy, the Persian Gulf War and actions
taken by carriers with respect to fares. As a result of this adverse operating
environment, from 1990 to 1993 the domestic airline industry incurred
unprecedented losses. During this period, Eastern Air Lines, Pan American World
Airways and Midway Airlines were liquidated, and Continental Airlines, America
West Airlines and Trans World Airlines filed for bankruptcy.
 
  The emergence in recent years of several new carriers, typically with low
cost structures, has further increased the competitive pressures on the major
U.S. airlines. In some cases, the new entrants have initiated or triggered
price discounting. Aircraft, skilled labor and gates at most airports continue
to be readily available to start-up carriers. Although new entrant carriers
generally commence service with only a few city pairs and have a high rate of
failure, the commencement of service by new carriers on United's routes could
negatively impact United's operating results. In addition, certain existing
U.S. domestic carriers compete primarily by offering low-cost air service on
route networks that do not employ hub and spoke systems. These discount air
carriers have significantly affected the yields of major domestic carriers such
as United and, in certain instances, have made certain markets uneconomical for
carriers such as United.
   
  In the spring of 1992, American introduced a new fare structure followed by a
deeply discounted summer sale, steps that were generally matched by other U.S.
airlines (including United), resulting in substantially depressed industry
yields and significant 1992 losses at all major U.S. airlines (with one
exception). American and the rest of the domestic airline industry have
abandoned that pricing structure, and fare levels have increased in 1993 and
early 1994 from 1992 levels. Nonetheless, significant discounts continue to
exist and may be increased at any time. The introduction of broadly-available,
deeply discounted fares by a major U.S. airline would likely result in lower
yields for the entire industry and could have a material adverse effect on the
Company's operating results.     
 
 Aircraft Fuel
 
  Since fuel costs constitute a significant portion of the Company's operating
costs (approximately 12% during 1993), significant changes in fuel costs would
materially affect the Company's operating results. Fuel prices continue to be
susceptible to, among other factors, political events, and the Company cannot
predict near- or longer-term fuel prices. In the event of a fuel supply
shortage resulting from a disruption of imports or otherwise, higher fuel
prices or curtailment of scheduled service could result. A one cent change in
the cost per gallon of fuel (based on 1993 consumption levels) impacts
operating expense by approximately $2.25 million per month.
 
  In August 1993, the United States increased taxes on fuel, including aircraft
fuel, by 4.3c per gallon. Airlines are exempt from this tax increase until
October 1, 1995. When implemented, this new tax will increase the Company's
annual operating expenses by approximately $75 million based on United's 1993
domestic fuel consumption levels.
 
 Regulatory Matters
 
  In the last several years, the Federal Aviation Administration (the "FAA")
has issued a number of maintenance directives and other regulations relating
to, among other things, collision avoidance systems, airborne windshear
avoidance systems, noise abatement and increased inspection requirements. The
Company expects to continue incurring costs to comply with the FAA's
regulations.
 
  Additional laws and regulations have been proposed from time to time that
could significantly increase the cost of airline operations by, for instance,
imposing additional requirements or restrictions on operations. Laws and
regulations have also been considered from time to time that would prohibit or
restrict the
 
                                       54

<PAGE>
 
ownership and/or transfer of international airline routes or takeoff and
landing slots. Also, the award of international routes to U.S. carriers (and
their retention) is regulated by treaties and related agreements between the
United States and foreign governments, which are amended from time to time. For
example, there are significant aviation issues between the United States and
such foreign governments as Germany, Japan and the United Kingdom that,
depending on their resolution, may significantly impact the Company's existing
operations or curtail potential expansion opportunities in important regions of
the world. The Company cannot predict what laws and regulations will be adopted
or what changes to international air transportation treaties will be effected,
if any, or how they will affect United.
 
 Holding Company Structure
 
  The Company is a holding company that conducts operations solely through its
subsidiaries, principally United. The Company will rely on dividends from its
subsidiaries to meet its cash requirements, including cash requirements in
connection with dividends on or redemptions of the Public Preferred Stock (and
related Depositary Preferred Shares). As a result of the Recapitalization,
United will have substantial debt in relation to its stockholder's equity, as
determined on a pro forma basis pursuant to the application of generally
accepted accounting principles.
 
CERTAIN EFFECTS OF THE RECAPITALIZATION
 
  The Recapitalization will significantly increase the Company's long-term
indebtedness, significantly reduce cash reserves and create a substantial
negative balance in stockholders' equity. See "--Certain Risk Factors," "THE
PLAN OF RECAPITALIZATION" and "UNAUDITED PRO FORMA FINANCIAL INFORMATION."
 
  As a result of the Recapitalization, a new corporate governance structure
will be implemented, a new board of directors will be elected and a new chief
executive officer will be appointed. See "--Management Arrangements," "THE PLAN
OF RECAPITALIZATION--Revised Governance Structure" and "ELECTION OF DIRECTORS."
 
  The New Shares will be registered under the Exchange Act, which requires,
among other things, that the Company furnish certain information to its
stockholders and to the Commission and comply with the Commission's proxy rules
in connection with meetings of the Company's stockholders. The Recapitalization
will result in the Old Shares becoming eligible for deregistration under the
Exchange Act.
 
  Although the Company will not meet certain normal requirements for NYSE
listing following the Recapitalization, such as the requirement of a minimum
net worth, the NYSE has informed the Company that it will permit listing
(subject to official notice of issuance) of the New Shares immediately
following consummation of the Recapitalization.
 
  Except for the Plan of Recapitalization, there are no present plans or
proposals that would result in any material extraordinary corporate
transaction, such as a merger, reorganization, liquidation, relocation of
operations, or sale or transfer of a material amount of assets involving the
Company or its subsidiaries, or any material change in the Company's corporate
structure, business or composition of its management of which the current Board
is aware.
 
  The Recapitalization will be accounted for as a redemption of shares that is
not subject to purchase accounting and, therefore, assets and liabilities will
be carried at their historical cost and there will be no increase in goodwill
amortization or other purchase accounting effects (such as increased
depreciation charges) resulting from the Recapitalization that would reduce
earnings.
 
MANAGEMENT ARRANGEMENTS
 
  Under a Retention Agreement, dated as of January 1, 1994 (the "Retention
Agreement"), ALPA and the IAM agreed to employ Mr. Gerald Greenwald as a
consultant with respect to the transactions contemplated by the Plan of
Recapitalization. Mr. Greenwald, the former Vice Chairman of Chrysler
 
                                       55

<PAGE>
 
Corporation, was previously associated with a transaction proposed in 1990 by
an entity controlled by the Company's three principal unions, which transaction
was terminated in October 1990.
 
  Under the Retention Agreement, Mr. Greenwald is entitled to a consulting fee
of $80,000 per month from January 1994 to the Effective Time and if the
Retention Agreement is terminated under certain circumstances (e.g.,
termination by the Unions without cause), an additional $1 million payment at
the Effective Time. The Retention Agreement contemplates that Mr. Greenwald and
the Company will execute a five-year employment agreement (the "Greenwald
Agreement"), which agreement will become effective at the Effective Time.
Pursuant to the Greenwald Agreement, the Company will pay to Mr. Greenwald at
the Effective Time a fee of $1 million. Under the Greenwald Agreement, Mr.
Greenwald will receive a salary of $725,000 per year, reduced by 8.25%
(equivalent to the salaried and management concession) and a non-guaranteed
target bonus of $725,000 per year, which target bonus will be payable if Mr.
Greenwald's performance is "consistent with the applicable Board Committee's
objectives and directions" and the Company's performance "does not compel" a
lesser bonus. In addition, the applicable Board Committee will take into
account (i) airline industry trends and (ii) the Company's financial
performance (including cumulative profitability since the Effective Time) in
determining the extent of Mr. Greenwald's bonus. Pursuant to the Greenwald
Agreement, Mr. Greenwald will receive options to acquire 200,000 New Shares,
with an exercise price equal to the fair market value of the New Shares on the
day following the Effective Time. Fifty percent of such options will vest at
the Effective Time and the remainder will vest over 5 years. All options and
restricted stock vest on any termination of Mr. Greenwald's employment other
than termination by the Company for cause or a voluntary resignation. The
options, to the extent vested, will remain outstanding for 10 years,
notwithstanding termination of Mr. Greenwald's employment for any reason,
including "cause". Mr. Greenwald will also receive 50,000 New Shares of
restricted stock, vesting 50% at the Effective Time and the remaining 50% over
5 years. Additional options and restricted stock will be issued to the extent
the equity adjustment mechanism is triggered. See "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--Additional Shares."
 
  The Greenwald Agreement also entitles Mr. Greenwald to an annual pension
equal to the greater of the pension that would accrue under Company plans with
credit for 30 years of service or $500,000 per year. Such pension is payable at
any time elected by Mr. Greenwald following retirement or termination of
employment. Mr. Greenwald's retirement benefit will continue to be paid to his
spouse at 67% of his benefit level under a joint survivor annuity. The
Retention Agreement specifies that benefits under such pension must be funded
in full at the Effective Time through a trust at an estimated amount of $6.4
million.
 
  If Mr. Greenwald's employment is terminated by the Company without "cause" or
by him for "good reason", his salary and guaranteed $725,000 bonus will
continue for 3 years (or, if greater, the remainder of the 5 year contract
term). Generally, the Company will not be entitled to a deduction for Federal
income tax purposes with respect to the amounts described above to the extent
that such amounts exceed $1 million in any year.
 
 
                                       56

<PAGE>
 
                    CERTAIN FEDERAL INCOME TAX CONSEQUENCES
 
  Skadden, Arps, Slate, Meagher & Flom has served as tax counsel to the Company
in connection with the Recapitalization. The following expresses Skadden, Arps,
Slate, Meagher & Flom's opinion to the Company as to the material Federal
income tax consequences that, under currently applicable law, should arise from
the Recapitalization. The following discussion is applicable only to public
stockholders who are citizens or residents of the United States and are not
foreign corporations. The discussion may not be applicable with respect to Old
Shares acquired as compensation, including Old Shares acquired upon the
exercise of options or Old Shares held under the Company's employee benefit
plans, or to Old Shares held as other than capital assets. Moreover, the
discussion is not applicable to public stockholders who hold, or who are
related within the meaning of Section 318 of the Internal Revenue Code to
stockholders who hold, employee stock options of the Company. Furthermore,
state and local tax consequences of the Recapitalization are not addressed in
the discussion. Stockholders should note that the opinions of Skadden, Arps,
Slate, Meagher & Flom are not binding on the IRS or any court, and the Company
has not sought, and does not intend to seek, a ruling from the IRS as to the
Federal income tax consequences of the Recapitalization.
 
  STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE
APPLICATION OF THE FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATION, AS
WELL AS TO THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR FOREIGN TAX
LAWS TO WHICH THEY MAY BE SUBJECT.
 
  1.  The Recapitalization taken as a whole will constitute a
"recapitalization" of the Company within the meaning of Section 368(a)(1)(E) of
the Internal Revenue Code. Accordingly, the Recapitalization will not be a
taxable transaction to the Company, but will be a taxable transaction to the
public stockholders with the consequences described below.
    
  2.  A public stockholder whose Old Shares are exchanged for the
Recapitalization Consideration in the Recapitalization will realize gain or
loss in the Recapitalization measured by the difference, if any, between (i)
the fair market value of the Recapitalization Consideration received by such
stockholder in the Recapitalization, and (ii) such stockholder's tax basis in
the Old Shares exchanged in the Recapitalization; however, only gain to the
extent of the amount of cash and the fair market value of Debentures, if any,
received in the Recapitalization will be recognized. Accordingly, whether or
not the Offerings are consummated as contemplated, either in whole or in part,
gain realized by a public stockholder in the Recapitalization will be
recognized, but only to the extent such gain does not exceed the amount of cash
(or the amount of cash and the fair market value of Debentures, as the case may
be) received by such stockholder in the Recapitalization; any gain in excess of
the amount of cash (or the amount of cash and the fair market value of
Debentures, as the case may be) received will not be recognized. If the
Offerings are consummated, in whole or in part, the maximum taxable gain
associated with the transaction will not exceed $88 per Old Share, or such
lesser amount, if as a result of the Offerings the amount of cash (or the
amount of cash and the fair market value of Debentures, as the case may be)
exchanged in the Recapitalization is less than $88 per Old Share. If the
Offerings are not consummated, assuming that the Debentures have a fair market
value of $31.10 per Old Share, the maximum taxable gain associated with the
transaction will not exceed $56.90 per Old Share (i.e., the sum of the assumed
fair market value of the Debentures and the amount of cash received).     
   
  Any loss realized by a public stockholder in the Recapitalization will not be
recognized. The operation of the basis allocation rules would provide that any
such loss would be effectively carried over into the basis of the New Shares
(and Public Preferred Stock (as represented by Depositary Preferred Shares) if
the UAL Preferred Offering is not consummated) that are received in the
Recapitalization. However, there can be no assurance that any such loss would
ultimately be recognized by any particular stockholder. Stockholders that may
realize a loss on the Recapitalization should consult their own tax advisors
regarding the application of these rules and the recognition of any loss.     
 
  3.  The character of any gain recognized by a public stockholder in the
Recapitalization will depend upon whether the receipt of cash (or Debentures
and cash) by the stockholder has the effect of a dividend
 
                                       57

<PAGE>
 
distribution as to such stockholder or is treated as a sale or exchange. If the
exchange of Old Shares for cash (or Debentures and cash) is treated as a sale
or exchange, any gain recognized will be capital gain that, in general, will be
long-term capital gain if the Old Shares have been held for more than one year
at the Effective Time and short-term capital gain if the Old Shares have been
held for one year or less at such time.
 
  Section 302 of the Internal Revenue Code provides guidance as to whether a
distribution has the effect of the distribution of a dividend. Under Section
302, a distribution will not have the effect of the distribution of a dividend,
and any gain recognized will be capital gain rather than a dividend, if the
distribution is not "essentially equivalent to a dividend" or one of several
other tests is satisfied. Section 318 of the Internal Revenue Code applies to
all of these tests. Under Section 318, a stockholder is deemed to own
constructively Old Shares and New Shares (and possibly shares of Public
Preferred Stock (as represented by Depositary Preferred Shares)) that are
actually owned, and in some cases constructively owned, by certain related
individuals and entities or that may be acquired by such stockholder or such
related individuals or entities by option or conversion, including through
employee stock options. Furthermore, the Section 302 tests are applied after
taking into account any related transactions that are part of a single
integrated plan. Thus, the issuance of the ESOP Preferred Stock and Voting
Preferred Stock to the ESOP pursuant to the Recapitalization will be treated as
part of a single integrated recapitalization plan, and it is possible that
dispositions or acquisitions by a public stockholder of Old Shares or New
Shares (or possibly Public Preferred Stock (as represented by Depositary
Preferred Shares)) contemporaneous with the Recapitalization may be considered
to be part of the same integrated plan.
 
  A public stockholder that does not acquire additional Old Shares or New
Shares (or possibly Public Preferred Stock) in a transaction that may be
integrated with the Recapitalization (a "Qualified Public Stockholder") will be
entitled to capital gain treatment if, under all of the facts and
circumstances, the exchange results in a "meaningful reduction" of the
Qualified Public Stockholder's proportionate stock interest in the Company. In
general, for a stockholder's proportionate interest in the Company to undergo a
meaningful reduction, such stockholder must experience a reduction in interests
in one or more of the following areas: (i) control of the Company through
voting, (ii) earnings of the Company through dividends, and (iii) assets of the
Company upon liquidation. Based upon a published ruling of the IRS, a Qualified
Public Stockholder whose relative stock interest in the Company is "minimal"
and who exercises no control over the affairs of the Company will be eligible
for capital gain treatment assuming that his percentage ownership in the
Company decreases as a result of the Recapitalization.
 
  It is also possible that a public stockholder may satisfy other "safe harbor"
tests that establish whether a distribution does not have the effect of a
dividend and should be treated as a sale or exchange. Tax counsel to the
Company has not opined as to the character of any gain that a particular
stockholder may realize in the Recapitalization because of the inherently
factual nature of the determination that each such stockholder must make.
Public stockholders should consult their tax advisors as to whether any such
"safe harbor" test may be satisfied.
 
  If an exchange has the effect of a dividend distribution to a public
stockholder, the gain to such stockholder will be treated as a dividend, which
is not in excess of each such stockholder's ratable share of the undistributed
earnings and profits of the Company. The remainder of any gain will be treated
as gain from the exchange of property. A corporate stockholder will generally
be entitled to the 70% dividends received deduction with respect to any such
dividend. However, under the rules for "extraordinary dividends," a corporate
stockholder may be required to reduce its basis in a New Share or share of
Public Preferred Stock immediately before any sale or disposition of such stock
under Section 1059 of the Internal Revenue Code. In general, such basis
reduction must occur if a corporate stockholder has not held its Old Share for
more than two years before the dividend announcement date and the amount of
such dividend equals or exceeds certain threshold percentages of the
stockholder's adjusted basis in the Old Share. Corporate stockholders should
consult their tax advisors with regard to the application and operation of
these rules.
   
  4.  A public stockholder's tax basis in the New Shares (and, if the UAL
Preferred Offering is not consummated, in the Public Preferred Stock (as
represented by Depositary Preferred Shares)) received in the Recapitalization
will be equal to the stockholder's tax basis in the Old Shares exchanged
therefor in the     
 
                                       58

<PAGE>
 
   
Recapitalization, increased by the amount of any gain recognized by the
stockholder and decreased by the amount of cash received if the Offerings are
consummated or, if the Offerings are not consummated, in whole or in part, the
sum of (i) the fair market value of the Debentures and (ii) the amount of cash
received. If the Offerings are not consummated, the aggregate basis of the New
Shares and Public Preferred Stock (as represented by Depositary Preferred
Shares) will be allocated among the stock received in proportion to the
relative fair market values of the New Shares and Public Preferred Stock (as
represented by Depositary Preferred Shares) at the Effective Time. The holding
period of such New Shares (and, if the Offerings are not consummated, of the
Public Preferred Stock (as represented by Depositary Preferred Shares)) will
include the holding period of the Old Shares exchanged in the Recapitalization.
Gain, loss and tax basis (determined as described above) must be calculated
separately for each block of Old Shares (i.e., Old Shares acquired at the same
time in a single transaction) held by a public stockholder.     
   
  5.  If the Offerings are not consummated, in whole or in part, holders of Old
Shares who receive Debentures in the Recapitalization will have a basis in such
Debentures equal to their fair market value as of the Effective Time.     
 
  6.  The excess of net long-term capital gains over net short-term capital
losses may be taxed at a lower rate than ordinary income for certain non-
corporate taxpayers. A capital gain is long-term if the asset is held for more
than one year and is short-term if the asset is held for one year or less. The
distinction between capital gain or loss and ordinary income or loss is also
relevant for purposes of, among other things, the limitation on the
deductibility of capital losses.
   
  7.  The following discussion summarizes certain additional Federal income tax
considerations for public stockholders that receive Public Preferred Stock (as
represented by Depositary Preferred Shares), if the proposed UAL Preferred
Offering is not consummated:     
       
     
    (i)  Distributions with respect to the Public Preferred Stock (as
  represented by Depositary Preferred Shares) will be treated as dividends to
  the extent of the current or accumulated earnings and profits of the
  Company and will be subject to tax as ordinary income. A distribution that
  is treated as a dividend would be includable in income at the time such
  distribution is received. To the extent that the amount of a distribution
  exceeds such earnings and profits, it will be treated as a tax-free return
  of capital to the extent of the investor's adjusted tax basis in the Public
  Preferred Stock (as represented by Depositary Preferred Shares) and will be
  applied against and reduce the investor's adjusted tax basis in the Public
  Preferred Stock (as represented by Depositary Preferred Shares). The
  remaining amount of any distribution that exceeds the investor's adjusted
  tax basis in the Public Preferred Stock (as represented by Depositary
  Preferred Shares) will be taxed as capital gain and will be long-term
  capital gain if the investor's holding period for such shares is more than
  one year and short-term capital gain if the investor's holding period for
  such shares is one year or less. A corporate investor will generally be
  entitled to the 70% dividends received deduction with respect to dividends
  paid on the Public Preferred Stock (as represented by Depositary Preferred
  Shares), subject to the limitations of Sections 246 and 246A of the
  Internal Revenue Code of 1986, as amended (the "Code").     
       
     
    (ii)  The treatment of a redemption of the Public Preferred Stock (as
  represented by Depositary Preferred Shares) by the Company for cash will be
  governed by Section 302 of the Code. An investor that owns Public Preferred
  Stock (as represented by Depositary Preferred Shares) and that will own no
  stock (or Public Preferred Stock (as represented by Depositary Preferred
  Shares)) of the Company after the redemption (determined under certain
  constructive ownership rules set forth in Section 318 of the Code)
  generally will recognize capital gain or loss equal to the difference
  between the amount of cash received and the investor's tax basis in the
  Public Preferred Stock (as represented by Depositary Preferred Shares).
  Such capital gain or loss will be long-term, if the investor held the
  Public Preferred Stock (as represented by Depositary Preferred Shares) for
  more than one year, and short-term capital gain if the investor's holding
  period for such shares is one year or less.     
     
    Even though, upon a partial redemption of Public Preferred Stock (as
  represented by Depositary Preferred Shares), an investor will surrender
  such stock in return for cash, the transaction may be     
 
                                       59

<PAGE>
 
     
  treated, for tax purposes, as a distribution with respect to the stock
  owned by such investor taxable as a dividend under Section 301 of the Code
  to the extent of the Company's current or accumulated earnings and profits.
  Such a partial redemption will generally not be treated as a sale or
  exchange of the stock redeemed unless the redemption results in a
  "meaningful reduction" in an investor's stock interest in the Company. For
  this purpose, an investor's stock interest in the Company will be
  determined under certain constructive ownership rules set forth in Section
  318 of the Code. Whether a redemption will result in a meaningful reduction
  depends on the particular investor's facts and circumstances. However,
  based on Revenue Ruling 77-426, a redemption of Public Preferred Stock (as
  represented by Depositary Preferred Shares) would result in a meaningful
  reduction where the investor owns no common stock of the Company (including
  other shares deemed owned). There is uncertainty as to whether Revenue
  Ruling 77-426 would apply where the investor's percentage ownership of the
  Series B Preferred Stock, that is represented by the Public Preferred Stock
  (as represented by Depositary Preferred Shares), is not reduced as a result
  of the transaction.     
     
    If the partial redemption of the Public Preferred Stock (as represented
  by Depositary Preferred Shares) is treated as a dividend, the investor's
  tax basis in the redeemed shares would be transferred to the investor's
  remaining actual stock holdings in the Company. If the holder does not
  retain any actual stock ownership in the Company, the holder may lose such
  basis entirely.     
     
    Any redemption treated as a dividend to a corporate investor would be
  treated as an extraordinary dividend. Such investor would generally reduce
  its tax basis (but not below zero) in stock of the Company to the extent of
  the "nontaxed portion" of such dividend (i.e., generally, the portion, if
  any, of a dividend that qualifies for the corporate dividends received
  deduction). Moreover, at the time stock of the Company is sold or disposed
  of, the gain otherwise recognized, if any, will be increased to the extent
  that the stock would have had a negative basis had it not been for the
  above-mentioned limitations that such tax basis not be reduced below zero.
      
     
    If a partial redemption of the Public Preferred Stock (as represented by
  Depositary Preferred Shares) qualifies as a sale or exchange for tax
  purposes, the investor will recognize capital gain or loss equal to the
  difference between the amount of cash received and the investor's tax basis
  in the Public Preferred Stock (as represented by Depositary Preferred
  Shares). Such capital gain or loss will be long-term, if the investor held
  the Public Preferred Stock (as represented by Depositary Preferred Shares)
  for more than one year, and short-term capital gain if the investor's
  holding period for such shares is one year or less.     
         
     
    (iii)  The sale or exchange of the Public Preferred Stock (as represented
  by Depositary Preferred Shares) will generally result in taxable gain or
  loss equal to the difference between the amount of cash or other property
  received and the investor's adjusted tax basis in the Public Preferred
  Stock (as represented by Depositary Preferred Shares). Gain or loss on a
  sale or exchange of Public Preferred Stock (as represented by Depositary
  Preferred Shares) will generally be capital gain or loss, which will be
  long-term capital gain if the investor owned the Public Preferred Stock (as
  represented by Depositary Preferred Shares) for more than one year and
  short-term capital gain if the investor's holding period for such shares is
  one year or less.     
     
    (iv)   The Public Preferred Stock that is received in the
  Recapitalization should not be classified as "Section 306 stock" because
  the holders of Public Preferred Stock (as represented by Depositary
  Preferred Shares) should not avoid gain recognition by reason of Section
  305(a) of the Internal Revenue Code, the receipt of the Public Preferred
  Stock (as represented by Depositary Preferred Shares) should not be
  substantially the same as the receipt of a stock dividend, and the holders
  of Public Preferred Stock (as represented by Depositary Preferred Shares)
  should not have a basis in such stock which is determined by reference to
  the basis of Section 306 stock. In addition, the requirements of Section
  306(b)(4) of the Internal Revenue Code may be satisfied by holders of
  Public Preferred Stock (as represented by Depositary Preferred Shares). In
  general, Section 306(b)(4) is satisfied if it is established that the
  distribution and disposition of Public Preferred Stock (as represented by
  Depositary Preferred Shares) was not in pursuance of a plan having as one
  of its principal purposes the avoidance of Federal income tax. If the
  Public Preferred Stock (as represented by Depositary Preferred Shares) were
  to be     
 
                                       60

<PAGE>
 
  classified as "Section 306 stock" and Section 306(b)(4) were not satisfied,
  this would, in general, result in the amount realized on a disposition of
  such stock (other than in a redemption) as being treated as ordinary income
  to the extent that the amount realized were not in excess of the amount
  that would have been a dividend if, instead of the stock, the Company had
  distributed cash in an amount equal to the fair market value of the stock.
  Therefore, such amount would be ordinary income up to the stockholder's
  share of the amount of earnings and profits of the Company available for
  distribution. If the amount realized were to exceed the amount that would
  have been a dividend, the remainder would be treated as gain from the sale
  of such stock to the extent that it exceeds the adjusted basis of the
  stock.
 
  8.  Stockholders who receive cash in lieu of fractional New Shares, Public
Preferred Stock (as represented by Depositary Preferred Shares) and/or
Debentures should be treated as having received the cash in redemption of the
fractional security interest. If the cash payment for the fractional security
interest exceeds the adjusted tax basis in the fractional security interest, a
stockholder should realize gain to the extent of the excess cash. If the cash
payment is less than the adjusted basis in the fractional security interest
exchanged, a stockholder should realize a loss. Such gain or loss should be
capital gain or loss, assuming that the Old Share is held as a capital asset by
the stockholder. Stockholders should consult their tax advisors regarding the
appropriate treatment of any cash that is received in exchange for fractional
security interests.
 
  9.  Dividend and interest payments received by a United States Alien (as
defined below) may be subject to United States Federal withholding tax. A
United States Alien holder will not be subject to United States Federal income
or withholding tax on any gain realized on the taxable sale or exchange of the
New Shares, Public Preferred Stock (as represented by Depositary Preferred
Shares) or the Debentures unless either (a) the gain is derived from sources
within the United States and the United States Alien is an individual who was
present in the United States for 183 days or more during the taxable year or
(b) the stock sold or exchanged is a "United States Real Property Interest" as
defined in Section 897(c)(l) of the Internal Revenue Code at any time during
the five years prior to the sale or exchange of the stock or at any time during
the time that the United States Alien held such stock, whichever time is
shorter. The New Shares or the Public Preferred Stock (as represented by
Depositary Preferred Shares) will be a United States Real Property Interest
only if, at any time during the five years prior to the sale or exchange of
such stock or at any time during the period that the United States Alien held
such stock, whichever time is shorter, the Company is a "United States real
property holding corporation" as defined in Section 897(c)(2) of the Internal
Revenue Code and the United States Alien directly or constructively owned more
than 5% of that class of stock of the Company being sold or exchanged. The
Company is not a "United States real property holding corporation" for Federal
income tax purposes.
 
  A "United States Alien" is any person who, for United States Federal income
tax purposes, is a foreign corporation, a nonresident alien individual, a
nonresident alien fiduciary or a foreign estate or trust, or a foreign
partnership that includes as a member any of the foregoing persons.
 
  10.  Certain non-corporate holders of the New Shares, Public Preferred Stock
(as represented by Depositary Preferred Shares) or Debentures may be subject to
backup withholding at a rate of 31% on payment of dividends or interest on such
securities, as the case may be. Backup withholding will apply only if (i) such
a holder fails to furnish its Taxpayer Identification Number ("TIN") which, for
an individual, would be his or her Social Security number, (ii) such a holder
furnishes an incorrect TIN, (iii) the payor is notified by the IRS that such
holder has failed to properly report payments of interest or dividends or (iv)
under certain circumstances, such holder fails to certify under penalties of
perjury that he or she has furnished a correct TIN and has not been notified by
the IRS that he or she is subject to backup withholding for failure to report
payments of interest or dividends. These backup withholding rules may also
apply to payments of cash and Debentures by the Exchange Agent (as defined
below) in the Recapitalization (including cash in lieu of a fractional
securities interest). Stockholders should consult their tax advisors regarding
their qualification for exemption from backup withholding and the procedures
for obtaining such an exemption if applicable.
 
 
                                       61

<PAGE>
 
  The amount of any backup withholding from a payment to a holder of the New
Shares, Public Preferred Stock (as represented by Depositary Preferred Shares)
or Debentures will be allowed as a credit against such security holder's
Federal income tax liability and may entitle such security holder to a refund,
provided that the required information is furnished to the IRS.
 
  11.  The Recapitalization will result in an "ownership change" within the
meaning of Federal income tax law provisions dealing with net operating loss
carryforwards, alternative minimum tax credits and other similar tax
attributes. Thus, as a technical matter there will be limitations on the
Company's ability to utilize such carryforwards and credits from periods
predating the Recapitalization. However, as a practical matter, application of
those limitations to the Company is not expected to impair the Company's
ability to use its tax attributes.
 
  THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE ARE FOR GENERAL
INFORMATION ONLY. EACH STOCKHOLDER SHOULD CONSULT A TAX ADVISOR AS TO THE
PARTICULAR CONSEQUENCES OF THE RECAPITALIZATION THAT MAY BE APPLICABLE TO SUCH
STOCKHOLDER, INCLUDING THE APPLICATION OF STATE, LOCAL, AND FOREIGN TAX LAWS.
 
                                   LITIGATION
 
  Two actions are pending in the Court of Chancery of the State of Delaware in
and for New Castle County with respect to the Recapitalization. Both actions
are brought as class actions, purportedly on behalf of a class consisting of
all stockholders of UAL Corporation.
 
  The first action, Kaufman et al. v. Wolf et al., Civil Action No. 13312, was
commenced by three stockholders of the Company on or about December 30, 1993.
Named as defendants, in additional to the Company, ALPA and the IAM, were
Stephen M. Wolf, John C. Pope, Neil A. Armstrong, Andrew F. Brimmer, Richard P.
Cooley, E. Mandell de Windt, John F. McGillicuddy, Harry Mullikin, James J.
O'Connor, Frank A. Olson and Ralph Strangis. The Kaufman complaint alleges,
among other things, that defendants have violated their fiduciary duties to the
Company stockholders in connection with the proposed transaction between the
Company, ALPA and the IAM. The complaint seeks, among other things, an
injunction against the consummation of the Agreement in Principle, an order
rescinding the transaction if it has been consummated and an award of
unspecified damages in favor of plaintiffs and the class.
 
  The second action, Krasner v. UAL Corp. et al., Civil Action No. 13316, was
commenced by a stockholder of the Company on or about January 6, 1994. Named as
defendants in addition to the Company, ALPA and the IAM, were Stephen M. Wolf,
John C. Pope, Neil A. Armstrong, Andrew F. Brimmer, Richard P. Cooley, Carla A.
Hills, Fujio Matsuda, John F. McGillicuddy, Harry Mullikin, James J. O'Connor,
Frank A. Olson, Ralph Strangis and Paul E. Tierney, Jr. The Krasner complaint
alleges, among other things, that defendants have violated their fiduciary
duties in connection with the proposed transaction. It seeks a declaratory
judgment that the individual defendants have breached their fiduciary duties to
the class, an injunction against the consummation of the transaction and
against "the enforcement of any anti-takeover device," an order requiring the
individual defendants to "explor[e] third-party interest" in acquiring the
Company and to "accept [ ] the highest offer obtainable for the public
shareholders or permit [ ] the shareholders to make that decision free from any
coercion" and an award of unspecified damages in favor of plaintiff and the
class.
 
  Both the Kaufman action and the Krasner action are at a preliminary stage.
Defendants have not responded to the complaint in either action, no discovery
has been taken and plaintiffs have not yet moved for class certification.
 
 
                                       62

<PAGE>
 
                         THE PLAN OF RECAPITALIZATION
 
  The information contained in this Proxy Statement/Prospectus with respect to
the Plan of Recapitalization is qualified in its entirety by reference to the
complete text of the Plan of Recapitalization, a copy of which is included
elsewhere in this Proxy Statement/Prospectus.
 
INVESTMENT FOR UNIONIZED EMPLOYEES
 
 Wage and Benefit Adjustments
 
  Employees represented by ALPA and the IAM will receive reductions of 15.7
percent and 9.7 percent, respectively, from basic wage rates in effect at the
Effective Time. A 5 percent increase previously scheduled to take effect for
IAM-represented employees on May 1, 1994 will be eliminated. ALPA employees
participating in U2 will be subject to further wage reductions as described
below. However, the normal increases for seniority steps and promotions will
be maintained.
 
  The reduced wage rates will remain in effect for five years, nine months
following the Effective Time for ALPA, and six years for the IAM, except that
during the fourth and fifth years following the Effective Time each employee
group may receive a wage increase. If the parties are unable to negotiate the
amount of such an increase, a neutral arbitrator will determine the amount, if
any (and not to exceed 5 percent each year), based upon airline industry
trends, profitability of the Company and wage rates for other specified major
air carriers. In addition, the neutral arbitrator may determine the amount of
increase in the ALPA per diem, if any (not to exceed $.25), based upon the
same factors.
 
  Upon the Effective Time, the Company contribution to the self-directed
retirement plan provided for each ALPA-represented pilot will be reduced from
9 percent of wages to 1 percent of wages. In addition, the vacation accrual
schedule for pilots during their first ten years of employment will be reduced
to the vacation accrual schedule for pilots employed by Southwest. For IAM-
represented employees, the current half-hour paid lunch period will be
eliminated and the standard work day increased to eight hours exclusive of the
unpaid lunch period. In addition, the premium for a paid lunch on overtime
also will be eliminated.
 
  All wage and benefit reductions will remain in effect pursuant to the
Railway Labor Act until the effective date of the revised collective
bargaining agreements negotiated and/or arbitrated pursuant to procedures
stated in the Plan of Recapitalization and described in this Proxy
Statement/Prospectus.
 
 AFA Participation
   
  If, prior to the Effective Time, AFA and the Company determine that AFA will
participate in the Recapitalization, flight attendants will incur a
combination of wage reductions, benefit changes and work-rule modifications
negotiated between management and AFA, and determined by management in its
sole judgment to equal $416 million net present value, including an
appropriate agreed upon contribution associated with the competitive action
plan contemplated with respect to U2 by the Plan of Recapitalization (the
"Competitive Action Plan"). If AFA participates on this basis, the duration of
wage and benefit reductions (other than the contribution in respect of the
Competitive Action Plan) applicable to the other employee groups will be
reduced by nine months.     
 
 Competitive Action Plan
 
  In addition to wage and benefit reductions affecting all employees, ALPA and
IAM have agreed to permit the Company to establish a Competitive Action Plan
pursuant to which United would establish an "airline-within-an-airline"
currently referred to as "U2," which is designed to compete with existing low-
cost carriers in short-haul markets. The Unions will represent U2 employees in
the same class and craft, and United and U2 will have the same seniority lists
and will remain a single carrier for Federal Aviation Act and Railway Labor
 
                                      63

<PAGE>
 
Act purposes. The Company, at its discretion, may establish a distinct U2
corporate division but does not currently plan to establish U2 as a separate
subsidiary of either United or the Company.
 
  The pilot wages and work-rules for the U2 operation are contained in
amendments to the ALPA collective bargaining agreement. These work-rule changes
are designed to facilitate a high-frequency, rapid turn-around, streamlined
service operation. Pursuant to those changes in the ALPA collective bargaining
agreement, ALPA-represented pilots in the U2 operation would receive wage rates
approximately 7.1 percent less than the reduced mainline United rates for
similar equipment in the United operation. Pilots assigned to the U2 operation
will also be expected to fly more hours each month. As a result, pilot staffing
requirements in the U2 operation are expected to be reduced and U2 pilots
should have the opportunity to achieve monthly pay equivalent to comparable
mainline United pilots by flying more hours each month. The U2 operation would
be subject to modified work-rules designed for the U2 operation. The U2
supplement would have an initial term equivalent to the basic agreement; it
would also provide, however, for two renewal periods following the initial
term, for a total of 12 years following the Effective Time. With respect to the
two renewal periods, certain unresolved economic issues would be submitted to
interest arbitration. In such interest arbitrations, the arbitrator would be
required to establish the renewal terms on the basis of wages and work-rules
then in effect at Southwest or such other short-haul carrier as then operates
the largest number of B737 or equivalent aircraft other than American, Delta
Air Lines, Continental Airlines, Northwest Airlines and USAir. ALPA-represented
employees would be barred from striking over the U2 employment terms determined
through interest arbitration under this process.
 
  U2 would be permitted to operate on any non-stop city pair of 750 nautical
miles or less in the contiguous 48 states, using B737-300 or smaller aircraft,
subject to the following restrictions: (a) U2 could not operate between United
hub cities and/or international gateway cities except the Los Angeles basin and
the San Francisco Bay area service, (b) U2 block hours could not exceed 20
percent of United's systemwide block hours up to 2 million block hours per
year, and 25 percent of the systemwide block hours thereafter, provided that in
the sixth through twelfth years following closing, U2 could begin operation
between any city pairs not serviced by United during the prior 24 months, (c)
if system widebody block hours (i.e., block hours flown by B757 or larger
aircraft) fall below (i) 95% of the widebody block hours projected in the
Company's October 1993 fleet plan for any twelve month period from the
Effective Time through 1999 or (ii) a certain minimum level for any twelve
month period between 2000 and 2006, U2 operations must be reduced by the amount
of such shortfall and (d) 10 percent of U2 monthly block hours must be between
city pairs not served by United within the prior 24 months.
 
  To permit rapid implementation of U2, the Competitive Action Plan provides
that United pilots can be involuntarily placed into the U2 operation, but such
employees must be "red-circled" to maintain the monthly income they would have
earned had they remained in their existing positions in the mainline United
operation. United pilots who voluntarily bid into or remain in the U2
operations, and new hires, will not be red-circled.
 
  IAM-represented employees assigned to the U2 operation will be governed by
the same revised Collective Bargaining Agreements as all other IAM-represented
employees. The IAM agreements, governing all IAM-represented employees, contain
certain specific modifications that can not be amended for 12 years. These
include (a) elimination of the paid half-hour lunch period and increasing hours
of service to eight hours exclusive of the unpaid lunch and elimination of a
paid meal period on overtime, (b) a provision that the Company will assign IAM
ramp servicemen at any U.S. station that has a sustained flight level of 40 or
more daily departures for a period of six months (and may discontinue such
assignments if the flight activity falls below 30 daily departures on a
sustained level) and may assign no more than 25 percent of such positions to
part-time ramp servicemen and (c) a provision, subject to certain restrictions,
that the Company may contract out up to 20 percent of its maintenance work,
determined annually on a dollar value basis, subject to the condition that
subcontracting will not cause a layoff.
 
 
                                       64

<PAGE>
 
 Job Security Provisions
 
  The ALPA collective bargaining agreement will be amended to add a new section
that would supersede and supplement several existing job security provisions.
The principal terms of this new section are as follows:
 
    (i) All commercial flight operations conducted by United, the Company or
  any corporate affiliate must be performed by United pilots under the terms
  of the United-ALPA agreement, except for (a) feeder flying conducted by
  United Express or similar carriers operating small aircraft, (b) certain
  domestic code sharing currently in effect and additional domestic code
  sharing not to exceed 1 percent of the Company's total domestic block hours
  and (c) international code sharing arrangements with foreign carriers so
  long as the arrangements do not cause a reduction in international flying
  and the Company does not expand international code sharing once it reduces
  international flying below a specified minimum level;
 
    (ii) United may not transfer aircraft or international routes to other
  carriers that will use the assets to provide feed to United pursuant to an
  agreement with United;
 
    (iii) United may not enter into any successorship transaction unless the
  successor agrees to adopt the United-ALPA agreement, to employ United
  pilots pursuant to such agreement, to recognize ALPA and to provide United
  pilots with seniority credit if the successor is an air carrier;
 
    (iv) The Company will continue in effect, or amend to include, certain
  provisions of a Letter of Agreement that (a) provide ALPA with enumerated
  rights in the event of a change of control of the Company, (b) prohibit
  furloughs, within certain conditions, if the Company disposes of 25 percent
  or more of its assets or assets which produce 25 percent or more of its
  block hours and (c) obligate the Company to require any carrier purchasing
  aircraft or route authority that produce 25 percent or more of the
  Company's operating revenues or block hours to hire an appropriate number
  of United pilots with seniority credit;
 
    (v) With certain exceptions, the Company may not sell or otherwise
  dispose of its Denver training center or contract with any person or entity
  to conduct or supervise United pilot training;
 
    (vi) The Company may not establish a pilot domicile outside of the United
  States without ALPA's consent, except for temporary domiciles permitted
  under the existing agreement; and
 
    (vii) Subject to specified exceptions, no pilot employed as of the date
  of closing may be furloughed while the agreement remains in effect.
 
  The IAM collective bargaining agreements will be amended to provide a number
of job security provisions as well. The principal terms of these amendments are
as follows:
 
    (i) Subject to certain exceptions, no IAM represented employee employed
  as of the date of the Effective Time may be furloughed during the term of
  the agreement;
 
    (ii) Subject to certain conditions, the Company may not contract out work
  if the subcontract would result in the layoff of any IAM-represented
  employee;
 
    (iii) The Company may not contract out ramp service work at any station
  at which it currently employs IAM-represented ramp servicemen;
 
    (iv) Subject to certain exceptions, the Company may not sell or otherwise
  dispose of its maintenance facilities in San Francisco, Oakland or
  Indianapolis, its Miami flight kitchen or its four employee cafeterias;
 
    (v) The Company may not perform any regularly scheduled heavy maintenance
  outside the United States without IAM approval;
 
    (vi) The Company will transfer dispatch work currently performed in
  London to Chicago-based, IAM-represented dispatchers;
 
    (vii) The IAM agreements will contain change of control provisions,
  successorship and code sharing restrictions similar to those provided to
  ALPA; and
 
 
                                       65

<PAGE>
 
    (viii) At least 80% of maintenance work must be performed by United and
  not be outsourced.
 
 No Strike Clauses
 
  The ALPA and IAM revised Collective Bargaining Agreements will contain no
strike clauses, including a prohibition on sympathy strikes in support of other
unions, to be effective until the amendable dates of such agreements.
 
 Other Collective Bargaining Agreement Modifications
 
  Both the ALPA and IAM revised Collective Bargaining Agreements will be
subject to additional amendments, which do not have any material financial
effect, of a type made in the ordinary course of collective bargaining
negotiations.
 
  IAM-represented employees who lose, or have lost, employment with United as a
result of the sale of United flight kitchens to Dobbs and Caterair will receive
labor protective provisions benefits modeled after the Allegheny-Mohawk Labor
Protective Provisions previously utilized by the Civil Aeronautics Board.
 
INVESTMENT FOR SALARIED AND MANAGEMENT EMPLOYEES
 
  United will establish employment terms for the employees of United who
perform the functions currently performed by the management and salaried
employees of United (including any functions that such group of employees begin
performing in the future). The basic cost reduction package for United's U.S.
based Salaried and Management Employees will be in effect for a period of five
years, nine months following the Effective Time, except as noted below. The
components of the basic cost reduction package include pay reductions (base pay
reduced 8.25%, shift differentials redefined, overtime paid lunch eliminated,
four fixed holidays converted to floating holidays for operational employees),
changes in work-rules, sick leave policy and management relocation policy and a
one-time reduction in force of 127 management employees.
 
  The Company's United States Salaried and Management Employees may receive an
appropriate wage rate increase of not more than 5% beginning in the fourth year
(and, if applicable, the fifth year) following the Effective Time through a
program determined by management whose criteria are consistent with certain
specified standards that take into account (i) airline industry trends, (ii)
United's financial performance (including cumulative profitability over the
prior three years) and (iii) the wage rate levels for comparable employees of
American, Delta, USAir and Northwest Airlines.
 
  Salaried employees hired February 1, 1994 and later will be hired in
accordance with a new hire pay and benefit compensation program. In addition,
no wage increase or wage raises, other than increases for legitimate promotions
from one job group to another job group, progression type increases and
increases resulting from the wage adjustment process outlined above, may be
given to Salaried and Management Employees during the basic investment period.
 
  Salaried and management per capita base payroll may not increase by more than
the percentage increase in the IAM per capita base payroll in any investment
year (excluding increases resulting from the mid-term wage adjustment process
for IAM-represented employees) or by 2% in any investment year (except 1.5% in
the fourth and fifth investment years), whichever is less. For the purposes of
the foregoing limitation, increases resulting from the wage adjustment process
outlined above may not be included.
 
  United will modify its United States personnel policies to provide that it is
United's intention to conduct its business so that any salaried employee whose
date of employment is before February 1, 1994 and who is affected when United
declares a surplus in his or her organization will not be laid off
involuntarily, and the Company will make every reasonable effort to offer
surplus employees an opportunity of continued employment in his or her current
work status (i.e., full- or part-time), although it may be in a different
classification and/or location within the United States. Surplus employees who
must relocate in order to
 
                                       66

<PAGE>
 
continue employment will be eligible for relocation assistance. These
provisions do not apply in the case of an employee who is discharged for cause
or violation of Company rules, codes or articles of conduct or in the case of
surpluses that result from an act of nature, a labor dispute, government
action, revocation of operating certificate, war, unavailability of fuel or
other circumstances beyond the control of the Company. These provisions also do
not apply to discharges of employees who are in a probationary period and,
unless amended, will not be in effect beyond the five year, nine month period
(a five year period if the AFA participates) following the Effective Time.
 
  See "SPECIAL FACTORS--Certain Risk Factors--Possible Effect of Organization
of Additional Employees" with respect to the possible impact of organization of
management and salaried employees.
 
REVISED GOVERNANCE STRUCTURE
   
  The information contained in this Proxy Statement/Prospectus with respect to
the revised governance structure of the Company is qualified in its entirety by
reference to the complete text of the Restated Certificate and Restated Bylaws,
copies of which have been attached as exhibits to this Proxy
Statement/Prospectus, and to the other agreements and documents referred to
herein that are filed as exhibits to the Registration Statement of which this
Proxy Statement/Prospectus is a part.     
 
 Composition of the Board
   
  Following the consummation of the Recapitalization, subject to the rights of
holders of Series A Preferred Stock and the Depository Preferred Shares
representing interests in Public Preferred Stock to elect a total of two
additional directors in the event of certain dividend arrearages (the
"Preferred Stock Dividend Default Rights"), and prior to the Sunset, the Board
will consist of 12 directors, who will include (i) five Public Directors, (ii)
four Independent Directors, (iii) two Union Directors and (iv) one Salaried and
Management Director (the Union Directors and the Salaried and Management
Director, collectively, are referred to as the "Employee Directors"). For
information relating to the initial nominees for election as Public Directors
and certain other persons chosen to serve as the other directors if the
Recapitalization is consummated, see "ELECTION OF DIRECTORS." Following the
Sunset, subject to the Preferred Stock Dividend Default Rights and the
occurrence of either or both of the ALPA Termination Date and the IAM
Termination Date (both as defined below, see "--Sunset"), the Board will
consist of 12 directors of whom nine will be elected by the holders of the New
Shares and three will be Employee Directors.     
 
 Public Directors
 
  Until the Sunset, five directors, who are designated as Public Directors (the
"Public Directors") will be elected by holders of the New Shares and will
consist of (a) three individuals who are not and have never been an officer or
employee of, or a provider of professional services to, the Company or any of
its subsidiaries (the "Outside Public Directors") and (b) two substantially
full-time employees of the Company or any of its subsidiaries, one of whom, in
addition, to the fullest extent such additional qualification is permitted by
law, will be, at the time of election, the CEO, and the other of whom, in
addition, to the fullest extent such additional qualification is permitted by
law, will be a senior executive officer of the Company satisfactory to the CEO
(the "Management Public Directors"). Until the Sunset, at the expiration of the
term of each Outside Public Director and to fill vacancies, Outside Public
Directors will be nominated or appointed, as appropriate, by an "Outside Public
Director Nomination Committee" comprised of the Outside Public Directors. Any
amendment or modification of the rights, powers, privileges or qualifications
of the Outside Public Directors or the Outside Public Director Nomination
Committee will, in addition to the approval required by law or as described
below under the Restated Certificate, require the concurrence of all of the
Outside Public Directors or the affirmative vote of at least a majority in
voting power of the outstanding capital stock of the Company entitled to vote
thereon excluding shares held by the ESOP Trustee. In addition, until the
Sunset, Management Public Directors will be nominated or appointed, as
appropriate, by a majority vote of the entire Board.
 
                                       67

<PAGE>
 
  Mr. John F. McGillicuddy, Mr. James J. O'Connor and Mr. Paul E. Tierney, Jr.,
who are incumbent members of the Board, have been nominated to be the Outside
Public Directors, and Mr. Gerald M. Greenwald has been nominated to be the
Management Public Director. The second Management Public Director will be
identified prior to or at the Effective Time and will be appointed to the Board
at the Effective Time. For additional information on these individuals, see
"ELECTION OF DIRECTORS--Nominees for Election as Public Directors."
 
 Independent Directors
 
  The four directors designated as Independent Directors (the "Independent
Directors") will be elected by the holders of Class I Preferred Stock (as
defined below, see "DESCRIPTION OF SECURITIES--The Director Preferred Stock--
Class I Preferred Stock"), who will be the Independent Directors. Each
Independent Director, upon becoming an Independent Director, acquires a share
of Class I Preferred Stock and becomes a party to the Class I Preferred
Stockholders' Agreement pursuant to which the stockholders will agree to vote
their shares to elect the Independent Directors nominated in accordance with
the procedures set forth below and to refrain from transferring their shares of
Class I Preferred Stock other than to a person who has been elected to serve as
an Independent Director and who agrees to be subject to the provisions of the
Class I Preferred Stockholders' Agreement.
 
  None of the Independent Directors may have, without the consent of both Union
Directors and all of the Public Directors, a current or prior material
affiliation or business relationship with the Company (other than an
affiliation that results from being a member of the Board) or be an officer,
director, trustee or official of any labor organization that serves as a
collective bargaining "representative" under the Railway Labor Act or the
National Labor Relations Act. In addition, generally, at least two of the four
Independent Directors at the time of their initial nomination or appointment to
the Board must (i) be a senior executive officer of a private or public company
with revenues in excess of $1 billion during such company's prior fiscal year
and/or (ii) be a member of the board of directors of at least one other public
company with a market capitalization in excess of $1 billion as of the date of
such company's most recent annual financial statements.
 
  The Independent Directors will be nominated or appointed, as appropriate, by
an "Independent Director Nomination Committee" consisting of the Independent
Directors and the Employee Directors. Approval of such nomination or
appointment requires a majority of the Independent Directors and the
concurrence of at least one Union Director.
 
  ALPA and the IAM have identified Mr. Duane D. Fitzgerald, Mr. Richard D.
McCormick, Mr. John K. Van de Kamp and Mr. Paul A. Volcker as the initial
Independent Directors and such identified persons have agreed to serve as the
Independent Directors. For additional information on these individuals, see
"ELECTION OF DIRECTORS--Independent Directors."
 
 Employee Directors
 
  The three Employee Directors will be elected as follows: (i) one director
(the "ALPA Director") will be elected by the holder of the Class Pilot MEC
Preferred Stock (as defined below, see "DESCRIPTION OF SECURITIES--The Director
Preferred Stock"), which will be the ALPA-MEC, (ii) one director (the "IAM
Director" and, together with the ALPA Director, the "Union Directors") will be
elected by the holder of the Class IAM Preferred Stock (as defined below, see
"DESCRIPTION OF SECURITIES--The Director Preferred Stock"), which will be the
IAM or its designee, and (iii) one director (the "Salaried and Management
Director") will be elected by the holders of the Class SAM Preferred Stock (as
defined below, see "DESCRIPTION OF SECURITIES--The Director Preferred Stock"),
who will be the Salaried and Management Director and an additional designated
stockholder (the "SAM Designated Stockholder"), each selected as described
below, voting separately as a class.
 
  The replacement Salaried and Management Director will be nominated by the
System Roundtable. The System Roundtable will establish a selection committee
of four employees to select the nominee for Salaried
 
                                       68

<PAGE>
 
and Management Employee Director from time to time. The SAM Designated
Stockholder generally will be the senior executive of United who has primary
responsibility for human resources. The Salaried and Management Director will
acquire two shares of Class SAM Preferred Stock, and the SAM Designated
Stockholder will acquire one share of Class SAM Preferred Stock upon becoming
the Salaried and Management Director and the SAM Designated Stockholder,
respectively, and each will become a party to the Class SAM Preferred
Stockholders' Agreement pursuant to which the stockholders will agree to vote
their shares to elect the Salaried and Management Director nominated by the
System Roundtable and to refrain from transferring the shares of Class SAM
Preferred Stock other than to a person who has been elected to serve as the
Salaried and Management Director or to the senior executive of United who has
primary responsibility for human resources and, in each case, who agrees to be
subject to the provisions of the Class SAM Preferred Stockholders' Agreement.
The "System Roundtable" is a body of Salaried and Management Employees
empaneled to review and discuss issues relating to the Company and their effect
on Salaried and Management Employees.
 
  Vacancies of Employee Directors may be filled only by the holder or holders
of the class of stock that elected such director.
 
  Mr. John Peterpaul has been identified as the initial IAM Director, Captain
Roger D. Hall has been identified as the initial ALPA Director, and Mr. Joseph
V. Vittoria has been identified as the initial Salaried and Management
Director. For additional information on Mr. Peterpaul, Captain Hall and Mr.
Vittoria, see "ELECTION OF DIRECTORS--IAM Director", "--ALPA Director" and "--
Salaried and Management Director."
 
 Quorum
 
  Until the Sunset, a quorum at a Board meeting will exist only if (a)
directors with at least a majority of the votes entitled to be cast by the
entire Board are present (i.e., seven votes) and (b) unless consented to by the
two Union Directors, if less than all votes are present, the number of votes
constituting a majority of the votes present is no greater than the sum of (i)
two plus (ii) the number of Independent Director votes present at the meeting.
For example, if three Independent Director votes are present, the total number
of Director votes present may not be more than nine in order for a quorum to be
present. The foregoing quorum provisions were requested by the Unions and
agreed to by the Company in connection with negotiating the terms of the
Recapitalization.
 
 Required Board Action
 
  Except as may be required by law or as set forth in the Restated Certificate
(including the matters described below under "--Extraordinary Matters" or "--
Special Voting Provisions with Respect to Purchase and Sale of Common Stock"),
approval of all Board action will require a majority vote of the total number
of director votes present at a meeting at which a quorum is present. Until the
Sunset, in the event of a vacancy of an Independent Directorship, the remaining
Independent Directors will as a group continue to have four votes (divided
equally among the remaining Independent Directors). Until the Sunset, in the
event of a vacancy on the Board of an Employee Directorship or a Public
Directorship, or in the event of a vacancy of an Independent Directorship that
immediately prior to the occurrence of such vacancy was held by a member of a
Board Committee of which only one Independent Director was a member, then,
subject to the fiduciary duties of the remaining Directors or members of such
Board Committee, as the case may be, then in office, neither the Board nor such
Board Committee may take any action (other than to fill such vacancy) until
after the earlier of (i) 20 days following the occurrence of such vacancy and
(ii) the time that such vacancy is filled in accordance with the Restated
Certificate.
 
 Term of Office; Resignation; Removal
 
  Each Director will hold office until the next annual meeting of stockholders
and until his or her successor is elected and qualified, subject to such
Director's earlier death, resignation or removal. In addition, the term
 
                                       69

<PAGE>
 
of an Outside Public Director or an Independent Director will automatically
terminate if such Director ceases to meet the qualifications of an Outside
Public Director or Independent Director, as the case may be. Any Director may
resign at any time upon written notice to the Company. Directors may not be
removed from office except (i) without cause, by the class of stockholders that
elected them, or (ii) "for cause" as determined under the DGCL.
   
 Officers     
   
  All decisions to hire or fire members of senior management (other than the
CEO) will be taken by the Board or pursuant to the authority typically
delegated by it to the CEO; provided, however, with respect to the initial
appointment of the Chief Operating Officer following the Effective Time, such
person shall be elected or appointed by the Board and shall not be found to be
unacceptable by two of the three Outside Public Directors. Until the Sunset,
hiring a new CEO will require the approval of a majority of the Board following
a recommendation by the Executive Committee, which will act as the search
committee. If, at the first meeting of stockholders following the hiring of a
new CEO (other than the initial CEO following the Effective Time), such CEO is
not elected to the Board as a Public Director by the stockholders entitled to
vote on such election, such CEO will be removed from office and a successor CEO
will be selected. Any successor CEO will be appointed to fill the Public
Directorship vacated by the predecessor CEO. Incumbent officers at the
Effective Time may not be terminated for a period of six months following the
Effective Time unless such termination is approved by two Outside Public
Directors and the CEO. As part of the Recapitalization, certain officers have
agreed to retire at or prior to the Effective Time. See "SPECIAL FACTORS--
Interests of Certain Persons in the Recapitalization."     
 
 Stockholder Approval Matters
 
  Stockholder approval will not be a condition to any action of the Company
except as required by DGCL or as described below under "--Extraordinary
Matters" or "--Special Voting Provisions with Respect to Purchase and Sale of
Common Stock". Until the Sunset, except as otherwise required by law or by the
Restated Certificate, the presence in person or by proxy of the holders of
outstanding shares representing at least a majority of the total voting power
of all outstanding shares entitled to vote at a meeting of stockholders will
constitute a quorum at a meeting of stockholders.
 
 ESOP Voting
   
  Allocated shares of Voting Preferred Stock (and, under any limited
circumstances required by law in which matters are submitted to it for a vote,
the ESOP Preferred Stock) held by the Qualified ESOP (as defined in "--
Establishment of ESOPs--Sales of ESOP Preferred Stock--Leveraged ESOP") will be
voted by participants, as named fiduciaries under ERISA, on a confidential pass
through basis. The ESOP Trustee is obligated to vote as instructed by the
participants to whom the Voting Preferred Stock has been allocated, and the
shares which are allocated command the entire voting power of each class of
Voting Preferred Stock. ALPA has made an agreed-upon election pursuant to which
the shares of Class P Voting Preferred Stock allocated to former employees who
were ALPA members will be voted by the ESOP Trustee. Unallocated shares and
allocated shares which were not voted by the participants in the Qualified ESOP
will be voted as described below by those ESOP participants who are employees
who choose so to direct State Street. State Street will (except as may be
required by law) vote the unallocated and otherwise unvoted shares in the
proportions directed by participants who give instructions to State Street with
respect to such shares; each participant who is an employee has the right to
give such directions to State Street in the proportion that the participant's
allocated shares bears to the allocated shares of all participants giving such
directions. Shares held by the Supplemental ESOP (as defined in "--
Establishment of ESOP--Sales of ESOP Preferred Stock--Non-Qualified ESOP") will
be voted as instructed by the administrative committee appointed under the
Supplemental ESOP. The Supplemental ESOP provides that the administrative
committee shall consider the sentiments of participants concerning the vote,
but is not required to take any particular action in response thereto. The
Supplemental ESOP provides that it shall be amended at the request of ALPA to
provide for     
 
                                       70

<PAGE>
 
pass-through voting by participants. See "--Establishment of ESOPs". The
foregoing provisions also govern instructions to be given to State Street in
the event of a tender offer (including a Control Transaction, see "--
Establishment of ESOPs--Control Transaction").
 
 Extraordinary Matters
 
  Except as provided below, certain matters described below ("Extraordinary
Matters") generally will require, in addition to any voting requirements under
the DGCL, approval of at least either three-quarters of the Board (including
the concurrence of one Union Director) or three-quarters of the shares present
and voting at a stockholder meeting at which a quorum is present. In addition,
the vote of at least 66 2/3% of the outstanding voting stock that is not owned
by an "interested stockholder" will be required to approve a "business
combination" under Section 203 of the DGCL, where applicable. Extraordinary
Matters include:
 
    (a) Amendments to the Restated Certificate (other than certain technical
  amendments), substantive amendments to the Bylaws and mergers or
  consolidations of the Company or any of its subsidiaries or a sale, lease
  or exchange of all or substantially all of the assets of the Company or
  United involving a person that has been formed by or is an affiliate of one
  or more labor groups representing employees of the Company or any of its
  subsidiaries or a person determined by the Board to be a person in which a
  substantial group of employees of the Company or any of its subsidiaries,
  acting as an organized group, owns a majority ownership interest (a "Labor
  Affiliate") (the Extraordinary Matters described in this paragraph (a)
  require, in addition to the approvals described above, either (i) six
  affirmative votes cast by Directors who are not Employee Directors or (ii)
  the affirmative vote of a majority of the shares of capital stock not held
  by ESOPs);
 
    (b) Mergers or consolidations of the Company or any of its subsidiaries
  or a sale, lease or exchange of all or substantially all of the assets of
  the Company or United involving a person who is not a Labor Affiliate;
 
    (c) Dissolutions;
 
    (d) Entry into any new line of business outside the "airline business"
  (defined generally as the business of operating a domestic air carrier,
  together with any business or activities reasonably related to or in
  support of all of such operations engaged in by the Company or any
  subsidiary at or immediately prior to the Effective Time), or the making of
  any investment (in excess of five percent of the total assets of the
  Company and its subsidiaries on a consolidated basis) outside the airline
  business;
 
    (e) The making of any domestic airline acquisition or any material
  investment in another airline including ordinary course investments in
  excess of one half of one percent of the total assets of the Company and
  its subsidiaries on a consolidated basis;
 
    (f) The adoption of any material amendment to the Rights Agreement (as
  defined below, see "--Rights Plan") or taking of any material actions,
  including the redemption of rights, under the Rights Agreement;
 
    (g) The sale, lease, exchange, surrender to or at the direction of a
  lessor, or other disposition (a "Disposition") by the Company or any of its
  Subsidiaries of assets for "Gross Proceeds" (defined to exclude taxes and
  sales costs) that, when added to the Gross Proceeds from (i) the
  Disposition of other such assets during the preceding 365 day period
  resulting in Gross Proceeds in excess of $5 million and (ii) the
  Disposition of other such assets during a recently completed preceding
  twelve calendar month period resulting in Gross Proceeds of $5 million or
  less, collectively exceeds $200 million; provided that (A) Gross Proceeds
  included in clauses (i) and (ii) will not include Gross Proceeds from any
  transactions consummated prior to the Effective Time and (B) the $5 million
  set forth in clauses (i) and (ii) may be increased by action of the Board
  on an annual basis based on the affirmative vote of at least 75% of the
  votes entitled to be cast by the entire Board, which must include the
  concurrence of at least one Union Director; provided, further, that such
  approval will not be required for certain specified transactions (or count
  against the $200 million Gross Proceeds calculation above) including: (1)
  secured aircraft financings, (2) sale-leaseback and leveraged lease
  transactions, or sales or similar transfers of receivables,
 
                                       71

<PAGE>
 
  for financing purposes, (3) Dispositions of assets if replacement assets
  (consisting of assets of the same class as the assets being disposed of)
  generally have been ordered or acquired within the six calendar month
  period prior to such Dispositions of assets or so ordered or acquired
  within 365 days following the Disposition of assets for which no
  replacement assets had been previously acquired, (4) Dispositions providing
  Gross Proceeds in an amount up to 10% of the book value (net of
  depreciation) of the Company's fixed assets at the time of the most recent
  quarterly financial statements of the Company if (A) Directors entitled to
  cast at least 75% of the votes entitled to be cast by the entire Board,
  including all of the Independent Directors, determine by resolution of the
  Board that such asset Disposition is necessary to (I) cure a default under
  material financing agreements binding upon the Company or any of its
  subsidiaries or any of their respective properties, or avoid a default
  thereunder that, absent such Disposition, would be reasonably likely to
  occur within 90 days or (II) remedy a material adverse development in the
  Company's business or condition, and (B) the Gross Proceeds of such asset
  Disposition are used to remedy the condition referred to in clause (A)
  (provided, that the exception afforded by this clause (4) will be available
  not more than once in any consecutive five-year period), (5) certain
  ordinary course Dispositions designed to allow the Company and its
  subsidiaries to continue many of their existing practices without
  significant restrictions that may involve Dispositions of assets, (6)
  Dispositions of assets (other than air frames, engines and related spare
  parts) if (A) made pursuant to a discrete asset management program that
  provides for the Disposition of not more than an aggregate of $25 million
  of assets and (B) such discrete asset management program is approved
  annually by either the Board or the stockholders as an Extraordinary Matter
  in accordance with the voting thresholds outlined above and (7)
  Dispositions of assets that individually, or when aggregated with other
  assets in the same or related Dispositions, are not in excess of a de
  minimis amount, either with respect to periods prior to December 31, 1994
  or pursuant to a distinct asset management program approved in accordance
  with the procedures set forth in clause (6) above; and
     
    (h) The issuance of equity or equity equivalent securities (including
  convertible debt, but excluding non-voting, non-convertible preferred stock
  the issuance of which will be permitted without limit) (a "Non-Dilutive
  Issuance"); provided that such issuance shall not constitute an
  Extraordinary Matter if any of the following occur: (A) (I) three quarters
  of the votes entitled to be cast by the entire Board, including all the
  Independent Directors, determine that such issuance is in the best
  interests of the Company, (II) such issuance is subject to the First
  Refusal Agreement (as defined below, see "DESCRIPTION OF SECURITIES--The
  Common Stock, the Series A Preferred Stock and the Junior Participating
  Preferred Stock--Common Stock--Right of First Refusal") and (III) if such
  issuance occurs during the 365-day period commencing on the Effective Time,
  the Board by the affirmative vote of a majority of the votes entitled to be
  cast by the Directors present at a meeting of the Board at which a quorum
  is present, which vote must include the affirmative votes of both Union
  Directors, approves an equitable adjustment to the number of Additional
  Shares (as defined below, see "--Establishment of ESOPs--Additional
  Shares") to be issued pursuant to the Plan of Recapitalization, (B) three-
  quarters of votes entitled to be cast by the entire Board, including all
  the Independent Directors, determines (I) that the Company is insolvent
  (or, absent a material positive change in the Company's results of
  operations over the immediately succeeding 90 days from the results
  contained in the Company's regularly prepared projections, that the Company
  will become insolvent within 90 days), which determination is confirmed by
  written opinions of two nationally recognized investment banking firms that
  further opine (giving effect to the facts and circumstances applicable to
  the Company, including discussions with prospective equity investors) that
  the sale of equity securities is necessary to avoid or remedy such
  insolvency (the "Bankruptcy Opinions") and (II) that, after giving effect
  to the proposed issuance of additional equity securities (the "Permitted
  Bankruptcy Equity"), the Company would no longer be or not become
  "insolvent" in the time frame referred to in the Bankruptcy Opinions (the
  "Solvency Determination") and such issuance of Permitted Bankruptcy Equity
  satisfies the following three conditions: (X) such issuance does not exceed
  the amount determined by the Board to be reasonably necessary to allow the
  Board to make the Solvency Determination, (Y) a binding commitment for the
  sale of such Permitted Bankruptcy Equity is entered into within 90 days of
  the delivery of the Bankruptcy Opinions and (Z)     
 
                                       72

<PAGE>
 
  the terms of the First Refusal Agreement have been complied with in all
  material respects by the Company, or (C) such issuance is pursuant to (I)
  the exercise, conversion or exchange of equity securities outstanding
  immediately prior to the Effective Time, (II) the Company's 1981 Stock
  Program, 1988 Restricted Stock Plan or Incentive Plan, each as amended in
  accordance with the Plan of Recapitalization, (III) the UAL Corporation
  1992 Stock Plan for Outside Directors or (IV) any other equity incentive
  compensation plan approved by the affirmative vote of three quarters of the
  votes entitled to be cast by the entire Board, including all the
  Independent Directors.
 
 Special Voting Provisions with Respect to Purchase and Sale of Common Stock
 
  Until the Sunset, any purchases of New Shares by the Company (other than to
fulfill its obligations to issue or retain New Shares in connection with the
exercise of employee options issued pursuant to employee benefit plans or to
retain New Shares in connection with tax withholding obligations in connection
with the exercise of employee options or restricted stock), or any sale by the
Company of any New Shares to a Company sponsored pension, retirement or other
employee benefit plan for the account of employees (other than pursuant to the
First Refusal Agreement or in connection with the creation and operation of the
ESOPs to which the ESOP Preferred Stock is issued), whether for cash or non-
cash consideration, including, without limitation, employee concessions, must
be approved by a majority of the Board, including at least 80% of the votes of
the Public Directors.
 
 Rights Plan
 
  The Rights Agreement between the Company and First Chicago Trust Company of
New York, dated as of December 11, 1986, as amended (the "Rights Agreement"),
which currently contains a "flip-in" trigger for the acquisition of 15% or more
of the Old Shares, will be amended to provide that the transactions
contemplated by the Recapitalization Agreement will not result in the Rights
(as defined in the Rights Agreement) being triggered. In addition, effective
immediately prior to the Effective Time, the Rights Agreement will be amended
to provide that the ESOP Preferred Stock will have the same number of attached
Rights associated as would be attached to the same number of New Shares to
which the ESOP Preferred Stock will be convertible. See "DESCRIPTION OF
SECURITIES--The Common Stock, the Series A Preferred Stock and the Junior
Participating Preferred Stock--Junior Participating Preferred Stock--Preferred
Share Purchase Rights."
 
 Nondilution
 
  As described under "DESCRIPTION OF SECURITIES--The Voting Preferred Stock--
Voting Rights," at the Effective Time, the holders of Voting Preferred Stock
will vote as a single class with the New Shares and will represent
approximately 55% of the votes to be cast on matters submitted to the vote of
the New Shares and Voting Preferred Stock (other than the election of Directors
and such matters for which a vote by separate class is required under the
DGCL). The number of votes represented by such Voting Preferred Stock is
subject to increase at the first anniversary of the Effective Time based on the
market price of the New Shares during the first year following the Effective
Time as described in "--Establishment of ESOPs--Additional Shares." The Voting
Preferred Stock will generally continue to represent approximately 55% of the
aggregate voting power of the New Shares and the Voting Preferred Stock, as
adjusted under certain circumstances, until the Sunset.
 
 Sunset
   
  The "Sunset" will occur when (i) the New Shares issuable upon conversion of
the outstanding ESOP Preferred Stock, plus (ii) any Common Equity and Available
Unissued ESOP Shares held in the ESOPs, in any other employee benefit plans
sponsored by the Company or any of its subsidiaries for the benefit of its
employees, represent, in the aggregate, less than 20% of the Common Equity and
Available Unissued ESOP Shares of the Company. "Common Equity" is defined as,
in the aggregate, the New Shares outstanding at     
 
                                       73

<PAGE>
 
   
the time in question and the New Shares issuable upon conversion of the ESOP
Preferred Stock outstanding at the time in question, together with the New
Shares represented by the Permitted Bankruptcy Equity outstanding at the time
in question, if any, but excluding any equity or equity equivalent securities
(other than Permitted Bankruptcy Equity and equity to be issued in connection
with the ESOPs) issued in connection with a Non-Dilutive Issuance, including,
without limitation, any equity or equity equivalent securities outstanding
immediately prior to the Effective Time that were not included in the
calculation of the Fully Diluted Old Shares as set forth and defined in "--
Terms and Conditions--General." "Available Unissued ESOP Shares" is generally
defined as the number of New Shares to be issued in connection with the ESOPs
which have not yet been issued.     
 
  If the Sunset occurs, the Company will file a restated certificate of
incorporation providing for more customary corporate governance provisions, the
number of Directors will remain at twelve (of which three will be Employee
Directors), the Outside Public Director Nomination Committee will nominate the
Board's nominees for election of directors (other than the Employee Directors)
to be elected by the stockholders at a meeting which will be held promptly
thereafter and upon the effectiveness of such election the term of the then
incumbent Directors will terminate, and there will be no special director or
voting rights, except that (a) the ALPA Director will be elected by the holder
of the Class Pilot MEC Preferred Stock until there are no longer any persons
represented by ALPA (or any successor organization) employed by the Company or
any affiliate (the "ALPA Termination Date"), the IAM Director will be elected
by the holder of the Class IAM Preferred Stock until there are no longer any
persons represented by the IAM (or any successor organization) employed by the
Company or any affiliate (the "IAM Termination Date") and the Salaried and
Management Director will be elected by the holders of the Class SAM Preferred
Stock until the earlier of the ALPA Termination Date and the IAM Termination
Date, each voting separately in a class, and (b) the Union Directors would
continue to serve on Committees as provided below.
 
  Under current actuarial assumptions, the Company estimates that the Sunset
will occur in the year 2016 if no additional purchases were made by eligible
employee trusts and retirement plans. However, employees have the right to, and
may be expected to, make additional purchases through such trusts and plans
that will have the effect of delaying the Sunset. In certain circumstances
described under "DESCRIPTION OF SECURITIES--The Director Preferred Stock--
Uninstructed Trustee Action," the Sunset may not occur until 2010 even though
the conditions for the Sunset have occurred.
 
 Committees
 
  The Restated Certificate provides that until the Sunset the following
committees will constitute the Board Committees: the Audit Committee, the
Competitive Action Plan ("CAP") Committee, the Compensation Committee, the
Compensation Administration Committee, the Executive Committee, the Independent
Director Nomination Committee, the Labor Committee, the Outside Public Director
Nomination Committee and the Transaction Committee (collectively, the
"Committees"). In addition, the Board may, by resolution passed by the
affirmative vote of 80% of the votes of the entire Board, including the
affirmative vote of at least one Union Director, designate one or more other
committees of the Board. Except as provided below, any act of a Committee will
require the affirmative vote of a majority of the votes entitled to be cast by
the Directors present at a meeting of such Committee and entitled to vote on
the matter in question. The Restated Certificate contains certain provisions
relating to the required quorum for committee action.
 
  The Audit Committee will consist of the four Independent Directors and the
three Outside Public Directors or such fewer number of such Directors (in as
nearly as practicable that same proportion of Independent Directors and Outside
Public Directors) as shall qualify for audit committee membership under
applicable rules of the securities exchanges or other similar trading market on
which the New Shares are traded. The Audit Committee will be primarily
concerned with (i) reviewing the professional services and independence of the
Company's independent auditors and the scope of the annual external audit as
recommended by the independent auditors, (ii) ensuring that the scope of the
annual external audit is
 
                                       74

<PAGE>
 
sufficiently comprehensive, (iii) reviewing, in consultation with the
independent auditors and the internal auditors, the plan and results of the
annual external audit, the adequacy of the Company's internal control systems
and the results of the Company's internal audits, and (iv) reviewing, with
management and the independent auditors, the Company's annual financial
statements, financial reporting practices and the results of each external
audit. The Audit Committee will also have the authority to consider the
qualifications of the Company's independent auditors, to make recommendations
to the Board as to their selection and to review and resolve disputes between
such independent auditors and management relating to the preparation of the
annual financial statements.
 
  The CAP Committee will consist of eight Directors, including four Public
Directors, two Independent Directors and the two Union Directors. Of the four
Public Directors, three will be Outside Public Directors and one shall be the
CEO (if the CEO is a Public Director). The two Independent Director members
shall be appointed by the Independent Director Nomination Committee which
appointment will require the affirmative vote of all of the votes entitled to
be cast by the Independent Directors. The function of the CAP Committee will be
to oversee implementation of the Company's Competitive Action Plan. The CAP
Committee will have the exclusive authority, acting for and on behalf of the
Board and consistent with the protection of the interests of the holders of New
Shares, to approve on behalf of the Company any and all modifications of or
amendments to the Competitive Action Plan. However, to the extent such
modifications or amendments relate to changes to any provision of the revised
Collective Bargaining Agreements with the IAM and ALPA, the two Union Directors
on the CAP Committee will neither be entitled to vote nor be counted in
determining the presence of a quorum of such committee in connection therewith.
Notwithstanding the foregoing, only the Labor Committee may approve on behalf
of the Company any such changes to such Collective Bargaining Agreements. In
addition, the CAP Committee will have the exclusive authority, acting for and
on behalf of the Board, to approve on behalf of the Company any and all
modifications of or amendments to the salaried and management employee
investment described in "--Investment for Salaried and Management Employees".
Such modifications or amendments must be approved by the affirmative vote of at
least a majority of the votes of the entire CAP Committee, including at least
two Union Directors and all of the Outside Public Directors.
 
  The Compensation Committee will consist of seven Directors, including two
Independent Directors, two Public Directors and the three Employee Directors.
Of the two Public Directors, one will be an Outside Public Director appointed
by the Outside Public Director Nomination Committee, and one will be the CEO
(if the CEO is a Public Director). The two Independent Directors members will
be appointed by the unanimous approval of the Independent Director Nomination
Committee. The principal functions of the Compensation Committee will be to
review and recommend to the Board the compensation and benefit arrangements to
be established for the officers of the Company and to review general policy
matters relating to compensation and benefit arrangements of non-union
employees of the Company. The Compensation Committee will also administer the
stock option plans and executive compensation programs of the Company,
including bonus and incentive plans applicable to officers and key employees of
the Company. Subject to the final approval of the Compensation Committee
(except as described in the following paragraph), the Compensation Committee
may delegate to the Compensation Administration Committee specific
responsibilities with respect to the compensation of the CEO.
 
  The Compensation Administration Committee will consist of two Independent
Directors and one Outside Public Director, each of whom will be (a) a
"disinterested person" or "disinterested administrator" or any related
successor concept under Rule 16b-3 (or any successor provision) promulgated
pursuant to Section 16 of the Exchange Act and (b) an "outside director" or any
related successor concept under Section 162(m) (or any successor provision) of
the Code. The Outside Public Director will be appointed by the Outside Public
Director Nomination Committee. The two Independent Directors will be appointed
by the Independent Director Nomination Committee, which appointment shall
require the affirmative vote of all the Independent Directors. The principal
function of the Compensation Administration Committee will be to administer the
stock option plans and executive compensation programs of the Company to the
extent
 
                                       75

<PAGE>
 
such functions cannot or are not appropriate to be performed by the
Compensation Committee in light of any provision of the Internal Revenue Code,
the securities laws, any other applicable law or any regulations promulgated
under any of the foregoing. Any action of the Compensation Administration
Committee must also be approved by the Compensation Committee, unless such
approval would prevent a stock option plan that is intended to qualify under
Rule 16b-3 (or any successor provision) from receiving the benefits of Rule
16b-3 or such approval would prevent an executive compensation program (on a
component thereof), that is intended to qualify for an exception under Section
162(m) (or any successor provision) from qualifying for such exception.
 
  The Executive Committee will be comprised of two Independent Directors, two
Public Directors (the CEO, if the CEO is a Public Director, and one Outside
Public Director) and two Union Directors. Subject to the DGCL, the Executive
Committee will have all the powers of the Board to manage the affairs of the
Company except that it would not have the authority to act with respect to any
of the "Extraordinary Matters" discussed above, to take any action as to
matters specifically vested in other Committees or take any action that may be
taken by the Board only with a vote greater than or additional to a majority of
the Board. In the event a new CEO is to be selected prior to the Sunset, the
Executive Committee will function as a search committee to identify a successor
CEO.
 
  The Labor Committee will consist of three or more Directors, including one
Outside Public Director, at least one Independent Director and at least one
other Director, as designated by the Board, but will not include any Employee
Directors. The Labor Committee will have the exclusive authority on behalf of
the Board to approve on behalf of the Company the entering of, or any
modification or amendment to, a collective bargaining agreement to which the
Company or any of its subsidiaries is a party.
   
  The Transaction Committee will consist of seven Directors, consisting of the
four Independent Directors and the three Outside Public Directors. The function
of the Transaction Committee will be to evaluate and advise the Board with
respect to any proposed merger or consolidation of the Company or any of its
Subsidiaries with or into, the sale, lease or exchange of all or substantially
all of the Company's or any of its Subsidiaries' property or assets to, or a
significant business transaction with, any Labor Affiliate.     
 
 Amendment and Restatement of the Bylaws
 
  Pursuant to the Plan of Recapitalization the Company's Bylaws will be amended
and restated (the "Restated Bylaws"). The Restated Bylaws provide that until
the Sunset many matters will be governed by the Restated Certificate including,
among others: (i) quorum requirements at any meeting of the stockholders, the
Board or any Board Committee; (ii) number, composition and term of office of
directors; (iii) removal of Directors; (iv) filling of vacancies on the Board
and on Board Committees; (v) designation of Board Committees; (vi) the
composition, function and powers of the Executive Committee; (vii) the
appointment, term of office, filling of vacancies and removal of officers of
the Company; and (viii) any substantive amendment to the Restated Bylaws.
Furthermore, the Restated Bylaws provide that, subject to certain exceptions,
following the Sunset many provisions of the existing Bylaws of the Company will
be reinstated.
 
  In addition, the Restated Bylaws provide, among other things, for other
changes to the existing Bylaws including, but not limited to the following: (i)
the ability, until the Sunset, of any two directors, the CEO or the secretary
of the Company to call a special meeting of the Board; (ii) until the Sunset,
subject to the fiduciary obligations of the directors, the CEO will be elected
as one of the Management Public Directors; (iii) the term of the CEO (other
than Mr. Greenwald as the initial CEO) will automatically terminate if he is
not elected as Management Public Director by the stockholders at the first
meeting of stockholders for the election of directors at which he is eligible
for nomination as a Management Public Director; and (iv) until the Sunset, non-
substantive amendments to the Restated Bylaws may be adopted either by a
majority vote of the entire Board or by 75% in the voting power of the stock
entitled to vote at a stockholder meeting in which a quorum is present. In
addition, the Restated Bylaws contain other procedural sections, some of which
operate only until the Sunset and some of which become operative only after the
Sunset.
 
                                       76

<PAGE>
 
TERMS AND CONDITIONS
 
 General
   
  The Plan of Recapitalization provides for the reclassification of the Old
Shares and other amendments to the Company's Certificate of Incorporation and
Bylaws. Immediately prior to the Effective Time each outstanding Old Share,
including each share of restricted stock issued pursuant to the 1988 Restricted
Stock Plan (which will vest upon the Effective Time if not vested prior
thereto), together with up to 1,000,000 Old Shares held by the Company as
treasury stock or owned by any wholly-owned subsidiary of the Company
immediately prior to the Effective Time, will, without any further action on
the part of the holder thereof, be reclassified as, and exchanged for, one half
(0.5) of a New Share and one one-thousandth of a share of Series D Redeemable
Preferred Stock. Concurrently with the solicitation of proxies in connection
with the Plan of Recapitalization, United will be offering up to $382.5 million
principal amount of its Series A Debentures pursuant to the United Series A
Offering and up to $382.5 million principal amount of its Series B Debentures
pursuant to the United Series B Offering and the Company will be offering up to
30,600,000 Depositary Preferred Shares representing interests in $765.0 million
liquidation preference of Public Preferred Stock pursuant to the UAL Preferred
Offering. Immediately upon issuance pursuant to the Reclassification, each one
one-thousandth of a share of Series D Redeemable Preferred Stock will be
redeemed for:     
       
   
  (i) $25.80 in cash,     
       
   
  (ii) either (a) $15.55 principal amount of Series A Debentures or (b) if the
   United Series A Offering is consummated, the cash proceeds (without
   deducting any underwriting discount or other costs) from the sale thereof by
   United pursuant to the United Series A Offering,     
   
  (iii) either (a) $15.55 principal amount of Series B Debentures or (b) if the
   United Series B Offering is consummated, the cash proceeds (without
   deducting any underwriting discount or other costs) from the sale thereof by
   United pursuant to the United Series B Offering and     
   
  (iv) either (a) Depositary Preferred Shares representing interests in $31.10
   liquidation preference of Public Preferred Stock or (b) if the UAL Preferred
   Offering is consummated, the cash proceeds (without deducting any
   underwriting discount or other costs) from the sale thereof by the Company
   pursuant to the UAL Preferred Offering.     
   
  The consummation of the Recapitalization is not conditioned on, or subject
   to, the consummation of any of the Offerings. In addition, none of the
   Offerings is conditioned on, or subject to, the consummation of any of the
   other Offerings.     
   
  The New Shares to be issued in the Recapitalization will represent an equity
interest (based on the Fully Diluted Old Shares described below and taking into
account the 0.5 common stock exchange ratio and taking into account the shares
of ESOP Preferred Stock the Company is initially obligated to issue)
immediately after the Recapitalization of 45% of one Old Share's current
percentage equity interest. Such equity interest is subject to adjustment as
described below under "--Establishment of ESOPs--Additional Shares."     
 
  "Fully Diluted Old Shares" were calculated as follows: the sum of (i) Old
Shares outstanding (net of unvested restricted shares), (ii) unvested
restricted shares, (iii) net options shares issued assuming the treasury stock
method of accounting (pursuant to which the deemed proceeds to the Company from
the deemed
exercise of in-the-money options are applied to repurchase shares for the
treasury at an assumed market price per Old Share of $173) and (iv) shares
issuable upon conversion of the Series A Preferred Stock. Due to their high
conversion premium, the Air Wis Services, Inc. 7 3/4% Convertible Subordinated
Debentures Due 2010 and Air Wis Services, Inc. 8 1/2% Convertible Subordinated
Notes Due 1995 were not assumed to be converted and were not included in the
calculation of Fully Diluted Old Shares. The number of Fully Diluted Old
Shares, as shown below, is fixed for purposes of the Plan of Recapitalization
and the issuance of shares of
 
                                       77

<PAGE>
 
ESOP Preferred Stock to the ESOPs although the actual number of Old Shares that
are reclassified pursuant to the Recapitalization may change due to vesting of
restricted stock and the exercise of options:
 

<TABLE>
     <S>                                                              <C>
     Old Shares (net)................................................ 24,450,896
     Unvested restricted shares......................................    119,643
     Option shares (net).............................................    521,780
     Old Shares upon conversion of Series A Preferred Stock..........  3,833,866
                                                                      ----------
     Fully Diluted Old Shares........................................ 28,926,185
                                                                      ----------
</TABLE>

   
  Because the calculation of Fully Diluted Old Shares is based on the exercise
of net option shares (using the treasury stock method) and the conversion of
all the Series A Preferred Stock, neither of which is expected to occur at the
Effective Time, the New Shares then outstanding are expected to represent less
than 45% of the Common Equity of the Company (taking into account the New
Shares and the ESOP Preferred Stock only) at the Effective Time.     
 
  As contemplated by the Plan of Recapitalization, the Company has elected to
issue Depositary Preferred Shares, each representing an interest in one one-
thousandth of a share of Public Preferred Stock, which is the equivalent of $25
liquidation preference of Public Preferred Stock. Each share of Public
Preferred Stock will have a liquidation preference of $25,000. See "Description
of Securities--The Depositary Preferred Stock."
 
 Effective Time
   
  The Recapitalization, the Stock Issuance, the amendments to the 1981 Stock
Program, the 1988 Restricted Stock Plan and the Incentive Plan and the revised
Collective Bargaining Agreements with ALPA and the IAM will become effective at
such time as the Restated Certificate, which provides for the reclassification
of the Old Shares, is duly filed with the Secretary of State of the State of
Delaware or at such later time as may be mutually agreed upon by the Company
and each of ALPA and the IAM and as is specified in the Restated Certificate
(the "Effective Time"). The filing of the Restated Certificate is currently
anticipated to be made as promptly as practicable after the Meeting. Such
filing shall be made, however, only upon satisfaction or, where permissible,
waiver of all conditions contained in the Plan of Recapitalization and provided
that the Plan of Recapitalization has not been terminated. See "--Terms and
Conditions" and "--Termination." If any or all of the Offerings are
consummated, it is expected that they will be consummated at or prior to the
Effective Time.     
 
 Payment for Shares
 
  As soon as practicable after the Effective Time, the Company will send or
cause First Chicago Trust Company of New York (the "Exchange Agent") to send
and otherwise make available a letter of transmittal to each record holder of
Old Shares as of the Effective Time to be used to transmit a certificate or
certificates that immediately prior to the Effective Time represented Old
Shares (an "Old Certificate" or "Old Certificates") to the Exchange Agent. Such
letter of transmittal will advise the holder of the effectiveness of the
Recapitalization and the procedures for surrendering to the Exchange Agent the
Old Certificate or Certificates for exchange into Recapitalization
Consideration and will specify that the delivery will be effected and the risk
of loss and title will pass, only upon proper delivery of the Old Certificate
or Certificates to the Exchange Agent. Stockholders should surrender the Old
Certificate or Certificates only together with a letter of transmittal.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY
CARD.
 
  Each holder of Old Shares that have been converted into the right to receive
the Recapitalization Consideration, upon surrender to the Exchange Agent of the
Old Certificate or Certificates together with a properly completed letter of
transmittal, will be entitled to receive the Recapitalization Consideration for
each Old Share formerly represented by such Old Certificate. Until so
surrendered, each Old Certificate will, after the Effective Time, represent for
all purposes only the right to receive such Recapitalization Consideration. If
any payment of the Recapitalization Consideration is to be made to a person
other than the registered
 
                                       78

<PAGE>
 
holder of the Old Shares, the Old Certificates so surrendered must be properly
endorsed or otherwise be in proper form for transfer, and any applicable
transfer or other taxes must have been paid to the Exchange Agent by the person
requesting such payment or such person must have established to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
 
  In the event any Old Certificate is lost, stolen or destroyed, based on an
affidavit to that fact by the person claiming such Old Certificate to be lost,
stolen or destroyed, the Company will issue in exchange for such lost, stolen
or destroyed Old Certificate the Recapitalization Consideration deliverable in
respect thereof. When authorizing such issue of the Recapitalization
Consideration in exchange therefor, the Company may, in its discretion and as a
condition precedent to the issuance thereof, require the person claiming
ownership of such lost, stolen or destroyed Old Certificates to give the
Company a bond in such sum as it may direct, or otherwise indemnify the Company
in a manner satisfactory to it, against any claim that may be made against the
Company with respect to the Old Certificates alleged to have been lost, stolen
or destroyed.
 
  After the Effective Time, there will be no further registration of transfers
of Old Shares. If, after the Effective Time, Old Certificates representing Old
Shares are presented to the Company or its transfer agent, such Old
Certificates will be cancelled and exchanged for the Recapitalization
Consideration.
   
  Fractional New Shares and, if the applicable Offerings are not consummated,
fractional Depositary Preferred Shares (based on $25 of liquidation preference
per whole Depositary Preferred Share) and fractional Debentures (based on $100
principle amount per whole Debenture) will not be issued as part of the
Recapitalization and such fractional interests will not entitle the beneficial
or record owner thereof to any rights of a stockholder or creditor of the
Company. In lieu of any fractional New Shares and, if applicable, fractional
Depositary Preferred Shares and fractional Debentures to which a former holder
of Old Shares otherwise would be entitled, such holder will be entitled to
receive from the Exchange Agent a cash payment based on pro-rata distribution
of the proceeds received by the Exchange Agent from the sale of the aggregate
fractional New Shares, fractional Depositary Preferred Shares and fractional
Debentures. Such cash payments will be made to each such holder of Old Shares
only upon proper surrender of such holder's Old Certificates formerly
representing Old Shares, together with a properly completed and duly executed
transmittal letter and any other required documents.     
   
  All Recapitalization Consideration, including cash in lieu of fractional
interests, if not claimed at the first anniversary of the Effective Time, will
be transferred by the Exchange Agent to the Company, after which time persons
entitled thereto may look, subject to applicable escheat and other similar
laws, only to the Company for payment thereof. No interest will be paid or
accrued on any portion of the Recapitalization Consideration, including cash in
lieu of fractional interests. No dividends or other distributions declared or
made after the Effective Time with respect to New Shares with a record date
after the Effective Time will be paid to the holder of any unsurrendered Old
Certificate or Certificates with respect to the New Shares that such holder is
entitled to receive until the holder of such Old Certificate or Certificates
has properly surrendered the same.     
 
 Stock Options
   
  Upon consummation of the Recapitalization, each outstanding employee stock
option of the Company granted under any employee stock option or compensation
plan or arrangement of the Company will remain outstanding, each such option
then held by employees or former employees of the Company, whether or not then
vested or exercisable immediately prior to the Effective Time (collectively,
the "Options"), if provided by the terms thereof (or if accelerated in
accordance with the relevant plan) will become fully vested and exercisable and
after the Effective Time each option will thereafter represent the right to
receive, in exchange for the aggregate exercise price for such option, the
Recapitalization Consideration with respect to each Old Share that such holder
would have been entitled to receive had such holder been vested in such option
and exercised such option in full immediately prior to the Effective Time.     
 
 
                                       79

<PAGE>
 
 Convertible Company Securities
   
  Each share of Series A Preferred Stock and each of the Air Wis Services,
Inc. 7 3/4% Convertible Subordinated Debentures Due 2010 and the Air Wis
Services, Inc. 8 1/2% Convertible Subordinated Notes Due 1995 (collectively,
the "Convertible Company Securities") outstanding immediately prior to the
Effective Time will remain outstanding, and each holder of any such
Convertible Company Security will have the right to receive the
Recapitalization Consideration with respect to each Old Share that such holder
would have been entitled to receive upon conversion had such holder converted
such Convertible Company Security in full immediately prior to the Effective
Time.     
 
 Treasury Shares
 
  Pursuant to the Plan of Recapitalization, each Old Share held by the Company
as treasury stock or owned by any wholly-owned subsidiary of the Company
immediately prior to the Effective Time (the "Treasury Shares"), up to a
maximum of 1,000,000 Treasury Shares (the "Retained Treasury Shares"), will be
reclassified and converted into the Recapitalization Consideration, with all
Treasury Shares in excess of 1,000,000 being surrendered for cancellation
immediately prior to the Effective Time and no payment shall be made with
respect thereto. Immediately following the Effective Time, the Company and
each of its wholly owned subsidiaries will surrender for cancellation the
Redeemable Preferred Stock received upon reclassification of the Retained
Treasury Shares and no payment will be made in respect thereof.
 
 Pricing the Securities
   
  Under the Plan of Recapitalization, the interest rate on the Series A
Debentures has been fixed provisionally at 9.00%, the interest rate on the
Series B Debentures has been fixed provisionally at 9.70% and the dividend
rate on the Public Preferred Stock has been fixed provisionally at 10.25% (the
"Initial Pricing"). On the Trading Day immediately preceding the Announcement
Date (as defined below), CS First Boston (in consultation with Lazard) on
behalf of the Company and Keilin & Bloom (or such other investment banking
firm as may be reasonably selected by the Unions) on behalf of the Unions (the
"Primary Banking Firms") will seek to mutually determine the interest or
dividend rate that each of the Debentures and the Public Preferred Stock
should bear in order for the Debentures and Depositary Preferred Shares to
trade at par as of the close of business, New York time, on the last day on
which the NYSE is open for business ("Trading Day") immediately preceding the
Announcement Date, assuming that the Debentures or the Depositary Preferred
Shares were fully distributed on such Trading Day. "Announcement Date" means a
Trading Day that will be not fewer than five business days nor more than ten
calendar days preceding the date of the Meeting, such date to be disclosed to
the Unions not fewer than ten calendar days prior thereto. If the Primary
Banking Firms are unable to agree on the applicable rate of the Public
Preferred Stock and the Debentures (the "Applicable Rates") with respect to a
specified security, then (i) a third financial advisor identified by the
Company and the Unions, which is expected to be Salomon Brothers Inc (the
"Deadlock Firm"), will render its determination, based on such factors as it
deems relevant and in accordance with such procedures as it deems appropriate
(which may include discussions or consultations with one or more managers of
the Offerings), on the Trading Day immediately preceding the Announcement
Date, as to the Applicable Rate with respect to such securities, and (ii) the
Applicable Rate with respect to such Security or Securities will be the
average of the two closest rates specified in the determinations of the
Primary Banking Firms and the Deadlock Firm, rounded to the nearest one one-
hundredth of a percent, provided, however, that, while there is no limitation
on a downward adjustment, in no event shall the Applicable Rate with respect
to the Debentures or the Public Preferred Stock exceed 10.125% in the case of
the Series A Debentures, 10.825% in the case of the Series B Debenture and
11.375% in the case of the Public Preferred Stock. See "SPECIAL FACTORS--
Certain Risk Factors--Investment Values; Future Investments." Based on current
market conditions, the Company believes that the interest rates on the Series
A Debentures and the Series B Debentures and the dividend rate on the
Depositary Preferred Shares to be established by certain financial advisors to
the Company and the Unions and, in the case of a deadlock, based on a process
involving a third financial advisor, would not be less than the initial
pricing of 9.00% for the Series A Debentures, 9.70% for the Series B
Debentures and 10.25% for the Depositary Preferred Shares. In connection with
the establishment of the final interest and dividend rates for the Debentures
and the Depositary Preferred Shares, the Primary     
 
                                      80

<PAGE>
 
   
Banking Firms or the Deadlock Firm may or may not deliver written statements,
reports or opinions with respect to their determination. Salomon Brothers Inc
has been selected as a co-manager of the Offerings of the Debentures, and may
participate in the Offering of the Public Preferred Stock.     
   
  The underwriting agreements relating to the several Offerings are expected to
provide, as applicable, that if such Offerings are consummated, the interest
rates on the Debentures and the dividend rate on the Public Preferred Stock
represented by the Depositary Preferred Shares, respectively, may be adjusted
(including in excess of their respective caps) to permit such securities to be
sold at or closer to par, but if that is done, the principal amount of the
series of Debentures affected or the number of Depositary Preferred Shares
representing interests in the Public Preferred Stock, as the case may be, will
be reduced so that the aggregate amount of interest payable annually by United
on the Debentures and the aggregate amount of dividends payable annually by the
Company on the Public Preferred Stock will not exceed certain maximum amounts
calculated with reference to such caps. If any of the Offerings are not
consummated, the interest rates borne by the Debentures of any series of
Debentures not subject to a consummated Offering and the dividend rate borne by
the Public Preferred Stock if the UAL Preferred Offering is not consummated
will be subject to the caps. See "THE PLAN OF RECAPITALIZATION--Terms and
Conditions--Pricing the Securities."     
   
  On the Announcement Date, the Company will (i) issue a press release setting
forth certain information (described below) relating to the Debentures and the
Public Preferred Stock and (ii) send a mailgram to all holders of Old Shares as
of the Record Date setting forth such information. On the first business day
following the Announcement Date, the Company will publish such rates in an
advertisement in the national edition of The Wall Street Journal. In addition a
toll-free number (800-223-2064) has been established from which all holders of
Old Shares can obtain general recorded information concerning the Announcement
Date. As of the Announcement Date, holders of the Old Shares can call the toll-
free number to obtain the information relating to the Debentures and the Public
Preferred Stock. See also "SPECIAL FACTORS--Certain Risk Factors--Pricing the
Public Preferred and the Debentures." On or promptly following the Announcement
Date, the Company will also file with the Securities and Exchange Commission an
amendment to the Registration Statement on Form S-4 to reflect the final
pricing information.     
   
  The press release, newspaper advertisement, mailgram and recorded information
described in the previous paragraph will include (i) a statement of whether the
Company expects all or any of the Offerings to be consummated, (ii) if so, the
amount of the cash proceeds to be received from the sale of the Debentures
and/or Depositary Preferred Shares that are otherwise issuable in respect of
each Old Share if any of such Offerings are consummated and (iii) a statement
of the interest rates and/or dividend rate for the Debentures or Depositary
Preferred Shares if the Offering relating to any such securities is not
consummated. To the extent the Company has announced that it expects any or all
of the Offerings to be consummated and it is subsequently determined that any
of such Offerings will not be consummated, the Company will disseminate such
information promptly in the same manner that the Company used to disseminate
the information set forth in the previous sentence and will cause the Meeting
to be rescheduled such that at least five business days will occur between the
release of such information and the Meeting. Any statement in connection with
the foregoing that the Company expects the Offerings to be consummated will not
be an assurance that the Offerings will be consummated.     
   
  The provisional rates of interest that the Debentures will bear and the
maximum rates of interest that they may bear upon adjustment are based upon the
assumption that the Debentures will not be callable prior to their respective
stated maturities. The Plan of Recapitalization provides that the Unions may
request, a reasonable period of time prior to the Announcement Date, that
either or both of the series of Debentures may be callable pursuant to
redemption provisions to be established for each of the Debentures to apply if
the applicable United Debt Offering is consummated. If so requested, the
Primary Banking Firms will establish the incremental increase in pricing
resulting from the addition of the call feature on either or both of the series
of Debentures, as the case may be, above the Applicable Rate, with any
disagreement to be resolved with the assistance of the Deadlock Firm. The
Coalition may withdraw the request for a call feature at any time up to the
issuance of the press release on the Announcement Date.     
 
 
                                       81

<PAGE>
 
 Record and Payment Dates
   
  If the applicable Offerings are not consummated, the quarterly record dates
(and corresponding dividend payment dates) for the payment of dividends on the
Public Preferred Stock (through the Depositary Preferred Shares) will be the
same as the quarterly record dates (and corresponding dividend payment dates)
for the payment of dividends on the Series A Preferred Stock and the semi-
annual record dates (and corresponding interest payment dates) for the payment
of interest on the Debentures will be the same as two of the quarterly record
dates (and corresponding dividend payment dates) for the payment of dividends
on the Series A Preferred Stock.     
 
 Purchase of ESOP Preferred Stock
   
  The Preferred Stock Purchase Agreement, originally dated as of March 25, 1994
and amended as of June 2, 1994, between the Company and the ESOP Trustee (the
"ESOP Stock Purchase Agreement"), provides for the initial purchase by the
Qualified ESOP (as defined below, see "Establishment of ESOPs--Sales of ESOP
Preferred Stock") of the Class 1 ESOP Preferred Stock for a price equal to 1.38
times the Closing Price (as defined below, see "Establishment of ESOPs--
Leveraged ESOP") except that if the closing price is less than 98% of the
average of the Adjusted Old Share Price (as defined below, see "Establishment
of ESOPs--Leveraged ESOPs") in the five trading days immediately preceding the
Effective Date the purchase price shall equal the product of 1.38 and such
average price. See "--Establishment of ESOPs--Sales of ESOP Preferred Stock."
The ESOP Stock Purchase Agreement also provides that additional sales of Class
1 ESOP Convertible Preferred Stock will be made to the ESOP Trustee on the
first day of the thirteenth month after the Effective Time, on each of the next
four anniversaries of such date, and on January 1, 2000. The price for the
subsequent sales will be as agreed upon between the Company and the ESOP
Trustee. The Company may, with the consent of the Unions (which may not be
unreasonably withheld), make the subsequent sales at earlier times, provided
that earlier sales shall not alter the timing or amount of the allocation of
shares to participants' accounts. If agreements cannot be reached with the ESOP
Trustee to make the subsequent sales, the Company will contribute the shares
which would have been sold. For additional information concerning the purchase
of the Class 1 ESOP Preferred Stock and for information on the Class 2 ESOP
Preferred Stock, see "--Establishment of ESOPs--Sales of ESOP Preferred Stock."
In addition, pursuant to the Plan of Recapitalization, the dividend rate on the
Class 1 ESOP Preferred Stock may not be more than 7% of the initial purchase
price.     
 
 Representations and Warranties
 
  The Plan of Recapitalization contains various customary representations and
warranties relating to, among other things, (a) on the part of the Company, as
to, (i) organization and similar corporate matters, (ii) authorization,
execution, delivery, performance and enforceability of the Plan of
Recapitalization and related matters, (iii) capital structure, (iv)
subsidiaries, (v) documents filed by the Company with the Commission and the
accuracy of information contained therein, (vi) absence of material changes
with respect to the business of the Company since December 31, 1993, (vii)
generally, subject to certain exceptions, compliance with the "status quo"
provisions of the Agreement in Principle which are substantially similar to the
provisions of the first paragraph below under "--Certain Covenants" during the
period from December 22, 1993 until March 25, 1994 and (viii) the opinion of
financial advisors as to the fairness of the Recapitalization Consideration,
and (b) on the part of each of the Unions, as to, (i) organization and similar
matters and (ii) authorization, execution, delivery, performance and
enforceability of the Plan of Recapitalization.
 
 Certain Covenants
 
  Pursuant to the Plan of Recapitalization, the Company agreed that during the
period from the date of the Plan of Recapitalization until the Effective Time,
the Company and its subsidiaries will be subject to certain restrictions on
their conduct and will generally only take actions in the ordinary course of
business consistent with past practice; in particular, the Company and its
subsidiaries may not, among other things, without the prior written consent of
the Unions, subject to certain agreed upon exceptions: (i) issue, sell, dispose
of, pledge or otherwise encumber any equity securities of the Company or any
subsidiary (or securities
 
                                       82

<PAGE>
 
exercisable into or for such securities), (ii) reclassify, combine, split,
subdivide, redeem, purchase or otherwise acquire any securities of the Company,
(iii) declare or pay any dividend or distribution on the Old Shares, (iv)
increase the compensation of any of its directors, officers or key employees,
or increase its expenses relating to employee benefits, (v) incur any material
amount of long-term indebtedness, make any material loans, advances or capital
contributions to any other person, mortgage or pledge any of its material
assets or (vi) enter into any agreement or arrangement to do any of the
foregoing. The Company also agreed, among other things, subject to certain
exceptions until the Effective Time (i) not to take any actions that would
violate or be inconsistent with the job protection provisions of the collective
bargaining agreements with each of the Unions, (ii) not to take any action
relating to certain matters requiring supermajority votes under the Restated
Certificate (as discussed above under "--Revised Governance Structure--
Extraordinary Matters") and (iii) not to alter or amend the Board's resolutions
or any of its policies, practices, procedures or employee benefit plans in any
manner that would adversely affect the right or ability of the employees of the
Company or United to purchase equity securities of the Company. The Company has
agreed to restore certain severance benefits to former employees of United who
have been terminated as a result of the sale of United's flight kitchens to
Dobbs or Caterair. These severance benefits had been in effect from December
22, 1993, upon execution of the Agreement in Principle, until March 15, 1994,
when the "status quo" provision of the Agreement in Principle terminated.
   
  In addition to the covenants described above, the Company agreed to take
actions that will facilitate the implementation of the Plan of
Recapitalization. In particular, the Company agreed, among other things, (i)
subject to receipt of updated fairness opinions from CS First Boston and
Lazard, to convene a meeting of stockholders to approve each of the Plan of
Recapitalization, the Restated Certificate, the election of the initial Public
Directors to the Board of Directors of the Company and the issuance of the ESOP
Preferred Stock as part of the Recapitalization (the "Shareholder Vote
Matters"), the approval of each such matter to be conditioned on approval of
all such matters, and amendments to the Company's 1981 Incentive Stock Plan and
1988 Restricted Stock Plan and Incentive Compensation Plan (the "Company Plan
Matters"), in connection with which the Company agreed to prepare, file with
the Commission and mail to its stockholders this Proxy Statement, (ii) to
provide each of ALPA and the IAM and their agents with reasonable access to
offices, employees, properties, books and records of the Company and its
Subsidiaries in connection with the Plan of Recapitalization and the
transactions contemplated thereby, (iii) subject to certain exceptions, not to
encourage, solicit, participate in or initiate discussions or negotiations
with, or provide any information to, any other person concerning any merger,
sale of assets, sale of, or tender or exchange offer for, shares of capital
stock or similar transaction, involving a change of control of the Company or
all or substantially all of the assets of the Company (an "Acquisition"), (iv)
to provide each of ALPA and the IAM with notices of certain significant events,
(v) to amend the directed account plans, 401(k) plans and stock purchase plan
maintained by the Company and United to permit employees of the Company and
United following the Effective Time to acquire, in addition to amounts held in
the ESOPs, the following securities: (X) up to the lesser of (1) 30% of the
outstanding New Shares held by persons other than the ESOPs and (2) 20% of the
aggregate number of outstanding New Shares and New Shares issuable upon
conversion of the ESOP Preferred Stock outstanding or to be issued (including
Available Unissued ESOP Shares) and (Y) except with respect to the Company's
stock purchase plan, up to (1) 20% of the outstanding Depositary Preferred
Shares, (2) 20% of the outstanding principal amount of Series A Debentures and
(3) 20% of the outstanding principal amount of Series B Debentures, subject to
the following additional limits: (A) no employee group of the Company or its
subsidiaries may individually acquire more than 10% of any class of securities
referred to in clause (X) and (Y) above through such plans, (B) in the case of
the directed account plans, no "Employee Group" (defined as each of ALPA, the
IAM and the salaried and management employees) may individually acquire more
than 2% of any such class of securities in any monthly subscription period
through such plans, (C) no Employee Group may individually acquire more than 2%
of the outstanding New Shares held by persons other than the ESOPs (in addition
to New Shares received in the Recapitalization) through such plans during the
six-month period beginning at the Effective Time and (D) no New Shares may be
acquired through such plans during the six-month period ending on the last day
of the Measuring Period, (vi) to cause United to execute and deliver new
collective bargaining agreements or amendments to existing collective     
 
                                       83

<PAGE>
 
bargaining agreements with each of ALPA and the IAM and to establish and cause
United to establish appropriate employment terms for the employees of the
Company and United who perform the functions currently performed by the
salaried and management employees of the Company and United, (vii) to retain an
appraisal firm to provide an opinion in writing as to whether the Company would
have sufficient surplus under the DGCL to permit the consummation of the
Recapitalization (the "Solvency Letter") and that if the appraisal firm
concludes that sufficient surplus is so available, the Board will take all
lawful and appropriate action to revalue the Company's assets and liabilities
to permit consummation of the Recapitalization and (viii) to execute at the
Effective Time the Greenwald Agreement and to perform all of its obligations
under such agreement and to execute and deliver prior to the Effective Time all
the documents and agreements required to be executed and delivered by the
Company pursuant to the Plan of Recapitalization including documents and
agreements relating to the Debentures and the Depositary Preferred Shares, the
purchase of stock by the ESOPs (including the ESOP Stock Purchase Agreement),
the establishment of the ESOP Trusts, the retention and conduct of the Exchange
Agent, the subscription agreements relating to the various classes of stock to
be issued as part of the Recapitalization, the amendment to the Rights
Agreement, the Class I Stockholders' Agreement, the Class SAM Stockholders'
Agreement and the First Refusal Agreement (collectively, the "Closing
Agreements").
   
  Pursuant to the Plan of Recapitalization, each of ALPA and the IAM agreed,
among other things, (i) prior to the Effective Time and after any termination
of the Plan of Recapitalization to hold confidential information received from
the Company and its subsidiaries in confidence, (ii) to execute and deliver at
the Effective Time the relevant Collective Bargaining Agreement between each
Union and the Company, (iii) not to nominate or cause to be nominated any
Outside Public Director and (iv) to use their best efforts to cause any
Independent Director vacancy to be filled.     
   
  Pursuant to the Plan of Recapitalization, each of ALPA and the IAM and the
Company mutually agreed, among other things, (i) to use their best efforts to
consummate the Plan of Recapitalization and (ii) to cooperate in connection
with preparation and filing of documents with any governmental agency or
authority. In addition, if the AFA, prior to the Effective Time, agrees to
provide, in the sole judgment of the Company, an investment equal to $416
million (present value in January 1994 dollars), then the parties, should an
agreement be reached on all aspects of the AFA's participation (e.g.,
governance), will revise all applicable documents to reduce the investment
period for ALPA, the IAM and the salaried and management employees by nine
months and to distribute 12.62% of the ESOP Preferred Stock to the AFA such
that after such distribution, 40.4% of the ESOP Preferred Stock is allocated to
ALPA employees, 32.44% to IAM employees, 14.54% to the salaried and management
employees and 12.62% to the AFA employees.     
 
 Conditions
   
  Pursuant to the Plan of Recapitalization, the obligation of the Company to
file the Restated Certificate at the Effective Time and the obligations of each
of the Unions to enter into the revised Collective Bargaining Agreements at the
Effective Time are subject to the satisfaction of the following conditions,
among others: (i) the Shareholder Vote Matters have been approved and adopted
by the stockholders of the Company in accordance with the Certificate of
Incorporation and Bylaws of the Company and in accordance with the DGCL, (ii)
any applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 relating to the Recapitalization has expired or been
terminated, (iii) the Registration Statement has become effective under the
Securities Act and is not the subject of any stop order or governmental
proceedings seeking a stop order, (iv) all material actions by or in respect of
or filings with any governmental body, agency, official, or authority required
to permit the consummation of the Recapitalization have been obtained, (v) the
New Shares issuable as part of the Recapitalization (including New Shares
issuable upon conversion of the ESOP Preferred Stock and upon conversion of the
Convertible Company Securities) have been authorized for listing on the NYSE
subject to official notice of issuance, (vi) there has been no change in the
DGCL enacted or any applicable decision of a court of competent jurisdiction
decided after the date of the Plan of Recapitalization and prior to the
Effective Time that would cause the Restated Certificate or Restated Bylaws to
fail to comply in any material respect with the applicable provisions of the
DGCL, (vii) the ESOP Trustee has received the     
 
                                       84

<PAGE>
 
   
written opinion of Houlihan Lokey, to the effect that, as of the Effective
Time, the acquisition of the ESOP Preferred Stock by the ESOPs at the Effective
Time is fair, from a financial point of view, to the ESOP participants, (viii)
the Board has received the Solvency Letter, (ix) (A) there has not been
instituted or pending any action, proceeding, application, claim, or
counterclaim by any United States federal, state or local government or
governmental authority or agency, including the Department of Transportation,
before any court or governmental regulatory or administrative agency, authority
or tribunal, that (x) restrains or prohibits or is reasonably likely to
restrain or prohibit the making or consummation of, or is reasonably likely to
recover material damages or other relief as a result of, the Recapitalization,
or the receipt by holders of the Old Shares of the full amount of the
Recapitalization Consideration, or restrains or prohibits or is reasonably
likely to restrain or prohibit the performance of, or is reasonably likely to
recover material damages or other relief as a result of, the Plan of
Recapitalization or any of the transactions contemplated thereby or (y)
prohibits or limits or seeks to prohibit or limit the ownership or operation by
either Union, the ESOP Trustee, any of the ESOPs or any participant therein of
all or any substantial portion of the capital stock, business or assets of the
Company or any of its subsidiaries or compels or seeks to compel either Union,
the ESOP Trustee, any of the ESOPs or any participant therein to dispose of or
hold separate all or any substantial portion of the capital stock, business or
assets of the Company or any of its subsidiaries or imposes or seeks to impose
any material limitation on the ability of either Union, the ESOP Trustee, any
of the ESOPs or any participant therein, to conduct such business or own such
assets, (B) there has not been instituted or be pending any action, proceeding,
application, claim or counterclaim by any other person, before any such body,
that is reasonably likely to result in any of the consequences referred to in
clauses (A)(x) or (A)(y) above, and (C) there has not been any United States
Federal, state or local statute, rule, regulation, decree, order or injunction
promulgated, enacted, entered, or enforced by any United States Federal, state
or local government agency or authority or court, that has any of the effects
referred to in clauses (A)(x) or (A)(y) above, (x) all conditions to the
obligations of the parties to the Closing Agreements to consummate such
transactions have been satisfied or are capable of being satisfied concurrently
upon the occurrence of the Effective Time, (xi) the Closing Agreements will be
legal, valid and binding agreements of the Company and the other parties
thereto from and after the Effective Time, enforceable against the Company and
such other parties in accordance with their terms and (xii) Mr. Greenwald (or
such other person as will be proposed by the Unions prior to the Effective Time
and not found unacceptable by the Company) will be ready, willing and able to
assume the office of CEO of the Company and United. The ESOP Stock Purchase
Agreement applicable to the sale of Class 1 ESOP Convertible Preferred Stock
which will occur at the Effective Time is a Closing Agreement. See "--Purchase
of ESOP Preferred Stock," "--Certain Covenants" and "--Establishment of ESOPs--
Sales of ESOP Preferred Stock."     
   
  Pursuant to the Plan of Recapitalization, the obligations of each of the
Unions to enter into the relevant revised Collective Bargaining Agreements at
the Effective Time are subject to the satisfaction of the following further
conditions, among others: (i) the Company will perform, both individually and
collectively, in all material respects all of its covenants, agreements or
other obligations required to be performed by it under the Plan of
Recapitalization at or prior to the Effective Time and (ii) the representations
and warranties of the Company set forth in the Plan of Recapitalization will be
true and correct, both individually and collectively, in all material respects
at or prior to the Effective Time as if made at and as of such time.     
   
  Pursuant to the Plan of Recapitalization, the obligation of the Company to
file the Restated Certificate at the Effective Time is subject to the
satisfaction of the following further conditions, among others: (i) each Union
will perform, both individually and collectively, in all material respects, all
of its covenants, agreements or other obligations required to be performed by
it, under the Plan of Recapitalization, at or prior to the Effective Time, (ii)
the representations and warranties of ALPA and the IAM set forth in the Plan of
Recapitalization will be true and correct, both individually and collectively,
in all material respects at and as of the Effective Time as if made at and as
of such time, (iii) the Board will receive the written opinions of each of CS
First Boston and Lazard, each dated as of the Announcement Date, confirming
their earlier opinions, to the effect that the consideration to be received by
the holders of Old Shares in the Recapitalization taken as a whole is fair from
a financial point of view to the holders of Old Shares, (iv) the     
 
                                       85

<PAGE>
 
revised Collective Bargaining Agreements have been executed and delivered by
ALPA and the IAM and will be in full force and effect as of the Effective Time,
(v) the Board will receive the written opinions of Skadden, Arps, Slate,
Meagher & Flom relating to the issuance of stock and Debentures, the ability to
revalue surplus under the DGCL, the absence of violation of certain applicable
laws resulting from the issuance of the ESOP Preferred Stock, the tax treatment
to the Company resulting from the Recapitalization and the deductibility of
contributions made to and dividends paid to the ESOP following the Effective
Time and (vi) the Company will determine that it is reasonably likely to have
sufficient earnings and profits such that, based on the opinion of counsel
described in clause (v) above, the dividends paid on the Class 1 ESOP Preferred
Stock that are used to repay the debt evidenced by a note to be delivered in
connection with the purchase of the ESOP Preferred Stock are reasonably likely
to be deductible under Section 404 of the Internal Revenue Code and (vii) the
Company will determine that the Company will be reasonably likely to have
sufficient surplus (whether revaluation surplus or earned surplus) or net
profits under the DGCL to permit the legal payment of dividends on the ESOP
Preferred Stock and the Public Preferred Stock when due.
   
  Consummation of the Recapitalization is not, however, conditioned upon the
consummation of any or all of the Offerings.     
 
 Termination
 
  The Plan of Recapitalization will terminate and the Recapitalization will be
abandoned (notwithstanding any approval of the Shareholder Vote Matters by the
stockholders of the Company) if the Effective Time does not occur by 11:59 p.m.
on August 31, 1994 (the "Outside Termination Time"). In addition, the Plan of
Recapitalization may be terminated and the Recapitalization may be abandoned at
any time prior to the Outside Termination Time and prior to the Effective Time
(notwithstanding any approval of the Shareholder Vote Matters by the
stockholders of the Company) (a) by mutual written consent of each of ALPA and
the IAM and the Company, (b) by any of ALPA, the IAM or the Company if (i) the
stockholders of the Company do not approve the Shareholder Vote Matters at the
Meeting or (ii) any court of competent jurisdiction in the United States or
other United States Federal, state or local governmental body issues an order,
decree or ruling or take any other action restraining, enjoining or otherwise
prohibiting the Recapitalization and such order, decree, ruling or other action
has become final and nonappealable, (c) by either ALPA or the IAM if (i) the
Board withdraws or modifies in a manner materially adverse to such Union its
approval or recommendation of the Recapitalization or the Shareholder Vote
Matters or recommends, or fails to recommend against, another Acquisition, (ii)
the Board resolves to do any of the foregoing, (iii) the Company breaches,
either individually or collectively, in any material respect any of its
material representations, warranties, covenants or other agreements contained
in the Plan of Recapitalization, (iv) any person acquires "beneficial
ownership" (as defined in the Rights Agreement) or the right to acquire
beneficial ownership of, or any "group" (as such term is defined in Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder)
is formed that beneficially owns, or has the right to acquire beneficial
ownership of, more than 15% of the then outstanding Old Shares, or becomes an
"Acquiring Person" under the Rights Agreement or (v) there occurs a "Share
Acquisition Date" or "Distribution Date" as defined under the Rights Agreement
or (d) by the Company if (i) either ALPA or the IAM breaches, either
individually or collectively, in any material respect, any of their material
representations, warranties, covenants or other agreements contained in the
Plan of Recapitalization or (ii) the Board, acting in accordance with the
provisions of the Plan of Recapitalization relating to Acquisitions other than
the Recapitalization, withdraws or modifies in a manner adverse to either ALPA
or the IAM its approval or recommendation of the Recapitalization or recommends
another Acquisition, or resolves to do any of the foregoing.
 
  Pursuant to the Plan of Recapitalization, if the Effective Time does not
occur on or before August 12, 1994, the Company may, by written notice to each
of the Unions, terminate its "status quo" obligations described above in the
first paragraph of "--Certain Covenants," provided that the Company's right to
so terminate its obligations will not be available in the event the Company's
failure to fulfill any obligation under the Plan of Recapitalization has been
the cause of or resulted in the failure of the Effective Time to occur on
 
                                       86

<PAGE>
 
or before such date. In addition, in the event the Company elects to terminate
its obligations in accordance with the preceding sentence, either of the
Unions may terminate the Plan of Recapitalization.
   
  If the Plan of Recapitalization is terminated and abandoned as described in
the two preceding paragraphs, the Plan of Recapitalization, subject to certain
exceptions, will become void and of no effect with no liability on the part of
the Company or either of ALPA or the IAM. However, if the failure of the
Effective Time to occur at or prior to the Outside Termination Time results
from either (i) a material breach of a specific material representation or
warranty contained in the Plan of Recapitalization by one of the parties
thereto under circumstances where the breaching party had actual knowledge at
the date of the Plan of Recapitalization that such representation or warranty
was materially false or misleading or (ii) a material breach of a specific
material covenant (a breach described in clause (i) or (ii) as modified by
proviso (A) hereto, being called a "Willful Breach") and one of the other
parties thereto has established, as determined by a court of competent
jurisdiction, that such Willful Breach has occurred, the breaching party will
be liable to the other parties thereto, for proximate and provable damages
resulting from such Willful Breach (which shall include the reasonable fees
and expenses of such non-breaching parties, including reasonable attorney's
fees and expenses, incurred in connection with the transactions contemplated
thereby other than in connection with any litigation or other dispute between
or among parties thereto); provided (A) to the extent that the material breach
of a specific material covenant is not determinable solely by an objective
fact (e.g. any best efforts obligation or requirement of reasonableness), such
breach will be actionable thereunder only if the breaching party knew (or
demonstrated reckless disregard for whether) its action or failure to act was
in violation of such covenant and (B) such calculation of damages will not
include consequential or punitive damages and will be the sole and exclusive
remedy of the non-breaching parties in the event of a Willful Breach. With
respect to a Willful Breach, "knowledge" (or any corollary thereof) or
"reckless disregard" will mean the knowledge or reckless disregard of the
senior executives or officials of the Company and United or the Unions, as the
case may be, each of whom will conclusively be deemed to have read the Plan of
Recapitalization.     
 
 Survival
   
  The representations and warranties and agreements contained in the Plan of
Recapitalization and in any certificate or other writing delivered pursuant
thereto will not survive the Effective Time unless expressly provided in such
agreement. The following agreements will survive the Effective Time:
agreements relating to Reclassification of Old Shares, redemption of the
Redeemable Preferred Stock, surrender and exchange of the Old Shares, issuance
of ESOP Preferred Stock, Director Preferred Stock and Additional Shares,
treatment of Options, treatment of Convertible Company Securities, resignation
of existing directors and officers of the Company, amendment to the Restated
Certificate of Incorporation of United, restrictions on the ability of the
employees of the Company or United to purchase equity securities of the
Company, amendments to directed account plans, 401(k) plans and stock purchase
plans of the Company or United, employment terms of the salaried and
management employees, the employment of Mr. Greenwald, the selection of a
chief operating officer and the Closing Agreements, employee and director
benefit plans, agreements, policies and arrangements of the Company or United,
prohibition against nominations of Public Directors by the Unions, best
efforts by the Unions to fill Independent Director vacancies, certain matters
relating to fees and expenses; and certain agreements relating to
indemnification (all such surviving agreements being referred to herein as the
"Express Agreements"). Except with respect to any Collective Bargaining
Agreements with the IAM and ALPA and the Express Agreements, from and after
the consummation of each of the transactions contemplated to take place at or
about the Effective Time, each of the parties to the Plan of Recapitalization
(in their capacities as such) will have fully released, discharged, waived and
renounced (collectively, the "Releases") any and all claims, controversies,
demands, rights, disputes and causes of action it may have had at or prior to
the Effective Time against, and will have agreed not to initiate any suit,
action or other proceeding involving, each of the other parties thereto, its
officials, officers, directors, employees, accountants, counsel, consultants,
advisors and agents and, if applicable, security holders relating to or
arising out of the Plan of Recapitalization or the transactions contemplated
thereby. However, the foregoing Releases do not apply to any claims,
controversies, demands, rights, disputes and causes of action arising from and
after the     
 
                                      87

<PAGE>
 
Effective Time (and based on facts and circumstances arising from and after the
Effective Time) under any of the documents, instruments or transactions entered
into, filed or effected in connection with the Recapitalization (other than the
Plan of Recapitalization, to the extent provided in this paragraph).
 
 Amendments; No Waivers
 
  The Plan of Recapitalization provides that (a) any provision of the Plan of
Recapitalization may be amended or waived prior to the Effective Time if such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company and each Union or, in the case of a waiver, by the party against
whom the waiver is to be effective; provided that no amendment to or waiver of
an Express Agreement will be effective against a person entitled to enforce
such Express Agreement unless agreed to in writing by such person, and
provided, further, that after the adoption of the Shareholder Vote Matters by
the stockholders of the Company, no such amendment or waiver will, without the
further approval of such stockholders if and to the extent such approval is
required by the DGCL, alter or change (i) the amount or kind of consideration
to be received in connection with the Recapitalization, (ii) any term of the
Restated Certificate or (iii) any of the terms or conditions of the Plan of
Recapitalization if such alteration or change would materially adversely affect
the holders of any shares of capital stock of the Company, and (b) no failure
or delay by any party in exercising any right, power or privilege under the
Plan of Recapitalization will operate as a waiver thereof nor will any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
provided in the Plan of Recapitalization will be cumulative and, except as set
forth in the Plan of Recapitalization, not exclusive of any rights or remedies
provided by law.
 
 Fees and Expenses; Indemnification
   
  Pursuant to the Plan of Recapitalization, except as agreed by the Company and
the Unions in writing or as set forth below, all fees, costs and expenses
incurred in connection with the Plan of Recapitalization will be paid by the
party incurring such fee, cost or expense. The Company and the Unions agreed
that the fees, costs and expenses of the Deadlock Firm and American Appraisal
will be paid by the Company. The Company and the Unions agreed that the fees of
the Company's principal financial and legal advisors to be incurred by the
Company in connection with the transactions contemplated by the Plan of
Recapitalization (other than in connection with the Offerings), will not exceed
$25 million. In addition, the Company has agreed to pay the following fees: (i)
up to $4.15 million in fees and expenses payable to counsel, investment banking
firms, experts, consultants or others relating to the structuring and
establishment of the ESOPs or otherwise benefitting the Company as part of the
Recapitalization, (ii) out-of-pocket expenses and fees paid, payable or
reimbursable to others by or pursuant to agreements with and among either or
both of the Unions (the "Coalition Fees"), subject to the following: (A) prior
to the Effective Time, the Company shall pay up to $7 million to or at the
direction of ALPA and up to $3 million to or at the direction of the IAM in
respect of Coalition Fees, which will represent payment for bona fide services
directly related to the transactions contemplated by the Plan of
Recapitalization since January 1, 1993 and will not exceed the aggregate time
or other customary charges together with disbursement costs of such firms since
such date for services of this type and (B) at the Effective Time the Company
will pay the balance of the Coalition Fees, subject to an overall limit of $45
million (including the amounts set forth in clause (A)), of which $31.5 million
is to be paid to or at the direction of ALPA and $13.5 million is to be paid to
or at the direction of the IAM and (iii) the fees of an executive search firm
and related executive expenses, in the event the Company and the Unions
determine to retain an executive search firm.     
 
  The Plan of Recapitalization provides that upon the occurrence of a
Triggering Event (as defined below), the Company will promptly pay to or at the
direction of the Unions any amounts the Company would otherwise have been
required to pay pursuant to the last sentence of the previous paragraph had the
Effective Time occurred at the time of the occurrence of such Triggering Event.
Such amounts would be exclusive of any amounts paid or payable pursuant to
indemnification or contribution arrangements. "Triggering Event" means the
occurrence of any of the following: (i)(A) following the public announcement of
a proposal for an Acquisition, either the stockholders of the Company do not
approve the Shareholder Vote Matters at the
 
                                       88

<PAGE>
 
   
Meeting or (B) the Board withdraws or modifies in a manner materially adverse
to ALPA and the IAM its approval or recommendation of the Recapitalization or
the Shareholder Vote Matters or recommends, or fails to recommend against,
another Acquisition, (ii) subsequent to the stockholder or Board action
referred to in clause (i) above, the Plan of Recapitalization will be
terminated (1) by the Company or either Union because the stockholders of the
Company fail to approve the Shareholder Vote Matters, (2) by the Company
because the Board withdraws or modifies in a manner adverse to either Union its
approval or recommendation of the Recapitalization or recommends another
Acquisition or resolves to do any of the foregoing or (3) by either Union if
the Board withdraws or modifies in a manner materially adverse to such Union
its approval or recommendation of the Plan of Recapitalization or the
Shareholder Vote Matters, or recommends, or fails to recommend against, another
Acquisition and (iii) within 12 months of the termination of the Plan of
Recapitalization in accordance with clause (ii) above, an Acquisition is
consummated.     
 
  Pursuant to the Plan of Recapitalization, the Company agreed, subject to
certain exceptions, to indemnify the Unions, their controlling persons, and
their respective directors, trustees, officers, partners, affiliates, agents,
representatives, advisors and employees (a "Union Indemnified Person") against
and hold each Union Indemnified Person harmless from any and all liabilities,
losses, claims, damages, actions, proceedings, investigations or threats
thereof, including expenses (which will include reasonable attorneys' fees,
disbursements and other charges) incurred in connection with the defense
thereof, based upon, relating to or arising out of the execution, delivery or
performance of the Plan of Recapitalization or the transactions contemplated
thereby. All rights to indemnification existing in favor of the present or
former directors, officers, employees, fiduciaries and agents of the Company or
any of its subsidiaries (collectively, the "Company Indemnified Persons") as
provided in the Company's Restated Certificate of Incorporation or Bylaws or
other agreements or arrangements, or articles of incorporation or by-laws (or
similar documents) or other agreements or arrangements of any subsidiary as in
effect as of the date of the Plan of Recapitalization with respect to matters
occurring at or prior to the Effective Time will survive the Effective Time and
will continue in full force and effect. In addition, the Company will provide
for a period of not less than six years following the Effective Time, for
directors' and officers' liability insurance for the benefit of directors and
officers of the Company immediately prior to the Effective Time with respect to
matters occurring at or prior to the Effective Time by electing, in its sole
discretion, one of the two alternatives set forth below (which election will be
reported to the Unions prior to the Effective Time): (i) maintain for a period
of not less than six years following the Effective Time, the current policies
of directors' and officers' liability insurance with respect to matters
occurring at or prior to the Effective Time, provided that in satisfying its
obligation under this clause (i), the Company will not be obligated to pay
premiums in excess of 150% of the amount per annum the Company paid for the
policy year ending during calendar year 1994, which amount has been disclosed
to the Unions or (ii) purchase, prior to the Effective Time, run-off coverage
for the benefit of directors and officers of the Company immediately prior to
the Effective Time for matters occurring at or prior to the Effective Time,
which coverage will provide for a separate insurance pool for such directors
and officers of at least $75 million in coverage, provided that in satisfying
the obligations under this clause (ii), the Company will not pay in excess of
an amount set forth in a letter previously delivered by the Company to counsel
to the Unions. The Company will also maintain for a period of not less than six
years following the Effective Time, the current fiduciaries' liability
insurance with respect to matters occurring at or prior to the Effective Time.
   
  In connection with execution of the Plan of Recapitalization, the Company
entered into a letter agreement (the "Indemnity Letter Agreement") with ALPA
and the IAM relating to a claim against the IAM by a former financial advisor
(the "Former Advisor") against the IAM (the "Claims") for compensation in the
event of the occurrence of the Effective Time. The Claims include the
following: (i) the Former Advisor's claim for compensation based on an
engagement letter between a corporation on behalf of the Former Advisor, on the
one hand, and the IAM and United Employee Acquisition Corp. ("UEAC"), on the
other hand, dated as of January 1, 1990, as amended by letter dated June 21,
1990 (collectively, the "Engagement Letter"), (ii) claims relating to services
performed by the Former Advisor pursuant to the Engagement Letter, and (iii)
claims based on any theory of compensation liability relating to facts alleged
to have existed at the time the Engagement Letter was entered into (or
subsequent performance of services originating from or based on such alleged
facts) and relating to services of the same nature and type as contemplated by
the Engagement Letter. The Engagement Letter provided for the payment to the
Former     
 
                                       89

<PAGE>
 
Advisor of a fee in the amount of $11 million, contingent upon the occurrence
of specified circumstances related to the Agreement and Plan of Merger, between
the Company and UEAC, dated as of April 9, 1990 ("1990 Merger Agreement"),
which $11 million fee was not paid as a result of a failure of the transactions
set forth in the 1990 Merger Agreement to occur.
 
  Pursuant to the Indemnity Letter Agreement, the Company has agreed to
indemnify the IAM against the Claims in accordance with the indemnification
provisions set forth in the Plan of Recapitalization described above, subject
to the terms and conditions set forth in the Indemnity Letter Agreement. The
Company's obligation to indemnify the IAM with respect to the Claims is limited
to $5.5 million prior to the Effective Time, subject to increase to a maximum
of $11 million (including the payment or reimbursement of IAM attorney's fees
and disbursements) if the Effective Time occurs. The Company's obligations
under the Indemnity Letter Agreement will be reduced by the amount recoverable
under any insurance policy, fidelity or indemnity bond issued to or for the
benefit of the IAM that may provide insurance or indemnity coverage against any
threatened or asserted claim by the Former Advisor against the IAM.
 
 Parties in Interest
 
  The Plan of Recapitalization will be binding upon and, other than the
provisions relating to fees, expenses and indemnification, inure solely to the
benefit of the parties thereto, and, except for the Express Agreements, nothing
in the Plan of Recapitalization, express or implied, is intended to confer upon
any other person any rights, benefits or remedies. With respect to the Express
Agreements, the agreements set forth below are for the benefit of, and may be
enforced by, the following parties: (i) the right to receive the
Recapitalization Consideration, the prohibition against nomination of Public
Directors by ALPA and the IAM and their obligation to use their best efforts to
fill Independent Directors vacancies: the holders of New Shares; (ii) treatment
of Options: holders of Options; (iii) treatment of Convertible Company
Securities: holders of Company Convertible Securities; (iv) resignation of
existing officers and directors prior to the Effective Time and the Company's
and United's obligations under their employee and director benefit plans,
agreements, policies and arrangements: officers and directors of the Company
prior to the Effective Time; (v) establishment by the Company of appropriate
employment terms for the Salaried and Management Employees: the ESOP Trustee;
(vi) the Greenwald Agreement: Mr. Greenwald; (vii) payment of fees and expenses
and indemnification of the Union Indemnified Persons: the Union Indemnified
Persons; and (viii) indemnification of Company Indemnified Persons: Company
Indemnified Persons.
 
 Specific Performance
 
  Prior to the Effective Time or the termination of the Plan of
Recapitalization, the Company and each of the Unions agreed that in the event a
Willful Breach is established by a court of competent jurisdiction, the other
parties thereto will be entitled to specific performance of the terms thereof
that were the subject of such Willful Breach. However, in no event will such
remedy of specific performance in any way extend or modify the Outside
Termination Time. No other remedy will be available prior to the Effective Time
or the termination of the Plan of Recapitalization except that the remedy of
damages will be available if such remedy (including the amount of damages)
would be available after termination as described above under "--Termination."
 
ESTABLISHMENT OF ESOPS
 
 
 General
 
  As described under "--Terms and Conditions," preferred stock representing
approximately 55% of the voting and equity interests in the Company will be
delivered to employees through the ESOPs. As explained below, the ESOPs will be
comprised of three components, and the voting and equity interests to be
delivered pursuant to the ESOPs will be represented by five separate classes of
stock.
 
                                       90

<PAGE>
 
   
  The three components which will comprise the ESOPs are (i) the "Leveraged
ESOP," which is a component of a tax-qualified employee stock ownership plan,
(ii) the "Non-Leveraged Qualified ESOP," which is also a component of a tax-
qualified employee stock ownership plan, and (iii) the "Supplemental ESOP,"
which is not a tax-qualified plan. The three components are needed in order to
deliver the agreed-upon shares to employees in a manner which utilizes the tax
incentives available to tax-qualified employee stock ownership plans to the
greatest degree reasonably possible, but without violating certain limitations
imposed by the Internal Revenue Code. Accordingly, to the extent reasonably
possible, shares are to be delivered to employees through the Leveraged ESOP.
To the extent that shares cannot be delivered through the Leveraged ESOP, they
will be delivered through the Non-Leveraged Qualified ESOP, and to the extent
they cannot be delivered through the Non-Leveraged Qualified ESOP, they will
be delivered through the Supplemental ESOP. Accordingly, the only employees
participating in the Supplemental ESOP are those employees who are unable to
receive, by virtue of the Internal Revenue Code limitations described above,
their full entitlement to shares under the Leveraged ESOP. Although the final
determination of which employees will participate in the Supplemental ESOP can
be made only when various factors, such as individual compensation, become
known, the Company expects that substantially all the employees participating
in the Supplemental ESOP will be Salaried and Management Employees with
compensation in excess of $150,000, and a significant percentage of ALPA
members.     
   
  The five classes of stock which will represent the voting and equity
interests of employees are (1) the Class 1 ESOP Convertible Preferred Stock
("Class 1 ESOP Preferred Stock"), which will be issued in seven separate sales
(the "ESOP Tranches") to the ESOP Trustee under the Leveraged ESOP, (ii) the
Class 2 ESOP Convertible Preferred Stock ("Class 2 ESOP Preferred Stock" and,
together with the Class 1 ESOP Preferred Stock, the "ESOP Preferred Stock"),
some of which will be issued to the ESOP Trustee under the Non-Leveraged
Qualified ESOP and some of which will be represented by "Book-Entry Shares"
(as defined below) credited to employees under the Supplemental ESOP, and
(iii) three classes of voting preferred stock, the Class P ESOP Voting Junior
Preferred Stock ("Class P Voting Preferred Stock"), the Class M ESOP Voting
Junior Preferred Stock ("Class M Voting Preferred Stock") and the Class S ESOP
Voting Junior Preferred Stock ("Class S Voting Preferred Stock" and, together
with the Class P Voting Preferred Stock and the Class M Voting Preferred
Stock, the "Voting Preferred Stock").     
   
  The equity interests of employees will be primarily represented by the Class
1 and Class 2 ESOP Preferred Stock. Each share of ESOP Preferred Stock is
initially convertible into one New Share. The primary difference between the
Class 1 and the Class 2 ESOP Preferred Stock is that only the Class 1 ESOP
Preferred Stock carries a fixed dividend. The fixed dividend exists in order
to allow the delivery through the Leveraged ESOP of the greatest number of
shares reasonably possible, consistent with the limitations of the Internal
Revenue Code. An advantage provided for dividends by the Internal Revenue Code
exists only for the Leveraged ESOP, and for that reason the Class 1 ESOP
Preferred Stock will be sold only to the Leveraged ESOP.     
   
  The voting interests of employees will be represented by the three classes
of Voting Preferred Stock. Each such share is convertible into one ten-
thousandth of a New Share. The ESOP Preferred Stock is non-voting.     
   
  The voting and equity interests of employees will be delivered through the
five separate classes of shares described above in order to satisfy two
purposes; (i) preservation of the agreed-upon distribution of voting power
among the ALPA, IAM and salaried and management employees, and (ii) ensuring
that the loans which will be used to purchase the Class 1 ESOP Preferred Stock
will satisfy a limitation of the Internal Revenue Code which requires that
shares purchased with a loan be consistently allocated among employees. Sales
of the Class 1 ESOP Preferred Stock to the Leveraged ESOP will be made in
seven ESOP Tranches. The first ESOP Tranche will be sold to the ESOP Trustee
at the Effective Time. The next five tranches will be sold approximately
thirteen months following the Effective Time, and on the four following
anniversaries of such date. The final ESOP Tranche will be sold on the first
business day of the year 2000. Each ESOP     
 
                                      91

<PAGE>
 
   
Tranche will be purchased by the ESOP Trustee using the proceeds of a loan
entered into specifically for the purchase of such ESOP Tranche. The shares to
be purchased in each of the first six ESOP Tranches shall generally equal the
sum of (i) the shares of Class 1 ESOP Preferred Stock scheduled to be allocated
to the accounts of participants in the Leveraged ESOP for the year in which
such ESOP Tranche is sold, plus (ii) the number of shares of Class 1 ESOP
Preferred Stock equal in value to the aggregate dividends payable on the shares
purchased with the ESOP Tranche after the end of the year the ESOP Tranche is
purchased. The final ESOP Tranche will not include the shares described in
(ii), above, however. The purpose of selling shares to the ESOP Trustee in
tranches is to attempt to take advantage of increases in the price at which it
is projected that the ESOP Preferred Stock can be sold to the ESOP Trustee in
the years following the Effective Time. The projected price increases are based
upon projected increases in the value of the New Shares in the years following
the Effective Time. THERE CAN BE NO ASSURANCE THAT THE PROJECTED INCREASES IN
THE PRICE OF THE NEW SHARES WILL OCCUR. Therefore, there can be no assurance
that the projected increases in the price at which the Class 1 ESOP Convertible
Preferred Stock can be sold to the ESOP Trustee will occur.     
   
  A trust established pursuant to the Leveraged ESOP will, as of the Effective
Time and over the following 69 months, through the seven ESOP Tranches, acquire
shares of Class 1 ESOP Preferred Stock, and the Company will be obligated to
issue (either through issuance to the Non-Leveraged Qualified ESOP or through
the crediting of Book-Entry Shares) shares of Class 2 ESOP Preferred Stock,
which are convertible, in the aggregate, into New Shares representing
(initially) approximately 55% of the Company, on a fully-diluted basis. (The
shares of Class 2 ESOP Preferred Stock represented by Book-Entry Shares will
not actually be issued until termination of employment, however.) ALPA has the
right to elect at any time that the Supplemental ESOP be maintained by the
actual issuance of Class 2 ESOP Preferred Stock to a non qualified trust
established under the Supplemental ESOP. As of the Effective Time, there will
also be issued to the ESOP Trustee shares of the three classes of Voting
Preferred Stock the outstanding shares of which will represent (initially)
approximately 55% of the voting power of all of the voting stock of the
Company. The ESOP Preferred Stock and Voting Preferred Stock held by the ESOP
will be allocated to the accounts of employees over the 69-month (72-month for
IAM members) period following the Effective Time. Under certain circumstances
described below under "--Additional Shares," the equity and voting interests
represented by the ESOP Preferred Stock and the Voting Preferred Stock can be
increased to up to a maximum of 63%.     
 
  Generally speaking, New Shares will be distributed to an employee pursuant to
the ESOPs after termination of employment; the New Shares so distributed will
be issued upon conversion of the ESOP Preferred Stock and Voting Preferred
Stock allocated to accounts of such employee in the ESOPs. Prior to the Sunset,
the percentage of the vote controlled by the shares of Voting Preferred Stock
held by the ESOP is unaffected by distributions to employees. See "--Revised
Governance Structure--Sunset" and "DESCRIPTION OF SECURITIES--The Voting
Preferred Stock--Voting Rights." Because of certain limitations imposed by the
Internal Revenue Code, there are several component plans included in the ESOP
program.
   
  State Street, with the consent of the participating unions, has been retained
to act as the ESOP Trustee. The ESOP Trustee retained Houlihan Lokey as an
independent financial adviser. The ESOP Trustee has entered into an agreement
to purchase the ESOP Preferred Stock at the Effective Time on the terms
described below under "--Sales of ESOP Preferred Stock." The obligations of the
ESOP Trustee are subject to a number of conditions, including the receipt of an
opinion from Houlihan Lokey that, as of the Effective Time (and, with respect
to each ESOP Tranche after the Effective Time, at the time of each such
purchase), the applicable transaction is fair from a financial point of view to
the ESOP participants, the amount to be paid by the ESOP Trustee for the ESOP
Preferred Stock does not exceed the fair market value thereof and the
conversion premium of the ESOP Preferred Stock is reasonable. In addition, the
obligations of the ESOP Trustee are subject to the determination by the ESOP
Trustee that, as of the Effective Time (and, with respect to each ESOP Tranche
after the Effective Time, at the time of each such purchase), the purchase of
the ESOP Preferred Stock is prudent and in the best interests of ESOP
participants.     
 
                                       92

<PAGE>
 
 Sales of ESOP Preferred Stock
   
  At the Effective Time and over the subsequent 69 months, the Company will
sell, in the seven ESOP Tranches, an aggregate of approximately 14,000,000
(subject to increase as described below, see "--Additional Shares") shares of
Class 1 ESOP Preferred Stock to a trust established pursuant to the ESOPs.     
   
  Leveraged ESOP. Approximately 1,899,059 shares (subject to adjustment if
agreed to by the Company and the Unions and subject to adjustment if the
Effective Time occurs before or after July 1, 1994) of Class 1 ESOP Preferred
Stock shall be sold as of the Effective Time in the first ESOP Tranche to a
trust (the "Qualified Trust") established under a tax-qualified employee stock
ownership plan (the "Qualified ESOP"), and additional shares of Class 1 ESOP
Preferred Stock will be sold to the Qualified Trust in subsequent ESOP
Tranches. Such shares will be sold to the Leveraged ESOP which constitutes a
component of the Qualified ESOP. The Qualified Trust will purchase the Class 1
ESOP Preferred Stock with a combination of cash and a promissory note issued at
the time of sale of each ESOP Tranche. The cash will be equal to the aggregate
par value of the Class 1 ESOP Preferred Stock ($.01 per share) sold to the
Qualified Trust. (The Company will contribute such cash as a tax-deductible
contribution to the Leveraged ESOP at the time of the sale of each ESOP
Tranche.) The balance of the purchase price for each ESOP Tranche will be paid
by a promissory note issued to the Company by the ESOP Trustee in its capacity
as trustee of the Qualified Trust.     
   
  Subject to certain terms and conditions set forth in the ESOP Stock Purchase
Agreement, including a condition that the Trustee will have made a good faith
determination that the purchase of Class 1 ESOP Preferred Stock is prudent and
in the best interests of the ESOP participants, the ESOP Trustee is obligated
to purchase the ESOP Preferred Stock for the first ESOP Tranche at a price per
share equal to the product of 1.38 and the closing price (the "Closing Price")
of the New Shares, except that if the Closing Price is less than 98% of the
average of the Adjusted Old Share Price for the five trading days immediately
preceding the Effective Date, then the Closing Price shall equal the product of
1.38 and such average price. The Closing Price of the New Shares is (i) the
closing price of the New Shares on the New York Stock Exchange on the date on
which the Effective Time occurs (the "Effective Date") or, if the New Shares
are not traded on the New York Stock Exchange on the Effective Date, on the
next trading day thereafter or (ii) if New Shares are not traded on either such
trading day, the Adjusted Old Share Price on the Effective Date (or if the Old
Shares do not trade on the New York Stock Exchange on the Effective Date, the
next preceding date on which they are so traded). The "Adjusted Old Share
Price" is equal to two times the difference between (a) the closing price of an
Old Share on the New York Stock Exchange on the relevant date and (b) the value
of the Adjusted Recapitalization Consideration. The "Value of the Adjusted
Recapitalization Consideration" (i.e., the Recapitalization Consideration,
excluding the New Shares) is equal to (I) $25.80; plus (II) the cash
distributed to the holder of one Old Share on account of the underwriting of
the Depository Preferred Shares or, if there is no such underwriting, then the
Value of the Depositary Shares distributed to the holder of one Old Share; plus
(III) the cash distributed to the holder of one Old Share on account of the
underwriting of the Series A Debentures or, if there is no such underwriting,
then the Value of the Series A Debentures distributed to the holder of one Old
Share; plus (IV) the cash distributed to the holder of one Old Share on account
of the underwriting of the Series B Debentures or, if there is no such
underwriting, then the Value of the Series B Debentures distributed to the
holder of one Old Share.     
   
  If it is necessary to determine the Value of any or all of the Depositary
Preferred Shares, the Series A Debentures, or the Series B Debentures
(collectively, the "Non-Underwritten Recapitalization Securities"), then the
Value of any relevant Non-Underwritten Recapitalization Security will be
determined as follows: (x) if the relevant Non-Underwritten Recapitalization
Security is traded on the New York Stock Exchange on either the Effective Date
or the first trading date after the Effective Date, the closing price of the
relevant Non-Underwritten Recapitalization Security on the New York Stock
Exchange on the earlier of the relevant trading dates, or (y) if the relevant
Non-Underwritten Recapitalization Security is not traded on the New York Stock
Exchange on the Effective Date or the first trading date after the Effective
Date, the value of the relevant Non-Underwritten Recapitalization Security on
the Effective Date established based upon an opinion of an investment banking
firm reasonably acceptable to each of the Company and the ESOP Trustee subject
to the limitations described below.     
   
  The price for the subsequent ESOP Tranches will be as agreed upon between the
Company and the ESOP Trustee.     
 
                                       93

<PAGE>
 
   
  The price for the subsequent ESOP Tranches will be as agreed upon between the
Company and the ESOP Trustee.     
   
  Federal law requires that the price paid by the ESOP Trustee for the Class 1
ESOP Preferred Stock cannot exceed its fair market value, and that the
conversion premium (the amount by which the price paid for the Class 1 ESOP
Preferred Stock exceeds the price of the New Shares as of the Effective Time)
must be reasonable. There can be no assurance as to the method by which such an
appropriate price may be developed for the subsequent ESOP Tranches, including,
without limitation, the appropriate base value for the New Shares or the
appropriate conversion premium. See "--Terms and Conditions--Purchase of ESOP
Preferred Stock."     
 
  The shares of Class 1 ESOP Preferred Stock purchased by the Qualified Trust
under the Leveraged ESOP in each ESOP Tranche will initially be held in a
suspense account and not allocated to the accounts of employees. The Company
will retain a security interest in the shares held in the suspense account. The
promissory notes will be repaid by the ESOP Trustee using cash received from
dividends paid on the Class 1 ESOP Preferred Stock and contributions to the
Qualified Trust to be made by the Company; the ESOP Trustee will be obligated
to use the dividends and Company contributions to repay the promissory notes.
It is expected that the entire amount of the Company contributions and the
dividends used by the ESOP Trustee to repay the promissory notes will be
deductible by the Company for Federal income tax purposes, regardless of the
portion used to pay interest and the portion used to pay principal. The Company
will recognize income equal to the interest paid on the promissory notes.
Accordingly, the net result of the contributions, dividends and promissory note
payments is that the Company expects to receive net tax deductions for Federal
income tax purposes equal to the principal amount of the promissory notes.
 
  It is anticipated that the principal of the note for the first ESOP Tranche
will be paid in seven annual payments. The first annual payment will be for the
period commencing on the Effective Time and ending December 31, 1994, the
second through sixth payments will be for the twelve-month periods ending on
each December 31 from 1995 through 1999, and the final payment will be for the
period from January 1, 2000 until the end of the 69th month after the Effective
Time. (The 69-month period corresponds to the period of system-wide wage
reductions for ALPA members, and roughly corresponds to the 72-month period of
base wage reductions for IAM Members.) The notes for subsequent ESOP Tranches
will be of shorter duration, so that the final payment on each note will be due
on approximately the 69th month after the Effective Time.
 
  Each calendar year (corresponding to the principal payments), shares of Class
1 ESOP Preferred Stock will be released from the suspense account, and the
Company's security interest in the shares so released will terminate. The
shares released for any year will be a fraction of the shares originally
purchased. It is anticipated that after taking separate ESOP Tranches into
account, the total number of shares of Class 1 ESOP Preferred Stock will be
released from the suspense account on a level annual fashion over 69 months,
taking into account the partial periods in 1994 and 2000.
 
  When the shares are released from the suspense account as a result of any
principal payment, they remain in the Qualified Trust but are allocated to
individual accounts of employees established under the Leveraged ESOP. The
Class 1 ESOP Preferred Stock will be allocated to the accounts of employees
such that the shares so allocated when added to the shares (and Book-Entry
Shares) allocated under the Non-Leveraged Qualified ESOP and the Supplemental
ESOP (see "--Non-Qualified ESOP" below), will equal 46.23% for the employees
who are members of ALPA, 37.13% for employees who are members of the IAM, and
16.64% for Salaried and Management Employees (the "Agreed Percentages"). For
the shares released from the suspense account in respect of 1994, allocations
within each of these employee groups will be proportional to the compensation
(subject to certain tax limits) of all of the participants within that group,
except that for the participants who are members of the IAM, the shares will be
allocated in proportion to the amount of each individual employee's wage
investment. However, for subsequent years, shares equal in value to the
dividends paid on shares previously allocated to the accounts of employees will
first be allocated from the released shares to the accounts of such employees.
The remaining shares released from the suspense account in respect of that year
will be allocated to individual employees based upon their relative
compensation (or, in the case of IAM members, their relative wage investment).
 
 
                                       94

<PAGE>
 
   
  Non-Qualified ESOP. Because of certain limitations imposed by the Internal
Revenue Code, the Qualified Trust will not purchase shares representing the
entire equity interest (initially 55%) represented by the ESOP Preferred Stock.
Accordingly, based on certain elections made by ALPA, the Company will allocate
"phantom" shares of Class 2 ESOP Preferred Stock (the "Book-Entry Shares")
under the Supplemental ESOP. Except as provided below, these Book-Entry Shares
allocated to a participant will not in fact be issued by the Company. Instead,
the participant will have the same rights as a general creditor of the Company
with respect to amounts allocated to such participant under the Supplemental
ESOP. The number of shares of Class 2 ESOP Preferred Stock will be equal to
17,675,345, less the number of shares of Class 1 ESOP Preferred Stock sold to
the Qualified ESOP. It is anticipated that all ESOP Stock reserved for
allocation to IAM members will be allocated under the Qualified ESOP. ALPA has
the right to elect at any time, before or after the Effective Time, that the
Supplemental ESOP be maintained by the actual issuance of Class 2 ESOP
Preferred Stock to a non-qualified trust (the "Non-Qualified Trust")
established under the Supplemental ESOP.     
   
  Each year, as a portion of the shares of Class 1 ESOP Preferred Stock are
released from the suspense account under the Leveraged ESOP, the same
proportion of the Book-Entry Shares of Class 2 ESOP Preferred Stock will be
allocated as described below. In other words, it is anticipated that the Class
2 ESOP Preferred Stock will be allocated over the same 69 months that the Class
1 ESOP Preferred is allocated. To the extent permissible under the Internal
Revenue Code, the shares of Class 2 ESOP Preferred Stock will be issued by the
Company and transferred to the Qualified Trust for allocation to employees'
accounts under the Non-Leveraged Qualified ESOP, which is a component of the
Qualified ESOP. The shares that cannot be transferred to the Qualified Trust
will be credited as Book-Entry Shares to the accounts of employees in the
Supplemental ESOP (and if ALPA elects that the Non-Qualified Trust will hold
Class 2 ESOP Preferred Stock, will be deposited therein). Unlike the Qualified
ESOP, the Company will be liable for the benefits of employees under the
Supplemental ESOP. Hypothetical dividends will be credited to such Book Entry
Shares as if they were actual shares of Class 2 ESOP Preferred Stock.     
 
  In the aggregate, the shares allocated under the Leveraged ESOP, the Non-
Leveraged Qualified ESOP, and the Supplemental ESOP will equal the Agreed
Percentages.
   
  Allocation of Voting Preferred Stock. The ESOP Preferred Stock is nonvoting
(except as may be otherwise required by law). The Voting Preferred Stock was
established in order to allocate voting power to the respective employee groups
in proportion to the agreed upon allocation and in a manner which was
consistent with applicable law. When shares of Class 1 ESOP Preferred Stock are
released from the suspense account and allocated to accounts of employees, and
when shares (or Book-Entry Shares) of Class 2 ESOP Preferred Stock are
allocated under the Qualified ESOP or the Supplemental ESOP, the corresponding
number of shares of the appropriate class of Voting Preferred Stock will be
issued by the Company and contributed to the Non-Leveraged Qualified ESOP (or,
to the extent limitations of the Internal Revenue Code require, to the Non-
Qualified Trust established under the Supplemental ESOP). However, the
additional issuance of shares of Voting Preferred Stock will not affect the
percentage of voting power of the Company as a whole controlled in the
aggregate by the Voting Preferred Stock. The ESOP Trustee is obligated to vote
as instructed by the participants to whom the Voting Preferred Stock has been
allocated, and the shares which are allocated command the entire voting power
of each class of Voting Preferred Stock. Accordingly, the contribution of
Voting Preferred Stock to the ESOPs and the allocation of such stock to
participants subsequent to the Effective Time does not affect the aggregate
vote commanded by the Voting Preferred Stock, but it does affect the allocation
of voting power among the individual participants. ALPA has made an agreed-upon
election pursuant to which the shares of Class P Voting Preferred Stock
allocated to former employees who were ALPA members will be voted by the ESOP
Trustee.     
 
  Distributions. Employees will become entitled to distribution of shares upon
termination of employment but can elect to defer distribution until age 70 1/2.
Employees will become entitled to transfer shares from the Leveraged ESOP and
the Non-Leveraged Qualified ESOP to other Company plans prior to termination of
employment upon attainment of age 55 with at least 10 years of participation in
the ESOP. (Because of this requirement of 10 years of participation, the first
such distributions will not be made until at
 
                                       95

<PAGE>
 
least 10 years after the Effective Time.) The ability to so transfer prior to
termination of employment is required under the Internal Revenue Code for the
purpose of allowing employees to diversify their investments. Up to 25% of an
employee's account may be diversified at age 55, and an additional 25% may be
diversified at age 60. The diversification distribution for an employee will be
made by transferring the appropriate amount to the tax-qualified 401(k) plan
sponsored by the Company in which the employee participates.
 
  Prior to any distribution, the shares of ESOP Preferred Stock (and the
corresponding shares of Voting Preferred Stock) allocated to the employee
entitled to the distribution will be converted into New Shares. The employee
may choose to receive the distribution in the form of the New Shares issued
upon conversion or cash, and except for the diversification distributions
described above, the employee may elect to receive the distribution in a lump
sum or annual installments over five years. Employees who remain employed after
age 70 1/2 shall receive annually the minimum payments required by the Internal
Revenue Code. If the employee elects to receive cash, the ESOP Trustee will
sell the New Shares, and pay the net proceeds of the sale to the employee.
Book-Entry Shares allocated to the Participant under the Supplemental ESOP
will, at the employee's election, either be distributed in the form of New
Shares issued by the Company or cash equal to the net proceeds from the sale of
such New Shares.
 
  Each share of the Voting Preferred Stock is convertible into one ten-
thousandth of a New Share. Accordingly, when an ESOP participant becomes
entitled to receive a distribution of the Voting Preferred Stock, such shares
will be converted to New Shares and distributed (either as cash or New Shares).
Notwithstanding the conversion of the Preferred Stock upon a distribution or
diversification transfer, however, the remaining shares of the Voting Preferred
Stock continue to command, in the aggregate, the same percentage vote. This
continues as long as the employee plans of the Company contain, in the
aggregate, shares representing the equivalent of at least 20% of the equity
interests in the Company. See "DESCRIPTION OF SECURITIES--The Voting Preferred
Stock--Voting Rights."
 
 Additional Shares
   
  If the Average Closing Price of the New Shares during the year following the
Effective Time exceeds $136 per share, additional shares of ESOP Preferred
Stock (the "Additional Shares") will be issued to the Qualified ESOP or will be
reserved for issuance or credited as Book-Entry Shares. The number of
Additional Shares will be calculated based in part upon the fully diluted
number of New Shares on the Measuring Date. On the Measuring Date, the fully
diluted number of New Shares (the "Fully Diluted New Shares") will be
determined as the sum of:     
     
    (i) the excess of (A) the aggregate number of New Shares outstanding
  immediately prior to the close of business on the Measuring Date over (B)
  the aggregate number of New Shares issued after the Effective Time other
  than upon exercise, conversion or exchange of Options or Convertible
  Company Securities,     
     
    (ii) the aggregate number of New Shares issuable (whether or not from New
  Shares held in its treasury) upon the conversion of the Series A Preferred
  Stock outstanding immediately prior to the close of business on the
  Measuring Date,     
     
    (iii) the aggregate number of New Shares issuable (whether or not from
  New Shares held in its treasury) upon the exercise, conversion or exchange
  immediately prior to the close of business on the Measuring Date of any
  other Convertible Company Securities with an exercise, conversion or
  exchange price equal to or less than the average market price of the
  Recapitalization Consideration issued in respect of one Old Share during
  the year ending on the Measuring Date (the "Old Share Equivalent Price")
  and     
     
    (iv) the aggregate number of New Shares that would be required to be
  issued by the Company (whether or not from New Shares held in its treasury)
  if all Options with an exercise price less than the Old Share Equivalent
  Price were exercised in full immediately prior to the close of business on
  the Measuring Date and the proceeds from such Option exercises are used by
  the Company to repurchase     
 
                                       96

<PAGE>
 
     
  Recapitalization Consideration (in the open market at the Old Share
  Equivalent Price) to be delivered in connection with the Company's
  obligation to issue Recapitalization Consideration upon exercise of such
  Options.     
   
The number of Additional Shares will be determined as the excess of (a) the
product of (w) a fraction, the numerator of which is the "Adjusted Percentage"
at the close of business on the Measuring Date, and the denominator of which is
the excess of one over such "Adjusted Percentage" (the first two columns of the
table set forth below are selected samples from the table attached to the Plan
of Recapitalization from which the Adjusted Percentage will be derived), (x)
the Fully Diluted New Shares at the close of business on the Measuring Date,
(y) a fraction, the numerator of which is one, and the denominator of which is
the conversion rate of the Class 1 ESOP Preferred Stock, and (z) .9999 (a
fraction that takes into account the Voting Preferred Stock) over (b)
17,675,345 (the number of New Shares issuable upon conversion of the ESOP
Preferred Stock outstanding at the Effective Time and the Available Unissued
ESOP Shares (other than the Voting Preferred Stock)). (The foregoing
calculation will not cause a reduction of the number of shares of ESOP
Preferred Stock then outstanding.) "Average Closing Price" means the average of
the product of the last sale market price of the New Shares on each trading day
during the year ending on the Measuring Date and the number of New Shares into
which one share of ESOP Preferred Stock could be converted on such trading day.
(Initially, each share of ESOP Preferred Stock will be convertible into one New
Share, subject to adjustment for various reasons).     
 
  The following table illustrates the possible effect of increasing the Average
Closing Price on the number of Additional Shares issuable upon conversion of
the ESOP Preferred Stock and the Voting Preferred Stock. The illustration
assumes that the number of Fully Diluted New Shares on the Measuring Date is
32,140,206 (before any issuance or reservation of Additional Shares),
consisting of (x) an aggregate of 14,463,093 New Shares (1) issued in respect
of Old Shares outstanding at the Effective Time, (2) issuable upon the exercise
of the Options and (3) issuable upon the exercise of the Convertible
Securities, (y) 17,675,345 New Shares issuable upon conversion of the
17,675,345 shares of ESOP Preferred Stock and (z) 1,768 New Shares issuable
upon conversion of the 17,675,345 shares of Voting Preferred Stock.
 

<TABLE>
<CAPTION>
                                                                                TOTAL NEW
                                                           TOTAL NEW SHARES SHARES OUTSTANDING
                                          ADDITIONAL NEW    ISSUABLE UPON   AND ISSUABLE UPON
                                          SHARES ISSUABLE   CONVERSION OF     CONVERSION OF
                                          UPON CONVERSION   ESOP PREFERRED    ESOP PREFERRED
       AVERAGE CLOSING       ADJUSTED    OF ESOP PREFERRED STOCK AND VOTING  STOCK AND VOTING
            PRICE           PERCENTAGE       STOCK (1)     PREFERRED STOCK   PREFERRED STOCK
       ---------------      -----------  ----------------- ---------------- ------------------
   <S>                      <C>          <C>               <C>              <C>
   $136.00................. 55.00000000%             0        17,677,113        32,140,206
   $139.00................. 57.27009984      1,707,504        19,384,617        33,847,710
   $142.00................. 59.23945044      3,342,860        21,019,973        35,483,065
   $145.00................. 60.96410492      4,910,546        22,587,659        37,050,751
   $148.00................. 62.48700173      6,414,677        24,091,790        38,554,883
   $149.10................. 63.00000000      6,949,234        24,626,347        39,089,439
</TABLE>

- --------
(1) A small portion of the Additional Shares may be issuable upon conversion of
    the Voting Preferred Stock, but the number of New Shares issuable in
    respect of the ESOP Preferred Stock would be adjusted so that the aggregate
    number of Additional Shares would not change as a result.
 
  The number of New Shares that will become outstanding may be higher or lower
than the number of Fully Diluted New Shares determined on the Measuring Date,
as described above, for a number of different reasons, including that a larger
or smaller number of Options and Convertible Company Securities may be
exercised and that the holders of the Options may not use the "cashless
exercise" feature thereof. The terms of the Options will permit the holders to
surrender to the Company a portion of the Options in lieu of paying the
exercise price thereof in cash and/or in lieu of paying withholding tax in
respect of such exercise in cash. The amount of the Options surrendered as a
substitution for payment of cash will be determined based upon
 
                                       97

<PAGE>
 
the market price of the Recapitalization Consideration on the date of exercise
(i.e., the higher the market price, the fewer number of shares surrendered in
substitution for cash). If such "cashless exercise" feature is used, the effect
on the number of New Shares that would be outstanding would be similar to the
deemed repurchase of New Shares (as part of the Recapitalization Consideration)
by the Company referred to in clause (iv) in the description of Fully Diluted
New Shares, above. Accordingly, the number of New Shares that become
outstanding will vary depending on the number of Options exercised, the extent
to which the "cashless exercise" feature is used and the market price on the
date the "cashless exercise" feature is used. However, if the holders of
Options do not use the "cashless exercise" feature, the cash received from the
exercise of options would be available to the Company, which would not be the
case if the "cashless exercise" feature were used. In addition, if the
"cashless exercise" feature is used, the market price of the Recapitalization
Consideration on the date of exercise will have an effect on the number of New
Shares outstanding, since a higher market price will cause fewer Options to be
withheld for payment and a lower market price will cause more Options to be
withheld for payment. Accordingly, there can be no assurance that the number of
New Shares outstanding after conversion of all the ESOP Preferred Stock
(including the Book-Entry Shares), will be as reflected in the table above.
 
  The aggregate voting power commanded by the Voting Preferred Stock will be
increased automatically when the number of Additional Shares, if any, is
determined.
 
 Additional Contributions
 
  If the Company pays a dividend on New Shares while any portion of a
promissory note issued by the ESOP Trustee to purchase Class 1 ESOP Preferred
Stock remains outstanding, the Company will make an additional contribution in
cash to the ESOP. In general the additional contribution would equal the lesser
of (1) the dividend paid on each New Share times the number of New Shares into
which the shares of Class 1 ESOP Preferred Stock are convertible, or (2) the
fixed dividend payable on the Class 1 ESOP Preferred Stock. This calculation
will be made as if all Class 1 ESOP Preferred Stock had been issued at the
Effective Time. The additional contribution would be allocated to the accounts
of employees and not used to repay the promissory note.
 
  The Supplemental ESOP contains provisions analogous to those in the preceding
paragraph with regard to Book-Entry Shares which have not yet been credited as
Class 2 ESOP Preferred Stock which has not yet been issued.
 
  The fixed dividends on the Class 1 ESOP Preferred Stock will be used to repay
the promissory note, but any dividends received in excess of the fixed dividend
rate will be allocated to the accounts of employees and will not be used to
repay the promissory note.
 
 Control Transactions
   
  In a Control Transaction (as defined below), participants are entitled, as
named fiduciaries under ERISA, to instruct the ESOP Trustee as to whether to
tender, sell, convert or otherwise dispose of shares allocated to their
accounts under the Qualified ESOP. Furthermore, in a Control Transaction each
employee (but not a former employee) who is a participant in the Qualified ESOP
may direct the ESOP Trustee whether to tender, sell, convert or otherwise
dispose of shares held in the suspense account under the Qualified Trust and
shares for which no instructions are received; the ESOP Trustee will tender
such shares in the proportion directed by such employees (except when ERISA (as
defined below) requires the ESOP Trustee to disregard such directions). A
"Control Transaction" is a tender or exchange offer, or other opportunity to
dispose of or convert at least 3% of the shares of the Company (other than
conversions pursuant to distributions to be made under the ESOP), or any
transaction or series of related transactions whereby any person or group
acquires or seeks to acquire control of the Company or of all or substantially
all or the assets of the Company and its subsidiaries.     
   
  All shares of Class 1 and Class 2 ESOP Preferred Stock intended to be
transferred to the ESOPs in connection with future sales of the ESOP Tranches
will be transferred to the ESOPs prior to certain Control Transactions (unless
the Unions specify otherwise with respect to the Qualified ESOP and to the
extent specified by ALPA with respect to the Supplemental ESOP).     
 
                                       98

<PAGE>
 
  Shares held by the Supplemental ESOP will be tendered as directed by the
administrative committee thereunder.
 
  If a Control Transaction results in the sale or exchange of any shares held
by the ESOPs, and the proceeds of the sale are (or are used to acquire)
"appropriate securities," as defined below, then the ESOP and the promissory
notes under the Leveraged ESOP shall continue as if the Control Transaction had
not occurred. To the extent possible, the proceeds will be used to acquire
"appropriate securities." If "appropriate securities" cannot be obtained, then
the Company and the Unions will make appropriate arrangements reasonably
satisfactory to the Unions to protect the interests of the employees. It is not
the present intention of the Company and the Unions that such arrangements will
include the forgiveness of any portion of the promissory note. "Appropriate
securities" are shares of common stock (or preferred stock which converts into
common stock) that may be held as security for a loan to an employee stock
ownership plan under the applicable Internal Revenue Code requirements, and
that are issued by a public company having a Moody's senior long-term debt
rating at least as good as that of the Company and United.
 
 Participation and Vesting
 
  Members of the ALPA employee group become participants in the ESOPs
immediately upon commencement of employment. IAM and Salaried and Management
Employees who are employed at the Effective Time will immediately become
participants in the ESOPs. All other members of the IAM employee group become
participants upon completing a probationary period of six months. All other
Salaried and Management Employees become participants following a one-year
waiting period. All shares allocated to the accounts of employees under the
ESOP are fully vested.
 
 Federal Income Tax Matters
 
  The Qualified ESOP is intended to be qualified under Sections 401 and 501 of
the Internal Revenue Code, and the Leveraged ESOP is intended to be qualified
under Section 4975 of the Internal Revenue Code. The Company will apply to the
IRS for a determination letter to that effect. As a result of such
qualification, employer contributions to the Qualified ESOP (including
contributions or transfers of shares of Class 2 ESOP Preferred Stock to the
Non-Leveraged Qualified ESOP) are deductible for Federal income tax purposes,
but ESOP participants are not subject to Federal income tax on such
contributions or on income derived from such contributions until distributions
are made from the Qualified ESOP. At the time of distribution, certain
favorable income tax rules may apply to the determination of such participants'
Federal income tax liability with respect to such distribution.
 
  The Supplemental ESOP and Non-Qualified Trust do not constitute a tax-
qualified plan. The Company will not be entitled to a tax deduction until
benefits are paid to participants. Any income earned by the Non-Qualified
Trust, excluding dividends paid on Company securities, will be taxed to the
Company.
 
  It is expected that the dividends payable on the Class 1 ESOP Preferred Stock
will be deductible to the extent used to repay the promissory note issued by
the ESOP Trustee.
 
 Plan Administration
 
  The Qualified ESOP will be administered by a committee consisting of three
appointees of ALPA, two appointees of the IAM and one appointee of the Company;
the Supplemental ESOP will be administered by a committee consisting of three
members appointed by ALPA and one member appointed by the Company; provided
that if any IAM member is allocated shares under the Supplemental ESOP, then
two members appointed by the IAM shall, with respect to the IAM shares, join
the committee that administers the Supplemental ESOP. Deadlocks in votes of the
committee will be referred for decision to a neutral arbitrator. Except for
certain decisions concerning the management of the plan's assets, the member
appointed by the Company, the two members appointed by the IAM or a majority of
the members appointed by ALPA can require that any committee decision be
referred to a neutral arbitrator.
 
                                       99

<PAGE>
 
                             ELECTION OF DIRECTORS
 
NOMINEES FOR ELECTION AS PUBLIC DIRECTORS
 
  If the Recapitalization is approved, the new structure of the Board will be
established and four persons will be eligible for election as "Public
Directors". The fifth person to be a Public Director will be identified at or
prior to the Effective Time and will be appointed to the Board at the Effective
Time.
 
  Except where authority has been withheld by a stockholder, the enclosed proxy
will be voted for the election of the nominees named below for a term of one
year and until the successors are duly elected and qualified.
 
  Each nominee for Public Director (other than Mr. Greenwald) was previously
elected by the stockholders and has served continuously as a director for the
period succeeding the date of his or her election. In the event any one or more
of the named nominees shall become unable to serve before election, votes will
be cast pursuant to authority granted by the enclosed proxy for such person or
persons as may be designated in substitution for such nominees by the Board but
not for a greater number of persons than the nominees named herein. No person,
other than the directors of the Company acting solely in that capacity, is
responsible for the naming of the nominees.
 
PUBLIC DIRECTORS
 
  JOHN F. MCGILLICUDDY, 63. Retired Chairman and Chief Executive Officer,
Chemical Banking Corporation (banking and finance). Director since 1984. Mr.
McGillicuddy served as Chairman and Chief Executive Officer of Chemical Banking
Corporation from 1992 until his retirement in December 1992, and of
Manufacturers Hanover Corporation and Manufacturers Hanover Trust Company from
1979 until the merger of Manufacturers Hanover Corporation and Chemical Banking
Corporation on January 1, 1992. Mr. McGillicuddy is also a director of Chemical
Banking Corporation, The Continental Corporation and USX Corporation.
 
  JAMES J. O'CONNOR, 57. Chairman and Chief Executive Officer, Commonwealth
Edison Company (electric power utility). Director since 1984. Mr. O'Connor is
also a director of American National Can Company, Corning Incorporated, First
Chicago Corporation, the Chicago Stock Exchange, Scotsman Industries, Inc. and
The Tribune Company.
 
  PAUL E. TIERNEY, JR., 51. Managing Director, Gollust, Tierney and Oliver,
Inc. (investment banking). Director since October 18, 1990. Mr. Tierney is also
Chairman of the Board of Directors of Technoserve, Inc., a director of the
Argentine Investment Fund, the Straits Corporation and the Overseas Development
Council and a Governor of the United Nations Association.
 
  GERALD GREENWALD, 58. Chairman, Tatra Truck Company, Czech Republic. Mr.
Greenwald served as Vice Chairman of the Chrysler Corporation from 1989 to
1990. Prior thereto, Mr. Greenwald was employed by Chrysler for approximately
10 years in a number of senior executive positions. In 1990, Mr. Greenwald was
selected to serve as chief executive officer of United Employee Acquisition
Corp. in connection with the proposed 1990 employee acquisition of the Company.
Following the termination of that proposed transaction, Mr. Greenwald served as
a managing director of Dillon Read & Co. Inc. (investment banking) in 1991 and
as president of Olympia & York Developments Limited (a real estate development
company that was in the process of a bankruptcy restructuring prior to Mr.
Greenwald's agreeing to serve as president) from April 1992 until March 1993.
Mr. Greenwald currently serves as director of Aetna Life and Casualty Company,
Honeywell Inc., Reynolds Metals Company and is a trustee of Princeton
University. Mr. Greenwald also serves as chairman of the Tatra Truck Company
and has served in such capacity since March 1993. Mr. Greenwald previously
served for a number of years as a director of GPA Group PLC (international
aircraft financing and leasing). Mr. Greenwald has not previously served on the
Board.
   
  The fifth Public Director has not yet been nominated. However, the Chief
Operating Officer is expected to be appointed to the Board following the
Effective Time. For information concerning the identification of the Chief
Operating Officer, see "THE PLAN OF RECAPITALIZATION--Revised Governance
Structure--Officers."     
 
                                      100

<PAGE>
 
INDEPENDENT AND EMPLOYEE DIRECTORS
 
  Following is information concerning the other persons who have been chosen to
serve as directors of the Company if the Recapitalization is approved,
including their names, ages, the class pursuant to which they will serve,
principal occupations for the past five years and their directorships with
other corporations:
 
 Independent Directors
 
  DUANE D. FITZGERALD, 54. Chairman, President and Chief Executive Officer,
Bath Iron Works Corporation (Shipbuilding). Mr. Fitzgerald has not previously
served on the Board. Mr. Fitzgerald served as Bath Iron Works' President and
Chief Operating Officer from December 1988 until September 1991 when he was
appointed to his current positions. Mr. Fitzgerald is also a director of the
Shipbuilders Council of America and a trustee of the University of Maine System
and of Boston University.
 
  RICHARD D. MCCORMICK, 53. Chairman of the Board, President and Chief
Executive Officer of US West, Inc. (telecommunications). Mr. McCormick has not
previously served on the Board. Mr. McCormick has been Chairman of US West
since May 1992 and President and Chief Executive Officer since 1991. He served
as President and Chief Operating Officer from 1986 to 1991. Mr. McCormick is
also a director of Norwest Corporation and Super Valu Stores, Inc.
 
  JOHN K. VAN DE KAMP, 58. Partner, Dewey Ballantine (law firm). He has not
previously served on the Board. Mr. Van de Kamp served as Attorney General of
the State of California from 1983 until January 1991. He is also a member of
the advisory board of Falcon Classic Cable Companies, Ltd. and a director of
Lawry's Restaurants, Inc. In addition, Mr. Van de Kamp serves on the board of
directors of the following non-profit organizations: Day One, the Eisenhower
World Affairs Institute, the Los Angeles Conservation Corps, the Planning and
Conservation League and the Rockefeller Center for Social Sciences at Dartmouth
College. He is also President of the Board of Governors of the City Club of
Bunker Hill.
 
  PAUL A. VOLCKER, 66. Chairman, James D. Wolfensohn Inc. (investment banking)
and Frederick H. Schultz Professor of International Economic Policy, Princeton
University. Mr. Volcker has not previously served on the Board. Mr. Volcker is
also a director of Nestle S.A., Municipal Bond Assurance Corp. (MBIA), the
American Stock Exchange and Prudential Insurance Co. of America. He is Chairman
of the North American Committee of the Trilateral Commission, the Group of 30,
the Advisory Boards of the Center for Strategic and International Studies and
the Arthritis Foundation; he is co-chairman of the Bretton Woods Committee and
the United States Hong Kong Economic Cooperation Committee. Mr. Volcker is also
associated as trustee or member of the Board of Directors with the Council on
Foreign Relations, the Aspen Institute, the Japan Society, the American Council
on Germany and the American Assembly.
 
 ALPA Director
 
  ROGER D. HALL, 55. Chairman, United Airlines Pilots Master Executive Council,
Air Line Pilots Association, International and Captain, B 737-200, United Air
Lines, Inc. Captain Hall has not previously served on the Board. Captain Hall
has been Chairman of the UAL-MEC since January, 1992. He served as ALPA First
Vice President from 1987 to 1990. He has been a B 737-200 Captain since 1983.
Captain Hall is also an Executive Board Member and Executive Council Member of
ALPA.
 
 IAM Director
   
  JOHN PETERPAUL, 58. Retired Vice President, International Association of
Machinists and Aerospace Workers. Mr. Peterpaul has not previously served on
the Board. Mr. Peterpaul retired from the IAM in May 1994. He is a member of
the Executive Board, General Council and Management Committee of the
International Transport Workers' Federation (ITF), headquartered in London,
England. He has served as Labor Chairman of the National Transportation
Apprenticeship and Training Conference, Chairman of the Railway Labor
Executives' Association and has served on numerous other labor and government
committees including the National Commission to Ensure a Strong Competitive
Airline Industry.     
 
 Salaried and Management Director
 
  JOSEPH V. VITTORIA, 58. Chairman and Chief Executive Officer, Avis, Inc.
since September 1987 (automobile renting and leasing). Mr. Vittoria has not
previously served on the Board.
 
                                      101

<PAGE>
 
                   
                MARKET PRICES OF THE OLD SHARES; DIVIDENDS     
   
  The Old Shares are traded principally on the NYSE, and are also listed on the
Chicago Stock Exchange and the Pacific Stock Exchange. As of June 9, 1994,
there were 24,572,182 Old Shares outstanding, held of record by 19,156 holders.
The following table sets forth for the periods indicated the high and low
closing sale prices per Old Share on the NYSE Composite Tape.     
 

<TABLE>
<CAPTION>
                                                               HIGH     LOW
                                                               ----    -----
      <S>                                                     <C>      <C>
      1992
        First Quarter........................................ $159     $139 1/4
        Second Quarter.......................................  143 3/4  111
        Third Quarter........................................  119 3/4  103
        Fourth Quarter.......................................  128 1/8  106 1/4
      1993
        First Quarter........................................  132 1/4  110 3/4
        Second Quarter.......................................  149 3/4  118
        Third Quarter........................................  150 1/2  121 5/8
        Fourth Quarter.......................................  155 1/2  135 7/8
      1994
        First Quarter........................................  150      123 3/4
        Second Quarter (through June 10, 1994)...............  130 1/2   --
</TABLE>

   
  On December 22, 1993, the last trading day prior to the public announcement
of the Agreement in Principle, the closing sale price for the Old Shares as
reported on the NYSE Composite Tape was $148 1/2 per Old Share. On March 24,
1994, the last trading day prior to the public announcement of the Plan of
Recapitalization, the closing sale price for the Old Shares as reported on the
NYSE Composite Tape was $123 3/4 per Old Share. On June 10, 1994, the date of
this Proxy Statement/Prospectus, the closing sale price for Old Shares as
reported on the NYSE Composite Tape was $     . HOLDERS OF OLD SHARES SHOULD
OBTAIN CURRENT MARKET QUOTATIONS FOR THE OLD SHARES AS ONE OF THE FACTORS
RELEVANT TO ASSESSING THE VALUE OF THE NEW SHARES BEFORE VOTING ON THE PLAN OF
RECAPITALIZATION. The New Shares are expected to be listed on the NYSE.     
 
  The Company has not paid cash dividends on the Old Shares since 1987.
Following consummation of the Recapitalization, it is expected that cash
dividends will not be paid on the New Shares for the foreseeable future.
 
                                      102

<PAGE>
 
        
     SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING
                                INFORMATION     
 
                    UAL CORPORATION AND SUBSIDIARY COMPANIES
   
  The following consolidated financial information has been derived from the
Company's consolidated financial statements, for each of the fiscal years in
the five year period ended December 31, 1993, which statements have been
audited by Arthur Andersen & Co., independent public accountants, as indicated
in their reports incorporated by reference herein. Reference is made to said
reports for the years 1993 and 1992 which include an explanatory paragraph with
respect to the changes in methods of accounting for income taxes and
postretirement benefits other than pensions as discussed in the notes to the
consolidated financial statements for such years. The consolidated financial
information for the three months ended March 31, 1994 and 1993 is unaudited but
in the opinion of management includes all adjustments necessary for a fair
presentation. The table also sets forth certain information on a pro forma
basis giving effect to the Recapitalization and the Offerings. The following
should be read in conjunction with the unaudited pro forma financial statements
and notes related thereto included elsewhere herein and the Consolidated
Financial Statements, the related notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1993, as
amended, and Quarterly Report on Form 10-Q for the quarter ended March 31,
1994, incorporated by reference herein and the Company's Current Report on Form
8-K dated May 3, 1994 which is incorporated by reference herein.     
 

<TABLE>
<CAPTION>
                                            YEAR ENDED DECEMBER 31,
                          ------------------------------------------------------------------
                             1993
                           PRO FORMA      1993      1992      1991      1990     1989
                          -----------   --------  --------  --------  --------  -------
                          (UNAUDITED)
                                             (DOLLARS IN MILLIONS)
<S>                       <C>           <C>       <C>       <C>       <C>       <C>      <C>
STATEMENT OF
 CONSOLIDATED OPERATIONS
 DATA:
 Operating revenues(a)..   $ 13,297     $ 13,325  $ 11,853  $ 10,706  $ 10,296  $ 9,288
 Earnings (loss) from
  operations............        354(e)       263      (538)     (494)      (36)     465
 Earnings (loss) before
  extraordinary item and
  cumulative effect of
  accounting changes....        (38)         (31)     (417)     (332)       94      324
 Net earnings (loss)....       N.A.          (50)     (957)     (332)       94      324
STATEMENT OF
 CONSOLIDATED FINANCIAL
 POSITION DATA (at end
 of period):
 Total assets...........         (b)    $ 12,840  $ 12,257  $  9,876  $  7,983  $ 7,194
 Total long-term debt
  and capital lease
  obligations, including
  current portion.......         (b)       3,735     3,783     2,531     1,327    1,405
 Shareholders' equity...         (b)       1,203       706     1,597     1,671    1,564
OTHER DATA:
 Ratio of earnings to
  fixed charges.........         (c)          (c)       (c)       (c)     1.16     1.95
 Ratio of earnings to
  fixed charges and
  preferred stock
  dividends.............         (c)          (c)       (c)       (c)     1.16     1.95
UNITED OPERATING DATA:
 Revenue passengers
  (millions)............         70           70        67        62        58       55
 Average length of a
  passenger trip in
  miles.................      1,450        1,450     1,390     1,327     1,322    1,269
 Revenue passenger miles
  (millions)............    101,258      101,258    92,690    82,290    76,137   69,639
 Available seat miles
  (millions)............    150,728      150,728   137,491   124,100   114,995  104,547
 Passenger load factor..       67.2%        67.2%     67.4%     66.3%     66.2%    66.6%
 Break even passenger
  load factor...........       65.0%        65.5%     70.6%     69.7%     66.5%    62.8%
 Revenue per passenger
  mile..................       11.6c        11.6c     11.3c     11.5c     11.8c    11.6c
 Cost per available seat
  mile..................        8.5c         8.5c      8.9c      9.0c      9.0c     8.4c
 Average price per
  gallon of jet fuel....       63.6c        63.6c     66.4c     71.6c     80.4c    63.6c
</TABLE>

 
                                      103

<PAGE>
 

<TABLE>
<CAPTION>
                                                 (UNAUDITED) THREE MONTHS
                                                      ENDED MARCH 31,
                                                 -----------------------------
                                                   1994
                                                 PRO FORMA     1994     1993
                                                 ---------    -------  -------
                                                   (DOLLARS IN MILLIONS)
<S>                                              <C>          <C>      <C>
STATEMENT OF CONSOLIDATED OPERATIONS DATA:
 Operating revenues(a)..........................  $ 3,193     $ 3,195  $ 3,053
 Loss from operations...........................       (8)(e)     (36)    (121)
 Loss before extraordinary item and cumulative
  effect of accounting changes..................      (58)        (71)    (138)
 Net Loss.......................................     N.A.         (97)    (157)
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
 DATA
 (at end of period):
 Total assets...................................  $12,091     $12,889  $13,288
 Total long-term debt and capital lease obliga-
  tions, including current portion..............    4,445       3,687    4,017
 Shareholders' equity...........................     (448)      1,097    1,137
OTHER DATA:
 Ratio of earnings to fixed charges.............       (d)         (d)      (d)
 Ratio of earnings to fixed charges and pre-
  ferred stock dividends........................       (d)         (d)      (d)
UNITED OPERATING DATA:
 Revenue passengers (millions)..................       16          16       16
 Average length of a passenger trip in miles....    1,471       1,471    1,433
 Revenue passenger miles (millions).............   23,289      23,289   22,443
 Available seat miles (millions)................   35,598      35,598   35,220
 Passenger load factor..........................     65.4%       65.4%    63.7%
 Break even passenger load factor...............     65.8%       66.5%    66.3%
 Revenue per passenger mile.....................     11.9c       11.9c    12.0c
 Cost per available seat mile...................      9.0c        9.0c     8.8c
 Average price per gallon of jet fuel...........     58.6c       58.6c    65.9c
</TABLE>

- --------
   
(a) In the first quarter of 1994, United began recording certain air
    transportation price adjustments, which were previously recorded as
    commission expense, as adjustments to revenue. Operating revenues and
    certain operating statistics for periods prior to 1994 have been adjusted
    to conform with the current presentation. See the Company's Current Report
    on Form 8-K dated May 3, 1994 which is incorporated by reference in this
    Proxy Statement/Prospectus.     
(b) The Pro Forma Statement of Consolidated Financial Position assumes the
    transaction occurred at March 31, 1994. Therefore, pro forma information at
    December 31, 1993 is not applicable.
   
(c) Earnings were inadequate to cover both fixed charges and fixed charges and
    preferred stock dividends by $98 million in 1993, by $748 million in 1992
    and by $599 million in 1991. On a pro forma basis, earnings were inadequate
    to cover both fixed charges and fixed charges and preferred stock dividends
    by $109 million in 1993.     
   
(d) Earnings were inadequate to cover both fixed charges and fixed charges and
    preferred stock dividends by $118 million and $224 million for the three
    month periods ended March 31, 1994 and 1993, respectively. On a pro forma
    basis, earnings were inadequate to cover both fixed charges and fixed
    charges and preferred stock dividends by $97 million for the three months
    ended March 31, 1994.     
(e) The loss from operations includes an ESOP accounting charge which is
    dependent on the fair market value of the ESOP Preferred Stock during the
    period. The pro forma amount is based on an assumed fair value of $120 per
    share. See note 4 to the Pro Forma Condensed Statement of Consolidated
    Operations for both the year ended December 31, 1993 and the three months
    ended March 31, 1994 for the effects of different fair value assumptions on
    the ESOP accounting charge.
 
                                      104

<PAGE>
 
                UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
   
  The following consolidated financial information has been derived from
United's consolidated financial statements, for each of the fiscal years in the
five year period ended December 31, 1993, which statements have been audited by
Arthur Andersen & Co., independent public accountants, as indicated in their
reports incorporated by reference herein. Reference is made to said reports for
the years 1993 and 1992 which include an explanatory paragraph with respect to
the changes in methods of accounting for income taxes and postretirement
benefits other than pensions as discussed in the notes to the consolidated
financial statements for such years. The consolidated financial information for
the three months ended March 31, 1994 and 1993 is unaudited but in the opinion
of management includes all adjustments necessary for a fair presentation. The
table also sets forth certain information on a pro forma basis giving effect to
the Recapitalization and the Offerings. The following should be read in
conjunction with the unaudited pro forma financial statements and notes related
thereto included elsewhere herein and the Consolidated Financial Statements,
the related notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in United's Annual
Report on Form 10-K for the year ended December 31, 1993, and Quarterly Report
on Form 10-Q for the quarter ended March 31, 1994, as amended, incorporated by
reference herein and United's Current Report on Form 8-K dated May 3, 1994
which is incorporated by reference herein.     
 

<TABLE>
<CAPTION>
                                       YEAR ENDED DECEMBER 31,
                         --------------------------------------------------------
                            1993
                          PRO FORMA    1993     1992     1991     1990     1989
                         -----------  -------  -------  -------  -------  -------
                         (UNAUDITED)
                                        (DOLLARS IN MILLIONS)
<S>                      <C>          <C>      <C>      <C>      <C>      <C>
STATEMENT OF CONSOLI-
 DATED OPERATIONS DATA:
 Operating revenues(a)..    13,140    $13,168  $11,688  $10,703  $10,282  $ 9,267
 Earnings (loss) from
  operations............       386(e)     295     (496)    (491)     (41)     464
 Earnings (loss) before
  extraordinary item and
  cumulative effect of
  accounting changes....        (8)       (17)    (386)    (335)      96      358
 Net earnings (loss)....      N.A.        (36)    (933)    (335)      96      358
STATEMENT OF
 CONSOLIDATED FINANCIAL
 POSITION DATA (at end
 of period):
 Total assets...........        (b)   $12,153  $12,067  $ 9,907  $ 8,001  $ 7,217
 Total long-term debt
  and capital lease
  obligations, including
  current portion.......        (b)     3,614    3,628    2,531    1,326    1,404
 Shareholders' equity...        (b)       674      738    1,613    1,769    1,665
OTHER DATA:
 Ratio of earnings to
  fixed charges.........        (c)        (c)      (c)      (c)    1.16     2.08
UNITED OPERATING DATA:
 Revenue passengers
  (millions)............        70         70       67       62       58       55
 Average length of a
  passenger trip in
  miles.................     1,450      1,450    1,390    1,327    1,322    1,269
 Revenue passenger miles
  (millions)............   101,258    101,258   92,690   82,290   76,137   69,639
 Available seat miles
  (millions)............   150,728    150,728  137,491  124,100  114,995  104,547
 Passenger load factor..      67.2%      67.2%    67.4%    66.3%    66.2%    66.6%
 Break even passenger
  load factor...........      65.0%      65.5%    70.6%    69.7%    66.5%    62.8%
 Revenue per passenger
  mile..................      11.6c      11.6c    11.3c    11.5c    11.8c    11.6c
 Cost per available seat
  mile..................       8.5c       8.5c     8.9c     9.0c     9.0c     8.4c
 Average price per
  gallon of jet fuel....      63.6c      63.6c    66.4c    71.6c    80.4c    63.6c
</TABLE>

 
                                      105

<PAGE>
 

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED MARCH
                                                         31,
                                                     (UNAUDITED)
                                              -----------------------------
                                                1994
                                              PRO FORMA     1994     1993
                                              ---------    -------  -------
                                                  (DOLLARS IN MILLIONS)
<S>                                           <C>          <C>      <C>      <C>
STATEMENT OF CONSOLIDATED OPERATIONS DATA:
 Operating revenues(a)......................   $ 3,171     $ 3,173  $ 3,001
 Loss from operations.......................       (16)(e)     (44)    (107)
 Loss before extraordinary item and
  cumulative effect of accounting changes...       (62)        (79)    (129)
 Net Loss...................................      N.A.        (105)    (148)
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
 DATA
 (at end of period):
 Total assets...............................   $12,101     $12,196  $12,515
 Total long-term debt and capital lease
  obligations, including current portion....     4,325       3,567    3,864
 Shareholders' equity.......................      (272)        570      592
OTHER DATA:
 Ratio of earnings to fixed charges.........        (d)         (d)      (d)
UNITED OPERATING DATA:
 Revenue passengers (millions)..............        16          16       16
 Average length of a passenger trip in
  miles.....................................     1,471       1,471    1,433
 Revenue passenger miles (millions).........    23,289      23,289   22,443
 Available seat miles (millions)............    35,598      35,598   35,220
 Passenger load factor......................      65.4%       65.4%    63.7%
 Break even passenger load factor...........      65.8%       66.5%    66.3%
 Revenue per passenger mile.................      11.9c       11.9c    12.0c
 Cost per available seat mile...............       9.0c        9.0c     8.8c
 Average price per gallon of jet fuel.......      58.6c       58.6c    65.9c
</TABLE>

- --------
   
(a) In the first quarter of 1994, United began recording certain air
  transportation price adjustments, which were previously recorded as
  commission expense, as adjustments to revenue. Operating revenues and certain
  operating statistics for periods prior to 1994 have been adjusted to conform
  with the current presentation. See United's Current Report on Form 8-K dated
  May 3, 1994 which is incorporated by reference in this Proxy
  Statement/Prospectus.     
(b) The Pro Forma Statement of Consolidated Financial Position assumes the
  transaction occurred at March 31, 1994. Therefore, pro forma information at
  December 31, 1993 is not applicable.
(c) Earnings were inadequate to cover fixed charges by $77 million in 1993, by
  $694 million in 1992 and by $604 million in 1991. On a pro forma basis,
  earnings were inadequate to cover fixed charges by $63 million in 1993.
(d) Earnings were inadequate to cover fixed charges by $130 million and $211
  million for the three month periods ended March 31, 1994 and 1993,
  respectively. On a pro forma basis, earnings were inadequate to cover fixed
  charges by $102 million for the three months ended March 31, 1994.
(e) The loss from operations includes an ESOP accounting charge which is
  dependent on the fair market value of the ESOP Preferred Stock during the
  period. The pro forma amount is based on an assumed fair value of $120 per
  share. See note 4 to the Pro Forma Condensed Statement of Consolidated
  Operations for both the year ended December 31, 1993 and the three months
  ended March 31, 1994 for the effects of different fair value assumptions on
  the ESOP accounting charge.
 
                                      106

<PAGE>
 
                   UNAUDITED PRO FORMA FINANCIAL INFORMATION
   
  The following are the unaudited Pro Forma Financial Information for each of
the Company and United. These statements are based on an assumed purchase
price for the Class 1 ESOP Preferred Stock at the Effective Time of $120 per
share. The $120 per share assumed purchase price of Class 1 ESOP Preferred
Stock is based on an assumed market price of a New Share at the Effective Time
of $87. (The assumption is based upon (i) an assumed market price of an Old
Share at the Effective Time of approximately $131.5 per share, (ii) an assumed
value of the non-New Share portion of the Recapitalization Consideration of
$88 per Old Share, and (iii) a purchase price premium for the Class 1 ESOP
Preferred Stock over the assumed value of a New Share of 38%). The actual
purchase price for the Class 1 ESOP Preferred Stock at the Effective Time will
be determined pursuant to the terms of the purchase agreement with the ESOP
Trustee, which provides for a purchase price equal to 1.38 times the Closing
Price, except that if the Closing Price is less than 98% of the average of the
Adjusted Old Share Price for the five trading days immediately preceding the
Effective Date, the purchase price shall equal the product of 1.38 and such
average price. See "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs--Sale
of ESOP Preferred Stock--Leveraged ESOP." There can be no assurance as to the
actual purchase price of the Class 1 ESOP Preferred Stock, the Closing Price,
or the Adjusted Old Share Price. These statements do not purport to be
indicative of the financial position or results of operations that may be
obtained in the future or that would actually have been obtained had the
Recapitalization occurred on the dates indicated. See "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--Sales of ESOP Preferred Stock."     
 
                   UAL CORPORATION AND SUBSIDIARY COMPANIES
   
  The following unaudited Pro Forma Condensed Statements of Consolidated
Operations for the year ended December 31, 1993 and the three months ended
March 31, 1994, and the unaudited Pro Forma Condensed Statement of
Consolidated Financial Position as of March 31, 1994 for the Company and its
subsidiaries have been prepared to reflect the Recapitalization, including:
(i) the reclassification of Old Shares into New Shares and Series D Redeemable
Preferred Stock, (ii) the Offerings of interests in the Public Preferred Stock
(as represented by Depositary Preferred Shares) and Debentures, (iii) the
exchange of Series D Redeemable Preferred Stock for cash and proceeds from the
Offerings, (iv) the issuance of the first tranche of Class 1 ESOP Preferred
Stock to the ESOP Trustee in exchange for cash and a promissory note, (v) the
recognition of unearned ESOP Preferred Stock and the related additional
capital invested, (vi) the recognition of the employee stock ownership plan
accounting charge, (vii) the reduction of salaries and related costs for the
anticipated impact of the wage and benefit reduction and certain work rule
changes and (viii) the recognition of the anticipated benefits from the
agreement to sell the U.S. flight kitchens. The unaudited Pro Forma Condensed
Statements of Consolidated Operations were prepared as if the Recapitalization
had occurred on January 1, 1993. The unaudited Pro Forma Condensed Statement
of Consolidated Financial Position was prepared as if the Recapitalization
occurred on March 31, 1994.     
   
  The pro forma statements assume the Recapitalization is not accounted for as
an acquisition or merger and, accordingly, the Company's assets and
liabilities have not been revalued. The reclassification of Old Shares into
New Shares results in the elimination of the par value of the Old Shares and
recognition of the par value of the New Shares. The distribution of the cash
to holders of Old Shares is charged to additional capital invested and
retained earnings.     
   
  The ESOPs are being accounted for in accordance with the American Institute
of Certified Public Accountants Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans" ("SOP"). For the Leveraged
ESOP, the Company will issue Class 1 ESOP Preferred Stock through seven ESOP
Tranches, at the Effective Time, approximately thirteen months following the
Effective Time, annually thereafter for four years and on January 1, 2000. As
the shares are issued to the Leveraged ESOP, the Company will report the
issuance of shares as a credit to additional capital invested based on the
fair value of the stock when such issuance occurs and report a corresponding
charge to unearned ESOP Preferred Stock.     
 
                                      107

<PAGE>
 
   
As consideration for the shares, the Company will receive from the ESOP Trustee
a series of promissory notes and cash. The notes will not be recorded in the
Company's Statement of Consolidated Financial Position and the related interest
income will also not be recorded in the Company's Statement of Consolidated
Operations. As shares of Class 1 ESOP Preferred Stock are earned or committed
to be released, an employee stock ownership plan accounting charge will be
recognized equal to the average fair value of the shares committed to be
released with a corresponding credit to unearned ESOP Preferred Stock. Any
differences between the fair value of the shares committed to be released and
the cost of the shares to the ESOP will be charged or credited to additional
capital invested. For the Non-Leveraged Qualified ESOP, a credit for the shares
of Class 2 ESOP Preferred Stock will be recorded as the shares are committed to
be contributed to the ESOP, with the offsetting entry to compensation expense.
Compensation expense will be recorded based on the fair value of the shares
committed to be contributed to the ESOP, in accordance with the SOP. The pro
forma financial statements assume that the Supplemental ESOP is accounted for
the same as the Non-Leveraged Qualified ESOP (i.e. pursuant to the SOP). It is
possible that, because the Supplemental ESOP is a non-qualified plan, the
Company may account for it under Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees," instead. The Company would not
expect this to result in a material difference. The shares committed to be
contributed to the Supplemental ESOP will be reported outside of equity because
the employees can elect to receive their "book entry" shares from the Company
in cash upon termination of employment.     
   
  The ESOP Preferred Stock is considered to be a common stock equivalent for
accounting purposes since the shares cannot remain outstanding indefinitely and
participants cannot withdraw their shares from the plan. Under the SOP, when
computing primary and fully diluted earnings per share, only those shares
committed to be released in the case of Class 1 ESOP Preferred Stock and shares
committed to be contributed in the case of Class 2 ESOP Preferred Stock are
considered outstanding as common stock equivalents. Prospectively, as dividends
are paid by the Company to the ESOP, only dividends on allocated shares will be
recorded as a charge to equity. Since the Company controls the use of dividends
on unallocated ESOP Preferred Stock, such dividends will not be considered
dividends for financial reporting purposes. Any dividends on unallocated shares
added to participant accounts would be reported as compensation expense.     
 
  The unaudited Pro Forma Condensed Statements of Consolidated Operations
include the recurring charges and credits that are directly attributable to the
Recapitalization, such as the interest expense arising from the Debentures, the
effects of the wage and benefit reductions and certain work-rule changes
resulting from the employee investment, and the employee stock ownership plan
accounting charge. No adjustments have been made to the pro forma revenues and
expenses to reflect the results of structural changes in operations, such as
U2, that might have been made had the changes been consummated on the assumed
effective dates for presenting pro forma results.
   
   The pro forma adjustments are based upon available information and upon
certain assumptions that the Company believes are reasonable. In addition, this
information should be read in conjunction with the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, as amended, and the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994, which are
incorporated by reference in this Proxy Statement/Prospectus and which include
the Company's Consolidated Financial Statements and the related notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Company's Current Report on Form 8-K dated May 3, 1994
which is incorporated by reference in this Proxy Statement/Prospectus.     
 
                                      108

<PAGE>
 
                    UAL CORPORATION AND SUBSIDIARY COMPANIES
            PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
 
                          YEAR ENDED DECEMBER 31, 1993
                    (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
 

<TABLE>
<CAPTION>
                                  HISTORICAL     ADJUSTMENTS     PRO FORMA
                                  ----------     -----------     ---------
<S>                               <C>            <C>             <C>
Operating revenues...............  $ 13,325 (11)    $ (28)(1)    $  13,297
Operating expenses:
 Salaries and related costs......     4,760          (428)(2)(3)
                                                     (191)(1)        4,141
 Employee stock ownership plan
  accounting charge..............                     369 (4)          369
 Other...........................     8,302 (11)      131 (1)        8,433
                                   --------         -----        ---------
                                     13,062          (119)          12,943
                                   --------         -----        ---------
Earnings (loss) from operations..       263            91              354
                                   --------         -----        ---------
Other income (expense):
 Interest, net...................      (209)          (72)(5)
                                                      (30)(6)         (311)
 Other, net......................      (101)                          (101)
                                   --------         -----        ---------
                                       (310)         (102)            (412)
                                   --------         -----        ---------
Loss from continuing operations
 before income taxes.............       (47)          (11)             (58)
Provision (credit) for income
 taxes...........................       (16)           (4)(7)          (20)
                                   --------         -----        ---------
Loss from continuing operations..  $    (31)        $  (7)(8)    $     (38)
                                   ========         =====        =========
Loss per share from continuing
 operations......................  $  (2.64)(9)                  $  (11.95)(10)
                                   ========                      =========
Shares used in per share
 computations....................     24.4  (9)                      12.5  (10)
                                   ========                      =========
</TABLE>

 
 
    See accompanying notes to Pro Forma Condensed Statement of Consolidated
                                  Operations.
 
                                      109

<PAGE>
 
                    UAL CORPORATION AND SUBSIDIARY COMPANIES
                          NOTES TO PRO FORMA CONDENSED
                      STATEMENT OF CONSOLIDATED OPERATIONS
 
                      FOR THE YEAR ENDED DECEMBER 31, 1993
 
 (1) The Company entered into an agreement to sell its U.S. flight kitchens
     over a period of months beginning in December 1993 through June 1994 and
     an agreement to acquire catering services for a seven year period. This
     adjustment eliminates $28 million of sales revenues and $191 million of
     compensation costs recorded in 1993 relating to the U.S. flight kitchens
     that were sold and adds estimated incremental catering costs of $131
     million.
 
 (2) To adjust compensation expense for the pro forma effect of the wage and
     benefit reductions and certain work-rule changes resulting from the
     employee investment that provide for wage and other compensation savings
     during the approximately six year period beginning at the Effective Time.
     The pro forma adjustment represents the estimated savings in the 12 months
     assuming that such savings had commenced at the beginning of the period.
     The pro forma adjustment does not include any savings related to U2.
 
 (3) The following reconciles the labor cost savings included in the Pro Forma
     Condensed Statement of Consolidated Operations to the value of the
     employee investments included in the Company Analysis of employee
     investments for 1994 (see "SPECIAL FACTORS--Certain Company Analyses"):
 

<TABLE>
<CAPTION>
                                                                     (MILLIONS)
     <S>                                                             <C>
     Pro Forma adjustment based on 1993 salaries....................    $428
     Estimated compensation savings based on 1994 salaries..........      68
     Estimated benefits of U2 during the first year.................      64
     Estimated additional severance for flight kitchen employees
      during the first year.........................................     (36)
                                                                        ----
       Estimated 1994 investments...................................    $524
                                                                        ====
       Estimated six months of investments included in 1994 analy-
        sis.........................................................    $262
                                                                        ====
</TABLE>

   
 (4) To record non-cash compensation for shares of ESOP Preferred Stock
     committed to be released to employees during the period based on the
     average fair value of such ESOP Preferred Stock. The average fair value of
     the ESOP Preferred Stock is based on two components: (1) the average fair
     value of the New Shares into which the ESOP Preferred Stock is convertible
     plus (2) a premium attributable to the dividend paying feature of the ESOP
     Preferred Stock. For purposes of the pro forma adjustment, the average
     fair value of the ESOP Preferred Stock was assumed to be the initial
     assumed purchase price of $120. In future years, it is anticipated that
     the ESOP Preferred Stock price, for purposes of computing the employees
     stock ownership plan accounting charge, will be determined by an
     independent appraiser who will value both components. Additionally, in
     future years, the shares committed to be released that are used to satisfy
     the dividends payable on previously allocated shares will be charged to
     retained earnings rather than compensation expense.     
 
   The shares of the ESOP Preferred Stock committed to be released are a
   fraction of the original ESOP Preferred Stock shares. It is anticipated
   the shares will be released in a level fashion over the 69 months of the
   ESOP taking into account the partial periods in 1994 and 2000. This would
   result in approximately 3.07 million ESOP Preferred Stock shares committed
   to be released in each full calendar year. Shares released in a partial
   year would be pro rated.
      
   Since future expense is dependent on the fair market value of the ESOP
   Preferred Stock, such expense is difficult to forecast and may vary
   significantly from the value in the pro forma adjustment. Changes in the
   price of a New Share directly affect the determination of the value of a
   share of ESOP Preferred Stock. In addition, if the average value of a New
   Share exceeds $136 during the first 12 months after     
 
                                      110

<PAGE>
 
      
   the Effective Time, additional shares of ESOP Preferred Stock will be
   issued to the Qualified ESOP or reserved for issuance to the Supplemental
   ESOP to increase the ESOP's ownership from approximately 55% up to a
   maximum of approximately 63%. Future expense is also affected by the
   premium associated with the dividend paying feature which shrinks over
   time as the dividend paying period is reduced.     
 
   Following is a summary of the impact to the employee stock ownership plan
   accounting charge of a range of fair market values:
 

<TABLE>
<CAPTION>
                AVERAGE ESOP                                   ESOP ACCOUNTING
               PREFERRED STOCK                                     CHARGE*
                 FAIR VALUE                                      (MILLIONS)
               ---------------                                 ---------------
               <S>                                             <C>
                    $110                                            $338
                     120                                             369
                     130                                             400
                     140                                             430
</TABLE>

   --------
      
   *  Assumes 3.07 million shares committed to be released in the pro forma
      period and no shares used to satisfy dividends payable since shares are
      not allocated to participants until December 31. In later years shares
      will be used to satisfy dividends on allocated shares, which will
      reduce the employee stock ownership plan accounting charge.     
      
   The following illustrates the impact to the employee stock ownership plan
   accounting charge if the average value of the New Shares in the first 12
   months exceeds $136 per share.     
 

<TABLE>
<CAPTION>
                                               SHARES TO BE   INCREASE IN
        AVERAGE     AVERAGE ESOP   ADDITIONAL    RELEASED   ESOP ACCOUNTING
       NEW SHARE   PREFERRED STOCK  SHARES TO   FOR FIRST     CHARGE****
         PRICE       FAIR VALUE*   BE ISSUED**   YEAR***      (MILLIONS)
       ---------   --------------- ----------- ------------ ---------------
       <S>         <C>             <C>         <C>          <C>
         $136           $168                0           0        $  0
          140            172        2,260,410     393,115          68
          150            182        6,949,234   1,208,562         220
</TABLE>

   --------
   *  Assumes a dividend premium of $32 per share.
      
   ** To achieve the maximum increase in ownership, the price of a New Share
      must average at least $149.10 during the first 12 months after the
      Effective Time. If the average price of a New Share is less than or
      equal to $136, no additional shares of ESOP Preferred Stock will be
      issued.     
   *** The additional shares will be released in a level fashion over the 69
       months of the ESOP.
   **** Represents the first year increase; subsequent increases are
        dependent on changes in the fair value of the ESOP Preferred Stock.
   
 (5) To record the interest expense on the Series A Debentures at an annual
     estimated interest rate of 9.0% and on the Series B Debentures at an
     annual estimated interest rate of 9.7%, and to record amortization of the
     underwriting discount. For purposes of the pro forma adjustment, the
     interest rates are based on the Initial Pricing. The actual rates will be
     reset prior to Closing and any upward reset is limited to an additional
     112.5 basis points. If the reset results in the actual rate being at the
     maximum interest rate, interest expense would increase by an additional $9
     million for the year. Further, if the United Debt Offerings are not
     consummated and the Unions request prior to the Announcement Date that the
     Debentures contain a call provision, the actual rates may increase above
     the maximum.     
      
   The underwriting agreements for the United Debt Offerings are expected to
   provide that if either or both of the United Debt Offerings are
   consummated, the interest rates may be adjusted to permit the applicable
   Debentures to be sold at or closer to par, but if this is done, the
   principal amount of the series of Debentures will be reduced so that the
   interest payable will not exceed the stated maximum which was calculated
   based upon the interest rate cap. If the United Debt Offerings are not
   consummated, the interest rates are subject to the cap.     
 
                                      111

<PAGE>
 
 (6) To record foregone interest income due to the reduction in the Company's
     average investment balance resulting from the Recapitalization. The pro
     forma adjustment is based on the Company's average earnings rate during
     1993.
 
 (7) To adjust the provision (credit) for income taxes to reflect the tax
     effect of changes to pretax income at the statutory rate in effect during
     1993. For purposes of the pro forma adjustments, the book and tax
     employee stock ownership plan compensation charge are assumed to be the
     same.
   
 (8) If the Recapitalization is consummated, the Company expects to recognize
     nonrecurring charges of approximately $44 million relating to additional
     severance benefits for employees terminated as a result of the sale of
     the flight kitchens, up to $49.15 million of transaction fees and
     expenses incurred by ALPA, the IAM and certain advisors in connection
     with the structuring and establishment of the ESOPs, $30 million for the
     Company's transaction fees and expenses, $17 million of compensation
     expense relating to vesting the unvested restricted stock as a result of
     the change in control, $21 million of payments and benefits to Mr.
     Greenwald and officers who are retiring at the Effective Time, and $13
     million of compensation expense (based on an assumed Old Share price of
     approximately $131.5 at the Effective Time) relating to the vesting of
     unvested Options and the implementation of a feature that provides for
     cashless exercise of Options in the event of the Recapitalization. (The
     existing Option holders are only entitled to utilize the cashless
     exercise feature if the Recapitalization occurs. The pro forma financial
     information assumes all in-the-money Options are exercised at the
     Effective Time and, since the cashless exercise results in variable plan
     accounting, there is an initial nonrecurring charge for the cashless
     exercise feature but no ongoing impact; however, if Option holders do not
     exercise their Options at the Effective Time, there will be an ongoing
     accounting impact for the changes in the fair market value of the
     Recapitalization Consideration that is issuable upon exercise of such
     Options.) The total after-tax effect of the nonrecurring charges is $122
     million. Due to the nonrecurring nature of these charges, they have been
     excluded from the Pro Forma Condensed Statement of Consolidated
     Operations.     
 
 (9) Due to the nature of the Recapitalization, a comparison of historical and
     pro forma loss per share is not meaningful.
 
(10) The pro forma loss per common share is based on an estimated 12,519,891
     weighted average shares outstanding and is calculated after preferred
     stock dividend requirements of $33.2 million on the Company's outstanding
     Series A Preferred Stock and $78.4 million on the Public Preferred Stock
     issued as a result of the Recapitalization. The number of weighted
     average shares assumes the Series A Preferred Stock does not convert
     during the first year of the transaction. The number of average shares of
     ESOP Preferred Stock committed to be released during the year were not
     included in the calculation as a common stock equivalent because the
     effect is anti-dilutive. Since no shares of ESOP Preferred Stock are
     allocated until December 31, the pro forma calculations assume no
     dividends are paid on allocated shares of ESOP Preferred Stock during the
     year ended December 31, 1993, and accordingly, dividends on ESOP
     Preferred Stock are not included in the pro forma loss per share. In
     addition, the pro forma calculations are based on the initial dividend
     rate of 10.25% for the Public Preferred Stock; however, the actual rate
     will be reset prior to Closing and the dividend rate could increase to a
     maximum of 11.375%. If the reset rate results in the maximum rate being
     11.375%, the loss per share would increase by $0.69 per share.
      
   The underwriting agreement for the UAL Preferred Offering is expected to
   reflect that if the UAL Preferred Offering is consummated, the dividend
   rate on the Public Preferred Stock may be adjusted to permit the
   Depositary Preferred Shares to be sold at or closer to par, but if this is
   done, the number of Depositary Preferred Shares representing the Public
   Preferred Stock will be reduced so that the annual dividends will not
   exceed the stated maximum which was calculated based upon the dividend
   rate cap. If the UAL Preferred Offering is not consummated, the dividend
   rate is subject to the stated maximum.     
 
                                      112

<PAGE>
 
   Following is a reconciliation of the historical and pro forma weighted
   average shares:
 

<TABLE>
<CAPTION>
                                                                  (IN MILLIONS)
     <S>                                                          <C>
     Historical weighted average shares during the year.........       24.4
     Adjustment for restricted stock issued during the year as-
      sumed to be issued and vested on January 1, 1993..........        0.1
     Adjustment for the number of option shares assumed to be
      issued at the Effective Time (see "THE PLAN OF RECAPITALI-
      ZATION--Terms and Conditions--General")...................        0.5
                                                                      -----
     Adjusted weighted average shares...........................       25.0
     Adjustment to give effect to the two for one exchange of
      Old Shares for New Shares.................................      (12.5)
                                                                      -----
     Pro forma weighted average shares..........................       12.5
                                                                      =====
</TABLE>

   
(11) In the first quarter of 1994, the Company began recording certain air
     transportation price adjustments, which were previously recorded as
     commission expense, as adjustments to revenue. Historical operating
     revenue and expense amounts have been adjusted to conform with the current
     presentation. See the Company's Current Report on Form 8-K dated May 3,
     1994 which is incorporated by reference in this Proxy
     Statement/Prospectus.     
 
                                      113

<PAGE>
 
                    UAL CORPORATION AND SUBSIDIARY COMPANIES
            PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
 
                   FOR THE THREE MONTHS ENDED MARCH 31, 1994
                    (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
 

<TABLE>
<CAPTION>
                                        HISTORICAL   ADJUSTMENTS     PRO FORMA
                                        ----------   -----------     ---------
<S>                                     <C>          <C>             <C>
Operating revenues....................    $3,195        $ (2)(1)      $3,193
Operating expenses:
 Salaries and related costs...........     1,202        (111)(2)(3)
                                                         (27)(1)       1,064
 Employee stock ownership plan
  accounting charge...................                    86 (4)          86
 Other................................     2,029          22 (1)       2,051
                                          ------        ----          ------
                                           3,231         (30)          3,201
                                          ------        ----          ------
Earnings (loss) from operations.......       (36)         28              (8)
                                          ------        ----          ------
Other income (expense):
 Interest, net........................       (56)        (18)(5)
                                                          (8)(6)         (82)
 Other, net...........................       (16)         19 (7)           3
                                          ------        ----          ------
                                             (72)         (7)            (79)
                                          ------        ----          ------
Loss from continuing operations
 before income taxes..................      (108)         21             (87)
Provision (credit) for income taxes...       (37)          8 (8)         (29)
                                          ------        ----          ------
Loss from continuing operations.......    $  (71)       $ 13          $  (58)
                                          ======        ====          ======
Loss per share from continuing
 operations...........................    $(3.31)(9)                  $(7.45)(10)
                                          ======                      ======
Shares used in per share computations.     24.5  (9)                   12.5  (10)
                                          ======                      ======
</TABLE>

 
 
    See accompanying notes to Pro Forma Condensed Statement of Consolidated
                                  Operations.
 
                                      114

<PAGE>
 
                    UAL CORPORATION AND SUBSIDIARY COMPANIES
                          NOTES TO PRO FORMA CONDENSED
                      STATEMENT OF CONSOLIDATED OPERATIONS
 
                       THREE MONTHS ENDED MARCH 31, 1994
 
 (1) The Company entered into an agreement to sell its U.S. flight kitchens
     over a period of months beginning in December 1993 through June 1994 and
     an agreement to acquire catering services for a seven year period. This
     adjustment eliminates $2 million of sales revenues and $27 million of
     compensation costs recorded in the first quarter of 1994 relating to the
     U.S. flight kitchens that were sold and adds estimated incremental
     catering costs of $22 million.
 
 (2) To adjust compensation expense for the pro forma effect of the wage and
     benefit reductions and certain work-rule changes resulting from the
     employee investment that provide for wage and other compensation savings
     during the approximately six year period beginning at the Effective Time.
     The pro forma adjustment represents the estimated savings in the first
     quarter of 1994 assuming that such savings had commenced at the beginning
     of the prior year. The pro forma adjustment does not include any savings
     related to U2.
 
 (3) The following reconciles the labor cost savings included in the Pro Forma
     Condensed Statement of Consolidated Operations to the value of the
     employee investments included in the Company Analysis of employee
     investments for 1994 (see "SPECIAL FACTORS--Certain Company Analyses"):
 

<TABLE>
<CAPTION>
                                                                      (MILLIONS)
     <S>                                                              <C>
     Pro Forma adjustment...........................................     $111
     Estimated compensation savings based on foregone 1994 raises...       13
     Estimated benefits of U2 for three months......................       16
     Estimated additional severance for flight kitchen employees for
      three months..................................................       (9)
                                                                         ----
       Estimated three months of investments........................     $131
                                                                         ====
       Estimated six months of investments included in 1994 analy-
        sis.........................................................     $262
                                                                         ====
</TABLE>

   
 (4) To record non-cash compensation for shares of ESOP Preferred Stock
     committed to be released to employees during the period based on the
     average fair value of the ESOP Preferred Stock. For purposes of the pro
     forma adjustment, the average fair value of the ESOP Preferred Stock was
     assumed to be the initial assumed purchase price of $120. The pro forma
     calculations assume that shares committed to be released in 1993 were
     allocated to participant accounts at the end of 1993. Thus, the portion of
     shares committed to be released in 1994 that will be used to satisfy
     dividends payable on allocated shares is charged to retained earnings
     rather than non-cash compensation expense. It is anticipated that in the
     first quarter of 1994, approximately 768,000 shares of ESOP Preferred
     Stock will be committed to be released, and that approximately 54,000 of
     these shares will be used for dividends.     
      
   Since future expense is dependent on the fair market value of the ESOP
   Preferred Stock, such expense is difficult to forecast and may vary
   significantly from the value in the pro forma adjustment. Changes in the
   price of a New Share directly affect the determination of the value of an
   ESOP Preferred Stock share. In addition, if the average value of a New
   Share exceeds $136 during the first 12 months after the Effective Time,
   additional shares of ESOP Preferred Stock will be issued to the Qualified
   ESOP or reserved for issuance to the Supplemental ESOP. Future expense is
   also affected by the premium associated with the dividend paying feature
   which shrinks over time as the dividend paying period is reduced.     
 
                                      115

<PAGE>
 
   Following is a summary of the impact to the employee stock ownership plan
   accounting charge of a range of fair market values:
 

<TABLE>
<CAPTION>
                    AVERAGE ESOP                               ESOP ACCOUNTING
                    PREFERRED STOCK                                CHARGE*
                    FAIR VALUE                                   (MILLIONS)
                    ---------------                            ---------------
                    <S>                                        <C>
                         $110                                       $ 79
                          120                                         86
                          130                                         93
                          140                                        100
</TABLE>

   --------
      
   *  Assumes 768,000 shares committed to be released in the pro forma period
      and approximately 54,000 shares used for dividends which are charged to
      retained earnings. As additional shares are allocated in later years,
      the employee stock ownership plan accounting charge will be reduced.

   The following illustrates the impact to the employee stock ownership plan
   accounting charge for the quarter if the average value of the New Shares
   in the first 12 months exceeds $136 per share.     
 

<TABLE>
<CAPTION>
                 AVERAGE ESOP                      SHARES TO        INCREASE ON
   AVERAGE        PREFERRED       ADDITIONAL      BE RELEASED     ESOP ACCOUNTING
   NEW SHARE      STOCK FAIR       SHARES TO        FOR THE         CHARGE****
   PRICE            VALUE*        BE ISSUED**     QUARTER***        (MILLIONS)
   ---------     ------------     -----------     -----------     ---------------
   <S>           <C>              <C>             <C>             <C>
   $136              $168                  0              0             $ 0
    140               172          2,260,410         98,279              16
    150               182          6,949,234        302,141              51
</TABLE>

   *  Assumes a dividend premium of $32.
      
   **   To achieve the maximum increase in additional Shares, the price of a
        New Share must average at least $149.10 during the first 12 months
        after the Effective Time. If the average price of a New Share is less
        than or equal to $136, no additional shares of ESOP Preferred Stock
        will be issued.     
   ***  The additional shares will be released in a level fashion over the 69
        months of the ESOP.
   **** Represents the increase for the quarter; subsequent increases are
        dependent on changes in the fair value of the ESOP Preferred Stock.
   
 (5) To record the interest expense on the Series A Debentures at an annual
     estimated interest rate of 9.0% and on the Series B Debentures at an
     annual estimated interest rate of 9.7%, and to record amortization of the
     underwriting discount. For purposes of the pro forma adjustment, the
     interest rates are based on the Initial Pricing. The actual rates will be
     reset prior to Closing and any upward reset is limited to an additional
     112.5 basis points. If the reset results in the actual rate being at the
     maximum interest rate, interest expense would increase by an additional $2
     million for the quarter. Further, if the United Debt Offerings are not
     consummated and the Unions request prior to the Announcement Date that the
     Debentures contain a call provision, the actual rates may increase above
     the maximum.     
 
 (6) To record foregone interest income due to the reduction in the Company's
     average investment balance resulting from the Recapitalization. The pro
     forma adjustment is based on the Company's average earnings rate during
     the first quarter of 1994.
 
 (7) To reverse $19 million of nonrecurring fees and expenses relating to the
     Recapitalization which were recorded in the first quarter of 1994.
 
 (8) To adjust the provision (credit) for income taxes to reflect the tax
     effect of changes to pretax income at the statutory rate in effect during
     the first quarter of 1994. For purposes of the pro forma adjustment the
     book and tax employee stock ownership plan compensation charge are assumed
     to be the same.
 
 (9) Due to the nature of the Recapitalization, a comparison of historical and
     pro forma loss per share is not meaningful.
 
 
                                      116

<PAGE>
 
(10) The pro forma loss per common share is based on an estimated 12,547,163
     weighted average shares outstanding and is calculated after preferred
     stock dividend requirements of $9.4 million on the Company's outstanding
     Series A Preferred Stock, $19.6 million on the Public Preferred Stock
     issued as a result of the Recapitalization and $6.5 million on the ESOP
     Preferred Stock issued as a result of the Recapitalization. The dividends
     on the ESOP Preferred Stock relate to the estimated 3,073,974 shares
     allocated at the end of 1993 (of the total 17,675,345 shares that will be
     allocated) and a dividend rate of 7%. The number of weighted average
     shares assumes the Series A Preferred Stock does not convert during the
     first year of the transaction. The number of average shares of ESOP
     Preferred Stock committed to be released during the period were not
     included in the calculation as a common stock equivalent because the
     effect is anti-dilutive. In addition, the pro forma calculations are based
     on the initial dividend rate of 10.25% on the Public Preferred Stock;
     however, the actual rate will be reset prior to closing and the dividend
     rate could increase to a maximum of 11.375%. If the reset rate results in
     the maximum rate being 11.375%, the loss per share for the quarter would
     increase by $0.17 per share.
 
   Following is a reconciliation of the historical and pro forma weighted
   average shares:
 

<TABLE>
<CAPTION>
                                                                   (IN MILLIONS)
     <S>                                                           <C>
     Historical weighted average shares for the quarter..........       24.5
     Adjustment for restricted stock issued subsequent to January
      1, 1993 assumed to be issued and vested on January 1, 1993.        0.1
     Adjustment for the number of option shares assumed to be
      issued at the Effective Time (see "THE PLAN OF
      RECAPITALIZATION--Terms and Conditions--General")..........        0.5
                                                                       -----
     Adjusted weighted average shares............................       25.1
     Adjustment to give effect to the two for one exchange of Old
      Shares for New Shares......................................      (12.6)
                                                                       -----
     Pro forma weighted average shares...........................       12.5
                                                                       =====
</TABLE>

 
 
                                      117

<PAGE>
 
                    UAL CORPORATION AND SUBSIDIARY COMPANIES
        PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
 
                                 MARCH 31, 1994
                        (IN MILLIONS, EXCEPT SHARE DATA)
 

<TABLE>
<CAPTION>
                   ASSETS                     HISTORICAL ADJUSTMENTS    PRO FORMA
                   ------                     ---------- -----------    ---------
<S>                                           <C>        <C>            <C>
Current assets:
  Cash and cash equivalents.................   $ 1,046     $1,498 (1a)   $
                                                           (2,208)(1b)
                                                             (140)(2)
                                                                8 (11)       204
  Short-term investments....................     1,020                     1,020
  Other.....................................     1,837         44 (3)      1,881
                                               -------     ------        -------
                                                 3,903       (798)         3,105
                                               -------     ------        -------
Operating property and equipment............    12,226                    12,226
Less: Accumulated depreciation and
    amortization............................    (5,177)                   (5,177)
                                               -------     ------        -------
                                                 7,049                     7,049
                                               -------     ------        -------
Other assets:
  Other.....................................     1,937                     1,937
                                               -------     ------        -------
                                               $12,889     $ (798)       $12,091
                                               =======     ======        =======
<CAPTION>
    LIABILITIES AND SHAREHOLDERS' EQUITY
    ------------------------------------
<S>                                           <C>        <C>            <C>
Current liabilities:
  Short-term borrowings, long-term debt
   maturing within one year and current
   obligations under capital leases.........   $   486     $             $   486
  Other.....................................     4,502        (11)(11)     4,491
                                               -------     ------        -------
                                                 4,988        (11)         4,977
                                               -------     ------        -------
Long-term debt..............................     2,693        758 (1c)     3,451
                                               -------     ------        -------
Long-term obligations under capital leases..       777                       777
                                               -------     ------        -------
Other liabilities, deferred credits and
 minority interest..........................     3,334                     3,334
                                               -------     ------        -------
Class 2 ESOP Preferred Stock, $.01 par, none
 issued.....................................                  --  (13)
                                               -------     ------        -------
Shareholders' equity:
  Series A Preferred Stock, $.01 stated
   value, 6,000,000 shares issued,
   $100 liquidation value...................       --         --             --
  Series B Preferred Stock, $.01 stated
   value, 30,566 shares issued,
   $25,000 liquidation value................                  --  (1d)       --
  Class 1 ESOP Preferred Stock, $.01 par,
   1,899,059 shares issued, $120 liquidation
   value....................................                  --  (4)        --
  Class 2 ESOP Preferred Stock, $.01 par,
   none issued .............................                  --  (4)        --
  Voting Preferred Stock, $.01 par, 3 shares
   issued, $.01 liquidation value...........                  --  (5)        --
  Common stock, $5 par value, 25,500,662
   shares issued and
   outstanding--historical..................       128       (128)(1e)       --
  Common stock, $.01 par value, 13,006,564
   shares issued and outstanding--pro
   forma(12)................................                 --   (1e)       --
  Additional capital invested...............       963       (963)(1e)
                                                              740 (1d)
                                                              228 (4)
                                                               13 (6)        981
  Retained earnings (deficit)...............       142     (1,117)(1e)
                                                             (108)(7)     (1,083)
  Pension liability adjustment..............       (53)                      (53)
  Unearned compensation.....................       (14)        14 (8)        --
  Unearned ESOP Preferred Stock.............                 (228)(4)       (228)
  Unrealized loss on investments............        (2)                       (2)
  Common stock held in treasury, 929,631
   shares--historical, 439,816 shares--pro
   forma ...................................       (67)         4 (9)        (63)
                                               -------     ------        -------
                                                 1,097     (1,545)(10)      (448)
                                               -------     ------        -------
                                               $12,889     $ (798)       $12,091
                                               =======     ======        =======
</TABLE>

 
  See the accompanying notes to Pro Forma Condensed Statement of Consolidated
                              Financial Position.
 
                                      118

<PAGE>
 
                    UAL CORPORATION AND SUBSIDIARY COMPANIES
   NOTES TO PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
 
                                 MARCH 31, 1994
   
 (1) To record the Recapitalization (as described in "THE PLAN OF
     RECAPITALIZATION--Terms and Conditions"). The entries assume that (i) the
     Offerings of Debentures and Depositary Preferred Shares representing
     interests in Public Preferred Stock are consummated, (ii) all in-the-money
     Options are vested and exercised at the Effective Time using a cashless
     exercise mechanism, (iii) treasury stock held by the Company immediately
     prior to the Effective Time will convert into New Shares that remain
     outstanding after the Recapitalization and (iv) Convertible Company
     Securities that are outstanding immediately prior to the Effective Time
     will not convert into the Recapitalization Consideration at the Effective
     Time. The cashless exercise feature permits holders of Options to exercise
     them by surrendering to the Company a portion of the proceeds of the
     Option in lieu of paying the exercise price in cash. When the cashless
     exercise feature is used, each element of the Recapitalization
     Consideration that is issuable upon the exercise of such Options is
     reduced proportionately, and the net Recapitalization Consideration
     (including the New Shares) that is issued is equal in value to the spread
     value of the Options exercised. See footnote 8 to the Pro Forma Condensed
     Statement of Consolidated Operations for the year ended December 31, 1993.
         
      
   (a) To record the proceeds from the Offerings of approximately $765
       million of Debentures and approximately $765 million of Depositary
       Preferred Shares representing interests in Public Preferred Stock, net
       of underwriting discount of $7 million for the Debentures and $25
       million for the Public Preferred Stock. (If the Offerings are not
       consummated, the Debentures and the Depositary Preferred Shares
       included in entry 1(c) and 1(d) will be issued to the holders of Old
       Shares upon redemption of the Series D Redeemable Preferred Stock.)
           
      
   (b) To record the cash payment to holders of Old Shares upon the
       redemption of the Redeemable Preferred Stock. The cash payment
       includes $25.80 per share plus proceeds from the sales of $31.10 face
       amount of Debentures and Depositary Preferred Shares representing
       interests in $31.10 liquidation preference of Public Preferred Stock
       (before deducting underwriting discounts), and assumes that the
       proceeds of the sales equals the face amount of the securities. The
       pro forma adjustment also includes the cash payment of $88 per share
       upon exercise of Options. (If the amount to be sold in the Offerings
       is reduced as discussed in entry 1(c) and 1(d), the amount paid to
       holders of Old Shares will be reduced.)     
      
   (c) To record the issuance of $382.5 million of principal amount of Series
       A Debentures and $382.5 million of principal amount of Series B
       Debentures. The Debentures are being recorded at their face amount on
       the assumption that they will be priced to trade at par, less the
       underwriting discount of $7 million. The actual rates on the
       Debentures will be reset prior to the Effective Time and the
       Debentures are subject to a maximum interest rate of 112.5 basis
       points above the Initial Pricing. The underwriting agreements for the
       United Debt Offerings are expected to provide that if either or both
       of the United Debt Offerings are consummated, the interest rates on
       the Debentures being offered may be adjusted in order for the
       Debentures to be sold at or closer to par, in which case the principal
       amount of the Debentures will be reduced so that the annual interest
       expense will not exceed the stated maximum which was calculated based
       upon the rate cap. If either or both of the United Debt Offerings are
       not consummated and the interest rate exceeds the applicable stated
       maximum, the Debentures will be recorded at a discount.     
      
   (d) To record the issuance of Depositary Preferred Shares representing
       interests in $765 million liquidation preference of Public Preferred
       Stock, net of underwriting discount of $25 million. The Public
       Preferred Stock is recorded at its stated value of $.01 per share,
       with the excess of liquidation value over stated value and net of
       underwriting discount recorded as additional capital invested. The
       dividend rate on the Public Preferred Stock will be reset prior to
       Closing and is subject to a maximum of 11.375%. The underwriting
       agreement for the UAL Preferred Offering     
 
                                      119

<PAGE>
 
         
      is expected to provide that if the UAL Preferred Offering is
      consummated, the dividend rate may be adjusted in which case the number
      of Depositary Preferred Shares will be reduced so that the annual
      dividends will not exceed the stated maximum which was calculated based
      upon the rate cap.     
      
   (e) To record the reclassification of Old Shares into New Shares and
       Series D Redeemable Preferred Stock. The Series D Redeemable Preferred
       Stock is assumed to immediately convert to cash, including proceeds
       from the sale of Debentures and Depositary Preferred Shares
       representing interests in the Public Preferred Stock. (The pro forma
       adjustments do not reflect the Series D Redeemable Preferred Stock
       issued to the Company upon reclassification of the treasury stock
       because such shares are surrendered for cancellation immediately after
       issuance.)     
 
     The New Shares are recorded at their par value of $.01 per share.
     Following is a summary of the entries to additional capital invested
     and retained earnings (in millions):
 

<TABLE>
<CAPTION>
                                                            ADDITIONAL
                                                             CAPITAL   RETAINED
                                                             INVESTED  EARNINGS
                                                            ---------- --------
      <S>                                                   <C>        <C>
      Cancellation of Old Shares...........................  $   128   $   --
      Distribution of cash.................................   (1,091)   (1,117)
                                                             -------   -------
      Pro forma adjustment.................................  $  (963)  $(1,117)
                                                             =======   =======
</TABLE>

 
 (2) To record the cash impact of the estimated fees and transaction expenses,
     including expenses for the Company, ALPA and the IAM, severance payments
     to terminated officers and flight kitchen employees and payments relating
     to the employment agreement with Mr. Greenwald.
 
 (3) To record the tax effects relating to nonrecurring charges recognized as a
     result of the Recapitalization.
   
 (4) To record the initial issuance of Class 1 ESOP Preferred Stock to the
     Leveraged ESOP for an aggregate purchase price of $228 million. The $228
     million was determined based on (i) 1,899,059 shares of Class 1 ESOP
     Preferred Stock expected to be issued in the first ESOP Tranche as of the
     Effective Time and (ii) an assumed purchase price of $120 per share. The
     Company and the Unions may, prior to the Effective Time, agree to increase
     or decrease the number of shares of Class 1 ESOP Preferred Stock sold at
     the Effective Time. The agreement with the ESOP Trustee provides that the
     number of shares of Class 1 ESOP Preferred Stock sold at the Effective
     Time shall be no more than 2,088,965 and no fewer than 1,709,153 provided,
     however, that the number of shares sold in the first ESOP Tranche will be
     adjusted if the Effective Time is before or after July 1, 1994. The actual
     price per share for the first ESOP Tranche will be calculated as provided
     in the ESOP Stock Purchase Agreement (see "THE PLAN OF RECAPITALIZATION--
     Establishment of ESOPs"). Thus, the ultimate amount recorded at the
     Effective Time will differ from the pro forma adjustment in order to
     reflect the actual number of shares issued and the purchase price
     calculated under the ESOP Stock Purchase Agreement.     
 
   Six additional ESOP Tranches will be issued to the Leveraged ESOP during
   the 69 months subsequent to the Effective Time, with the total shares of
   Class 1 ESOP Preferred Stock issued in the seven ESOP Tranches aggregating
   approximately 14,000,000 shares (subject to increase, see "THE PLAN OF
   RECAPITALIZATION--Establishment of ESOPs--Additional Shares"). The price
   for the subsequent ESOP Tranches will be as agreed between the Company and
   the ESOP Trustee at the time of each sale. As the subsequent ESOP Tranches
   are issued, the shares will be reported as a credit to additional capital
   invested based on the fair value of the stock when such issuances occur
   with a corresponding charge to "Unearned ESOP Preferred Stock."
      
   The unearned ESOP Preferred Stock recorded in the pro forma adjustment
   together with the unearned ESOP Preferred Stock recorded from subsequent
   ESOP Tranches will be recognized as compensation     
 
                                      120

<PAGE>
 
   expense over the approximately six year investment period as the shares
   are committed to be released. The difference between the compensation
   expense recorded, which is based on the fair value of the stock during an
   accounting period, and the recorded cost of the unearned ESOP Preferred
   Stock will be recorded to additional capital invested.
      
   The shares of Class 2 ESOP Preferred Stock will be recorded over the
   approximately six year investment period as the shares are committed to be
   contributed to the Non-Leveraged Qualified ESOP and credited to employees
   pursuant to the Supplemental ESOP with the offsetting entry being to
   compensation expense. The number of shares of Class 2 ESOP Preferred Stock
   that will be issued will be equal to 17,675,345 less the number of Shares
   of Class 1 ESOP Preferred Stock that will be sold to the Qualified ESOP.
       
   
   The ESOP Preferred Stock is convertible into New Shares at any time at the
   election of the ESOP Trustee at a rate of one New Share for each share of
   ESOP Preferred Stock (subject to adjustment). Primarily because of
   limitations imposed by the Internal Revenue Code, the ESOP consists of
   three major portions: the Leveraged ESOP, the Non-Leveraged Qualified
   ESOP, and the Supplemental ESOP. Shares of ESOP Preferred Stock issued
   under the Leveraged ESOP and the Non-Leveraged Qualified ESOP will be held
   by the ESOP Trustee under the Qualified Trust. Under the Supplemental
   ESOP, shares will be credited as Book-Entry Shares when earned by
   employees, and will be issued to employees as New Shares, generally upon
   termination of employment. ALPA has the right to elect, at any time,
   before or after the Effective Time, that the Supplemental ESOP be
   maintained by the actual issuance of Class 2 ESOP Preferred Stock to a
   non-qualified trust established under the Supplemental Plan. In general,
   the Plan of Recapitalization is designed to maximize the number of shares
   of ESOP Preferred Stock that may be sold to the Qualified Trust. However,
   because of certain limitations imposed by the Internal Revenue Code, a
   portion of the equity interest to be obtained by the ESOP Trustee may not
   be sold to the Qualified Trust. The Class 1 ESOP Preferred Stock contains
   a fixed dividend feature which is intended to maximize the number of
   shares of Class 1 ESOP Preferred Stock that may be sold to the Qualified
   Trust consistent with the applicable provisions of the Internal Revenue
   Code. To the extent the Qualified Trust is unable to purchase the Class 1
   ESOP Preferred Stock, Class 2 ESOP Preferred Stock will be issued, to the
   extent permitted by the limitations of the Internal Revenue Code, to the
   ESOP Trustee pursuant to the Non-Leveraged Qualified ESOP. Class 2 ESOP
   Preferred Stock will not contain a fixed dividend. To the extent that
   Class 2 ESOP Preferred Stock cannot be issued to the ESOP Trustee because
   of the limitations of the Internal Revenue Code, the Company will credit
   Book-Entry Shares to accounts established for the employees.     
   
 (5) To record the issuance at par of one share of Class P Voting Preferred
     Stock, one share of Class M Voting Preferred Stock, and one share of
     Class S Voting Preferred Stock to the ESOP Trusts. The remaining Voting
     Preferred Stock will be issued when it is contributed to the Supplemental
     ESOP Trust. The Class P Voting Preferred Stock, the Class M Voting
     Preferred Stock and the Class S Voting Preferred Stock, which are
     referred to collectively as the Voting Preferred Stock, represent and
     permit, in connection with the establishment of the ESOPs, the exercise
     of voting power representing 55% (which under certain circumstances may
     be increased to up to 63%) of the voting power of the Company. See
     "DESCRIPTION OF SECURITIES--The Voting Preferred Stock." The ESOPs
     provide that upon the conversion of all the ESOP Preferred Stock into New
     Shares, each share of Voting Preferred Stock will be converted into one
     ten-thousandth of a New Share.     
   
 (6) To account for the cashless exercise of options in the event of the
     Recapitalization. (Amount of the entry is based on an assumed Old Share
     price at the Effective Time of approximately $131.5 per share.)     
 
 (7) Represents the offset to entries (2), (3), (6), (8), (9) and (11).
 
 (8) To record the vesting of the unvested restricted stock as a result of the
     Recapitalization.
 
 (9) To record 25,000 restricted shares to Mr. Greenwald that will vest at the
     Effective Time.
 
                                      121

<PAGE>
 
   
(10) Does not reflect the issuance of four shares of Class I Preferred Stock,
     one share of Class Pilot MEC Preferred Stock, one share of Class IAM
     Preferred Stock, and three shares of Class SAM Preferred Stock. These
     stocks have a $.01 par value and nominal economic value. The Class I
     Preferred Stock will be issued to the Independent Directors and will have
     the power to elect such directors to the Board. The Class Pilot MEC
     Preferred Stock will be issued to the ALPA-MEC and will have the power to
     elect the ALPA Director. The Class IAM Preferred Stock will be issued to
     the IAM or its designee and will have the power to elect the IAM Director.
     The Class SAM Preferred Stock will be issued to the Salaried and
     Management Director and to the senior executive at United who has primary
     responsibility for human resources and will have the power to elect the
     Salaried and Management Director. Such classes of stock are referred to
     collectively as the Director Preferred Stock. See "DESCRIPTION OF
     SECURITIES--The Director Preferred Stock." Upon the occurrence of an
     Uninstructed Trustee Action (as defined below), the Class Pilot MEC
     Preferred Stock will succeed to the voting power previously held by the
     Class P Voting Preferred Stock, the Class IAM Preferred Stock will succeed
     to the voting power previously held by the Class M Voting Preferred Stock
     and the Class SAM Preferred Stock will succeed to the voting power
     previously held by the Class S Voting Preferred Stock. See "DESCRIPTION OF
     SECURITIES--The Director Preferred Stock--Uninstructed Trustee Actions."
         
(11) To reverse $19 million of transaction fees and expenses recorded during
     the first quarter of 1994 because these expenses are included in entry
     (2).
 
(12) The number of New Shares issued on a pro forma basis is based on Fully
     Diluted Old Shares assuming the Convertible Company Securities do not
     convert. See "THE PLAN OF RECAPITALIZATION--Terms and Conditions--
     General."
   
(13) The Class 2 ESOP Preferred Stock committed to be contributed to the
     Supplemental ESOP will be reported outside of equity because the employees
     can elect to receive their "book entry" shares from the Company in cash
     upon termination of employment.     
 
                                      122

<PAGE>
 
                UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
 
  The following unaudited Pro Forma Condensed Statements of Consolidated
Operations for the year ended December 31, 1993 and the three months ended
March 31, 1994, and the unaudited Pro Forma Condensed Statement of Consolidated
Financial Position as of March 31, 1994 for United and its subsidiaries have
been prepared to reflect the impact of the Recapitalization on United,
including: (i) the recognition of unearned ESOP Preferred Stock and related
ESOP capital as a result of the issuance of the first tranche of UAL Class 1
ESOP Preferred Stock, (ii) the offering of Debentures and distribution of
proceeds to UAL, (iii) the recognition of the employee stock ownership plan
accounting charge, (iv) the reduction in salaries and related cost for the
anticipated impact of the wage and benefit reductions and certain work rule
changes and (v) the recognition of the anticipated benefits of the agreement to
sell the U.S. flight kitchens. The unaudited Pro Forma Condensed Statements of
Consolidated Operations were prepared as if the Recapitalization had occurred
on January 1, 1993. The unaudited Pro Forma Condensed Statement of Consolidated
Financial Position was prepared as if the Recapitalization occurred on March
31, 1994.
   
  The pro forma statements assume the Recapitalization is not accounted for as
an acquisition or merger and, accordingly, United's assets and liabilities have
not been revalued. The distribution to UAL of proceeds from the United Debt
Offerings of Debentures is charged to additional capital invested.     
   
  The ESOPs are being accounted for in accordance with the American Institute
of Certified Public Accountants Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans" ("SOP"). For the Leveraged ESOP,
the Company will issue Class 1 ESOP Preferred Stock through seven ESOP
Tranches, at the Effective Time, approximately thirteen months following the
Effective Time, annually thereafter for four years and on January 1, 2000. As
the Shares are issued to the Leveraged ESOP, United will report the issuance of
shares as a credit to ESOP capital based on the fair value of the stock when
such issuance occurs and report a corresponding charge to unearned ESOP
Preferred Stock. As shares of Class 1 ESOP Preferred Stock are earned or
committed to be released, compensation expense will be recognized equal to the
average fair value of the shares committed to be released with a corresponding
credit to unearned ESOP Preferred Stock. Any differences between the fair value
of the shares committed to be released and the cost of the shares to the ESOP
will be charged or credited to ESOP capital. For the Non-Leveraged Qualified
ESOP, the shares of Class 2 ESOP Preferred Stock will be recorded as the shares
are committed to be contributed to the ESOP, with the offsetting entry to
compensation expense. Compensation expense will be recorded based on the fair
value of the shares committed to be contributed to the ESOP, in accordance with
the SOP. The pro forma financial statements assume that the Supplemental ESOP
is accounted for the same as the Non-Leveraged Qualified ESOP (i.e., pursuant
to the SOP). It is possible that, because the Supplemental ESOP is a non-
qualified plan, the Company may account for it under Accounting Principles
Board Opinion 25, "Accounting for Stock Issued to Employees," instead. The
Company would not expect this to result in a material difference. The unearned
ESOP Preferred Stock, ESOP capital and employee stock ownership accounting
charge will be recorded on United's books since participants in the ESOP are
employees of United.     
 
  The unaudited Pro Forma Condensed Statements of Consolidated Operations
include the recurring charges and credits which are directly attributable to
the Recapitalization, such as the interest expense arising from the Debentures,
the effects of the wage and benefit reductions and certain work-rule changes
resulting from the employee investment, and the employee stock ownership plan
accounting charge. No adjustments have been made to the pro forma revenues and
expenses to reflect the results of structural changes in operations, such as
U2, that might have been made had the changes been consummated on the assumed
effective dates for presenting pro forma results.
   
  The pro forma adjustments are based upon available information and upon
certain assumptions that United believes are reasonable. In addition, this
information should be read in conjunction with United's Annual Report on Form
10-K for the year ended December 31, 1993, and United's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1994, as amended, which are
incorporated in this Proxy Statement/Prospectus by reference, and which include
United's Consolidated Financial Statements, the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and United's Current Report on Form 8-K dated May 3, 1994, which is
incorporated by reference in this Proxy Statement/Prospectus.     
 
                                      123

<PAGE>
 
                UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
            PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
 
                          YEAR ENDED DECEMBER 31, 1993
                                 (IN MILLIONS)
 

<TABLE>
<CAPTION>
                                           HISTORICAL   ADJUSTMENTS     PRO FORMA
                                           ----------   -----------     ---------
<S>                                        <C>          <C>             <C>
Operating revenues........................  $13,168(8)     $(28)(1)      $13,140
Operating expenses:
 Salaries and related costs...............    4,695        (428)(2)(3)
                                                           (191)(1)        4,076
 Employee stock ownership plan accounting
  charge..................................                  369 (4)          369
 Other....................................    8,178(8)      131 (1)        8,309
                                            -------        ----          -------
                                             12,873        (119)          12,754
                                            -------        ----          -------
Earnings (loss) from operations...........      295          91              386
                                            -------        ----          -------
Other income (expense):
 Interest, net............................     (221)        (77)(5)         (298)
 Other, net...............................     (100)                        (100)
                                            -------        ----          -------
                                               (321)        (77)            (398)
                                            -------        ----          -------
Loss from continuing operations
 before income taxes......................      (26)         14              (12)
Provision (credit) for income taxes.......       (9)          5 (6)           (4)
                                            -------        ----          -------
Loss from continuing operations...........  $   (17)       $  9 (7)      $    (8)
                                            =======        ====          =======
</TABLE>

 
 
    See accompanying notes to Pro Forma Condensed Statement of Consolidated
                                  Operations.
 
                                      124

<PAGE>
 
                UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
 
                         NOTES TO PRO FORMA CONDENSED
                     STATEMENT OF CONSOLIDATED OPERATIONS
 
                     FOR THE YEAR ENDED DECEMBER 31, 1993
 
(1) United entered into an agreement to sell its U.S. flight kitchens over a
    period of months beginning in December 1993 through June 1994, and an
    agreement to acquire catering services for a seven year period. This
    adjustment eliminates $28 million of sales revenues and $191 million of
    compensation costs recorded in 1993 relating to the U.S. flight kitchens
    that were sold, and adds estimated incremental catering costs of $131
    million.
 
(2) To adjust compensation expense for the pro forma effect of wage and
    benefit reductions and certain work-rule changes resulting from the
    employee investment that provide for wage and other compensation savings
    during the approximately six year period beginning at the Effective Time.
    The pro forma adjustment represents the estimated savings in the 12 months
    assuming that such savings had commenced at the beginning of the period.
    The pro forma adjustment does not include any savings related to U2.
 
(3) The following reconciles the labor cost savings included in the Pro Forma
    Condensed Statement of Consolidated Operations to the value of the
    employee investments included in the Company Analysis of employee
    investments for 1994 (see "SPECIAL FACTORS--Certain Company Analyses"):
 

<TABLE>
<CAPTION>
                                                                     (MILLIONS)
     <S>                                                             <C>
     Pro Forma adjustment based on 1993 salaries....................    $428
     Estimated compensation savings based on 1994 salaries..........      68
     Estimated benefits of U2 during the first year.................      64
     Estimated additional severance for flight kitchen employees
      during the first year.........................................     (36)
                                                                        ----
       Estimated 1994 investments...................................    $524
                                                                        ====
       Estimated six months of investments included in 1994 analy-
        sis.........................................................    $262
                                                                        ====
</TABLE>

   
(4) To record non-cash compensation for shares of ESOP Preferred Stock
    committed to be released to employees during the period based on the
    average fair value of such ESOP Preferred Stock. The average fair value of
    the ESOP Preferred Stock is based on two components: (1) the average fair
    value of the New Shares into which the ESOP Preferred Stock is convertible
    plus (2) a premium attributable to the dividend paying feature of the ESOP
    Preferred Stock. For purposes of the pro forma adjustment, the average
    fair value of the ESOP Preferred Stock was assumed to be the initial
    assumed purchase price of $120. In future years, it is anticipated that
    the ESOP Preferred Stock price, for purposes of computing the employee
    stock ownership plan accounting charge, will be determined by an
    independent appraiser who will value both components. Additionally, in
    future years, the shares committed to be released that are used to satisfy
    the dividends payable on previously allocated shares will be charged to
    retained earnings rather than compensation expense.     
 
  The shares of the ESOP Preferred Stock committed to be released are a
  fraction of the original ESOP Preferred Stock shares. It is anticipated the
  shares will be released in a level fashion over the 69 months of the ESOP
  taking into account the partial period in 1994 and 2000. This would result
  in approximately 3.07 million ESOP Preferred Stock shares committed to be
  released in each full calendar year. Shares released in a partial year
  would be pro rated.
     
  Since future expense is dependent on the fair market value of the ESOP
  Preferred Stock, such expense is difficult to forecast and may vary
  significantly from the value in the pro forma adjustment. Changes in the
  price of a New Share directly affect the determination of the value of an
  ESOP Preferred Stock share. In addition, if the average value of a New
  Share exceeds $136 during the first 12 months after the Effective Time,
  additional shares of ESOP Preferred Stock will be issued to the Qualified
  ESOP or reserved for     
 
                                      125

<PAGE>
 
  issuance to the Supplemental ESOP to increase the ESOP's ownership from
  approximately 55% up to a maximum of approximately 63%. Future expense is
  also affected by the premium associated with the dividend paying feature
  which shrinks over time as the dividend paying period is reduced.
     
  Following is a summary of the impact to the employee stock ownership plan
  accounting charge of a range of fair market values:     
 

<TABLE>
<CAPTION>
               AVERAGE ESOP                                    ESOP ACCOUNTING
              PREFERRED STOCK                                      CHARGE*
                FAIR VALUE                                       (MILLIONS)
              ---------------                                  ---------------
              <S>                                              <C>
                   $110                                             $338
                    120                                              369
                    130                                              400
                    140                                              430
</TABLE>

- --------
     *Assumes 3.07 million shares committed to be released in the pro forma
       period and no shares used to satisfy dividends payable since shares are
       not allocated to participants until December 31. In later years shares
       will be used to satisfy dividends on allocated shares, which will
       reduce the ESOP accounting charge.
 
  The following illustrates the impact to the ESOP accounting charge if the
  average value of the New Shares in the first 12 months exceeds $136 per
  share.
 

<TABLE>
<CAPTION>
                                                     SHARES TO
                                                        BE           INCREASE IN
    AVERAGE       AVERAGE ESOP       ADDITIONAL      RELEASED      ESOP ACCOUNTING
   NEW SHARE     PREFERRED STOCK      SHARES TO      FOR FIRST       CHARGE****
     PRICE         FAIR VALUE*       BE ISSUED**      YEAR***        (MILLIONS)
   ---------     ---------------     -----------     ---------     ---------------
   <S>           <C>                 <C>             <C>           <C>
     $136             $168                    0              0          $  0
      140              172            2,260,410        393,115            68
      150              182            6,949,234      1,208,562           220
</TABLE>

- --------
     *Assumes a dividend premium of $32 per share.
   
    **To achieve the maximum increase in ownership, the price of a New Share
      must average at least $149.10 during the first 12 months after the
      Effective Time. If the average price of a New Share is less than or
      equal to $136, no additional shares of ESOP Preferred Stock will be
      issued.     
   ***The additional shares will be released in a level fashion over the 69
      months of the ESOP.
  ****Represents the first year increase; subsequent increases are dependent
      on changes in the fair value of ESOP Preferred Stock.
   
(5) To record interest expense of $72 million on the Series A Debentures at an
    annual estimated interest rate of 9.0% and on the Series B Debentures at
    an annual estimated interest rate of 9.7%, and to record amortization of
    the underwriting discount. The pro forma adjustment also includes foregone
    interest income due to the reduction in United's average investment
    balance resulting from the transaction. For purposes of the pro forma
    adjustment, the interest rates on the Debentures are based on the Initial
    Pricing. The actual rates will be reset prior to the Effective Time and
    the reset is limited to an additional 112.5 basis points. If the reset
    results in the actual rate being at the maximum interest rate, interest
    expense would increase by an additional $9 million for the year. Further,
    if the United Debt Offerings are not consummated and the Unions request
    prior to the Announcement Date that the Debentures contain a call
    provision, the actual rates could increase above the maximum.     
     
  The underwriting agreements for the United Debt Offerings are expected to
  provide that if either or both of the United Debt Offerings are
  consummated, the interest rates may be adjusted to permit the applicable
  Debentures to be sold at or closer to par, but if this is done, the
  principal amount of the series     
 
                                      126

<PAGE>
 
     
  of Debentures will be reduced so that the interest payable will not exceed
  the stated maximum which was calculated based upon the interest rate cap.
  If the United Debt Offerings are not consummated, the interest rates are
  subject to the cap.     
 
(6) To adjust the provision (credit) for income taxes to reflect the tax
    effect of changes to pretax income at the statutory rate in effect during
    1993. For purposes of the pro forma adjustment, the book and tax employee
    stock ownership plan compensation charge are assumed to be the same.
   
(7) If the Recapitalization is consummated, United expects to recognize
    nonrecurring charges of approximately $44 million relating to additional
    severance benefits for employees terminated as a result of the sale of the
    flight kitchens, up to $49.15 million of transaction fees and expenses
    incurred by ALPA, the IAM and certain advisors in connection with the
    structuring and establishment of the ESOPs, $30 million for United's
    transaction fees and expenses, $17 million of compensation expense
    relating to vesting the unvested restricted stock as a result of the
    change in control, $21 million of payments and benefits to Mr. Greenwald
    and officers who are retiring at the Effective Time, and $13 million of
    compensation expense (based on an assumed Old Share price of approximately
    $131.5 at the Effective Time) relating to the vesting of unvested Options
    and the implementation of a feature that provides for cashless exercise of
    Options in the event of the Recapitalization. (The existing Option holders
    are only entitled to utilize the cashless exercise feature if the
    Recapitalization occurs. The pro forma financial information assumes all
    in-the-money Options are exercised at the Effective Time and, since the
    cashless exercise results in variable plan accounting, there is an initial
    nonrecurring charge for the cashless exercise feature but no ongoing
    impact; however, if Option holders do not exercise their Options at the
    Effective Time, there will be an ongoing accounting impact for the changes
    in the fair market value of the Recapitalization Consideration that is
    issuable upon exercise of such Options.) The total after-tax effect of the
    nonrecurring charges is $122 million. Due to the nonrecurring nature of
    these charges, they have been excluded from the Pro Forma Condensed
    Statement of Consolidated Operations.     
   
(8) In the first quarter of 1994, United began recording certain air
    transportation price adjustments, which were previously recorded as
    commission expense, as adjustments to revenue. Historical operating
    revenue and expense amounts have been adjusted to conform with the current
    presentation. See United's Current Report on Form 8-K dated May 3, 1994
    which is incorporated by reference in this Proxy Statement/Prospectus.
        
                                      127

<PAGE>
 
                UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
            PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
 
                      FOR THE THREE MONTHS MARCH 31, 1994
                                 (IN MILLIONS)
 

<TABLE>
<CAPTION>
                                           HISTORICAL ADJUSTMENTS     PRO FORMA
                                           ---------- -----------     ---------
<S>                                        <C>        <C>             <C>
Operating revenues........................   $3,173      $  (2)(1)     $3,171
Operating expenses:
 Salaries and related costs...............    1,202       (111)(2)(3)
                                                           (27)(1)      1,064
 Employee stock ownership plan accounting
  charge..................................                  86 (4)         86
 Other....................................    2,015         22 (1)      2,037
                                             ------      -----         ------
                                              3,217        (30)         3,187
                                             ------      -----         ------
Earnings (loss) from operations...........      (44)        28            (16)
                                             ------      -----         ------
Other income (expense):
 Interest, net............................      (60)       (19)(5)        (79)
 Other, net...............................      (16)        19 (6)          3
                                             ------      -----         ------
                                                (76)       --             (76)
                                             ------      -----         ------
Loss from continuing operations
 before income taxes......................     (120)        28            (92)
Provision (credit) for income taxes.......      (41)        11 (7)        (30)
                                             ------      -----         ------
Loss from continuing operations...........   $  (79)     $  17         $  (62)
                                             ======      =====         ======
</TABLE>

 
 
    See accompanying notes to Pro Forma Condensed Statement of Consolidated
                                  Operations.
 
                                      128

<PAGE>
 
                UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
 
                          NOTES TO PRO FORMA CONDENSED
                      STATEMENT OF CONSOLIDATED OPERATIONS
 
                       THREE MONTHS ENDED MARCH 31, 1994
 
(1) United entered into an agreement to sell its U.S. flight kitchens over a
    period of months beginning in December 1993 through June 1994, and an
    agreement to acquire catering services for a seven year period. This
    adjustment eliminates $2 million of sales revenues and $27 million of
    compensation costs recorded in the first quarter of 1994 relating to the
    U.S. flight kitchens that were sold, and adds estimated incremental
    catering costs of $22 million.
 
(2) To adjust compensation expense for the pro forma effect of wage and benefit
    reductions and certain work-rule changes resulting from the employee
    investment that provide for wage and other compensation savings during the
    approximately six year period beginning at the Effective Time. The pro
    forma adjustment represents the estimated savings in the first quarter of
    1994 assuming that such savings had commenced at the beginning of the prior
    year. The pro forma adjustment does not include any savings related to U2.
 
(3) The following reconciles the labor cost savings included in the Pro Forma
    Condensed Statement of Consolidated Operations to the value of the employee
    investments included in the Company Analysis of employee investments for
    1994 (see "SPECIAL FACTORS--Certain Company Analyses"):
 

<TABLE>
<CAPTION>
                                                                      (MILLIONS)
     <S>                                                              <C>
     Pro Forma adjustment...........................................     $111
     Estimated compensation savings based on foregone 1994 raises...       13
     Estimated benefits of U2 for three months......................       16
     Estimated additional severance for flight kitchen employees for
      three months..................................................       (9)
                                                                         ----
       Estimated three months of investments........................     $131
                                                                         ====
       Estimated six months of investments included in 1994 analy-
        sis.........................................................     $262
                                                                         ====
</TABLE>

   
(4) To record non-cash compensation for shares of ESOP Preferred Stock
    committed to be released to employees during the period based on the
    average fair value of the ESOP Preferred Stock. For purposes of the pro
    forma adjustment, the average fair value of the ESOP Preferred Stock was
    assumed to be the initial assumed purchase price of $120. The pro forma
    calculations assume that shares committed to be released in 1993 were
    allocated to participant accounts at the end of 1993. Thus, the portion of
    shares committed to be released in 1994 that will be used to satisfy
    dividend payable on allocated shares is charged to retained earnings rather
    than non-cash compensation expense. It is anticipated that in the first
    quarter of 1994, approximately 768,000 shares of ESOP Preferred Stock will
    be committed to be released, and that approximately 54,000 of these shares
    will be used for dividends.     
     
  Since future expense is dependent on the fair market value of the ESOP
  Preferred Stock, such expense is difficult to forecast and may vary
  significantly from the value in the pro forma adjustment. Changes in the
  price of a New Share directly affect the determination of the value of an
  ESOP Preferred Stock share. In addition, if the average value of a New
  Share exceeds $136 during the first 12 months after the Effective Time,
  additional shares of ESOP Preferred Stock will be issued to the Qualified
  ESOP or reserved for issuance to the Supplemental ESOP. Future expense is
  also affected by the premium associated with the dividend paying feature
  which shrinks over time as the dividend paying period is reduced.     
 
                                      129

<PAGE>
 
  Following is a summary of the impact to the employee stock ownership plan
  accounting charge of a range of fair market values:
 

<TABLE>
<CAPTION>
               Average ESOP                                    ESOP Accounting
              Preferred Stock                                      Charge*
                Fair Value                                       (millions)
              ---------------                                  ---------------
              <S>                                              <C>
               $110                                                 $ 79
                120                                                   86
                130                                                   93
                140                                                  100
</TABLE>

 
  --------
     
    * Assumes 768,000 shares committed to be released in the pro forma period
      and approximately 54,000 shares used for dividends which are charged to
      retained earnings. As additional shares are allocated in later years,
      the employee stock ownership plan accounting charge will be reduced.
          
   
  The following illustrates the impact to the employee stock ownership plan
  accounting charge for the quarter if the average value of the New Shares in
  the first 12 months exceeds $136 per share.     
 

<TABLE>
<CAPTION>
                  Average ESOP                     Shares to be       Increase in
     Average       Preferred       Additional        Released       ESOP Accounting
    New Share      Stock Fair       Shares to        for the          Charge****
      Price          Value*        be Issued**      Quarter***        (millions)
    ---------     ------------     -----------     ------------     ---------------
    <S>           <C>              <C>             <C>              <C>
     $136             $168              0               0                 $ 0
      140              172          2,260,410         98,279               16
      150              182          6,949,239        302,141               51
</TABLE>

  --------
     *Assumes a dividend premium of $32.
     
    **To achieve the maximum increase in additional shares, the price of a
      New Share must average at least $149.10 during the first 12 months
      after the Effective Time. If the average price of a New Share is less
      than or equal to $136, no additional shares of ESOP Preferred Stock
      will be issued.     
   ***The additional shares will be released in a level fashion over the 69
      months of the ESOP.
  ****Represents the increase for the quarter; subsequent increases are
      dependent on changes in the fair value of the ESOP Preferred Stock.
   
(5) To record interest expense of $18 million on the Series A Debentures at an
    annual estimated interest rate of 9.0% and on the Series B Debentures at an
    annual estimated interest rate of 9.7%, and to record amortization of the
    underwriting discount. The pro forma adjustment also includes foregone
    interest income due to the reduction in United's average investment balance
    resulting from the transaction. For purposes of the pro forma adjustment,
    the interest rates on the Debentures are based on the Initial Pricing. The
    actual rates will be reset prior to the Effective Time and any upward reset
    is limited to an additional 112.5 basis points. If the reset results in the
    actual rate being at the maximum interest rate, interest expense would
    increase by an additional $2 million for the quarter. Further, if the
    United Debt Offerings are not consummated and the Unions request prior to
    the Announcement Date that the Debentures contain a call provision, the
    actual rates may increase above the maximum.     
 
(6) To reverse $19 million of nonrecurring fees and expenses relating to the
    Recapitalization which were recorded in the first quarter of 1994.
   
(7) To adjust the provision (credit) for income taxes to reflect the tax effect
    of changes to pretax income at the statutory rate in effect during the
    first quarter of 1994. For purposes of the pro forma adjustment the book
    and tax employee stock ownership plan compensation charge are assumed to be
    the same.     
 
                                      130

<PAGE>
 
                UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
        PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
 
                                 MARCH 31, 1994
                        (IN MILLIONS, EXCEPT SHARE DATA)
 

<TABLE>
<CAPTION>
                   ASSETS                     HISTORICAL ADJUSTMENTS  PRO FORMA
                   ------                     ---------- -----------  ---------
<S>                                           <C>        <C>          <C>
Current assets:
  Cash and cash equivalents..................  $   666      $(140)(1)  $
                                                              758 (3)
                                                             (765)(3)
                                                                8 (9)      527
  Short-term investments.....................      542                     542
  Other......................................    2,241         44 (2)    2,285
                                               -------      -----      -------
                                                 3,449        (95)       3,354
                                               -------      -----      -------
Operating property and equipment.............   12,211                  12,211
Less: Accumulated depreciation
    and amortization.........................   (5,164)                 (5,164)
                                               -------      -----      -------
                                                 7,047                   7,047
                                               -------      -----      -------
Other assets:
  Other......................................    1,700                   1,700
                                               -------      -----      -------
                                               $12,196      $ (95)     $12,101
                                               =======      =====      =======
<CAPTION>
    LIABILITIES AND SHAREHOLDER'S EQUITY
    ------------------------------------
<S>                                           <C>        <C>          <C>
Current liabilities:
  Short-term borrowings, long-term debt
   maturing within one year and current
   obligations under capital leases..........  $   466      $          $   466
  Other......................................    4,473        (11)(9)    4,462
                                               -------      -----      -------
                                                 4,939        (11)       4,928
                                               -------      -----      -------
Long-term debt...............................    2,596        758 (3)    3,354
                                               -------      -----      -------
Long-term obligations under capital leases...      774                     774
                                               -------      -----      -------
Other liabilities, deferred credits and
 minority interest...........................    3,317                   3,317
                                               -------      -----      -------
Shareholder's equity:
  Common stock, $5 par value; 1,000 shares
   authorized; 200 shares outstanding........      --                      --
  Additional capital invested................      839       (765)(3)
                                                               13 (5)
                                                                4 (6)       91
  Retained earnings (deficit)................     (200)      (108)(7)     (308)
  ESOP capital...............................                 228 (4)      228
  Unearned ESOP Preferred Stock..............                (228)(4)     (228)
  Unearned compensation......................      (14)        14 (8)      --
  Pension liability adjustment ..............      (53)                    (53)
  Unrealized loss of investments.............       (2)                     (2)
                                               -------      -----      -------
                                                   570       (842)        (272)
                                               -------      -----      -------
                                               $12,196      $ (95)     $12,101
                                               =======      =====      =======
</TABLE>

 
  See the accompanying notes to Pro Forma Condensed Statement of Consolidated
                              Financial Position.
 
                                      131

<PAGE>
 
              UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES 
                        NOTES TO PRO FORMA CONDENSED
                STATEMENT OF CONSOLIDATED FINANCIAL POSITION
 
                                 MARCH 31, 1994
 
(1) To record the cash impact of the estimated fees and transaction expenses,
    including expenses for United, ALPA and the IAM, severance payments to
    terminated officers and flight kitchen employees, and payments relating to
    the employment agreement with Mr. Greenwald.
 
(2) To record the tax effects relating to nonrecurring charges recognized as a
    result of the transaction.
   
(3) To record the Offerings of $382.5 million principal amount of Series A
    Debentures and $382.5 million principal amount of Series B Debentures and
    to record the distribution of proceeds to UAL. The Debentures are being
    recorded at their face amount based on the assumption that they will be
    priced to trade at par, less the underwriting discount of $7 million. The
    actual rates on the Debentures will be reset prior to the Effective Time
    and the Debentures are subject to a maximum interest rate of 112.5 basis
    points above the Initial Pricing. The underwriting agreements for the
    United Debt Offerings are expected to provide that if either or both of the
    United Debt Offerings are consummated, the interest rates may be adjusted
    in order for the Debentures to be sold at or closer to par, in which case
    the principal amount of the Debentures will be reduced so that the annual
    interest expense will not exceed the stated maximum which was calculated
    based upon the rate cap. If either or both of the United Debt Offerings are
    not consummated and the interest rate exceeds the cap, the Debentures will
    be recorded at a discount.     
   
(4) To record the ESOP capital as a result of the initial issuance of shares of
    UAL's Class 1 ESOP Preferred Stock to the Leveraged ESOP for an aggregate
    purchase price of $228 million and to record the related charge to unearned
    ESOP Preferred Stock. The $228 million was determined based on (i)
    1,899,059 shares of Class 1 ESOP Preferred Stock expected to be issued in
    the first ESOP Tranche as of the Effective Time and (ii) an assumed
    purchase price of $120 per share. The Company and the Unions may, prior to
    the Effective Time, agree to increase or decrease the number of shares of
    Class 1 ESOP Preferred Stock sold at the Effective Time. The agreement with
    the ESOP Trustee provides that the number of shares of Class 1 ESOP
    Preferred Stock sold at the Effective Time shall be no more than 2,088,965
    and no fewer than 1,709,153 provided, however, that the number of shares
    sold in the first ESOP Tranche will be adjusted if the Effective Time is
    before or after July 1, 1994. The actual price per share for the first ESOP
    Tranche will be calculated as provided in the ESOP Stock Purchase
    Agreement. Thus, the ultimate amount recorded at the Effective Time will
    differ from the pro forma adjustment in order to reflect the actual number
    of shares issued and the purchase price calculated under the ESOP Stock
    Purchase Agreement.     
      
   Six additional ESOP Tranches will be issued to the Leveraged ESOP during the
   69 months subsequent to the Effective Time, with the total shares of Class 1
   ESOP Preferred Stock issued in the seven ESOP Tranches aggregating
   approximately 14,000,000 shares (subject to increase, see "THE PLAN OF
   RECAPITALIZATION--Establishment of ESOPs--Additional Shares"). The price for
   the subsequent ESOP Tranches will be as agreed between the Company and the
   ESOP Trustee at the time of each sale. As the subsequent ESOP Tranches are
   issued, the shares will be reported as a credit to additional capital
   invested based on the fair value of the stock when such issuances occur with
   a corresponding charge to "Unearned ESOP Preferred Stock."     
     
  The unearned ESOP Preferred Stock recorded in the pro forma adjustment
  together with the unearned ESOP Preferred Stock recorded from subsequent
  ESOP Tranches will be recognized as compensation expense over the
  approximately six year investment period as the shares are committed to be
  released. The difference between the compensation expense recorded, which
  is based on the fair value of the stock during an accounting period, and
  the recorded cost of the unearned ESOP Preferred Stock will be recorded to
  ESOP capital.     
 
                                      132

<PAGE>
 
  ESOP capital will also be recorded over the approximately six year
  investment period as the shares of UAL's Class 2 ESOP Preferred Stock are
  committed to be contributed to the Non-Leveraged Qualified ESOP and
  credited to employees pursuant to the Supplemental ESOP with the offsetting
  entry being to compensation expense. The number of shares of Class 2 ESOP
  Preferred Stock that will be issued will be equal to 17,675,345 less the
  number of shares of Class 1 ESOP Preferred Stock that will be sold to the
  Qualified ESOP.
   
(5) To account for the cashless exercise of options in the event of the
    Recapitalization. (Amount of the entry is based on an assumed Old Share
    price at the Effective Time of approximately $131.5 per share.)     
 
(6) To record 25,000 restricted shares to Mr. Greenwald that will vest at the
    Effective Time.
 
(7) Represents the offset to entries (1), (2), (5), (6), (8) and (9).
 
(8) To record the vesting of the unvested restricted stock as a result of the
    Recapitalization.
 
(9) To reverse $19 million of transaction fees and expenses recorded during the
    first quarter of 1994 because these expenses are included in entry (1).
 
                                      133

<PAGE>
 
                                 CAPITALIZATION
 
                    UAL CORPORATION AND SUBSIDIARY COMPANIES
   
  The following table sets forth the unaudited consolidated capitalization of
the Company as of March 31, 1994, as adjusted to give effect to the
consummation of the Recapitalization and the Offerings, including (i)
reclassification of Old Shares into New Shares and Series D Redeemable
Preferred Stock, (ii) the Offerings of the Public Preferred Stock (as
represented by Depositary Preferred Shares) and Debentures, (iii) redemption of
the Series D Redeemable Preferred Stock for cash and proceeds from the
Offerings and (iv) the issuance of the first tranche of Class 1 ESOP Preferred
Stock, the Voting Preferred Stock and the Director Preferred Stock. The table
should be read in conjunction with the Pro Forma Condensed Statement of
Consolidated Financial Position included elsewhere in this document.     
 

<TABLE>
<CAPTION>
                                  MARCH 31, 1994
                                ------------------
                                  (IN MILLIONS)
                                             PRO
                                HISTORICAL  FORMA
                                ---------- -------
                                   (UNAUDITED)
<S>                             <C>        <C>
Short-term borrowings, long-
 term debt maturing within one
 year and current obligations    $   486   $   486
 under capital leases.........   -------   -------
Long-term debt, excluding por-
 tion due within one year:
  Secured notes...............     1,388     1,388
  Deferred purchase certifi-
   cates......................       194       194
  Debentures..................     1,000     1,765
  Convertible debentures......        33        33
  Promissory notes............        93        93
  Unamortized discount on            (15)      (22)
   debt.......................   -------   -------
                                   2,693     3,451
Long-term obligations under          777       777
 capital leases...............   -------   -------
  Total long-term debt and         3,470     4,228
   capital lease obligations..   -------   -------
Class 2 ESOP Preferred Stock,                  -- (a)
 $.01 par value...............   -------   -------
Shareholders' equity:
  Series A Preferred Stock,
   $.01 stated value..........       --        --
  Series B Preferred Stock,
   $.01 stated value..........                 --
  Class 1 ESOP Preferred
   Stock, $.01 par value......                 --
  Class 2 ESOP Preferred
   Stock, $.01 par value......                 --
  Class P, M and S Voting Pre-
   ferred Stock, $.01 par val-
   ue.........................                 --
  Class I, Pilot MEC, IAM, and
   SAM Preferred Stock, $.01
   par value..................                 --
  Common stock, $5 par value..       128       --
  Common stock, $.01 par val-
   ue.........................                 --
  Additional capital invested.       963       981
  Retained earnings (deficit)...     142    (1,083)
  Pension liability adjust-
   ment.......................       (53)      (53)
  Unearned compensation.......       (14)      --
  Unearned ESOP Preferred
   Stock......................                (228)
  Unrealized loss on invest-
   ments......................        (2)       (2)
  Common stock held in trea-         (67)      (63)
   sury.......................   -------   -------
    Total shareholders' equi-      1,097      (448)
     ty.......................   -------   -------
      Total capitalization....   $ 5,053   $ 4,266
                                 =======   =======
</TABLE>

- --------
   
(a) The Class 2 ESOP Preferred Stock committed to be contributed to the
    Supplemental ESOP will be reported outside of equity because the employees
    can elect to receive their "book entry" shares from the Company in cash
    upon termination of employment.     
 
                                      134

<PAGE>
 
                UNITED AIR LINES, INC. AND SUBSIDIARY COMPANIES
 
  The following table sets forth the unaudited consolidated capitalization of
United as of March 31, 1994 and as adjusted to give effect to the consummation
of the Recapitalization and the Offerings, including (i) the issuance of
Debentures and (ii) the ESOP capital recorded as a result of the issuance of
the first tranche of UAL's Class 1 ESOP Preferred Stock to the ESOP Trustee for
the Qualified ESOP and the related charge for unearned ESOP Preferred Stock.
The table should be read in conjunction with the Pro Forma Condensed Statement
of Consolidated Financial Position included elsewhere in this document.
 

<TABLE>
<CAPTION>
                                 MARCH 31, 1994
                                -----------------
                                  (IN MILLIONS)
                                            PRO
                                HISTORICAL FORMA
                                ---------- ------
                                   (UNAUDITED)
<S>                             <C>        <C>
Short-term borrowings, long-
 term debt maturing within one
 year and current obligations     $  466   $  466
 under capital leases.........    ------   ------
Long-term debt, excluding por-
 tion due within one year:
  Secured notes...............    $1,388   $1,388
  Deferred purchase certifi-
   cates......................       194      194
  Debentures..................     1,000    1,765
  Promissory notes............        29       29
  Unamortized discount on            (15)     (22)
   debt.......................    ------   ------
                                   2,596    3,354
Long-term obligations under          774      774
 capital leases...............    ------   ------
  Total long-term debt and         3,370    4,128
   capital lease obligations..    ------   ------
Shareholder's equity:
  Common stock, $5 par value..       --       --
  Additional capital invested.       839       91
  Retained earnings (deficit)...    (200)    (308)
  ESOP capital................                228
  Unearned ESOP shares........               (228)
  Pension liability adjust-
   ment.......................       (53)     (53)
  Unearned compensation.......       (14)     --
  Unrealized loss on invest-
   ments......................        (2)      (2)
                                  ------   ------
    Total shareholder's equi-        570     (272)
     ty.......................    ------   ------
      Total capitalization....    $4,406   $4,322
                                  ======   ======
</TABLE>

 
                                      135

<PAGE>
 
                       BENEFICIAL OWNERSHIP OF SECURITIES
 
FIVE PERCENT BENEFICIAL OWNERS
   
  The following table shows the number of shares of the Company's voting
securities beneficially owned by any person or group known to the Company as of
June 9, 1994 to be the beneficial owner of more than five percent of the
Company's voting securities. The number and percent of shares beneficially
owned may include Old Shares issuable upon conversion of Convertible Company
Securities, even if not so indicated. Convertible Company Securities not
converted prior to the Record Date may not be voted at the Meeting.     
 

<TABLE>
<CAPTION>
                                                     AMOUNT AND
                                                     NATURE OF
   TITLE OF                                          BENEFICIAL    PERCENT
    CLASS     NAME AND ADDRESS OF BENEFICIAL OWNER   OWNERSHIP     OF CLASS
   --------   ------------------------------------   ----------    --------
 <C>          <S>                                    <C>           <C>
 Common Stock Sanford C. Bernstein & Co., Inc.       1,632,736(1)     6.7%
               One State Street Plaza
               New York, NY 10004
 Common Stock Wellington Management Co.              2,719,750(2)   10.99%
               75 State Street
               Boston, MA 02109
 Common Stock Vanguard/Windsor Funds, Inc.           2,359,200(3)    9.65%
               P.O. Box 823
               Valley Forge, PA 19482
 Common Stock AXA Assurances I.A.R.D. Mutuelle       3,005,010(4)    12.2%
              AXA Assurances Vie Mutuelle
               La Grande Arche
               Pardi Nord
               92044 Paris La Defense France
              Alpha Assurances I.A.R.D. Mutuelle
              Alpha Assurances Vie Mutuelle
               101-100 Terrasse Boieldieu
               92042 Paris La Defense France
              Uni Europe Assurance Mutuelle
               24, Rue Drouot
               75009 Paris France
              AXA
               23, Avenue Matignon
               75008 Paris France
              The Equitable Companies Incorporated
               787 Seventh Avenue
               New York, New York 10019
</TABLE>

 
                                      136

<PAGE>
 
- --------
(1) Based on Schedule 13G dated February 14, 1994, in which the beneficial
    owner reported that as of December 31, 1993, it had sole dispositive power
    over 1,632,736 Old Shares and sole voting power over 882,770 of such Old
    Shares.
       
       
   
(2) Based on Schedule 13G dated February 10, 1994, in which the beneficial
    owner reported that as of December 31, 1993, it had shared dispositive
    power over 2,719,750 Old Shares and shared voting power over 188,716 of
    such Old Shares. Beneficial ownership of certain of these Old Shares was
    also reported by another entity. See footnote (4) below.     
   
(3) Based on Schedule 13G dated February 10, 1994, in which the beneficial
    owner reported that as of December 31, 1993, it had sole voting power and
    shared dispositive power over 2,359,200 Old Shares. Beneficial ownership of
    some or all of these Old Shares was also reported by another entity. See
    footnote (2) above.     
   
(4) Based on Schedule 13G dated April 8, 1994 in which each of AXA Assurances
    I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, Alpha Assurances I.A.R.D.
    Mutuelle, Alpha Assurances Vie Mutuelle, Uni Europe Assurance Mutuelle, AXA
    and The Equitable Companies Incorporated reported that as of March 31, 1994
    it had sole voting power for 1,738,465 Old Shares and sole dispositive
    power for 3,005,009 Old Shares. Such amounts include 11,182 Old Shares
    issuable upon conversion of Series A Preferred Stock.     
   
  The foregoing information is based on a review, as of June 9, 1994, by the
Company of statements filed with the Commission under sections 13(d) and 13(g)
of the Exchange Act.     
 
SECURITIES BENEFICIALLY OWNED BY DIRECTORS AND EXECUTIVE OFFICERS
 
  The following table sets forth the number of Old Shares beneficially owned as
of April 1, 1994, by each director and executive officer included in the
Summary Compensation Table, and by all directors and executive officers of the
Company, as a group. Unless indicated otherwise by footnote, the owner
exercises sole voting and investment power over the securities (other than
unissued securities, the ownership of which has been imputed to such owner).
 

<TABLE>
<CAPTION>
                                                           NUMBER OF
                                                             SHARES
                                                          BENEFICIALLY  PERCENT
      NAME OF DIRECTOR OR EXECUTIVE OFFICER AND GROUP        OWNED      OF CLASS
      -----------------------------------------------     ------------  --------
      <S>                                                 <C>           <C>
      Neil Armstrong.....................................     1,021(1)     *
      Andrew F. Brimmer..................................       450(2)     *
      Richard P. Cooley..................................     1,300        *
      Carla A. Hills.....................................       300        *
      Fujio Matsuda......................................       422        *
      John F. McGillicuddy...............................     1,300        *
      Harry Mullikin.....................................     1,300        *
      James J. O'Connor..................................       700        *
      Frank A. Olson.....................................       800        *
      John C. Pope.......................................   189,348(3)     *
      Ralph Strangis.....................................       500        *
      Paul E. Tierney, Jr................................   168,559(4)     *
      Stephen M. Wolf....................................   339,985(5)    1.4
      Joseph R. O'Gorman.................................    50,690(6)     *
      James M. Guyette...................................    83,911(7)     *
      Lawrence M. Nagin..................................    62,440(8)     *
      Directors and Executive Officers as a Group (17
       persons)..........................................   959,133(9)    3.7%
</TABLE>

 
                                      137

<PAGE>
 
- --------
*  Less than 1%
(1) Includes 721 Old Shares held by Lorian, Inc. Pension Trust in which Mr.
    Armstrong is beneficiary.
(2) Includes 30 Old Shares owned by Dr. Brimmer's wife.
(3) Includes 150,000 Old Shares which Mr. Pope has the right to acquire within
    60 days of April 1, 1994 by the exercise of stock options.
(4) Includes 16,600 Old Shares held by a trust in which Mr. Tierney is
    administrator, co-trustee and beneficiary; 34,109 Old Shares held by a
    corporation of which he is a director and 50% shareholder and 12,500 Old
    Shares held by a charitable foundation of which he is a director.
(5) Includes 250,000 Old Shares which Mr. Wolf has the right to acquire within
    60 days of April 1, 1994 by the exercise of stock options.
(6) Includes 37,500 Old Shares which Mr. O'Gorman has the right to acquire
    within 60 days of April 1, 1994 by the exercise of stock options.
(7) Includes 67,120 Old Shares which Mr. Guyette has the right to acquire
    within 60 days of April 1, 1994 by the exercise of stock options.
(8) Includes 45,000 Old Shares which Mr. Nagin has the right to acquire within
    60 days of April 1, 1994 by the exercise of stock options.
(9) Includes 572,970 Old Shares which persons in the group have the right to
    acquire within 60 days of April 1, 1994, by the exercise of stock options
    and the 30 Old Shares referred to in note (2) above.
 
                                      138

<PAGE>
 
             CERTAIN INFORMATION CONCERNING THE BOARD OF DIRECTORS
 
  The Board of Directors of the Company held a total of 24 meetings during
1993. During their periods of service all directors attended 75 percent or more
of the total of such meetings and meetings of Board committees of which they
were members, other than Mr. Cooley who attended approximately 74 percent of
such meetings.
 
  The standing committees of the Board of Directors of the Company during 1993
consisted of the Executive, Audit, Compensation, Nominating and Pension and
Welfare Plans Oversight Committees.
 
  Set forth below is a brief description of the functions performed, the names
of the committee members, and the number of meetings held by each committee
during 1993.
 
EXECUTIVE COMMITTEE
 
  The Executive Committee is authorized by the Bylaws of the Company to
exercise the powers of the Board of Directors in the management of the business
and affairs of the Company, with certain exceptions. The Executive Committee
held four meetings in 1993.
 
  The members of the Committee are:
 
  Neil A. Armstrong    Paul E. Tierney, Jr.
  Frank A. Olson        Stephen M. Wolf, Chairman
  Ralph Strangis
 
AUDIT COMMITTEE
 
  The Audit Committee is authorized by the Board to review with the Company's
independent public accountants the annual financial statements of the Company
prior to publication, to review the work of and approve non-audit services
performed by such independent accountants and to make annual recommendations to
the Board for the appointment of independent public accountants for the ensuing
year. The Committee reviews the effectiveness of the financial and accounting
functions, organization, operations and management of the Company and its
subsidiaries and affiliates and the investment policies of the Company. The
Audit Committee held two meetings in 1993.
 
  The members of the Committee are:
 
  James J. O'Connor, Chairman   Fujio Matsuda
  Neil A. Armstrong             Paul E. Tierney, Jr.
  Richard P. Cooley
 
COMPENSATION COMMITTEE
 
  The Compensation Committee reviews and approves the compensation and benefits
of all officers of the Company and the senior officers of its subsidiaries and
reviews general policy matters relating to compensation and benefits of
employees of the Corporation and its subsidiaries. The Committee also
administers the 1981 Stock Program and the 1988 Restricted Stock Plan. The
Compensation Committee held seven meetings in 1993.
 
  The members of the Committee are:
 
  John F. McGillicuddy, Chairman    Harry Mullikin
  Fujio Matsuda
 
 
                                      139

<PAGE>
 
NOMINATING COMMITTEE
 
  The Nominating Committee considers possible candidates for election to the
Board and makes recommendations of nominees to the Board. The Nominating
Committee will consider nominees recommended by stockholders, who may submit
such recommendations by addressing a letter to the Chairman of the Nominating
Committee, UAL Corporation, P.O. Box 66919, Chicago, Illinois 60666. The
Nominating Committee held one meeting in 1993.
 
  The members of the Committee are:
 
  Richard P. Cooley, Chairman   Carla A. Hills       John F. McGillicuddy
  Andrew F. Brimmer             Ralph Strangis
 
PENSION AND WELFARE PLANS OVERSIGHT COMMITTEE
 
  The Pension and Welfare Plans Oversight Committee exercises oversight with
respect to compliance by the Company and its subsidiaries with laws governing
employee benefit plans under the Employees' Retirement Income Security Act of
1974 ("ERISA"). Reports of the subsidiaries concerning ERISA employee benefit
plan matters are reviewed by the Committee and the Committee periodically
reports its actions, findings and recommendations to the Board. The Committee
held one meeting in 1993.
 
  The members of the Committee are:
 
  Harry Mullikin, Chairman    Andrew F. Brimmer
  Carla A. Hills              James J. O'Connor
 
COMPENSATION OF DIRECTORS; EFFECT OF "CHANGE IN CONTROL"
 
  The directors receive an annual retainer of $20,000 and are paid $1,000 for
each meeting attended. The Chairmen of the Audit, Compensation, Nominating and
Pension and Welfare Plans Oversight Committees receive an additional retainer
of $3,000 per year. Each member of a committee receives a fee of $1,000 for
each committee meeting attended. In support of a cost reduction effort
announced in January 1993, directors' compensation as reported above was
reduced 10%. Directors also receive 100 Old Shares annually. Directors who are
officers of the Company or of any subsidiary do not receive any retainer fee,
meeting fee or Old Shares for their service on the Board of Directors or any
committee.
 
  Non-employee directors are eligible to participate in a retirement income
plan (the "Retirement Plan") if they have at least five years of service on the
date of retirement and are not otherwise eligible to receive pension benefits
from the Company or any of its subsidiaries. If a retiring director has at
least ten years of service and is age 70 or over at retirement, he or she is
entitled to a life annuity equal to the greater of $20,000 per year or the
annual retainer fee at retirement. Reduced benefits are available if the
director has less than ten years of service or if retirement occurs before age
70. For these purposes, a director who is a director at the time of a "change
in control" of the Company is credited with three additional years of service,
is deemed to have satisfied the five-year minimum service requirement and is
deemed to be three years older than his or her actual age. Surviving spouse
benefits are available in some cases. A trust (the "Trust") has been created to
serve as a source of payments of benefits under this retirement plan. The Trust
becomes irrevocable upon the occurrence of a "change in control."
   
  Under the Company's travel policy for directors (the "Travel Policy"), each
director of the Company, his or her spouse and their eligible dependent
children are entitled to free transportation on United. The directors are
reimbursed by the Company for additional income taxes resulting from the
taxation of these benefits. The cost of supplying these benefits for each
director in 1993, including cash payments made in January, 1994 for income tax
liability, was as follows:     
 
 
                                      140

<PAGE>
 

<TABLE>
<CAPTION>
                            COST OF TRAVEL
      NAME OF DIRECTOR       BENEFITS ($)
      ----------------      --------------
      <S>                   <C>
      Neil A. Armstrong          6,819
      Andrew F. Brimmer         41,449
      Richard P. Cooley         32,444
      Carla A. Hills            17,252
      Fujio Matsuda             11,245
      John F. McGillicuddy      17,617
      Harry Mullikin            26,980
      James J. O'Connor         35,014
      Frank A. Olson             6,705
      John C. Pope              17,869
      Ralph Strangis            22,020
      Paul E. Tierney, Jr.      52,805
      Stephen M. Wolf           40,687
</TABLE>

   
The Company also has a policy pursuant to which each director is entitled to
free cargo shipment on United. A director (and his or her spouse and eligible
dependent children) serving as such at the time of a "change in control" is
entitled to continue such benefits thereafter for life.     
 
  The transactions contemplated by the Plan of Recapitalization will constitute
a "change in control" for purposes of the Travel Policy, the Retirement Plan
and the Trust.
 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
  Mr. Strangis is a member of the law firm of Kaplan, Strangis & Kaplan, P.A.,
which has represented, and may continue to represent, the Company and its
affiliates in connection with various legal matters.
 
                             EXECUTIVE COMPENSATION
 
                 UAL CORPORATION COMPENSATION COMMITTEE REPORT
 
PHILOSOPHY
 
  The Company's officer compensation program is designed to attract, retain and
motivate top quality and experienced officers. The program provides industry
competitive compensation opportunities, supports a pay-for-performance culture
and emphasizes pay-at-risk. The program is heavily oriented toward incentive
compensation that is tied to the annual and longer-term financial performance
of the Company and to its longer-term return to stockholders.
 
COMPONENTS
 
  There are two components to the executive compensation program:
 
  . Cash compensation.
 
  .Stock compensation.
 
  The cash compensation program is comprised of base salary and annual cash
incentive compensation. Base salaries are competitive with other large domestic
air carriers, which include the three largest of the five carriers on the
Relative Market Performance Graph below. Base salaries are substantially less
than other corporations of comparable size.
 
  Annual incentive compensation provides an opportunity for additional
earnings. An annual incentive pool is created based upon the Company's
earnings; each year the Compensation Committee approves a schedule of annual
incentive pool funding relative to specified earnings targets. The CEO
recommends to the
 
                                      141

<PAGE>
 
Committee incentive awards for each officer based upon an assessment of each
such officer's contribution over the preceding year. The assessment is based
on, among other things, an appraisal prepared annually for each officer on his
or her managerial skills and the performance by him or her of assigned
responsibilities. Before making a recommendation, the CEO will discuss such
appraisals with other members of senior management and will consider these
discussions, along with an overall assessment of Company performance and
industry competitive data, in making a recommendation to the Compensation
Committee on incentive awards for each officer. The Compensation Committee
determines the award for the CEO based upon a comparable process and makes a
final determination on incentive awards for all other officers.
 
  The stock compensation program is comprised of stock options and restricted
stock. Stock compensation gives each officer the opportunity to become a
stockholder of the Company. Stock grants are set in consideration of airline
industry practice using the same industry peer group for base salary and annual
incentive compensation. Stock grants are also set in consideration of
individual performance and contribution. The CEO recommends to the Compensation
Committee stock option and/or restricted stock grants for each officer; there
are no specific target award levels or weighting of factors considered in
determining stock grants. The Compensation Committee determines stock awards
for the CEO based upon a comparable process and makes a final determination on
stock awards for all other officers. Options and restricted shares typically
are granted in alternating years (options in one year, restricted stock in the
next year, etc.).
 
  Stock options may not be granted at less than fair market value on the date
of grant. Stock options carry a ten-year term and have exercise vesting
restrictions that lapse ratably over a four-year period. Restricted shares have
vesting restrictions of up to 5 years.
 
  The officer compensation program in total, although primarily focused on
promoting pay-for-performance and emphasizing pay-at-risk, is heavily oriented
toward stockholder interests through the use of long-term stock incentives that
create a direct linkage between executive rewards and increased stockholder
value. The long-term incentive component, which is comprised totally of stock-
based incentives, represents over half of the total income opportunity for the
officers.
 
CEO COMPENSATION
 
  At Mr. Wolf's request, his salary, upon joining United in 1987, was set at
$575,000, which was $75,000 less than his predecessor was paid. During 1992,
Mr. Wolf's base salary was increased for the first time since joining the
Company in 1987 to $675,000. This increase was based primarily on a qualitative
review of performance factors and his contributions and leadership in among
other things, creating the most comprehensive route structure of any carrier in
the world. Further, additional factors considered were that his salary of
$575,000 approximated the bottom tenth percentile of other chief executive
officers at U.S. companies exceeding $10 billion in annual revenue and that his
salary had not been increased since joining the Company in 1987.
 
  On February 14, 1993, in support of a cost reduction effort, Mr. Wolf
rescinded his raise of $100,000 and returned to his 1987 starting salary of
$575,000. On October 27, 1993, the Compensation Committee approved an increase
in Mr. Wolf's pre-reduction salary by $50,000, to $725,000. This increase was
based primarily on a qualitative review of performance factors and his
continuing contributions and leadership during an extremely difficult time in
the airline industry, and as an attempt to partially close the gap between his
salary and that of CEOs of other large corporations, especially in light of the
fact that he had foregone salary increases during most of his six year tenure
at the Company. On November 1, 1993, Mr. Wolf's salary was reinstated to its
1992 rate of $675,000 per annum, but Mr. Wolf asked the Compensation Committee
to defer his October 1993 increase, which was subsequently implemented on April
1, 1994.
 
  Mr. Wolf received no cash incentive award for 1993 performance. No stock
options or restricted stock were granted to Mr. Wolf during 1993.
 
 
                                      142

<PAGE>
 
COMPENSATION FOR THE OTHER NAMED OFFICERS
 
  Base salary rates for the other named executive officers were reduced 5% from
their 1992 levels in February 1993 in support of a cost reduction effort. Base
salaries remained at the reduced levels until September 1993 (November 1993 for
Mr. Pope), at which time they were restored to their 1992 levels. In keeping
with the Compensation Committee's philosophy of providing compensation to
attract, retain and motivate top quality and experienced officers, increases
averaging 6.3% were implemented in recognition of a negative competitive
differential in salary levels at the Company as compared to other large
corporations and because of cost of living increases. None of the other named
executive officers received a cash incentive award for 1993 performance. Each
received a restricted stock grant, subject to the normal restricted stock grant
terms described earlier pursuant to the Company's normal grant schedule, the
amount of which took into consideration the need for a retention mechanism due
to the fact that no payments had been made under the Incentive Plan for three
years.
 
COMMITTEE ACTIONS REGARDING CHANGES IN CONTROL
 
  As described below under "--Employment Contracts and Change in Control
Arrangements," during 1993 the Compensation Committee, as part of an overall
review and after consultation with an independent compensation and benefits
consultant and with outside counsel, determined to authorize, and the Company
and United thereafter entered into, amendments to the Company's employment
contract with Mr. Wolf (originally entered into in 1987) and to an employment
contract and severance agreements with other named executive officers, new
severance agreements with additional executive officers and amendments to
agreements with Company officers to provide for the automatic vesting of
outstanding stock options, and the confirmation of such treatment for
restricted stock awards, upon a "change in control" of the Company.
 
  These changes were made in connection with the first overall review of these
arrangements in over three years and were intended in part to achieve greater
uniformity in the treatment of the Company's executive officers. The
Compensation Committee believes it is important to take steps to maintain a
stable management team. Revising, amending and adding these various agreements
was an important step in this endeavor. These changes also achieved greater
uniformity in severance and change in control policy than had previously
existed.
 
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
 
  The Compensation Committee reviewed and discussed the impact of Section
162(m) of the Internal Revenue Code on the Company's executive compensation
programs. As a result of this review, the Company, as an integral part of and
conditional upon approval of the Recapitalization, is proposing changes to its
incentive compensation program for named executive officers. These changes will
make the program totally formula-based and will bring the program fully into
compliance with the proposed regulations. The Company is also proposing a
change to its stock incentive compensation program to place a per person cap on
stock grants and to provide performance-based restricted stock awards to the
named executive officers. These changes will cause all future incentive
compensation awards thereunder to be in full compliance with the proposed
regulations.
 
COMPENSATION CONSULTANT AND COMPETITIVE DATA
 
  The Committee consults with independent compensation advisors on executive
compensation matters. The Committee also has access to competitive data on
compensation levels for officer positions.
 
                     UAL CORPORATION COMPENSATION COMMITTEE
 
  John F. McGillicuddy, Chairman    Fujio Matsuda     Harry Mullikin
 
 
                                      143

<PAGE>
 
                           SUMMARY COMPENSATION TABLE
 

<TABLE>
<CAPTION>
                                  ANNUAL                         LONG-TERM
                               COMPENSATION                     COMPENSATION
                             ----------------               --------------------
                                              OTHER ANNUAL   RESTRICTED   STOCK      ALL OTHER
  NAME AND PRINCIPAL         SALARY   BONUS   COMPENSATION     STOCK     OPTIONS    COMPENSATION
       POSITION         YEAR   ($)     ($)       ($)(1)     AWARDS($)(2)   (#)         ($)(3)
  ------------------    ---- ------   -----   ------------  ------------ -------    ------------
<S>                     <C>  <C>     <C>      <C>           <C>          <C>        <C>
Stephen M. Wolf--       1993 604,134        0   122,173(4)           0         0       29,821
 Chairman and           1992 625,000        0    25,515              0         0       30,985
 Chief Executive Offi-  
  cer                   1991 575,000        0        --              0   225,000(5)        --

John C. Pope--          1993 487,846        0    17,235      1,995,000         0       16,651
 President and          1992 458,333        0    12,492              0   110,000(5)    14,599
 Chief Operating Offi-  
  cer                   1991 375,000  140,000        --      1,848,438         0           --
                                                                                
Joseph R. O'Gorman--    1993 314,348        0     7,548        855,000         0        4,024
 Executive Vice Presi-  
  dent                  1992 300,000        0    18,379              0    30,000        7,094
                        1991 233,385   30,000        --        867,000    30,000           -- 

James M. Guyette--      1993 310,749        0     5,183        855,000         0       10,708
 Executive Vice Presi-  
  dent                  1992 300,000        0       327              0    30,000        7,874
                        1991 275,000   90,000        --        739,375         0           -- 

Lawrence M. Nagin--     1993 306,439        0     8,482        855,000         0       10,645
 Executive Vice         
 President--            1992 290,000        0    21,596              0    30,000        8,187
 Corporate Affairs and  
 General Counsel        1991 265,000   80,000        --      1,035,125         0           --  
</TABLE>

- --------
   
(1) Except as otherwise indicated, amounts specified represent tax gross-ups
    during the fiscal year associated with travel privileges. None of the above
    individuals received other compensation not reported elsewhere on this
    statement in excess of the lesser of $50,000 or 10% of salary and bonus.
        
(2) The restricted stock granted in 1993 vests 20% per year, from the time of
    grant, over a five year period. All restricted stock granted in 1991 vests
    100% after five years, except that the grant to Mr. O'Gorman vests 25% per
    year, from the time of grant, over a four year period. The number and
    aggregate value, respectively, of restricted holdings at fiscal year-end
    is: Mr. Wolf 15,000 Old Shares, $2,190,000; Mr. Pope 32,000 Old Shares,
    $4,672,000; Mr. O'Gorman 10,500 Old Shares, $1,533,000; Mr. Guyette 13,500
    Old Shares, $1,971,000; Mr. Nagin 15,300 Old Shares, $2,233,800. No
    dividends have been paid on these Old Shares, but officers have a right to
    retain any dividends paid on restricted shares.
   
(3) Amounts represent the total reportable compensation attributable to the
    split-dollar insurance program.     
(4) Includes $39,243 attributable to tax gross-ups during the fiscal year
    associated with travel privileges, $16,180 attributable to financial
    planning, travel, certain insurance and automobile benefits, and the
    balance attributable to club membership costs and dues.
(5) The 225,000 Old Share option granted to Mr. Wolf in 1991 and the 110,000
    Old Share option granted to Mr. Pope in 1992 were granted with exercise
    prices in excess of the then current market price. In Mr. Wolf's case,
    75,000 of the Options are exercisable at $147.875 on May 29, 1993, 50,000
    at $170.056 on May 29, 1994, 50,000 at $195.565 on May 29, 1995, and 50,000
    at $224.899 on May 29, 1996. In Mr. Pope's case, 50,000 Options are
    exercisable at $124.00 on April 29, 1994, 20,000 at $142.60 on April 29,
    1995, 20,000 at $163.99 on April 29, 1996, and 20,000 at $188.59 on April
    29, 1997.
 
 
                                      144

<PAGE>
 
              AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                          AND FY-END OPTION/SAR VALUES
 

<TABLE>
<CAPTION>
                                                NUMBER OF UNEXERCISED   VALUE OF UNEXERCISED IN-
                           SHARES                  OPTIONS/SARS AT      THE-MONEY OPTIONS/SARS AT
                         ACQUIRED ON                  FY-END(#)               FY-END ($)(1)
                          EXERCISE    VALUE   ------------------------- -------------------------
          NAME               (#)     REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
          ----           ----------- -------- ----------- ------------- ----------- -------------
<S>                      <C>         <C>      <C>         <C>           <C>         <C>
Stephen M. Wolf.........       0       N/A      181,250      168,750     6,034,766      966,797
John C. Pope............       0       N/A       87,500      122,500     5,783,594    1,812,531
Joseph R. O'Gorman......       0       N/A       22,500       37,500       187,500      517,500
James M. Guyette........       0       N/A       52,120       30,000     2,764,936      881,719
Lawrence M. Nagin.......       0       N/A       31,250       28,750     1,450,000      838,750
</TABLE>

- --------
(1) Market value of the Company's common stock at December 31, 1993, minus
    exercise price of options/SARs.
 
                               PENSION PLAN TABLE
 

<TABLE>
<CAPTION>
                                   YEARS OF SERVICE
               --------------------------------------------------------------
REMUNERATION     15         20         25         30         35         40
- ------------   -------   --------   --------   --------   --------   --------
<S>            <C>       <C>        <C>        <C>        <C>        <C>
  375,000      $90,000   $120,000   $150,000   $180,000   $210,000   $240,000
  425,000      102,000    136,000    170,000    204,000    238,000    272,000
  475,000      114,000    152,000    190,000    228,000    266,000    304,000
  525,000      126,000    168,000    210,000    252,000    294,000    336,000
  575,000      138,000    184,000    230,000    276,000    322,000    368,000
  625,000      150,000    200,000    250,000    300,000    350,000    400,000
  675,000      162,000    216,000    270,000    324,000    378,000    432,000
  725,000      174,000    232,000    290,000    348,000    406,000    464,000
  775,000      186,000    248,000    310,000    372,000    434,000    496,000
  825,000      198,000    264,000    330,000    396,000    462,000    528,000
</TABLE>

 
  The above illustration is based on retirement at age 65 and selection of a
straight life annuity (other annuity options are available, which would reduce
the amounts shown above). The amount of the normal retirement benefit under the
plan is the product of 1.6% times years of credited participation in the plan
times final average compensation (highest five of last ten years of covered
compensation). The retirement benefit amount is not offset by the participant's
Social Security benefit. Compensation covered by the plan includes salary and
cash bonuses. Credited years of participation with the Company and United for
persons named in the cash compensation table are as follows: Mr. Wolf--5 years;
Mr. Pope--5 years; Mr. Guyette--25 years; Mr. O'Gorman--21 years; and Mr.
Nagin--4 years. The amounts shown do not reflect limitations imposed by
Internal Revenue Code on retirement benefits which may be paid under plans
qualified under the Internal Revenue Code. United has agreed to provide under
non-qualified plans the portion of the retirement benefits earned under the
pension plan which would otherwise be subject to Internal Revenue Code
limitations.
 
  The Company has agreed to supplement Messrs. Wolf's and Pope's benefits under
the qualified pension plan and United has agreed to supplement Messrs. Nagin's
and O'Gorman's benefits under the qualified pension plan, in each case by
granting them credit for their prior airline service--22 years for Mr. Wolf, 10
years for Mr. Pope, 6 years for Mr. O'Gorman, and 8 years for Mr. Nagin. Mr.
Wolf's benefit will be offset by retirement benefits he is entitled to under
any of the plans of his prior employers except Tiger International, Inc.
 
  Pursuant to the Officer Agreements, upon their retirements in accordance with
the Plan of Recapitalization, each of Messrs. Wolf, Pope and Nagin will be
entitled to receive a cash payment in an amount calculated to be sufficient to
provide additional annual retirement income commencing at age 56 (age 55 in the
case of Mr. Pope) of approximately $240,000, $12,000 and $32,000, respectively.
 
                                      145

<PAGE>
 
                                UAL CORPORATION
                          RELATIVE MARKET PERFORMANCE
                            TOTAL RETURN 1989--1993
 
                                [chart to come]
 

<TABLE>
<CAPTION>
                              1988 1989 1990 1991 1992 1993
                              ---- ---- ---- ---- ---- ----
         <S>                  <C>  <C>  <C>  <C>  <C>  <C>
         UAL Corp. .......... 100  156  101  133  115  133
         S&P 500............. 100  132  127  166  179  197
         D-J Airline
          Group(1)........... 100  116   93  125  127  156
</TABLE>

 
                                        Source: Compustat Database
(1) Alaska Air, AMR, Delta, Southwest, USAir.
 
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
 
  The Company and United originally entered into the Officer Agreements with
Mr. Wolf and Mr. Pope when they joined the Company in 1987 and 1988,
respectively, (as subsequently amended and restated, the "Employment
Agreements").
 
  In the event of a change in control of the Company or United followed by the
termination of his employment, Mr. Wolf would be entitled to a payment equal to
from one to three times his salary and anticipated bonus deemed equal to his
salary, depending upon the circumstances of his termination, together with
certain other amounts. In the event of a change in control of the Company or
United followed by a termination of his employment, Mr. Pope would be entitled
to a payment equal to from one to three times his salary and anticipated bonus
of not less than $100,000, depending upon the circumstances of his termination,
together with certain other amounts.
 
  The Employment Agreements also provide for the continuance of certain
specified employee benefits for a period of years equal to the number of years
of compensation included in the severance payment and, depending on the
circumstances applicable to an executive, possibly beyond that time.
 
 
                                      146

<PAGE>
 
  Each other executive officer of United is a party to a severance agreement
(the "Severance Agreements") with United that provides certain benefits if the
executive's employment with United is terminated (1) by the Company without
"cause" (as defined in the Severance Agreements) or (2) by the executive for
"good reason" (as defined in the Severance Agreements) in either case, within
three years following a "change in control" (as defined in the Severance
Agreements). Upon such a termination of employment, the executive officer will
be entitled to receive (1) a cash payment equal to 3 times the sum of (a) the
greater of the executive's base salary as in effect on the date of the change
in control or as in effect on the date his or her employment terminates plus
(b) the average of the greater of the bonuses paid to the executive with
respect to the three years preceding the change in control or the bonuses paid
to the executive with respect to the three years preceding his or her
termination of employment, (2) continuation of travel privileges (and partial
tax reimbursement) on United for the executive and his or her spouse and other
dependents for three years following termination of employment (and for life
thereafter if the executive would have qualified for retiree travel privileges
had his or her employment continued during such three-year period), (3)
coverage under United's medical and other welfare benefits for a period of
three years following the date of termination (and for life thereafter if the
executive would have qualified for retiree medical benefits had his or her
employment continued during such three-year period), (4) a lump sum payment
equal to the value of the pension benefits (including any early retirement
benefits) that the executive officer would have earned under United's pension
plans and arrangements had the executive officer continued to be employed for
an additional three years and (5) a lump sum payment equal to the amounts that
United would have paid on behalf of the executive officer with respect to split
dollar life insurance policies in effect for the executive. The concessions to
be implemented with respect to Salaried and Management Employees pursuant to
the Plan of Recapitalization could be a "good reason" event entitling such
other executive officers of United to terminate their employment and receive
the benefits described above. The Company has requested that such individuals
agree to waive the "good reason" event arising as a result of the
implementation of such concessions. All of such other executive officers have
provided such a waiver.
 
  Pursuant to the Officer Agreements, upon their retirements, in accordance
with the Plan of Recapitalization, each of Messrs. Wolf, Pope, and Nagin will
be entitled to receive a cash payment in respect of certain split dollar life
insurance policies in effect for them of approximately $195,000, $160,000 and
$140,000 respectively.
 
  During 1993 the Company amended stock option and restricted stock agreements
with each of the named executive officers to provide for the automatic vesting
of outstanding stock options, and for confirmation of such treatment for
restricted stock awards, upon a change in control.
 
RULE 405 DISCLOSURE
 
  Form 5s for 1993, with respect to one exempt transaction each, were
inadvertently filed late for Messrs. O'Gorman and Wolf due to an error in the
Company's recordkeeping. The Company, and not the individuals, takes
responsibility for effecting these filings.
 
           APPROVAL OF AMENDMENTS TO THE 1981 INCENTIVE STOCK PROGRAM
 
  ON MARCH 25, 1994, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDED, IN
CONNECTION WITH THE APPROVAL OF THE RECAPITALIZATION, THAT THE STOCKHOLDERS
VOTE FOR APPROVAL OF AMENDMENTS (THE "1981 STOCK PROGRAM AMENDMENT") TO THE
1981 INCENTIVE STOCK PROGRAM (THE "1981 STOCK PROGRAM") TO ADD 1,200,000 NEW
SHARES (SUBJECT TO ADJUSTMENT AS HEREINAFTER DESCRIBED) TO THE MAXIMUM NUMBER
OF SHARES WITH RESPECT TO WHICH GRANTS MAY BE MADE UNDER THE 1981 STOCK
PROGRAM.
   
  The full text of the 1981 Stock Program Amendment is included elsewhere in
this Proxy Statement/Prospectus. The following summary of the 1981 Stock
Program is qualified in its entirety by the full text of the 1981 Stock Program
and the 1981 Stock Program Amendment.     
 
                                      147

<PAGE>
 
  ADMINISTRATION. The 1981 Stock Program is administered by the Compensation
Committee of the Board. Upon consummation of the Plan of Recapitalization, the
1981 Stock Program will be administered by the Compensation Administration
Committee of the Board.
 
  SHARES SUBJECT TO PROGRAM. As initially approved by the stockholders on April
29, 1982, 1,300,000 shares of common stock were issuable under the 1981 Stock
Program. On April 24, 1986 and April 25, 1991, an additional 2,000,000 and
1,000,000 shares, respectively, were authorized for issuance under the 1981
Stock Program. The amendments recommended by the Board would make 1,200,000
(subject to adjustment if additional shares become issuable to the employee
groups in accordance with the Plan of Recapitalization, see "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--Additional Shares.") New Shares
available for issuance under the 1981 Stock Program. Stock issuable under the
1981 Stock Program may be newly issued or treasury shares. The Compensation
Committee may at any time and from time to time, in its sole discretion,
allocate any or all of such shares for issuance pursuant to grants of incentive
stock options ("ISOs"), under Section 422 of the Internal Revenue Code, stock
options not intended to qualify under Section 422 of the Internal Revenue Code
("NQSOs") and stock appreciation rights ("SARs").
 
  PARTICIPATION. Options and SARs are granted by the Compensation Committee
only to officers and key employees (including officers who may also be
directors) of the Company or any of its subsidiaries. There is currently no
specific limitation on the number of New Shares that may be optioned to any
individual (or made subject to an SAR) under the 1981 Stock Program. The
amendments recommended by the Board would limit the number of New Shares with
respect to which options may be granted under the 1981 Stock Program to any
individual during any two-year period to 125,000 (250,000 with respect to
grants made to any new employee as a condition of employment), subject to
adjustment if additional shares become issuable to the employee groups in
accordance with the Plan of Recapitalization. See "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--Additional Shares."
   
  STOCK OPTIONS. The option price for ISOs and NQSOs may not be less than 100%
of the fair market value of the common stock on the date of grant. The closing
price of the common stock on the New York Stock Exchange on June 10, 1994 was
$    . The duration of options granted under the 1981 Stock Program cannot
exceed ten years.     
 
  STOCK APPRECIATION RIGHTS. SARs may be granted exercisable in cash, or in
common stock, or in a combination of cash and common stock. SARs may be granted
to any participant in the 1981 Stock Program independent of or in tandem with
an NQSO. On exercise of an SAR, the holder will receive up to 100% of the
appreciation in fair market value of the shares subject to the SAR. In the case
of a tandem SAR, the appreciation shall be measured from the option price. All
of the SARs which have been issued under the 1981 Stock Program have been
tandem SARs. Exercise of an SAR reduces the number of shares reserved for
issuance under the 1981 Stock Program by the number of shares with respect to
which the SAR is exercised.
 
  AMENDMENT AND TERMINATION OF PROGRAM. The Board may amend the 1981 Stock
Program from time to time or terminate the 1981 Stock Program at any time, but
may not reduce the then existing amount of any participant's options or SARs or
adversely change the terms and conditions thereof without the participant's
consent. No amendment may without stockholder approval, (i) materially increase
the benefits accruing to participants, (ii) materially increase the number of
shares which may be issued, or (iii) materially modify the requirements as to
eligibility for participation in the 1981 Stock Program. The Plan of
Recapitalization will automatically terminate on December 8, 2001.
 
  FEDERAL INCOME TAX CONSEQUENCES. The Company has been advised by counsel that
the Federal income tax consequences to the participants in the 1981 Stock
Program and the affiliate of the Company employing them under the now
applicable provisions of the Internal Revenue Code and the regulations
thereunder are substantially as follows.
 
 
                                      148

<PAGE>
 
  With respect to NQSOs and SARs, an optionee is not deemed to receive any
income at the time an NQSO or SAR is granted nor is his employer entitled to a
deduction at that time. However, when any part of the NQSO or SAR is exercised
the optionee is deemed to have received ordinary income (i) in the case of an
NQSO, in an amount equal to the difference between the option price and the
fair market value of the shares acquired upon such exercise and (ii) in the
case of an SAR, in an amount equal to the sum of the fair market value of the
shares and any cash received. The optionee's employer is entitled to a tax
deduction in an amount equal to the amount of ordinary income realized by the
optionee.
 
  With respect to ISOs, an optionee is not deemed to receive any income at the
time an ISO is granted or exercised, and his employer is not entitled to any
deduction. If the optionee disposes of the stock prior to the expiration of the
holding period required by Section 422 of the Internal Revenue Code, he will
have ordinary income in the year of disposition equal to the excess of the
amount received for the shares over the option price, and his employer is
entitled to a tax deduction at such time in an amount equal to the amount of
ordinary income realized by the optionee. If the optionee disposes of the stock
after expiration of the holding period required by Section 422 of the Internal
Revenue Code, the excess of the amount received for the shares over the option
price will be taxed as long term capital gain and no deduction will be
available to the employer.
 
  Special rules apply in the case of individuals subject to Section 16(b) of
the Exchange Act. In particular, under current law any shares received pursuant
to the exercise of a stock option or SAR, absent an election by the optionee to
include in his income at the time of exercise the excess of the value of shares
received over the option price, are treated as restricted as to transferability
and subject to a substantial risk of forfeiture for a period of six months
after the date of grant of the option. Accordingly, the amount of ordinary
income recognized, and the amount of the employer's deduction, are determined
as of such later date.
 
  The Board of Directors recommends a vote FOR the approval of the amendments
to the 1981 Stock Program.
 
            APPROVAL OF AMENDMENTS TO THE 1988 RESTRICTED STOCK PLAN
 
  ON MARCH 25, 1994, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDED IN
CONNECTION WITH THE APPROVAL OF THE RECAPITALIZATION THAT THE STOCKHOLDERS VOTE
FOR APPROVAL OF AMENDMENTS (THE "1988 RESTRICTED STOCK PLAN AMENDMENTS") TO THE
1988 RESTRICTED STOCK PLAN (THE "1988 RESTRICTED STOCK PLAN") TO PRESERVE, TO
THE MAXIMUM EXTENT POSSIBLE, THE DEDUCTIBILITY BY THE COMPANY OF AMOUNTS
AWARDED UNDER THE PLAN.
   
  The full text of the 1988 Restricted Stock Plan Amendment is included
elsewhere in this Proxy Statement/Prospectus. The following summary of the 1988
Restricted Stock Plan is qualified in its entirety by the full text of the 1988
Restricted Stock Plan and the 1988 Restricted Stock Plan Amendment.     
 
  SHARES. A maximum of 500,000 Old Shares may be awarded under the 1988
Restricted Stock Plan. Upon consummation of the Plan of Recapitalization, the
Old Shares remaining to be issued under the 1988 Restricted Stock Plan will be
converted into New Shares. Shares awarded under the 1988 Restricted Stock Plan
(the "Restricted Stock") may only be treasury shares. Shares of Restricted
Stock that are forfeited under the 1988 Restricted Stock Plan may subsequently
be awarded to other participants under the 1988 Restricted Stock Plan.
   
  The closing price of the common stock on the NYSE on June 10, 1994 was $^^.
    
  PARTICIPATION. Restricted Stock may be awarded under the 1988 Restricted
Stock Plan to key employees, including officers, of the Corporation and its
subsidiaries. The 1988 Restricted Stock Plan currently imposes no limit on the
number of officers and other key employees to whom Restricted Stock may be
awarded or on the number of shares that may be granted to any individual. The
1988 Restricted Stock
 
                                      149

<PAGE>
 
Plan Amendments would limit the number of New Shares that may be awarded under
the 1988 Restricted Stock Plan to any individual during any two-year period to
30,000 (60,000 with respect to grants made to any new employee as a condition
of employment), subject to adjustment if additional shares become issuable to
the employee groups in accordance with the Plan of Recapitalization. See "THE
PLAN OF RECAPITALIZATION--Establishment of ESOPs--Additional Shares."
 
  ADMINISTRATION. The 1988 Restricted Stock Plan is administered by the
Compensation Committee of the Board. Upon consummation of the Plan of
Recapitalization, the Plan will be administered by the Compensation
Administration Committee of the Board.
 
  RESTRICTIONS. Restricted Stock is awarded under the 1988 Restricted Stock
Plan in the discretion of the Compensation Committee. All shares of stock
awarded pursuant to the 1988 Restricted Stock Plan (including any shares
received by the holders thereof as a result of stock dividends, stock splits or
any other forms of recapitalization) shall be subject to the restrictions
specified in the 1988 Restricted Stock Plan. Restricted Stock certificates
shall remain in the custody of the Company and shall bear a legend that such
Restricted Stock may not be sold or encumbered until all restrictions are
terminated or expire. Restrictions expire ten years after award unless the
Compensation Committee determines in its discretion to accelerate or terminate
the period of restriction. Restrictions expire upon a Change in Control, as
defined in the 1988 Restricted Stock Plan. In addition, the restrictions expire
if the Company is dissolved, or is not the surviving corporation in a merger or
consolidation, unless the surviving corporation agrees to exchange the
Restricted Stock for its shares having an equivalent value. Participants, as
owners of the awarded shares, shall have all other stockholder rights,
including the right to vote shares of Restricted Stock and to receive dividends
and other distributions, if any, during the restriction period. The 1988
Restricted Stock Plan Amendments would permit the Committee to provide that the
"Restricted Period" with respect to any Restricted Shares shall lapse based
upon the attainment by the Company of one or more target levels of pre-tax
income (as determined under generally accepted accounting principles but
without regard to any items (whether gains or losses) otherwise included
therein relating to (1) the ESOPs or the ESOP Trusts, (2) any event or
occurrence that the Committee determines to be either not directly related to
the operations of the Company or not within the reasonable control of the
Company's management, (3) the 1988 Restricted Stock Plan and (4) the Company's
Incentive Compensation Plan (as defined below)). Such target level(s) shall be
determined by the Compensation Committee on or before the allocation of such
Restricted Shares, shall relate to such period or periods of time as the
Compensation Committee shall prescribe and may provide that any period in which
such pre-tax income is less than zero may be disregarded.
 
  AMENDMENT. The 1988 Restricted Stock Plan may be amended, suspended or
terminated by the Board, provided that no such action shall increase the
maximum number of shares that may be awarded pursuant to the Plan of
Recapitalization, render any Compensation Committee member eligible to receive
Restricted Stock while a Compensation Committee member, or adversely affect
awards already made without the participant's consent.
 
  ADJUSTMENTS. In case of a stock split, stock dividend, merger, consolidation,
reorganization, recapitalization or other change in corporate structure of the
Company, appropriate adjustments will be made by the Compensation Committee in
the number and kind of shares subject to the 1988 Restricted Stock Plan.
 
  FEDERAL INCOME TAX CONSEQUENCES. No income will be recognized by a
participant upon receipt of any award of Restricted Stock, unless the
participant files an election with the IRS within 30 days of the award to
recognize such income. If the participant makes such an election, the Company
would be entitled to a deduction for payment of compensation, assuming
compliance with applicable withholding requirements, and the participant would
be required to report as ordinary income, the fair market value of the
Restricted Stock
 
                                      150

<PAGE>
 
on the award date. In the absence of such an election, the participant's income
and the Company's corresponding deduction are deferred until the restrictions
cease to apply, at which time the amount of the income and deduction would be
based on the fair market value of the shares at the time the restrictions cease
to apply.
 
  Unless the election referred to above is made, dividends received with
respect to Restricted Stock prior to the time the restrictions cease to apply
would be taxed as ordinary income to the participant and would be deductible by
the Company as payment of compensation, assuming compliance with applicable
withholding requirements. Dividends received with respect to shares after such
an election has been made or after the restrictions cease to apply would be
taxed as dividends to the participant and would not be deductible by the
Company.
 
           APPROVAL OF AMENDMENTS TO THE INCENTIVE COMPENSATION PLAN
 
  ON MARCH 25, 1994 THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDED IN
CONNECTION WITH THE APPROVAL OF THE RECLASSIFICATION THAT THE STOCKHOLDERS VOTE
FOR APPROVAL OF AMENDMENTS (THE "INCENTIVE PLAN AMENDMENT") TO THE COMPANY'S
INCENTIVE COMPENSATION PLAN (THE "INCENTIVE PLAN") TO PRESERVE, TO THE MAXIMUM
EXTENT POSSIBLE, THE DEDUCTIBILITY BY THE COMPANY OF AMOUNTS PAID THEREUNDER.
   
  The full text of the Incentive Compensation Amendment is included elsewhere
in this Proxy Statement/Prospectus. The following summary of the Incentive
Compensation Plan is qualified in its entirety by the full text of the
Incentive Plan and the Incentive Plan Amendment.     
 
  Key employees and officers of the Company and its subsidiaries are eligible
to participate in the Incentive Plan. The grant of awards and the size thereof
depends upon the degree to which the Company's financial targets, as approved
by the Compensation Committee, are reached or exceeded and the extent to which
individual performance objectives set by management (or by the Compensation
Committee in the case of the Company's CEO) are attained or exceeded.
Performance is measured annually and awards are vested in the year awarded.
Awards are paid in the year awarded.
 
  Pursuant to the Incentive Plan Amendment, awards under the Incentive Plan
with respect to any participant who is a "covered employee" (as defined in
Section 162(m)(3) of the Internal Revenue Code) with respect to the applicable
award year (i) may not exceed $900,000 and (ii) shall be determined by
reference to a formula which shall define the award by reference to the
attainment by the Company of one or more target levels of pre-tax income (as
determined under generally accepted accounting principles but without regard to
any items (whether gains or losses) otherwise included therein relating to (1)
the ESOPs or the ESOP Trusts, (2) any event or occurrence that the Compensation
Administration Committee determines to be either not directly related to the
operations of the Company or not within the reasonable control of the Company's
management, (3) the Incentive Plan and (4) the Company's 1988 Restricted Stock
Plan) for such award year. Such target level(s) and the formula referred to
above shall be determined by the Compensation Administration Committee prior to
the commencement of such award year (or at such later time as may be
permissible under Section 162(m) of the Internal Revenue Code). Notwithstanding
the foregoing, the Compensation Administration Committee may reduce the award
otherwise determined pursuant to such formula in its sole discretion.
 
  The Incentive Plan Amendment further provides that payment of an award may be
deferred, pursuant to a prior election by a participant, to a period selected
by the participant. The Incentive Plan may be amended, modified or terminated
by the Board in its discretion.
 
  Amounts paid under the Incentive Plan should be taxable as ordinary income to
the participant and deductible by the Company, in each case, in the year in
which the amounts are paid.
 
  The Board of Directors recommends a vote FOR approval of the amendments to
the Incentive Plan.
 
                                      151

<PAGE>
 
                           DESCRIPTION OF SECURITIES
 
THE DEBENTURES
   
  The Series A Debentures and the Series B Debentures will be issued under an
Indenture dated as of July 1, 1991 between United, as issuer, and The Bank of
New York, as Trustee (the "Indenture Trustee") and an officers' certificate
that sets forth certain terms of the Debentures (collectively, the
"Indenture"). Copies of the Indenture and the related documentation have been
filed as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus is a part and is incorporated herein by reference. Where
the summaries do not make a distinction between the Series A Debentures and the
Series B Debentures, such summaries refer to either series. Whenever particular
Sections or defined terms of the Indenture are referred to herein, such
sections or defined terms are incorporated herein by reference.     
 
 General
   
  The Debentures will be issued only in fully registered form without coupons
in denominations of $100 principal amount and integral multiples thereof,
provided that if either or both of the United Debt Offerings are consummated,
the applicable Debentures may be issued in denominations of $1,000 principal
amount and integral multiples thereof. The Debentures have been approved for
listing on the NYSE subject to official notice of issuance, although there can
be no assurance that at or following the Effective Time any trading market for
the Debentures will develop. If the Debentures are listed on the NYSE, the
Debentures will trade on such exchange only in denominations of $1,000 and
integral multiples thereof.     
   
  The Indenture pursuant to which the Debentures will be issued does not limit
the aggregate principal amount of Debentures that may be issued in either
series. United has registered $449,802,200 aggregate principal amount of each
series of Debentures for distribution to holders of Old Shares in connection
with the Recapitalization if the United Debt Offerings are not consummated,
based upon the number of Fully Diluted Old Shares. See "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--General." Of that amount, United
expects that approximately $382,071,900 aggregate principal amount of each
series of Debentures will be issued in respect of the Old Shares currently
outstanding (including the unvested restricted shares) and not more than
approximately $67,730,300 aggregate principal of each series of Debentures will
be issued in connection with the exercise of Options and Convertible Company
Securities. Many of the Options and Convertible Company Securities are out of
the money and are not currently expected to be exercised. If market conditions
change, Options and Convertible Company Securities that are currently out of
the money may be exercised. Similarly, the number of Fully Diluted Old Shares
presumes that the Company uses the proceeds from the exercise of Options and
Convertible Company Securities to purchase Recapitalization Consideration. This
assumption is meant to mimic the effect of the "cashless exercise" feature of
the Options. See "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs--
Additional Shares." The effect of the "cashless exercise" is to reduce the
amount of the Recapitalization Consideration required to be issued in
connection with the Recapitalization. Holders of Options and Convertible
Company Securities may elect not to use the "cashless exercise" feature.
Accordingly, the aggregate principal amount of each series of Debentures that
is required to be issued in connection with the exercise of Options and
Convertible Company Securities may exceed $67,730,300. As an alternative to
issuing additional Debentures, if conditions permit, the Company or United may
attempt to acquire previously issued Debentures in the market. At the present
time, the Company and United believe that the aggregate principal amount of
Debentures that it has registered will be sufficient for purposes of the
Recapitalization, including in connection with the exercise of Options and
Convertible Company Securities, although there can be no assurance that this
will be the case.     
 
  The Indenture does not contain any covenants or provisions that provide
protection to the holder of Debentures in the event of a highly leveraged
transaction or a change of control.
 
 
                                      152

<PAGE>
 
   
  The Series A Debentures will bear interest at a rate per annum that has been
fixed provisionally at 9.00%, and the Series B Debentures will bear interest at
a rate per annum that has been fixed provisionally at 9.70%. As provided in the
Plan of Recapitalization, the rates of interest proposed to be borne by the
Series A Debentures and the Series B Debentures may be adjusted in advance of
the Meeting to rates that would permit the Series A Debentures and the Series B
Debentures to trade at par, on a fully distributed basis, as of the date on
which such determination is made, although the interest rates to be borne by
the Debentures may not be adjusted above 10.125% in the case of the Series A
Debentures and 10.825% in the case of the Series B Debentures. The Company will
make a public announcement of the rates of interest to be borne by the Series A
Debentures and the Series B Debentures at least five business days but not more
than ten calendar days in advance of the Meeting. See "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--Pricing the Securities." The
underwriting agreements relating to the United Debt Offerings are expected to
provide that if either or both of the United Debt Offerings are consummated,
the interest rates on the Debentures may be adjusted to permit them to be sold
at or closer to par, but if that is done, the principal amount of the series of
Debentures affected will be reduced so that the interest payable annually by
United on such Debentures will not exceed the stated maximum which was
calculated based upon the interest rate caps. If the Offerings are not
consummated, the interest rates borne by the Debentures will be subject to the
caps. See "THE PLAN OF RECAPITALIZATION--Terms and Conditions--Pricing the
Securities.     
   
  The Plan of Recapitalization also provides that, at the request of the
Unions, if the United Debt Offerings are not consummated, either or both series
of Debentures may be made redeemable prior to their respective final stated
maturity at the option of United. See "--Redemption" below. Interest on the
Debentures will be paid semi-annually beginning in 1994 to holders of record on
the record date for such payment. The Series A Debentures will mature in 2004.
The Series B Debentures will mature in 2014. Prior to the Effective Time, the
Company will establish the semi-annual interest payment dates, the specific
final maturity dates and the maximum aggregate principal amount of each series
of Debenture. The Debentures will bear interest from the date of their original
issuance or the most recent interest payment date from which interest has been
paid.     
 
  The Debentures will be unsecured and unsubordinated obligations of United and
will rank on a parity with all other unsecured and unsubordinated indebtedness
of United. As of March 31, 1994 United had outstanding approximately $2.8
billion aggregate principal amount of indebtedness that will rank pari passu
with the Debentures offered hereby, of which approximately $1.8 billion was
secured and approximately $1.0 billion was unsecured. The Indenture does not
limit the right of United to incur additional senior indebtedness. As of March
31, 1994, senior indebtedness of United on a consolidated basis aggregated
approximately $3.7 billion.
 
 Redemption
   
  The Debentures will not be subject to any sinking fund or other obligation of
United to redeem or retire the Debentures. The Debentures may not be called for
redemption prior to their respective final stated maturities. The Plan of
Recapitalization provides that either or both series of Debentures may be made
redeemable at the option of United prior to their respective final stated
maturities if the Unions so request not less than seven days prior to the
Announcement Date; provided, however, if the Offering relating to such series
of Debentures is consummated, the Unions will not have the ability to cause the
Debentures to be redeemable prior to their maturity. See "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--Pricing the Securities."     
 
 Payment, Registration, Transfer and Exchange
 
  Payments in respect of the Debentures will be made at the office or agency of
United maintained for that purpose as United may designate from time to time,
except that, at the option of United, interest payments, if any, on the
Debentures may be made by checks mailed by the Indenture Trustee to the holders
of Debentures entitled thereto at their registered addresses. (Sections 3.7(a)
and 9.2 of the Indenture.) Payment of any installment of interest on Debentures
will be made to the persons in whose names such Debentures are registered at
the close of business on the regular record date for such interest. (Sections
3.7(a) of the Indenture.)
 
 
                                      153

<PAGE>
 
  Debentures will be transferable or exchangeable at the office or agency of
United maintained for such purpose as designated by United from time to time.
(Sections 3.5 and 9.2 of the Indenture.) Debentures may be transferred or
exchanged without service charge, other than any tax or other governmental
charge imposed in connection therewith. (Section 3.5 of the Indenture.)
 
 Consolidation, Merger or Sale by United
 
  The Indenture provides that United may merge or consolidate with or into any
other corporation or sell, convey, transfer or otherwise dispose of all or
substantially all of its assets to any person, firm or corporation, if (i)(a)
in the case of a merger or consolidation, United is the surviving corporation
or (b) in the case of a merger or consolidation where United is not the
surviving corporation and in the case of such a sale, conveyance or other
disposition, the successor or acquiring corporation is a corporation organized
and existing under the laws of the United States of America or a State thereof
and such corporation expressly assumes by supplemental indenture all the
obligations of United under the Debentures and the Indenture, (ii) immediately
after giving effect to such merger or consolidation, or such sale, conveyance,
transfer or other disposition, no Default or Event of Default has occurred and
is continuing and (iii) certain other conditions are met. In the event a
successor corporation assumes the obligations of United, such successor
corporation will succeed to and be substituted for United under the Indenture
and under the Debentures and all obligations of United will terminate. (Section
7.1 of the Indenture.)
 
 Events of Default, Notice and Certain Rights on Default
 
  The Indenture provides that, if an Event of Default occurs with respect to
the Debentures of either series and is continuing, the Indenture Trustee for
such series or the holders of at least 25% in aggregate principal amount of all
of the outstanding Debentures of that series, by written notice to United (and
to the Indenture Trustee for such series, if notice is given by such holders of
Debentures), may declare the principal of all the Debentures of that series to
be due and payable. (Section 5.2 of the Indenture.)
 
  Events of Default with respect to Debentures of either series are defined in
the Indenture as being: (i) default for 30 days in payment of interest on any
Debentures of that series when due, (ii) default for 10 days in payment of
principal, premium, if any, at its maturity or on redemption or otherwise, of
any Debentures of that series when due, (iii) default for 60 days after notice
to United by the Indenture Trustee for such series, or to United and the
Indenture Trustee by the holders of at least 25% in aggregate principal amount
of the Debentures of such series then outstanding, in the performance of any
other agreement in the Debentures of that series, in the Indenture or in any
supplemental indenture, (iv) default resulting in acceleration of other
indebtedness of United for borrowed money where the aggregate principal amount
so accelerated exceeds $100 million and such acceleration is not rescinded or
annulled within 10 days after the written notice thereof to United by the
Indenture Trustee or to United and the Indenture Trustee by the holders of at
least 25% in aggregate principal amount of the Debentures of such series then
outstanding, provided that such Event of Default will be cured or waived if the
default that resulted in the acceleration of such other indebtedness is cured
or waived, and (v) certain events of bankruptcy, insolvency or reorganization
of United. (Section 5.1 of the Indenture.)
 
  The Indenture provides that the Indenture Trustee for either series of
Debentures will, within 90 days after the occurrence of a Default with respect
to Debentures of that series, give to the holder of the Debentures of that
series notice of all uncured Defaults known to it; provided that, except in the
case of default in payment on the Debentures of that series, the Indenture
Trustee may withhold the notice if and so long as a committee of its
responsible officers in good faith determines that withholding such notice is
in the interest of the holders of the Debentures of that series. (Section 6.6
of the Indenture.) "Default" means any event that is, or, after notice or
passage of time or both, would be, an Event of Default. (Section 1.1 of the
Indenture.)
 
  The Indenture provides that the holders of a majority in aggregate principal
amount of the Debentures of each series affected (with each such series voting
as a class) may direct the time, method and place of
 
                                      154

<PAGE>
 
conducting any proceeding for any remedy available to the Indenture Trustee for
such series or exercising any trust or power conferred on such Indenture
Trustee. (Section 5.8 of the Indenture.)
 
  The Indenture includes a covenant that United will file annually with the
Indenture Trustee a certificate as to United's compliance with all conditions
and covenants of the Indenture. (Section 9.7 of the Indenture.)
 
  The holders of a majority in aggregate principal amount of either series of
Debentures by notice to the Indenture Trustee for such series may waive, on
behalf of the holders of all Debentures of such series, any past Default or
Event of Default with respect to that series and its consequences except a
Default or Event of Default in the payment of the principal of, premium, if
any, or interest on any Debenture and certain other defaults. (Section 5.7 of
the Indenture.)
 
 Modification of the Indenture
 
  The Indenture contains provisions permitting United and the Indenture Trustee
to enter into one or more supplemental indentures without the consent of the
holders of any of the Debentures (i) to evidence the succession of another
corporation to United and the assumption of the covenants of United by a
successor to United, (ii) to add to the covenants of United for the benefit of
either series of Debentures or surrender any right or power of United, (iii) to
add additional Events of Default with respect to any series, (iv) to secure the
Debentures, (v) to evidence and provide for successor Indenture Trustees, (vi)
to correct or supplement any inconsistent provisions or to make any other
provisions with respect to matters or questions arising under the Indenture,
provided that such action does not adversely affect the interests of any holder
of Debentures of any series issued under the Indenture, or (vii) to cure any
ambiguity or correct any mistake. (Section 8.1 of the Indenture.)
 
  The Indenture also contains provisions permitting United and the Indenture
Trustee, with the consent of the holders of a majority in aggregate principal
amount of the outstanding Debentures of each series affected by a supplemental
indenture, to execute such supplemental indenture to add any provisions to or
to change or to eliminate any of the provisions of the Indenture or any
supplemental indenture or to modify the rights of the holders of Debentures of
such series, except that no such supplemental indenture may, without the
consent of the holder of each Debenture so affected, (i) change the time for
payment of principal or interest on any Debenture, (ii) reduce the principal
of, or any installment of interest on, any Debenture, (iii) reduce the amount
of premium, if any, payable upon the redemption of any Debenture, (iv) change
the coin or currency in which any Debenture or any premium or interest thereon
is payable, (v) impair the right to institute suit for the enforcement of any
payment on or with respect to any Debenture, (vi) reduce the percentage in
principal amount of the outstanding Debentures of any series the consent of
whose holders is required for modification or amendment of the Indenture or for
waiver of compliance with certain provisions of the Indenture or for waiver of
certain defaults, (vii) change the obligation of United to maintain an office
or agency in the places and for the purposes specified in the Indenture or
(viii) modify the provisions relating to waiver of certain defaults or any of
the foregoing provisions. (Section 8.2 of the Indenture.)
 
 Defeasance and Covenant Defeasance
 
  United may elect either (i) to defease and be discharged from any and all
obligations with respect to the Debentures of any series (except as described
below) ("defeasance") or (ii) to be released from its obligations with respect
to certain covenants applicable to the Debentures of any series ("covenant
defeasance"), upon the deposit with the Indenture Trustee for such series (or
other qualifying trustee), in trust for such purpose, of money and/or
Government Obligations that through the payment of principal and interest in
accordance with their terms will provide money in the amount sufficient to pay
the principal of, premium, if any, and interest on such Debentures to their
respective final stated maturity or redemption, as the case may be. Upon the
occurrence of a defeasance, United will be deemed to have paid and discharged
the entire indebtedness represented by such Debentures and to have satisfied
all of its other obligations under such Debentures (except for (i) the rights
of holders of such Debentures to receive, solely from the trust funds deposited
to
 
                                      155

<PAGE>
 
defease such Debentures, payments in respect of the principal of, premium, if
any, and interest on such Debentures when such payments are due and (ii)
certain other obligations as provided in the Indenture). Upon the occurrence of
a covenant defeasance, United will be released only from its obligations to
comply with certain covenants contained in the Indenture relating to such
Debentures, will continue to be obligated in all other respects under such
Debentures and will continue to be contingently liable with respect to the
payment of principal, premium, if any, and interest with respect to such
Debentures.
 
  The conditions to both defeasance and covenant defeasance are as follows: (i)
such defeasance or covenant defeasance must not result in a breach or violation
of, or constitute a Default or Event of Default under, the Indenture, or result
in a breach or violation of, or constitute a default under, any other material
agreement or instrument of United, (ii) certain bankruptcy related Defaults or
Events of Default with respect to United must not have occurred and be
continuing during the period commencing on the date of the deposit of the trust
funds to defease such Debentures and ending on the 91st day after such date,
(iii) United must deliver to the Indenture Trustee an Opinion of Counsel to the
effect that the holders of such Debentures will not recognize income, gain or
loss for Federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to Federal income tax on the same amounts and in
the same manner and at all the same times as would have been the case if such
defeasance or covenant defeasance had not occurred (such Opinion of Counsel, in
the case of defeasance, must refer to and be based upon a ruling of the IRS or
a change in applicable Federal income tax law occurring after the date of the
Indenture) and (iv) United must deliver to the Indenture Trustee an Officers'
Certificate and an Opinion of Counsel with respect to compliance with the
conditions precedent to such defeasance or covenant defeasance and with respect
to certain registration requirements under the Investment Company Act of 1940,
as amended. (Article 4 of the Indenture.) The Indenture requires that a
nationally recognized firm of independent public accountants deliver to the
Indenture Trustee a written certification as to the sufficiency of the trust
funds deposited for the defeasance or covenant defeasance of such Debentures.
The Indenture does not provide the holders of such Debentures with recourse
against such firm. In the event that Government Obligations deposited with the
Indenture Trustee for the defeasance of such Debentures decrease in value or
default subsequent to their being deposited, United will have no further
obligation, and the holders of such Debentures will have no additional recourse
against United, as a result of such decrease in value or default. As described
above, in the event of a covenant defeasance, United remains contingently
liable with respect to the payment of principal, premium, if any, and interest
with respect to such Debentures.
 
  United may exercise its defeasance option with respect to such Debentures
notwithstanding its prior exercise of its covenant defeasance option. If United
exercises its defeasance option, payment of such Debentures may not be
accelerated because of a Default or an Event of Default. If United exercises
its covenant defeasance option, payment of such Debentures may not be
accelerated by reason of a Default or an Event of Default with respect to the
covenants to which such covenant defeasance is applicable. However, if such
acceleration were to occur, the realizable value at the acceleration date of
the money and Government Obligations in the defeasance trust could be less than
the principal and interest then due on such Debentures, in that the required
deposit in the defeasance trust is based upon scheduled cash flow rather than
market value, which will vary depending upon interest rates and other factors.
 
 The Indenture Trustee
 
  The Bank of New York is the Indenture Trustee under the Indenture. United and
the Company also maintain banking and other commercial relationships with The
Bank of New York and its affiliates in the ordinary course of business and The
Bank of New York acts as trustee under several indentures for United and the
Company.
 
THE CAPITAL STOCK OF THE COMPANY
   
  As of the date of this Proxy Statement/Prospectus, the Company's current
Amended and Restated Certificate of Incorporation authorizes the issuance of
125,000,000 Old Shares and 16,000,000 shares     
 
                                      156

<PAGE>
 
of preferred stock. As of May 11, 1994, there were outstanding (a) 24,571,077
Old Shares, (b) 6,000,000 shares of Series A Preferred Stock that were
convertible into 3,833,866 Old Shares, (c) Options to purchase an aggregate of
1,632,568 Old Shares, (d) $33,005,000 principal amount of Air Wis Convertible
Debentures that were convertible into 130,369 Old Shares and (e) rights to
purchase 245,710 shares of Junior Participating Preferred Stock. The Company
has designated 1,250,000 shares of a series of preferred stock as Junior
Participating Preferred Stock (as defined below), which are reserved for
issuance upon exercise of certain preferred share purchase rights associated
with each outstanding Old Share (the "Rights"), as described below.
   
  Upon consummation of the Recapitalization, the authorized capital stock of
the Company will consist of (i) 100,000,000 New Shares, par value $0.01 per
share, (ii) 16,000,000 shares of serial preferred stock, without par value (the
"Serial Preferred Stock"), of which (a) 6,000,000 shares will be designated as
Series A Preferred Stock, (b) 50,000 shares will be designated Public Preferred
Stock, (c) 1,250,000 shares will be designated Junior Participating Preferred
Stock and (d) 50,000 will be designated as Series D Redeemable Preferred Stock,
(iii) an aggregate of 50,000,000 shares will be allocated between shares
designated as Class 1 ESOP Preferred Stock, par value $0.01 per share, and
shares designated as Class 2 ESOP Preferred Stock, par value $0.01 per share,
(iv) 11,600,000 shares of the Class P Voting Preferred Stock, par value $0.01
per share, (v) 9,300,000 shares of the Class M Voting Preferred Stock, par
value $0.01 per share, (vi) 4,200,000 shares of the Class S Voting Preferred
Stock, par value $0.01 per share, (ix) ten shares of the Class I Preferred
Stock, par value $0.01 per share, (x) one share of the Class Pilot MEC
Preferred Stock, par value $0.01 per share, (xi) one share of the Class IAM
Preferred Stock, par value $0.01 per share, and (xii) ten shares of the Class
SAM Preferred Stock, par value $0.01 per share. The serial preferred stock not
otherwise designated may be issued from time to time in one or more series,
without stockholder approval, with such powers, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations, or restrictions thereof as may be adopted by the Board of
Directors or a duly authorized committee thereof.     
   
  Upon consummation of the Recapitalization, assuming that (i) none of the
Options is exercised, (ii) none of the Convertible Company Securities is
converted and (iii) none of the ESOP Preferred Stock or the Voting Preferred
Stock is converted, the outstanding capital stock of the Company will consist
of (a) 12,285,530 New Shares, (b) 6,000,000 shares of Series A Preferred Stock,
(c) 30,566,419 Depositary Preferred Shares representing 30,566.5 shares of
Public Preferred Stock, (d) the number of shares of ESOP Preferred Stock
referred to below, (e) three shares of Voting Preferred Stock and (f) nine
shares of Director Preferred Stock. Upon consummation of the Recapitalization,
assuming that (I) all the Options are exercised, (II) all the Convertible
Company Securities are converted and (III) none of the ESOP Preferred Stock or
Voting Preferred Stock is converted, the outstanding capital stock of the
Company will consist of (A) 15,083,939 New Shares, (B) 37,528,842 Depositary
Preferred Shares representing interests in 37,528.8 shares of Public Preferred
Stock, (C) the number of shares of ESOP Preferred Stock referred to below, (D)
three shares of Voting Preferred Stock and (E) nine shares of Director
Preferred Stock. In either case, all the shares of Series D Redeemable
Preferred Stock that are issued will be redeemed for cash and, if one or more
of the Offerings is not consummated, Debentures and/or Depositary Preferred
Shares immediately upon issuance. The Plan of Recapitalization provides that at
least 17,675,345 shares of ESOP Preferred Stock will be transferred to the
ESOPs over the 69 months following the Effective Time, see "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--General," and that under certain
circumstances a greater number may be transferred. See "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--Additional Shares." Immediately after
the Effective Time, a smaller number of ESOP Preferred Stock, including both
Class 1 ESOP Preferred Stock and Class 2 ESOP Preferred Stock, will be
outstanding. Some additional shares of ESOP Preferred Stock will not be
outstanding but will be recorded on the books of the Company as Book-Entry
Shares. See "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs--Sales of
ESOP Preferred Stock."     
 
  Upon the consummation of the Recapitalization and prior to the Sunset, the
New Shares and the Voting Preferred Stock will vote together as a single class
with respect to all matters submitted to the vote of the
 
                                      157

<PAGE>
 
holders of common stock pursuant to law or as provided in the Restated
Certificate except with respect to (a) such matters upon which the DGCL
requires a separate class vote and (b) the election of the Public Directors,
whom the New Shares will elect separately as a class, and on whose election the
Voting Preferred Stock will not vote. Initially, the Voting Preferred Stock
will represent the right to cast 55% of the votes that may be cast by the New
Shares and the Voting Preferred Stock voting together as a single class (less a
number of votes that is equal to the number of New Shares that have been issued
upon conversion of the ESOP Preferred Stock and the Voting Preferred Stock that
are held in the ESOPs). Under certain circumstances, the voting power of the
Voting Preferred Stock may be increased so that it represents up to 63% of the
votes that may be cast by the New Shares and the Voting Preferred Stock voting
together as a single class (less a number of votes that is equal to the number
of New Shares that have been issued upon conversion of the ESOP Preferred Stock
and the Voting Preferred Stock and that are held in the ESOPs). See "THE PLAN
OF RECAPITALIZATION--Establishment of ESOPs--Additional Shares."
 
  After the Sunset, the New Shares and the Voting Preferred Stock will continue
to vote together as a single class with respect to all matters submitted to the
vote of the holders of common stock pursuant to law or as provided in the
Restated Certificate except with respect to such matters upon which the DGCL
requires a separate class vote. After the Sunset, the Voting Preferred Stock
will represent the right to cast a number of votes that is equal to the number
of New Shares into which the ESOP Preferred Stock can be converted.
   
  Upon the consummation of the Recapitalization, (i) the Class Pilot MEC
Preferred Stock will elect the ALPA Director until the later of the Sunset or
the date that all ALPA members cease to be employees of the Company, (ii) the
Class IAM Preferred Stock will elect the IAM Director until the later of the
Sunset or the date that all IAM members cease to be employees of the Company,
(iii) the Class SAM Preferred Stock will elect the Salaried and Management
Director until the later of (x) the Sunset or (y) the earlier of the time when
all ALPA members or all IAM members cease to be employees of the Company, and
(iv) the Class I Preferred Stock will elect the Independent Directors until the
Sunset.     
 
THE PUBLIC PREFERRED STOCK
 
  The summary of terms of the Public Preferred Stock contained in this Proxy
Statement/Prospectus does not purport to be complete and is subject to, and is
qualified in its entirety by, the provisions of the Restated Certificate that
will become effective in connection with the consummation of the
Recapitalization. A copy of the Restated Certificate is included elsewhere in
this Proxy Statement/Prospectus.
 
 General
   
  As part of the Recapitalization, each outstanding Old Share will, without
further action on the part of the holder thereof, be reclassified and converted
into cash and Series D Redeemable Preferred Stock, which Preferred Stock, if
the UAL Preferred Offering is not consummated, will be immediately redeemed
for, among other things, Depositary Preferred Shares representing interests in
$31.10 liquidation preference of Public Preferred Stock. See "--The Depositary
Preferred Shares." As contemplated by the Plan of Recapitalization, the Company
has elected to issue Depositary Preferred Shares, each representing interests
in one one-thousandth of a share of Public Preferred Stock having a liquidation
preference of $25. When issued, the Public Preferred Stock will be validly
issued, fully paid and nonassessable. The holders of the Public Preferred Stock
will not have any preemptive rights with respect to any shares of capital stock
of the Company or any other securities of the Company convertible into or
carrying rights or options to purchase any such shares. The Public Preferred
Stock will not be subject to any sinking fund or other obligation of the
Company to redeem or retire the Public Preferred Stock. Unless redeemed by the
Company, the Public Preferred Stock will have perpetual maturity.     
   
  The Company has registered under the Securities Act 35,984,175 Depositary
Preferred Shares representing interests in $899,604,375 aggregate liquidation
preference of the Public Preferred Stock for distribution to holders of Old
Shares in connection with this Recapitalization if the UAL Preferred Offering
is not consummated, based upon the number of Fully Diluted Old Shares. See "THE
PLAN OF RECAPITALIZATION--Terms and Conditions--General." Of that amount, the
Company expects that     
 
                                      158

<PAGE>
 
   
approximately 30,565,751 Depositary Preferred Shares representing interests in
$764,143,775 aggregate liquidation preference of the Public Preferred Stock
will be issued in respect of the Old Shares currently outstanding (including
the unvested restricted shares) and approximately 5,418,424 Depositary
Preferred Shares representing interests in $135,460,600 aggregate liquidation
preference of the Public Preferred Stock are expected to be issued in
connection with the exercise of Options and Convertible Company Securities.
Many of the Options and Convertible Company Securities are out of the money and
are not currently expected to be exercised. If market conditions change,
Options and Convertible Company Securities that are currently out of the money
may be exercised. Similarly, the number of Fully Diluted Old Shares presumes
that the Company uses the proceeds from the exercise of Options and Convertible
Company Securities to purchase Recapitalization Consideration. This assumption
is meant to mimic the effect of the "cashless exercise" feature of the Options.
See "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs--Additional Shares."
The effect of the "cashless exercise" is to reduce the amount of the
Recapitalization Consideration required to be issued in connection with the
Recapitalization. Holders of Options and Convertible Company Securities may
elect not to use the "cashless exercise" feature. Accordingly, the number of
Depositary Preferred Shares and the aggregate liquidation value of the Public
Preferred Stock that are required to be issued in connection with the exercise
of Options and Convertible Company Securities may exceed 5,418,424 Depositary
Preferred Shares and $135,460,600 aggregate liquidation value. As an
alternative to issuing additional Depositary Preferred Shares or shares of
Public Preferred Stock, if conditions permit, the Company may attempt to
acquire previously issued Depositary Preferred Shares in the market. The terms
of the Restated Certificate and the Deposit Agreement (as defined below) would
not prevent issuance of Depositary Preferred Shares or shares of Public
Preferred Stock in excess of the number already registered. At the present
time, although there can be no assurance, the Company believes that the number
of Depositary Preferred Shares and the aggregate liquidation value of the
Public Preferred Stock that it has registered will be sufficient for purposes
of the Recapitalization, including in connection with the exercise of Options
and Convertible Company Securities.     
 
 Ranking
   
  The Public Preferred Stock will rank on a parity with the Series A Preferred
Stock and the Series D Redeemable Preferred Stock and will rank senior to the
New Shares, the ESOP Preferred Stock, the Voting Preferred Stock, the Director
Preferred Stock and any shares of Junior Participating Preferred Stock issued
pursuant to the Rights with respect to payment of dividends and amounts payable
upon liquidation, dissolution or winding up.     
 
  While any shares of Public Preferred Stock are outstanding, the Company may
not authorize the creation or issue of any class or series of stock that ranks
senior to the Public Preferred Stock as to dividends or upon liquidation,
dissolution or winding up without the consent of the holders of 66 2/3% of the
outstanding shares of Public Preferred Stock. The Company may create additional
classes or series of preferred stock or authorize, or increase the authorized
amount of, any shares of any class or series of preferred stock ranking on a
parity with or junior to the Public Preferred Stock without the consent of any
holder of Public Preferred Stock. See "--Voting Rights" below.
 
 Dividends
   
  Holders of shares of Public Preferred Stock will be entitled to receive,
when, as and if declared by the Board of the Company out of assets of the
Company legally available therefor, cumulative cash dividends at a rate per
annum that has been fixed provisionally at 10.25% of the $25,000 liquidation
preference thereof (or $2,562.50 per share) per annum. As provided in the Plan
of Recapitalization, the dividend rate proposed to be borne by the Public
Preferred Stock may be adjusted in advance of the Meeting to a rate that would
permit the Public Preferred Stock to trade at par, on a fully distributed
basis, as of the date such     
 
                                      159

<PAGE>
 
   
determination is made, although the dividend rate to be borne by the Public
Preferred Stock may not be adjusted above 11.375%. The Company will make a
public announcement of the revised dividend rate at least five business days
but not more than ten calendar days in advance of the Meeting. See "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--Pricing the Securities." The
underwriting agreement is expected to provide that if the UAL Preferred
Offering is consummated, the dividend rate on the Public Preferred Stock may be
adjusted to permit the Depositary Preferred Shares to be sold at or closer to
par, but if that is done, the number of shares of Public Preferred Stock must
be reduced so that the aggregate amount of dividends payable annually by the
Company on the Public Preferred Stock will not exceed certain maximum limits.
If the UAL Preferred Offering is not consummated, the dividend rate borne by
the Public Preferred Stock will be subject to the cap. See "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--Pricing the Securities."     
   
  Dividends on the Public Preferred Stock will be payable quarterly in arrears
on February 1, May 1, August 1 and November 1 of each year, commencing on the
first dividend payment date that follows the Effective Time (and, in the case
of any accrued but unpaid dividends, at such additional times and for such
interim periods, if any, as determined by the Board of Directors), at such
annual rate, provided that if the UAL Preferred Offering is consummated, the
regular dividend payment dates may be as determined by the Company after
consultation with the underwriters. Each such dividend will be payable to
holders of record as they appear on the stock records of the Company at the
close of business on such record dates, which will not be more than 60 days or
less than 10 days preceding the payment dates corresponding thereto, as may be
fixed by the Board of Directors of the Company or a duly authorized committee
thereof. Dividends will accrue from the date of the original issuance of the
Public Preferred Stock (the "Issue Date"). Dividends will be cumulative from
such date, whether or not in any dividend period or periods there are assets of
the Company legally available for the payment of such dividends.     
 
  Each share of Public Preferred Stock issued after the Issue Date (whether
issued upon transfer of or in exchange for an outstanding share of Public
Preferred Stock or issued for any other reason) will be entitled to receive,
when, as and if declared by the Board, dividends with respect to each dividend
period, starting with the Issue Date, for which full dividends have not been
paid prior to the date upon which such share of Public Preferred Stock was
issued. Any share of Public Preferred Stock that is issued after the record
date with respect to any dividend payment and before such dividend is paid will
not be entitled to receive the dividend paid to holders of Public Preferred
Stock as of such record date.
   
  The regular quarterly dividend payment dates with respect to Public Preferred
Stock coincide with the regular dividend payment dates on the Series A
Preferred Stock, and two of the dividend payment dates with respect to the
Public Preferred Stock will coincide with the regular semi-annual interest
payment dates on the Debentures unless the UAL Preferred Offering is
consummated, in which case such payments need not coincide. The Plan of
Recapitalization provides that, unless the UAL Preferred Offering is
consummated, the Company will use the same record date with respect to regular
quarterly dividend payments on the Public Preferred Stock and the Series A
Preferred Stock. It also provides that the Company will use the same record
date with respect to the Public Preferred Stock, the Series A Preferred Stock
and the Debentures when the regular dividend payment dates coincide with the
regular interest payment date.     
 
  Accumulations of dividends on shares of Public Preferred Stock will not bear
interest. Dividends payable on the Public Preferred Stock for any period
greater or less than a full dividend period will be computed on the basis of a
360-day year consisting of twelve 30-day months. Dividends payable on the
Public Preferred Stock for each full dividend period will be computed by
dividing the annual dividend rate by four.
 
  Except as provided in the next sentence, no dividend will be declared or paid
on any Parity Stock (as defined below) unless full cumulative dividends have
been paid on the Public Preferred Stock for all prior dividend periods. If
accrued dividends on the Public Preferred Stock for all prior dividend periods
have not been paid in full, then any dividend declared on the Public Preferred
Stock for any dividend period and on
 
                                      160

<PAGE>
 
any Parity Stock will be declared ratably in proportion to accrued and unpaid
dividends on the Public Preferred Stock and such Parity Stock.
   
  The Company will not (i) declare, pay or set apart funds for the payment of
any dividend or other distribution with respect to any Junior Stock (as defined
below) or (ii) redeem, purchase or otherwise acquire for consideration any
Junior Stock or Parity Stock through a sinking fund or otherwise (except by
conversion into or exchange for shares of Junior Stock and other than a
redemption or purchase or other acquisition of New Shares made for purposes of
an employee incentive or benefit plan of the Company or any subsidiary), unless
all accrued and unpaid dividends with respect to the Public Preferred Stock and
any Parity Stock at the time such dividends or other distributions are payable
or such redemption, purchase or acquisition is to occur have been paid or funds
have been set apart for payment of such dividends.     
 
  For purposes of the description of the Public Preferred Stock, (i) the term
"dividend" does not include dividends payable solely in shares of Junior Stock
on Junior Stock, or in options, warrants or rights to holders of Junior Stock
to subscribe for or purchase any Junior Stock, (ii) the term "Parity Stock"
means any other class or series of preferred stock ranking on a parity with the
Public Preferred Stock as to the payment of dividends and amounts payable upon
liquidation, dissolution or winding up and (iii) the term "Junior Stock" means
the New Shares, the ESOP Preferred Stock, the Voting Preferred Stock, the
Director Preferred Stock, any shares of Junior Participating Preferred Stock
issued pursuant to the Rights and any other class or series of capital stock of
the Company now or hereafter issued and outstanding that ranks junior as to the
payment of dividends or amounts payable upon liquidation, dissolution or
winding up to the Public Preferred Stock.
   
  The Company currently expects that it will have sufficient accumulated
earnings and profits as of the time of any anticipated distributions, within
the reasonably foreseeable future, on the Public Preferred Stock (as
represented by Depositary Preferred Shares) such that distributions within such
period should be treated as dividends within the meaning of Section 316(a) of
the Internal Revenue Code. However, there can be no assurance that such
expected amounts of accumulated earnings and profits will actually exist at the
time of any such distributions.     
 
 Redemption
   
  The Public Preferred Stock is not redeemable prior to the fifth anniversary
of the Issue Date or, if the UAL Preferred Offering is consummated, prior to a
date which is a regular dividend payment date in the year 2004 which will be
identified prior to the Effective Time. On and after such date, the Public
Preferred Stock is redeemable at the option of the Company, in whole or in
part, at the redemption price of $25,000 per share, plus, in each case, all
dividends accrued and unpaid on the Public Preferred Stock up to the date fixed
for redemption, upon giving notice as provided below.     
 
  If fewer than all of the outstanding shares of Public Preferred Stock are to
be redeemed, the shares to be redeemed will be determined pro rata or by lot or
in such other manner as is prescribed by the Company's Board.
 
  At least 30 days but not more than 60 days prior to the date fixed for the
redemption of the Public Preferred Stock, a written notice will be mailed to
each holder of record of Public Preferred Stock to be redeemed, notifying such
holder of the Company's election to redeem such shares, stating the date fixed
for redemption thereof and calling upon such holder to surrender to the Company
on the redemption date at the place designated in such notice the certificate
or certificates representing the number of shares specified therein. On or
after the redemption date, each holder of Public Preferred Stock to be redeemed
must present and surrender his certificate or certificates for such shares to
the Company at the place designated in such notice and thereupon the redemption
price of such shares will be paid to or on the order of the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate will be canceled. Should fewer than all the shares
represented by any such certificate be redeemed, a new certificate will be
issued representing the shares not redeemed.
 
                                      161

<PAGE>
 
  From and after the redemption date (unless the Company defaults in payment of
the redemption price), all dividends on the shares of Public Preferred Stock
designated for redemption in such notice will cease to accrue, and all rights
of the holders thereof as stockholders of the Company, except the right to
receive the redemption price thereof (including all accrued and unpaid
dividends up to the redemption date), will cease and terminate. Such shares may
not thereafter be transferred (except with the consent of the Company) on the
Company's books, and such shares may not be deemed to be outstanding for any
purpose whatsoever. On the redemption date, the Company must pay any accrued
and unpaid dividends in arrears for any dividend period ending on or prior to
the redemption date. In the case of a redemption date falling after a dividend
payment record date and prior to the related payment date, the holders of
Public Preferred Stock at the close of business on such record date will be
entitled to receive the dividend payable on such shares on the corresponding
dividend payment date, notwithstanding the redemption of such shares following
such dividend payment record date. Except as provided for in the preceding
sentences, no payment or allowance will be made for accrued dividends on any
shares of Public Preferred Stock called for redemption.
 
  At its election, the Company, prior to the redemption date, may deposit the
redemption price of the shares of Public Preferred Stock so called for
redemption in trust for the holders thereof with a bank or trust company, in
which case such notice to holders of the shares of Public Preferred Stock to be
redeemed will (i) state the date of such deposit, (ii) specify the office of
such bank or trust company as the place of payment of the redemption price and
(iii) call upon such holders to surrender the certificates representing such
shares at such place on or after the date fixed in such redemption notice
(which may not be later than the redemption date), against payment of the
redemption price (including all accrued and unpaid dividends up to the
redemption date). Any moneys so deposited which remain unclaimed by the holders
of Public Preferred Stock at the end of two years after the redemption date
will be returned by such bank or trust company to the Company.
 
 Liquidation Preference
 
  The holders of shares of Public Preferred Stock will be entitled to receive,
in the event of any liquidation, dissolution or winding up of the Company,
$25,000 per share plus an amount per share equal to all dividends (whether or
not earned or declared) accrued and unpaid thereon to the date of final
distribution to such holders (for purposes of the description of the Public
Preferred Stock, the "Liquidation Preference"), and no more.
 
  Until the holders of the Public Preferred Stock have been paid the
Liquidation Preference in full, no payment will be made to any holder of Junior
Stock upon the liquidation, dissolution or winding up of the Company. If, upon
any liquidation, dissolution or winding up of the Company, the assets of the
Company, or proceeds thereof, distributable among the holders of the shares of
Public Preferred Stock are insufficient to pay in full the Liquidation
Preference and the liquidation preference with respect to any other shares of
Parity Stock, then such assets, or the proceeds thereof, will be distributed
among the holders of shares of Public Preferred Stock and any such Parity Stock
ratably in accordance with the respective amounts that would be payable on such
shares of Public Preferred Stock and any such Parity Stock if all amounts
payable thereon were paid in full. Neither a consolidation or merger of the
Company with another corporation nor a sale, lease or transfer of all or
substantially all of the Company's assets will be considered a liquidation,
dissolution or winding up, voluntary or involuntary, of the Company.
 
 Voting Rights
 
  Except as indicated below, or except as otherwise from time to time required
by applicable law, the holders of shares of Public Preferred Stock will not
have any voting rights, and their consent will not be required for taking any
corporate action. When and if the holders of the Public Preferred Stock are
entitled to vote, each share will be entitled to 1,000 votes.
 
                                      162

<PAGE>
 
  If the equivalent of six quarterly dividends payable on the Public Preferred
Stock have not been declared and paid or set apart for payment, whether or not
consecutive, the number of directors of the Company will be increased by two
and the holders of all Public Preferred Stock and any other series of Serial
Preferred Stock in respect of which such a default exists, voting as a class
without regard to series, will be entitled to elect two additional directors at
the next annual meeting and each subsequent meeting, until all cumulative
dividends have been paid in full or set apart for payment.
 
  The affirmative vote or consent of the holders of 66 2/3% of the outstanding
shares of the Public Preferred Stock will be required for any amendment of the
Restated Certificate that alters or changes the powers, preferences, privileges
or rights of the Public Preferred Stock so as to materially adversely affect
the holders thereof. The affirmative vote or consent of the holders of shares
representing 66 2/3% of the outstanding shares of the Public Preferred Stock
will be required to authorize the creation or issue of, or reclassify any
authorized stock of the Company into, or issue or authorize any obligation or
security convertible into or evidencing a right to purchase, any additional
class or series of stock ranking senior to the Public Preferred Stock.
 
  Except as required by law, the holders of Public Preferred Stock will not be
entitled to vote on any merger or consolidation involving the Company or a sale
of all or substantially all of the assets of the Company.
 
DEPOSITARY PREFERRED SHARES
 
  The Depositary Preferred Shares will be issued under a Deposit Agreement (the
"Deposit Agreement") between the Company and First Chicago Trust Company of New
York, as the Depositary (the "Depositary"). A copy of the Deposit Agreement has
been filed as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus is a part. The summary of terms of the Depositary
Preferred Shares, the Depositary Receipts (as defined below) and the Deposit
Agreement contained in this Proxy Statement/Prospectus does not purport to be
complete and is subject to, and is qualified in its entirety by, the provisions
of the Deposit Agreement and the form of Depositary Receipt attached thereto,
including the definitions therein of certain capitalized terms used in this
Proxy Statement/Prospectus.
 
 General
 
  The Company will issue receipts for fractional interests ("Depositary
Preferred Shares" or "Depositary Shares") in the shares of the Public Preferred
Stock rather than full shares of the Public Preferred Stock. Each Depositary
Preferred Share will represent an interest in one one-thousandth of a share of
the Public Preferred Stock (the equivalent of $25 liquidation preference of
Public Preferred Stock).
 
  The shares of the Public Preferred Stock represented by Depositary Preferred
Shares will be deposited under the Deposit Agreement. Subject to the terms of
the Deposit Agreement, each owner of a Depositary Preferred Share will be
entitled, in proportion to the applicable interest in a share of the Public
Preferred Stock represented by such Depositary Preferred Share, to all the
rights and preferences of the interest in shares of the Public Preferred Stock
represented thereby (including dividend, voting, redemption and liquidation
rights).
   
  The Depositary Preferred Shares have been approved for listing on the NYSE,
although there can be no assurance that at or following the Effective Time any
trading market for the Depositary Preferred Shares will develop.     
 
 Dividends and Other Distributions
 
  The Depositary will distribute all cash dividends or other cash distributions
received in respect of the shares of the Public Preferred Stock to the record
holders of Depositary Preferred Shares relating to the Public Preferred Stock
in proportion to the numbers of such Depositary Preferred Shares owned by such
holders.
 
                                      163

<PAGE>
 
  In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary
Preferred Shares in an equitable manner, unless the Depositary determines that
it is not feasible to make such distribution, in which case the Depositary may
sell such property and distribute the net proceeds from such sale to such
holders.
 
 Redemption of Depositary Preferred Shares
 
  If the shares of the Public Preferred Stock represented by Depositary
Preferred Shares are subject to redemption, the Depositary Preferred Shares
will be redeemed from the proceeds received by the Depositary resulting from
the redemption, in whole or in part, of such shares of the Public Preferred
Stock held by the Depositary. The redemption price per Depositary Preferred
Share will be equal to the applicable fraction of the redemption price per
share payable with respect to such shares of the Public Preferred Stock.
Whenever the Company redeems shares of the Public Preferred Stock held by the
Depositary, the Depositary will redeem as of the same redemption date the
number of Depositary Preferred Shares representing shares of the Public
Preferred Stock so redeemed. If fewer than all the Depositary Preferred Shares
are to be redeemed, the Depositary Preferred Shares to be redeemed will be
selected by lot, pro rata or by any other equitable method as may be determined
by the Depositary.
 
 Voting the Shares of the Public Preferred Stock
 
  Upon receipt of notice of any meeting at which the holders of the Public
Preferred Stock are entitled to vote, the Depositary will mail the information
contained in such notice of meeting to the record holders of the Depositary
Preferred Shares relating to such shares of the Public Preferred Stock. Each
record holder of such Depositary Preferred Shares on the record date (which
will be the same date as the record date for the shares of the Public Preferred
Stock) will be entitled to instruct the Depositary as to the exercise of the
voting rights pertaining to the fraction of the shares of the Public Preferred
Stock represented by such holder's Depositary Shares. The Depositary will
endeavor, insofar as practicable, to vote the shares of the Public Preferred
Stock represented by such Depositary Preferred Shares in accordance with such
instructions, and the Company will agree to take all reasonable action that may
be deemed necessary by the Depositary in order to enable the Depositary to do
so. The Depositary will abstain from voting the shares of the Public Preferred
Stock to the extent it does not receive specific instructions from the holder
of Depositary Preferred Shares representing such shares of the Public Preferred
Stock.
 
 Amendment and Termination of the Deposit Agreement
 
  The form of Depositary Receipt evidencing the Depositary Preferred Shares and
any provision of the Deposit Agreement may at any time be amended by agreement
between the Company and the Depositary. However, any amendment that materially
and adversely alters the rights of the holders of Depositary Shares will not be
effective unless the holders of at least a majority of the Depositary Preferred
Shares then outstanding approve such amendment. The Deposit Agreement will only
terminate if (i) all outstanding Depositary Preferred Shares have been redeemed
or (ii) there has been a final distribution in respect of the shares of the
Public Preferred Stock in connection with any liquidation, dissolution or
winding up of the Company and such distribution has been distributed to the
holders of the Depositary Receipts.
 
 Charges of Depositary
 
  The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. The Company
will pay charges of the Depositary in connection with the initial deposit of
the shares of the Public Preferred Stock and issuance of Depositary Receipts,
all withdrawals of shares of the Public Preferred Stock by owners of Depositary
Preferred Shares and any redemption of the shares of the Public Preferred
Stock. Holders of Depositary Receipts will pay other transfer and other taxes
and governmental charges and such other charges as are expressly provided in
the Deposit Agreement to be for their accounts.
 
                                      164

<PAGE>
 
 Resignation and Removal of Depositary
 
  The Depositary may resign at any time by delivering to the Company notice of
its election to do so, and the Company may at any time remove the Depositary,
any such resignation or removal to take effect upon the appointment of a
successor Depositary and its acceptance of such appointment. Such successor
Depositary must be appointed within 60 days after delivery of the notice of
resignation or removal and must be a bank or trust company having its
principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
 
 Miscellaneous
 
  The Depositary will forward all reports and communications from the Company
that are delivered to the Depositary and that the Company is required or
otherwise determines to furnish to the holders of the Depositary Preferred
Shares.
 
  Neither the Depositary nor the Company will be liable under the Deposit
Agreement to holders of Depositary Receipts other than for its gross
negligence, willful misconduct or bad faith. Neither the Company nor the
Depositary will be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Preferred Shares or Public Preferred Stock unless
satisfactory indemnity is furnished. The Company and the Depositary may rely
upon written advice of counsel or accountants, or upon information provided by
persons presenting shares of the Public Preferred Stock for deposit, holders
of Depositary Receipts or other persons believed to be competent and on
documents believed to be genuine.
   
THE SERIES D REDEEMABLE PREFERRED STOCK     
 
  The summary of terms of the Redeemable Preferred Stock contained in this
Proxy Statement/Prospectus Section does not purport to be complete and is
subject to, and is qualified in its entirety by, the provisions of the
Restated Certificate that will become effective in connection with the
consummation of the Recapitalization. A copy of the Restated Certificate is
included elsewhere in this Proxy Statement/Prospectus.
 
 General
   
  The Series D Redeemable Preferred Stock will be issued in units equal to one
one-thousandth of a share, and as part of the Recapitalization, each
outstanding Old Share will, without further action on the part of the holder
thereof, be reclassified and converted into, among other things, one one-
thousandth of a share of Series D Redeemable Preferred Stock. When issued, the
Series D Redeemable Preferred Stock will be validly issued, fully paid and
nonassessable.     
       
 Redemption
       
       
   
  Each one one-thousandth of a share of Series D Redeemable Preferred Stock
will be redeemable, and immediately upon the issuance thereof the Company will
redeem each one one-thousandth of a share of Series D Redeemable Preferred
Stock that is issued, for (i) one half of a New Share, (ii) $25.80 in cash,
(iii) either (a) $15.55 principal amount of Series A Debentures or (b) if the
United Series A Offering is consummated, the cash proceeds (without deducting
any underwriting discount or other costs) from the sale thereof by United
pursuant to the United Series A Offering, (iv) either (a) $15.55 principal
amount of Series B Debentures or (b) if the United Series B Offering is
consummated, the cash proceeds (without deducting any underwriting discount or
other costs) from the sale thereof by United pursuant to the United Series B
Offering and (v) either (a) Depositary Preferred Shares representing interests
in $31.10 liquidation preference of Public Preferred Stock or (b) if the UAL
Preferred Offering is consummated, the cash proceeds (without deducting any
underwriting discount or other costs) from the sale thereof by the Company
pursuant to the UAL Preferred Offering (such half New Share, cash and, if
applicable, securities to be received upon redemption of the Series D
Redeemable Preferred Stock are referred to herein as the "Redemption
Consideration").     
 
                                      165

<PAGE>
 
   
Fractional shares of Series D Redeemable Preferred Stock will be issued, and
immediately redeemed, in the Recapitalization. If the applicable Offerings are
not consummated, (i) the Series A Debentures and Series B Debentures will be
issued to holders of Series D Redeemable Preferred Stock only in principal
amounts equal to integral multiples of $100, (ii) Depositary Preferred Shares
will be issued only to represent interests in $25 liquidation preference of the
Series B Preferred Stock or integral multiples thereof and (iii) in lieu of
issuing Series A Debentures and Series B Debentures other than in integral
multiples of $100, and Depositary Preferred Shares other than in multiples of
$25, the Company will pay to each holder of Series D Redeemable Preferred Stock
an amount of cash that is equal to the portion of the Series A Debentures,
Series B Debentures, and/or Depositary Preferred Shares to which such holder
would be entitled but for the immediately preceding sentence, that is not an
integral multiple of $100 or $25, as the case may be. See "THE PLAN OF
RECAPITALIZATION--Terms and Conditions--Payment for Shares."     
   
  At the time of the redemption, the rights of all holders of Series D
Redeemable Preferred Stock will cease as stockholders of the Company with
respect to such shares (except the right to receive the Redemption
Consideration as provided above), and the person entitled to receive the
Redemption Consideration upon the redemption will be treated for all purposes
as the owner of such Redemption Consideration as of the date of such
redemption.     
 
 Ranking
   
  The Series D Redeemable Preferred Stock will rank on a parity with the Series
A Preferred Stock and the Public Preferred Stock and will rank senior to the
New Shares, the ESOP Preferred Stock, the Voting Preferred Stock, the Director
Preferred Stock and any shares of Junior Participating Preferred Stock issued
pursuant to the Rights with respect to amounts payable upon liquidation,
dissolution or winding up.     
 
 Dividends
   
  Holders of shares of Series D Redeemable Preferred Stock will not be entitled
to receive any dividends.     
 
 Liquidation Preference
       
   
  The holder of a share of Series D Redeemable Preferred Stock, or any fraction
thereof, will be entitled to receive, in the event of any liquidation,
dissolution or winding up of the Company, for each one one-thousandth of a
share of Series D Redeemable Preferred Stock, (i) $25.80 in cash, (ii) either
(a) $15.55 principal amount of Series A Debentures or (b) if the United Series
A Offering is consummated, the cash proceeds (without deducting any
underwriting discount or other costs) from the sale thereof by United pursuant
to the United Series A Offering, (iii) either (a) $15.55 principal amount of
Series B Debentures or (b) if the United Series B Offering is consummated, the
cash proceeds (without deducting any underwriting discount or other costs) from
the sale thereof by United pursuant to the United Series B Offering and (iv)
either (a) Depositary Preferred Shares representing interests in $31.10
liquidation preference of Public Preferred Stock or (b) if the UAL Preferred
Offering is consummated, the cash proceeds (without deducting any underwriting
discount or other costs) from the sale thereof by the Company pursuant to the
UAL Preferred Offering (for purposes of the description of the Series D
Redeemable Preferred Stock, such cash and, if applicable, securities to be
received for a share of Series D Redeemable Preferred Stock upon liquidation,
dissolution or winding up are referred to herein as the "Liquidation
Preference") and no more.     
   
  Until the holders of the Series D Redeemable Preferred Stock have been paid
the Liquidation Preference in full, no payment will be made to any holder of
Junior Stock (as defined below) upon the liquidation, dissolution or winding up
of the Company. If, upon any liquidation, dissolution or winding up of the
Company, the assets of the Company, or proceeds thereof, distributable among
the holders of the shares of Series D Redeemable Preferred Stock are
insufficient to pay in full the Liquidation Preference and the liquidation
preference with respect to any other shares of Parity Stock (as defined below),
then such assets, or the proceeds thereof, will be distributed among the
holders of shares of Series D Redeemable Preferred     
 
                                      166

<PAGE>
 
   
Stock and any such Parity Stock ratably in accordance with the respective
amounts that would be payable on such shares of Series D Redeemable Preferred
Stock and any such Parity Stock if all amounts payable thereon were paid in
full. Neither a consolidation or merger of the Company with another corporation
nor a sale, lease or transfer of all or substantially all of the Company's
assets will be considered a liquidation, dissolution or winding up, voluntary
or involuntary, of the Company.     
   
  For purposes of the description of the Series D Redeemable Preferred Stock,
(i) the term "Parity Stock" means any other class or series of preferred stock
ranking on a parity with the Series D Redeemable Preferred Stock as to the
payment of dividends and amounts payable upon liquidation, dissolution or
winding up and (ii) the term "Junior Stock" means the New Shares, the ESOP
Preferred Stock, the Voting Preferred Stock, the Director Preferred Stock, any
shares of Junior Participating Preferred Stock issued pursuant to the Rights
and any other class or series of capital stock of the Company now or hereafter
issued and outstanding that ranks junior as to the payment of dividends and
amounts payable upon liquidation, dissolution or winding up to the Series D
Redeemable Preferred Stock.     
 
 Voting Rights
   
  Except as otherwise from time to time required by applicable law, the holders
of shares of Series D Redeemable Preferred Stock will not have any voting
rights and their consent will not be required for taking any corporate action.
When and if the holders of the Series D Redeemable Preferred Stock are entitled
to vote, each share will be entitled to one vote.     
 
THE ESOP PREFERRED STOCK
 
  The summary of terms of the ESOP Preferred Stock contained in this Proxy
Statement/Prospectus does not purport to be complete and is subject to, and is
qualified in its entirety by, the provisions of the Restated Certificate that
will become effective in connection with the consummation of the
Recapitalization. A copy of the Restated Certificate is included elsewhere in
this Proxy Statement/Prospectus.
 
 General
 
  The ESOP Preferred Stock will consist of two similar classes of Preferred
Stock of the Company that will be designated as Class 1 ESOP Convertible
Preferred Stock (the "Class 1 ESOP Preferred Stock") and Class 2 ESOP
Convertible Preferred Stock (the "Class 2 ESOP Preferred Stock" and, together
with the Class 1 ESOP Preferred Stock, the "ESOP Preferred Stock"). Where the
summaries do not make a distinction between the Class 1 ESOP Preferred Stock
and the Class 2 ESOP Preferred Stock, such summaries refer to either class.
   
  An aggregate of 17,675,345 shares of Class 1 ESOP Preferred Stock and Class 2
ESOP Preferred Stock will be issued to the ESOP Trustee in connection with the
Recapitalization. See "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs."
The shares of the ESOP Preferred Stock will be convertible into New Shares as
described below. If all the shares of ESOP Preferred Stock to be issued in
connection with the Recapitalization were to be converted into New Shares
immediately upon issuance, such New Shares would constitute approximately 55%
of the New Shares (including New Shares issuable upon exercise of the ESOP
Preferred Stock) that would be outstanding at that time, on a fully diluted
basis based on the treasury stock method. If the New Shares maintain an average
fair market value that exceeds $136 per share during the year following the
Issue Date that is established under the Plan of Recapitalization, a number of
additional shares of ESOP Preferred Stock will be issued or reserved for
issuance as Book-Entry Shares. With the issuance or reservation for issuance of
such additional shares, the ownership interest of the ESOPs could be increased
from approximately 55% to up to approximately 63% of the Company. See "THE PLAN
OF RECAPITALIZATION--Establishment of ESOPs--Additional Shares."     
 
 
                                      167

<PAGE>
 
 Ranking
   
  The ESOP Preferred Stock will rank junior to the Series A Preferred Stock,
the Public Preferred and the Series D Redeemable Preferred Stock and will rank
senior to the New Shares, the Voting Preferred Stock, the Director Preferred
Stock and any shares of Junior Participating Preferred Stock issued pursuant to
the Rights with respect to payment of dividends and amounts payable upon
liquidation, dissolution or winding up. The Class 1 ESOP Preferred Stock will
rank senior to the Class 2 ESOP Preferred Stock with respect to the payment of
Fixed Dividends (as defined below) and the Class 1 ESOP Preferred Stock will
rank on a parity with the Class 2 ESOP Preferred Stock as to the payment of
Participating Dividends (as defined below) and as to amounts payable upon
liquidation, dissolution or winding up.     
 
 Dividends
   
  Holders of Class 1 ESOP Preferred Stock will be entitled to receive, when, as
and if declared by the Board of Directors of the Company out of assets of the
Company legally available therefor, cumulative cash dividends at a rate per
annum of a dollar amount per share of Class 1 ESOP Preferred Stock not to
exceed, without the consent of the Unions, seven percent of the price per share
paid by the ESOP Trustee for such shares at the Effective Time (See "THE PLAN
OF RECAPITALIZATION--Establishment of ESOPs--Sales of ESOP Preferred Stock")
(the "Fixed Dividend"). The Fixed Dividends on the Class 1 ESOP Preferred Stock
will cease to accrue on March 31, 2000. Under certain circumstances, any Fixed
Dividends that remain accrued and unpaid on April 1, 2000 will not prevent the
payment of dividends on any capital stock of the Company that ranks junior to
the Class 1 ESOP Preferred Stock with respect to the payment of dividends,
although such accrued and unpaid Fixed Dividends will remain a part of the
Liquidation Preference (as defined below) payable in respect of the Class 1
ESOP Preferred Stock upon any liquidation, dissolution or winding up of the
Company. In addition, if during any 12-month period ending on the annual
dividend payment date, holders of the New Shares receive any cash dividends or
cash distributions thereon, and the aggregate amount of such dividends and
distributions that would have been received, during such period, by the holder
of a share of Class 1 ESOP Preferred Stock had such share of Class 1 ESOP
Preferred Stock been converted into New Shares, exceeds the amount of the Fixed
Dividend paid on such share of Class 1 ESOP Preferred Stock, then the holders
of the Class 1 ESOP Preferred Stock will be entitled to receive an additional
cash dividend in an amount equal to such excess (the "Participating Dividend"),
although the aggregate amount of the Fixed Dividend and the Participating
Dividend paid on any share of Class 1 ESOP Preferred Stock with respect to any
annual dividend period may not exceed 12 1/2% of the fair market value of the
New Shares into which such share of Class 1 ESOP Preferred Stock is
convertible.     
 
  Holders of Class 2 ESOP Preferred Stock will not be entitled to receive any
Fixed Dividend. If during any 12-month period ending on the annual dividend
payment date, holders of the New Shares receive any cash dividends or cash
distributions thereon, then the holders of the Class 2 ESOP Preferred Stock
will be entitled to receive a cash dividend in an amount equal to the dividend
they would have received had their shares of Class 2 ESOP Preferred Stock been
converted into and were outstanding as New Shares at all relevant times,
although the aggregate amount of the dividend paid on any share of Class 2 ESOP
Preferred Stock with respect to any annual dividend period may not exceed 12
1/2% of the fair market value of the New Shares into which it is convertible.
 
  If the holders of the New Shares receive cash dividends and cash
distributions that exceed 12 1/2% of the fair market value of such shares, such
excess will be applied to adjust the Conversion Rate (as defined below) on the
ESOP Preferred Stock.
 
  Except as described above, the Company will not (i) declare, pay or set apart
funds for the payment of any dividend or other distribution with respect to any
Junior Stock (as defined below) or (ii) redeem, purchase or otherwise acquire
for consideration any Junior Stock or Parity Stock (as defined below) through a
sinking fund or otherwise (except by conversion into or exchange for shares of
Junior Stock and other than a redemption or purchase or other acquisition of
New Shares made for purposes of an employee incentive or
 
                                      168

<PAGE>
 
benefit plan of the Company or any subsidiary), unless all accrued and unpaid
dividends with respect to the ESOP Preferred Stock and any Parity Stock at the
time such dividends are payable have been paid or funds have been set apart for
payment of such dividends.
 
  For purposes of the description of the ESOP Preferred Stock, (i) the term
"dividend" does not include dividends payable solely in shares of Junior Stock
on Junior Stock, or in options, warrants or rights to holders of Junior Stock
to subscribe for or purchase any Junior Stock, (ii) the term "Parity Stock"
means any class or series of preferred stock ranking on a parity with the ESOP
Preferred Stock as to payment of dividends (with respect to such dividends) or
amounts payable upon liquidation, dissolution or winding up (with respect to
such amounts) and (iii) the term "Junior Stock" means the New Shares, the
Voting Preferred Stock, the Director Preferred Stock, any shares of Junior
Participating Preferred Stock issued pursuant to the Rights and any other class
or series of capital stock of the Company now or hereafter issued and
outstanding that ranks junior as to the payment of dividends (with respect to
such dividends) or amounts payable upon liquidation, dissolution or winding up
(with respect to such amounts) to the ESOP Preferred Stock.
 
 Conversion
   
  The ESOP Preferred Stock will be convertible, in whole or in part, at any
time and from time to time, into New Shares initially at the rate (for purposes
of the description of ESOP Preferred Stock, the "Conversion Rate") of one New
Share for each share of ESOP Preferred Stock converted. In addition, the
Conversion Rate on the ESOP Preferred Stock will be adjusted upon the
occurrence of a variety of events, including, without limitation, a
distribution of capital stock to holders of New Shares, a subdivision,
recombination or reclassification of the New Shares, the issuance to holders of
New Shares of rights to subscribe for equity securities at a price per New
Share that is less than the fair market value of a New Share, the issuance of
New Shares or securities representing a right to acquire New Shares at a price
per New Share that is less than the fair market value of a New Share, the
payment of cash dividends and cash distributions to holders of New Shares that
exceed in the aggregate 12 1/2% of the fair market value of the New Shares, the
payment of any non-cash dividend or distribution to holders of New Shares and
certain Pro Rata Repurchases of New Shares.     
 
 Redemption
 
  The ESOP Preferred Stock will not be redeemable.
 
 Liquidation Preference
   
  The holders of shares of ESOP Preferred Stock will be entitled to receive, in
the event of any liquidation, dissolution or winding up of the Company, a
dollar amount per share equal to the price per share paid by the ESOP Trustee
for the Class 1 ESOP Preferred Stock at the Effective Time (see "THE PLAN OF
RECAPITALIZATION--Establishment of ESOPs--Sales of ESOP Preferred Stock"), plus
an amount per share equal to all dividends (whether or not earned or declared)
accrued and unpaid thereon to the date of final distribution to such holders,
including, without limitation, Fixed Dividends in respect of the Class 1 ESOP
Preferred Stock that are accrued and unpaid as of April 1, 2000 (but that will
not prevent the payment of dividends on any capital stock of the Company that
ranks junior to the Class 1 ESOP Preferred Stock with respect to the payment of
dividends) (for purposes of the description of the ESOP Preferred Stock, the
"Liquidation Preference"), and no more.     
 
  Until the holders of the ESOP Preferred Stock have been paid the Liquidation
Preference in full, no payment will be made to any holder of Junior Stock upon
the liquidation, dissolution or winding up of the Company. If, upon any
liquidation, dissolution or winding up of the Company, the assets of the
Company, or proceeds thereof, distributable among the holders of the shares of
ESOP Preferred Stock are insufficient to
 
                                      169

<PAGE>
 
pay in full the Liquidation Preference and the liquidation preference with
respect to any other shares of Parity Stock, then such assets, or the proceeds
thereof, will be distributed among the holders of shares of ESOP Preferred
Stock and any such Parity Stock ratably in accordance with the respective
amounts that would be payable on such shares of ESOP Preferred Stock and any
such Parity Stock if all amounts payable thereon were paid in full. Neither a
consolidation or merger of the Company with another corporation nor a sale,
lease or transfer of all or substantially all of the Company's assets will be
considered a liquidation, dissolution or winding up, voluntary or involuntary,
of the Company.
 
 Voting Rights
 
  Except as otherwise from time to time required by applicable law, the holders
of shares of ESOP Preferred Stock will not have any voting rights, and their
consent will not be required for taking any corporate action. When and if the
holders of ESOP Preferred Stock are entitled to vote, each share will be
entitled to one vote.
 
 Consolidation, Merger, etc.
   
  Upon the occurrence of certain mergers and other similar transactions, the
holders of the ESOP Preferred Stock will be entitled to receive, depending on
the circumstances, either (i) a preferred stock having the same powers,
preference and relative, participating, optional or other special rights as the
class of ESOP Preferred Stock they held prior to such merger or other
transaction or (ii) the consideration receivable by the holders of the number
of New Shares into which such shares of ESOP Preferred Stock could have been
converted immediately prior to such merger or other transaction.     
 
THE VOTING PREFERRED STOCK
 
  The summary of terms of the Voting Preferred Stock contained in this Proxy
Statement/Prospectus does not purport to be complete and is subject to, and is
qualified in its entirety by, the provisions of the Restated Certificate that
will become effective in connection with the consummation of the
Recapitalization. A copy of the Restated Certificate is included elsewhere in
this Proxy Statement/Prospectus.
 
 General
   
  The Voting Preferred Stock will consist of three similar classes of Preferred
Stock of the Company that will be designated as Class P ESOP Voting Junior
Preferred Stock, which will be allocated to ESOP accounts of employees
represented by ALPA (the "Class P Voting Preferred Stock"), Class M ESOP Voting
Junior Preferred Stock, which will be allocated to ESOP accounts of employees
represented by the IAM (the "Class M Voting Preferred Stock") and Class S ESOP
Voting Junior Preferred Stock, which will be allocated to Salaried and
Management Employees' accounts (the "Class S Voting Preferred Stock" and,
together with the Class P Voting Preferred Stock and the Class M Voting
Preferred Stock, the "Voting Preferred Stock"). Where the summaries do not make
a distinction among the Class M Voting Preferred Stock, the Class P Voting
Preferred Stock and the Class S Voting Preferred Stock, such summaries refer to
any such class.     
 
  One share of Class P Voting Preferred Stock, one share of Class M Voting
Preferred Stock and one share of Class S Voting Preferred Stock will be issued
to the ESOP Trustee in connection with the Recapitalization at the Effective
Time. See "THE PLAN OF RECAPITALIZATION--Establishment of ESOPs."
 
 Voting Rights
 
  The Voting Preferred Stock will vote with the holders of the New Shares as a
single class on all matters (except as to such matters as to which a separate
class vote may be required by the DGCL), except that until the Sunset, holders
of the Voting Preferred Stock will not be entitled to vote to elect members of
the Board of Directors. Until the Sunset, the Voting Preferred Stock will
represent the right to cast in the aggregate
 
                                      170

<PAGE>
 
approximately 55% of the votes of all classes of capital stock that will vote
together with the New Shares as a single class (other than for the election of
members to the Board of Directors), subject to reduction for the number of New
Shares that have been issued upon conversion of shares of the ESOP Preferred
Stock that continue to be held by the ESOP. If the fair market value of the New
Shares exceeds $136 per share during the year following the Effective Time, the
number of votes represented by the Voting Preferred Stock will be increased
above approximately 55% of the New Shares (including New Shares issuable upon
exercise of the ESOP Preferred Stock that would be outstanding reserved for
issuance as Book-Entry Shares or remaining to be transferred to the ESOPs) to
up to a maximum of approximately 63%. See "THE PLAN OF RECAPITALIZATION--
Establishment of ESOPs--Additional Shares."
   
  The voting power of the Voting Preferred Stock will be held in the Agreed
Percentages. Accordingly, by way of example, assuming that the Voting Preferred
Stock in the aggregate has the right to cast approximately 55% of the voting
power of the Company on a fully diluted basis based on the treasury stock
method, the Class P Voting Preferred Stock will be entitled to cast
approximately 25.43%, the Class M Voting Preferred Stock will be entitled to
cast approximately 20.42%, and the Class S Voting Preferred Stock will be
entitled to cast approximately 9.15%, subject to reduction as noted above.     
 
  After the Sunset, each class of Voting Preferred Stock will represent the
right to cast in the aggregate the number of votes that is equal to the
relevant Agreed Percentage of the number of New Shares into which the ESOP
Preferred Stock can be converted plus the number of Book-Entry Shares remaining
to be issued plus the number of Shares of ESOP Preferred Stock, if any,
remaining to be transferred to the ESOP. See "THE PLAN OF RECAPITALIZATION--
Establishment of ESOPs--General."
 
 Other
 
  The Voting Preferred Stock will not be entitled to receive any dividends. The
Voting Preferred Stock will be convertible into New Shares at the rate of one
ten-thousandth of a New Share for each share of Voting Preferred Stock
converted. All the Voting Preferred Stock will be converted into New Shares
automatically upon the occurrence of an Uninstructed Trustee Action (as defined
below) or at such time when none of the ESOP Preferred Stock remains
outstanding. The Voting Preferred Stock will have a liquidation preference of
$0.01 per share.
   
  Upon the occurrence of certain mergers and other similar transactions, the
holders of the Voting Preferred Stock will be entitled to receive a preferred
stock having the same powers, preference and relative, participating, optional
or other special rights as the class of Voting Preferred Stock they held prior
to such merger or other transaction except that such preferred stock will not
control 55% of the vote.     
 
THE DIRECTOR PREFERRED STOCK
 
  The summary of terms of the Director Preferred Stock contained in the Proxy
Statement/Prospectus does not purport to be complete and is subject to, and is
qualified in its entirety by, the provisions of the Restated Certificate that
will become effective in connection with the consummation of the
Recapitalization. A copy of the Restated Certificate is included elsewhere in
this Proxy Statement/Prospectus.
 
 General
 
  The Director Preferred Stock will consist of four classes of Preferred Stock
of the Company that will be designated as the Class I Junior Preferred Stock
(the "Class I Preferred Stock"), the Class Pilot MEC Junior Preferred Stock
(the "Class Pilot MEC Preferred Stock"), the Class IAM Junior Preferred Stock
(the "Class IAM Preferred Stock") and the Class SAM Junior Preferred Stock (the
"Class SAM Preferred Stock" and, together with the Class I Preferred Stock, the
Class Pilot MEC Preferred Stock and the Class IAM Preferred Stock, the
"Director Preferred Stock"). Where the summaries do not make a distinction
among the several classes of Director Preferred Stock, such summaries refer to
any of them.
 
 
                                      171

<PAGE>
 
  Each of the classes of Director Preferred Stock has the power to elect one or
more members of the Board. None of the classes of Director Preferred Stock will
bear dividends. Each class of Director Preferred Stock will have a liquidation
preference of $0.01 per share.
 
  Each of the Class Pilot MEC Preferred Stock, the Class IAM Preferred Stock
and the Class SAM Preferred Stock provides that upon the consolidation, merger
or similar transaction involving the Company or United, pursuant to which the
outstanding New Shares are to be exchanged for or converted into securities of
a successor or resulting company or cash or other property, the Class Pilot MEC
Preferred Stock, the Class IAM Preferred Stock and the Class SAM Preferred
Stock, respectively, will be converted into, or exchanged for, preferred stock
of such successor or resulting company having, in respect of such company, the
same powers, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, that the
original Class Pilot MEC Preferred Stock, Class IAM Preferred Stock and Class
SAM Preferred Stock had, respectively.
 
 Class I Preferred Stock
 
  The Class I Preferred Stock will be issued initially to Duane D. Fitzgerald,
Richard D. McCormick, John K. Van de Kamp and Paul A. Volcker who will serve as
the Independent Directors of the Company immediately following consummation of
the Recapitalization. The Restated Certificate authorizes the issuance of 10
shares of Class I Preferred Stock, although the Company expects that no more
than four shares will be outstanding at any time. The shares of Class I
Preferred Stock will be issued to the initial holders thereof pursuant to a
subscription agreement for a purchase price that is equal to the $0.01
liquidation value thereof.
   
  The initial holders of the Class I Preferred Stock will enter into a
Stockholders' Agreement among themselves, ALPA, the IAM and the Company (the
"Class I Preferred Stockholders' Agreement"), pursuant to which the holders
agree to vote their shares to elect the Independent Directors nominated
pursuant to the provisions described in "THE PLAN OF RECAPITALIZATION--Revised
Governance Structure-- Independent Directors," and to refrain from transferring
the shares of Class I Preferred Stock other than to a person who has been
elected to serve as one of the Independent Directors and who agrees to be
subject to the provisions of the Class I Preferred Stockholders' Agreement. The
Restated Certificate and the Class I Preferred Stockholders' Agreement provide
that the Company, subject to legally available funds, will redeem or purchase
the shares of Class I Preferred Stock held by any holder thereof who votes
contrary to the Class I Preferred Stockholder's Agreement or who purports to
transfer the share of Class I Preferred Stock to any person other than an
Independent Director. Any share of Class I Preferred Stock redeemed or
purchased as provided in the immediately prior sentence may be reissued as
provided in the Restated Certificate or the Class I Preferred Stockholders'
Agreement. All shares of the Class I Preferred Stock will be redeemed
automatically upon the occurrence of the Sunset, and following such redemption,
none of the shares of Class I Preferred Stock may be reissued thereafter.     
 
 Class Pilot MEC Preferred Stock and Class IAM Preferred Stock
 
  The Restated Certificate authorizes the issuance of one share of each of the
Class Pilot MEC Preferred Stock and the Class IAM Preferred Stock. The share of
the Class Pilot MEC Preferred Stock will be issued to the ALPA MEC, and the
share of Class IAM Preferred Stock will be issued to the IAM or its designee,
each pursuant to a subscription agreement for a purchase price equal to the
$0.01 liquidation value thereof. Each of the Class Pilot MEC Preferred Stock
and the Class IAM Preferred Stock will have the right to elect one Employee
Director, and the shares of such stock will be redeemed automatically upon the
purported transfer thereof to any person other than the holder thereof
authorized under the Restated Certificate. The Class Pilot MEC Preferred Stock
will be redeemed automatically upon the later of the Sunset or the occurrence
of the ALPA Termination Date. The Class IAM Preferred Stock will be redeemed
automatically upon the later of the Sunset or the occurrence of the IAM
Termination Date.
 
 
                                      172

<PAGE>
 
 Class SAM Preferred Stock
 
  The Class SAM Preferred Stock will be issued initially to the person
nominated to serve as the Salaried and Management Director of the Company
immediately following consummation of the Recapitalization and to an additional
holder (the "Designated Holder"). The Restated Certificate authorizes the
issuance of ten shares of Class SAM Preferred Stock, although the Company
expects that no more than three shares will be outstanding at any time. Two
shares of Class SAM Preferred Stock will be held by the Salaried and Management
Director, and one share will be issued to the Designated Holder, pursuant to a
subscription agreement for a purchase price that is equal to the $0.01
liquidation value thereof.
   
  The initial holders of the Class SAM Preferred Stock will enter into a
Stockholders' Agreement among themselves and the Company (the "Class SAM
Preferred Stockholders' Agreement"), pursuant to which the holders agree to
vote their shares to elect the Salaried and Management Director nominated by
the System Roundtable, and to refrain from transferring the shares of Class SAM
Preferred Stock other than to a person who has been elected to serve as the
Salaried and Management Director or another person designated by the System
Roundtable to be the Designated Holder, each of whom must agree to be subject
to the provisions of the Class SAM Preferred Stockholders' Agreement. The Class
SAM Preferred Stockholders' Agreement provides that in most instances the
Designated Holder will be the senior executive of United who has primary
responsibility for human resources. The Restated Certificate and the Class SAM
Preferred Stockholders' Agreement provide that the Company, subject to legally
available funds, will redeem or purchase the shares of Class SAM Preferred
Stock of any holder who votes contrary to the instructions given by the System
Roundtable or who purports to transfer the share or shares of Class SAM
Preferred Stock to any person other than the Salaried and Management Director
or another person designated by the System Roundtable. The Restated Certificate
provides that no holder of shares of Class SAM Preferred Stock will have the
right to vote unless at such time such person is the Salaried and Management
Director or the Designated Holder. Any share of Class SAM Preferred Stock that
is redeemed or purchased as provided in the immediately prior sentence may be
reissued as provided in the Restated Certificate and the Class SAM Preferred
Stockholders' Agreement. All shares of the Class SAM Preferred Stock will be
redeemed automatically on or after the Sunset upon the earlier to occur of the
ALPA Termination Date and the IAM Termination Date, and following such
redemption, none of the shares of Class SAM Preferred Stock may be reissued
thereafter.     
 
 Uninstructed Trustee Actions
 
  Under certain circumstances prior to the Sunset, described below, (i) the
Voting Preferred Stock will cease to vote and (ii) the right to cast the votes
that the holder of the Voting Preferred Stock would otherwise have been
entitled to cast will be transferred generally in the following percentages:
46.23% to the holder of the Class Pilot MEC Preferred Stock, 37.13% to the
holder of the Class IAM Preferred Stock and 16.64% to the holders of the Class
SAM Preferred Stock.
   
  In connection with (i) a stockholder vote on a transaction involving a merger
of the Company or United or a change of control of the Company or United, or
(ii) if the trustee under either ESOP enters into a binding commitment with
respect to any such transaction or (iii) if the trustee disposes of 10% or more
of the common equity initially represented by the ESOP Preferred Stock, (x) if
the trustee either (1) fails to solicit timely instructions from the Plan
participants or the Committees or (2) fails to act in accordance with the
instructions received, (y) if the merger or change of control transaction would
have been approved or if the trustee disposes of 10% or more of the common
equity initially represented by the ESOP Preferred Stock and (z) (I) the
trustee solicited instructions, failed to follow them and such transaction
would not have been approved if the trustee had followed the instructions, (II)
the trustee failed to follow instructions and the transaction would not have
been approved had the trustee cast all the votes represented by securities in
the Plan against the transaction or (III) the trustee failed to follow
instructions or to solicit instructions with respect to a matter upon which no
vote is required (the occurrence of the conditions set forth in clauses (x),
(y) and (z) being referred to as an "Uninstructed Trustee Action"), the voting
rights of the Voting Preferred Stock will be transferred from the Voting
Preferred Stock to the Class Pilot MEC Preferred Stock, the Class     
 
                                      173

<PAGE>
 
   
IAM Preferred Stock and the Class SAM Preferred Stock in the proportions
referred to above. In addition, if the trustee fails to solicit instructions or
disregards instructions received in respect of a vote on a transaction which,
if consummated, would constitute an Uninstructed Trustee Action, then the
voting power of the Voting Preferred Stock will shift to the Class Pilot MEC
Preferred Stock, the Class IAM Preferred Stock and the Class SAM Preferred
Stock and the transaction must be approved by the vote of the Class Pilot MEC
Preferred Stock, the Class IAM Preferred Stock and the Class SAM Preferred
Stock voting together as a class with the New Shares, in addition to any other
vote required by the Restated Certificate, stock exchange requirements or
applicable law.     
   
  In addition, if the Sunset occurs directly or indirectly as a result of an
Uninstructed Trustee Action (or for any reason within one year after an
Uninstructed Trustee Action), the voting power to which the Class Pilot MEC
Preferred Stock, the Class IAM Preferred Stock and the Class SAM Preferred
Stock succeed as a result of an Uninstructed Trustee Action will survive until
the anniversary of the Issue Date that occurs in the year 2010.     
 
THE COMMON STOCK, THE SERIES A PREFERRED STOCK AND THE JUNIOR PARTICIPATING
PREFERRED STOCK
   
  The following descriptions do not purport to be complete and are subject to,
and qualified in their entirety by reference to, the more complete descriptions
thereof set forth in the following documents, all of which have been filed as
exhibits to the Registration Statement of which this Proxy Statement/Prospectus
is a part: (i) the Company's current Amended and Restated Certificate of
Incorporation, (ii) its current Bylaws, (iii) the Restated Certificate that
will become effective upon the consummation of the Recapitalization, (iv) the
Bylaws that will become effective upon the consummation of the Recapitalization
and (v) the Rights Agreement, as amended, between the Company and First Chicago
Trust Company of New York, as Rights Agent, pursuant to which shares of Series
C Junior Participating Preferred Stock ("Junior Participating Preferred Stock")
are issuable. Copies of the Restated Certificate and Restated Bylaws are
included elsewhere in this Proxy Statement/Prospectus. Where the descriptions
do not make a distinction between the Old Shares and the New Shares, such
descriptions are applicable to both.     
 
 Common Stock
 
  Dividend Rights. Holders of Old Shares are entitled to, and holders of New
Shares will be entitled to, receive dividends when, as and if declared by the
Board out of funds legally available therefor, provided that, so long as any
shares of preferred stock are outstanding, no dividends (other than dividends
payable in common stock) or other distributions may be made with respect to the
Old Shares (or, after the Effective Time, New Shares) unless full cumulative
dividends on the shares of preferred stock have been paid. The Company has not
paid cash dividends on the Old Shares since the third quarter of 1987.
 
  As a holding company, the Company relies on distributions from United to pay
dividends on its capital stock. There are currently no contractual restrictions
on United's ability to pay dividends to the Company.
 
  Voting Rights. Holders of Old Shares are entitled to one vote per share in
the election of directors and on any question arising at any stockholders'
meeting, voting as a single class. The New Shares will be entitled to cast one
vote per share. Upon the consummation of the Recapitalization and prior to the
Sunset, the New Shares and the Voting Preferred Stock will vote together as a
single class with respect to all matters submitted to the vote of the holders
of common stock pursuant to law or as provided in the Restated Certificate
except with respect to (a) such matters upon which the DGCL requires a separate
class vote and (b) the election of the Public Directors, whom the New Shares
will elect separately as a class. Until the Sunset, the New Shares will not
vote to elect any directors other than the Public Directors. After the Sunset,
the New Shares and the Voting Preferred Stock will continue to vote together as
a single class with respect to all matters submitted to the vote of the holders
of common stock pursuant to law or as provided in the Restated Certificate
except with respect to such matters upon which the DGCL requires a separate
class vote. See "--The Voting Preferred Stock--Voting Rights."
 
                                      174

<PAGE>
 
  Right of First Refusal. In connection with the Recapitalization, the Company
will enter into a First Refusal Agreement (the "First Refusal Agreement") with
ALPA, the IAM and the Salaried and Management Director (solely as the
representative of the Salaried and Management Employees) pursuant to which the
Company will agree that, if it proposes to issue any New Shares or other
securities that are exchangeable for or convertible into New Shares
(collectively, the "Equity Securities"), it must first offer such Equity
Securities to ALPA and the IAM on behalf of the employees represented thereby
and to the Salaried and Management Employees on the same terms and conditions
upon which the Company proposes to sell such Equity Securities to a third
party. Under the First Refusal Agreement, the members of ALPA will be entitled
to purchase 46.23% of the Equity Securities offered, the members of the IAM
will be entitled to purchase 37.13% of the Equity Securities offered and the
Salaried and Management Employees will be entitled to purchase 16.64% of the
Equity Securities offered. The First Refusal Agreement will terminate on the
Sunset.
 
 Series A Preferred Stock
 
  Dividends. Holders of shares of Series A Preferred Stock are entitled to
receive, when, as and if declared by the Board of the Company out of assets of
the Company legally available therefor, cumulative cash dividends at the rate
per annum of $6.25 per share of Series A Preferred Stock. Dividends on the
Series A Preferred Stock are payable quarterly in arrears. Dividends on the
Series A Preferred Stock are cumulative, and accumulations of dividends on
shares of Series A Preferred Stock do not bear interest.
 
  Except as provided in the next sentence, no dividend will be declared or paid
on any Parity Stock (as defined below) unless full cumulative dividends have
been paid on the Series A Preferred Stock for all prior dividend periods. If
accrued dividends on the Series A Preferred Stock for all prior dividend
periods have not been paid in full then any dividend declared on the Series A
Preferred Stock for any dividend period and any dividend on any Parity Stock
will be declared ratably in proportion to accrued and unpaid dividends on the
Series A Preferred Stock and such Parity Stock.
 
  The Company will not (i) declare, pay or set apart funds for the payment of
any dividend or other distribution with respect to any Junior Stock (as defined
below) or (ii) redeem, purchase or otherwise acquire for consideration any
Junior Stock or Parity Stock through a sinking fund or otherwise (except by
conversion into or exchange for shares of Junior Stock and other than a
redemption or purchase or other acquisition of shares of common stock of the
Company made for purposes of an employee incentive or benefit plan of the
Company or any subsidiary), unless all accrued and unpaid dividends with
respect to the Series A Preferred Stock and any Parity Stock at the time such
dividends are payable have been paid or funds have been set apart for payment
of such dividends.
 
  For purposes of the description of the Series A Preferred Stock, (i) the term
"dividend" does not include dividends payable solely in shares of Junior Stock
on Junior Stock, or in options, warrants or rights to holders of Junior Stock
to subscribe for or purchase any Junior Stock, (ii) the term "Parity Stock"
means any class or series of preferred stock ranking on a parity with the
Series A Preferred Stock as to payment of dividends and amounts payable upon
liquidation, dissolution or winding up and (iii) the term "Junior Stock" means
the common stock (Old Shares or New Shares), the ESOP Preferred Stock, the
Voting Preferred Stock, the Director Preferred Stock, any shares of Junior
Participating Preferred Stock issued pursuant to the Rights, and any other
class or series of capital stock of the Company now or hereafter issued and
outstanding that ranks junior as to the payment of dividends or amounts payable
upon liquidation, dissolution or winding up to the Series A Preferred Stock.
 
  Redemption. The Series A Preferred Stock is not redeemable prior to May 1,
1996. On and after such date, the Series A Preferred Stock is redeemable at the
option of the Company, in whole or in part, initially at $104.375 per share and
thereafter at prices declining ratably on each May 1 to $100.00 per share on
and after May 1, 2003, plus, in each case, all accrued and unpaid dividends.
Unless converted by the holders or redeemed by the Company, the Series A
Preferred Stock will have perpetual maturity.
 
 
                                      175

<PAGE>
 
  Liquidation Preference. The holders of shares of Series A Preferred Stock
will be entitled to receive, in the event of any liquidation, dissolution or
winding up of the Company, $100 per share plus an amount per share equal to all
dividends (whether or not earned or declared) accrued and unpaid thereon to the
date of final distribution to such holders (for purposes of the description of
the Series A Preferred Stock, the "Liquidation Preference"), and no more.
 
  Until the holders of the Series A Preferred Stock have been paid the
Liquidation Preference in full, no payment will be made to any holder of Junior
Stock upon the liquidation, dissolution or winding up of the Company. If, upon
any liquidation, dissolution or winding up of the Company, the assets of the
Company, or proceeds thereof, distributable among the holders of the shares of
Series A Preferred Stock are insufficient to pay in full the Liquidation
Preference and the liquidation preference with respect to any other shares of
Parity Stock, then such assets, or the proceeds thereof, will be distributed
among the holders of shares of Series A Preferred Stock and any such Parity
Stock ratably in accordance with the respective amounts which would be payable
on such shares of Series A Preferred Stock and any such Parity Stock if all
amounts payable thereon were paid in full. Neither a consolidation or merger of
the Company with another corporation nor a sale or transfer of all or
substantially all of the Company's assets will be considered a liquidation,
dissolution or winding up, voluntary or involuntary, of the Company.
 
  Voting Rights. Except as indicated below, or except as otherwise from time to
time required by applicable law, the holders of shares of Series A Preferred
Stock will not have any voting rights, and their consent will not be required
for taking any corporate action. When and if the holders of the Series A
Preferred Stock are entitled to vote, each share will be entitled to one vote.
 
  If the equivalent of six quarterly dividends payable on the Series A
Preferred Stock or any other series of Serial Preferred Stock of the Company
have not been declared and paid or set apart for payment, whether or not
consecutive, the number of directors of the Company will be increased by two
and the holders of all such series in respect of which such a default exists,
voting as a class without regard to series, will be entitled to elect two
additional directors at the next annual meeting and each subsequent meeting,
until all cumulative dividends have been paid in full.
 
  The affirmative vote or consent of the holders of 66 2/3% of the outstanding
shares of the Series A Preferred Stock, voting separately as a class with all
other affected series of Serial Preferred Stock that is also a Parity Stock,
will be required for any amendment of the Restated Certificate which alters or
changes the powers, preferences, privileges or rights of the Series A Preferred
Stock so as to materially adversely affect the holders thereof. The affirmative
vote or consent of the holders of shares representing 66 2/3% of the
outstanding shares of the Series A Preferred Stock and any other series of
Parity Stock, voting as a single class without regard to series, will be
required to authorize the creation or issue of, or reclassify any authorized
stock of the Company into, or issue or authorize any obligation or security
convertible into or evidencing a right to purchase, any additional class or
series of stock ranking senior to all such series of Parity Stock.
 
  Except as required by law, the holders of Series A Preferred Stock will not
be entitled to vote on any merger or consolidation involving the Company or a
sale of all or substantially all of the assets of the Company.
   
  Conversion Rights. Shares of Series A Preferred Stock are convertible, in
whole or in part, at any time at the option of the holders thereof, into Old
Shares. As of the date of this Proxy Statement/Prospectus, the conversion price
is $156.50 per Old Share (equivalent to a rate of approximately 0.639 Old
Shares for each share of Series A Preferred Stock), subject to adjustment as
set forth in the Restated Certificate ("Conversion Price"). Upon consummation
of the Recapitalization, each share of Series A Preferred Stock will receive,
upon conversion thereof, in respect of each Old Share into which such share of
Series A Preferred Stock was convertible immediately prior to the Effective
Time of the Recapitalization, the Recapitalization     
 
                                      176

<PAGE>
 
   
Consideration. The right to convert shares of Series A Preferred Stock called
for redemption will terminate at the close of business on the day preceding a
redemption date.     
 
 Junior Participating Preferred Stock
 
  General. The Company has designated 1,250,000 shares of a series of Serial
Preferred Stock as Junior Participating Preferred Stock and such shares are
reserved for issuance upon exercise of the Rights associated with each