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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
Commission File No. 1-6033
UAL CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware |
36-2675207
|
| (State or other jurisdiction of |
(IRS Employer
|
| incorporation or organization) |
Identification No.)
|
| Location: 1200 East Algonquin Road, Elk Grove Township, Illinois |
|
| Mailing Address: P. O. Box 66919, Chicago, Illinois |
|
| (Address of principal executive offices) |
|
Registrant' s telephone number, including area code
(847) 700-4000
Securities registered pursuant to Section 12(b) of the
Act:
| NAME OF EACH EXCHANGE | |
| TITLE OF EACH CLASS | ON WHICH REGISTERED |
| Common Stock, $.01 par value | New York, Chicago and |
| Pacific Stock Exchanges | |
| Depositary Shares each representing | |
| 1/1,000 of a share of Series B | |
| Preferred Stock, without par value | New York Stock Exchange |
Securities registered pursuant to Section 12 (g) of the Act:
NONE
Indicate by check mark whether the Registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X
No
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant' s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of voting stock held by non-affiliates
of the Registrant was $1,997,225,062 as of February 28, 2001. The
number of shares of common stock outstanding as of February 28, 2001 was
52,773,342.
Documents Incorporated by Reference
Part III of this Form 10-K incorporates by reference certain information from the Registrant' s definitive Proxy Statement for its Annual Meeting of Stockholders to be held on May 17, 2001.
PART I
ITEM 1. BUSINESS.
UAL Corporation ("UAL" or
the "Company") was incorporated under the laws of the State of Delaware
on December 30, 1968. The world headquarters of the Company are located
at 1200 East Algonquin Road, Elk Grove Township, Illinois 60007.
The Company' s mailing address is P.O. Box 66919, Chicago, Illinois 60666.
The telephone number for the Company is (847) 700-4000.
The Company is a holding
company and its principal subsidiary is United Air Lines, Inc., a Delaware
corporation ("United"), which is wholly owned. United accounted for
virtually all of the Company' s revenues and expenses in 2000. United
is a major commercial air transportation company, engaged in the transportation
of persons, property and mail throughout the U.S. and abroad.
Airline Operations
During 2000, United carried,
on average, more than 231,000 passengers per day and flew more than 126
billion revenue passenger miles. It is the world' s largest airline
as measured by revenue passenger miles flown, providing passenger service
in 28 countries. United' s network, supplemented with strategic airline
alliances, provides comprehensive transportation service within its North
America segment and to international destinations within its Pacific, Atlantic,
and Latin America segments. Operating revenues attributed to United'
s North America segment were $13.1 billion in 2000, $12.5 billion in 1999
and $12.0 billion in 1998. Operating revenues attributed to United'
s international segments were $6.2 billion in 2000, $5.5 billion in 1999
and $5.5 billion in 1998.
North America.
United operates hubs in Chicago, Denver, Los Angeles, San Francisco and
Washington Dulles and has the most extensive U.S. route system of any airline,
ranking first in capacity share in all of its U.S. hubs. Within the
North America segment, United also operates United Shuttle®, which
is designed to provide high-frequency air service in competitive markets,
as well as critical traffic feed to United' s mainline operations.
United Shuttle is principally concentrated on the West Coast and in Denver.
United Shuttle offers approximately 455 daily flights on 30 routes among
23 cities in the western U.S. United' s North America operations
accounted for 67.7% of United' s revenues in 2000.
Pacific.
Via its Tokyo hub, United provides passenger service between its U.S. gateway
cities (Chicago, Honolulu, Los Angeles, New York, San Francisco and Seattle)
and the Asian cities of Bangkok, Hong Kong, Seoul, Shanghai and Singapore.
United also provides nonstop service between Hong Kong and each of Chicago,
Los Angeles, San Francisco, and Singapore; between San Francisco and each
of Beijing, Osaka, Seoul, Shanghai, Sydney and Taipei; and between Los
Angeles and each of Auckland, Melbourne and Sydney.
In November 2000, United
received authority to fly two additional frequencies to China. The
new authority allows United to operate daily service between San Francisco
and Shanghai. Additionally, United plans to resume around-the-world
service in April 2001, adding service between Delhi and each of London
and Hong Kong. Also during April 2001, United plans to add nonstop
service between New York and Hong Kong.
The air services agreement
between the U.S. and Japan provides an unlimited number of frequencies
to United and certain other carriers. United also holds significant
traffic rights beyond Japan. These rights will allow United to add
service from Japan to other Asian points as regulatory, competitive and
economic conditions warrant.
In 2000, United was the leading
U.S carrier in the Pacific in terms of transpacific available seat miles
and the most flights available. United' s Pacific operations accounted
for 16.4% of United' s revenues in 2000.
Atlantic.
During 2000, Washington-Dulles served as United' s primary gateway to Europe,
serving Amsterdam, Brussels, Frankfurt, London, Milan, Munich, and Paris.
Chicago has become United' s secondary European gateway, offering nonstop
service in 2000 to each of Dusseldorf, Frankfurt, London and Paris.
United also provides nonstop service between: London and Boston, Los Angeles,
Newark, New York and San Francisco; Paris and each of Los Angeles and San
Francisco; and between Frankfurt and San Francisco.
In February 2001, United
inaugurated nonstop service between Chicago and Amsterdam. In April
2001, United plans to discontinue service between London and each of Amsterdam
and Brussels, concurrent with the resumption of service between London
and Delhi. In June 2001, United plans to add seasonal service between
Denver and Frankfurt. In 2000, United' s Atlantic operations accounted
for 11.7% of United' s operating revenues.
Latin America.
During 2000, United' s primary gateway to Latin America was Miami, providing
passenger service between Miami and each of Buenos Aires, Caracas, Montevideo,
Rio de Janeiro, Santiago and Sao Paolo. United also provided service
between Los Angeles and each of Guatemala City, Mexico City, and San Salvador;
between New York and each of Buenos Aires, Sao Paolo, and San Juan; between
Chicago and each of Aruba, Buenos Aires, Mexico City, San Juan, St. Thomas,
and Sao Paolo; between Mexico City and each of San Francisco and Washington
Dulles; and between Washington-Dulles and St. Thomas. United also
provides service between San Jose, Costa Rica and each of Mexico City and
Guatemala City.
The newly amended air services
agreement between the U.S. and Argentina provides for additional capacity
in the U.S.-Argentina market and enables United to operate any size aircraft
on any or all of its 21 weekly flights to Argentina without restriction.
Prior to this amendment, United and American Airlines were the only U.S.
passenger carriers operating between the U.S. and Argentina. Under
the new agreement, Delta and Continental have each been awarded access
to Argentina and will respectively commence daily service in April and
December 2001. In 2000, United' s Latin America operations accounted
for 4.2% of United' s revenues.
Financial information relative
to the Company' s operating segments can be found in Note 19 in the Notes
to Consolidated Financial Statements in this Form 10-K.
US Airways Acquisition.
During 2000, UAL announced plans to acquire US Airways Group, Inc.
in an all-cash transaction for $4.3 billion. The Company expects
that the new network created by the acquisition will make travel more convenient
for passengers, connecting US Airways eastern U.S. markets with United'
s extensive east-west and international networks, and create the nation'
s most comprehensive airline network. This transaction, which the
Company anticipates closing in the second quarter of 2001, is still subject
to regulatory clearance and other customary closing conditions.
In addition, UAL and AMR
Corporation announced in January 2001 the approval of a binding memorandum
of understanding, under which American Airlines will provide competitive
service on key hub-to-hub routes where United and US Airways currently
are the only competitors with non-stop flights. In addition, UAL
will transfer assets that would have been surplus to the needs of the combined
United/US Airways operations, consisting of gates, slots and up to 86 aircraft.
AMR will pay UAL approximately $1.2 billion in cash for this transaction
and assume certain US Airways obligations.
For more information on the
US Airways acquisition, see "US Airways Acquisition" in Item 7. Management'
s Discussion and Analysis of Financial Condition and Results of Operations.
United Cargo®.
United Cargo generated over $900 million in freight and mail revenue.
As a part of United' s decision to retire its remaining DC-10 passenger
aircraft, United Cargo discontinued its international freighter operation
on December 24, 2000. With United' s growing fleet of cargo-friendly
widebody aircraft, however, it is expected that revenues will continue
to increase through time-sensitive delivery services, e-commerce initiatives
and customer loyalty programs.
United Cargo' s premium international
time-definite service, TD.Guaranteed, was expanded to more U.S. destinations
with intra-U.S. connections, which more than doubled TD.Guaranteed revenue
since the product was introduced in 1999. In addition, another time-sensitive
product, United Sameday, was introduced in 2000 for the small package,
door-to-door delivery service, which may be booked via a toll-free number
or the Internet (www.unitedsameday.com).
Fuel.
Changes in fuel prices are industry-wide occurrences that benefit or harm
United' s competitors as well as United. Fuel-hedging activities
may affect the degree to which fuel-price changes affect individual companies.
To assure adequate supplies of fuel and to provide a measure of control
over fuel costs, United ships fuel on major pipelines and stores fuel close
to its major hub locations.
United' s results of operations
are significantly affected by the price and availability of jet fuel.
It is estimated that, absent hedging, every $.01 change in the average
annual price-per-gallon of jet fuel causes a change of approximately $31
million in United' s annual fuel costs. United' s average price per
gallon of jet fuel in 2000 increased 40%, as compared to the previous year.
However, the average price of spot jet fuel in the U.S. Gulf Coast increased
71% during that same period. United' s price in 2000 was mitigated
by a fuel hedging program that was primarily an options-based strategy,
through which the upside was retained while the downside was eliminated.
Insurance.
United carries liability insurance of a type customary in the air transportation
industry, in amounts which it deems adequate, covering passenger liability,
public liability, property damage liability, and physical damage insurance
on United' s aircraft and property.
Marketing Strategy
Besides offering convenient
scheduling throughout its domestic and international segments, United seeks
to attract high yield customers and create customer preference by providing
a comprehensive network, an attractive frequent-flyer program, and enhanced
service initiatives.
Alliances.
United has formed bilateral alliances with other airlines to provide its
customers more choices and to participate worldwide in markets that it
cannot serve directly for commercial or governmental reasons. An
alliance is a collaborative marketing arrangement between carriers, which
can include joint frequent flyer participation, code-sharing of flight
operations, coordination of reservations, baggage handling, and flight
schedules, and other resource sharing activities. "Code-sharing"
is an agreement under which a carrier' s flights can be marketed under
the two-letter airline designator code of another carrier. Through
an alliance, carriers can provide their customers a seamless global travel
network under their own airline code. United now participates
in a multilateral alliance, the Star AllianceÔ
.
The Star Alliance is an integrated
worldwide transport network, which provides customers with global recognition
and a wide range of other benefits. Collectively, the Star Alliance
carriers served more than 815 destinations in over 130 countries during
2000. The Star Alliance enables its member carriers to more effectively
compete with other worldwide alliances. Founded in 1997 by United
and five other carriers, the Star Alliance has grown to fifteen carriers.
Besides United, the Star Alliance includes: Air Canada, Air New Zealand,
All Nippon Airways, Ansett Australia, Austrian Airlines, British Midland,
Lauda Air, Lufthansa, Mexicana, SAS, Singapore Airways, Thai International
Airways, Tyrolean and Varig. United currently holds bilateral immunity
with Air Canada and integrated antitrust immunity with Lufthansa, SAS,
and the Austrian Group.
United has also formed independent
alliances with other air carriers. Current agreements exist between
United and each of Aeromar, ALM Antillean, Aloha, BWIA, Cayman Airways,
Continental Connection, Emirates, Saudi Arabian Airlines, and Spanair.
In addition, United has a
marketing program in North America known as United Express®,
under which independent regional carriers, utilizing turboprop equipment
and regional jets, feed United' s major airports and international gateways.
The carriers in the United Express program serve small and medium-sized
cities in the U.S., linking those cities to United' s hubs. United
Express carriers include Air Wisconsin Airlines Corporation, Atlantic Coast
Airlines, Great Lakes Aviation and Sky West Airlines. Effective May
1, 2001, Great Lakes Aviation will no longer be a United Express carrier,
but will continue its relationship with United as an alliance carrier.
Mileage Plus®.
United established the frequent flyer program to develop and retain
passenger loyalty by offering awards and services to frequent travelers.
Over 40 million members have enrolled in Mileage Plus since it was started
in 1981. Mileage Plus members earn mileage credit for flights on
United, United Shuttle, United Express, the Star Alliance carriers and
certain other airlines which participate in the program. Miles can
also be earned by utilizing the goods and services of non-airline program
participants, such as hotels, car rental companies, bank credit card issuers,
and a variety of other businesses. Mileage credits can be redeemed
for free, discounted or upgrade travel awards on United and other participating
airlines, or, to a limited extent, other travel and non-travel industry
awards.
Travel awards can be redeemed
at the "Standard" level for any unsold seat on any United flight to every
destination served by United. Redemption at the "Saver" award level,
however, is restricted with blackout dates and capacity controlled inventory,
thereby limiting the use of Saver awards on certain flights.
When a travel award level
is attained, liability is recorded for the incremental costs of providing
travel, based on expected redemptions. United' s incremental costs
include the additional costs of providing service to the award recipient,
such as fuel, meal, personnel and ticketing costs, for what would otherwise
be a vacant seat. The incremental costs do not include any contribution
to overhead or profit. For mileage sold to other program participants
prior to January 1, 2000, revenue was recognized when the miles were sold.
Beginning January 1, 2000, a portion of revenue from the sale of mileage
is deferred and recognized when the transportation is provided. (See Item
8, Note 1(i) "Summary of Significant Accounting Policies - Mileage Plus
Awards" in the Notes to Consolidated Financial Statements.)
At December 31, 2000, the
estimated number of outstanding awards was approximately 10.8 million,
as compared with 7.0 million at the end of the prior year. United
estimates that 8.9 million of such awards will ultimately be redeemed and,
accordingly, has recorded a liability amounting to $564 million, which
includes the deferred revenue from the sale of miles to program participants.
Based on historical data, the difference between the awards expected to
be redeemed and the total awards outstanding arises because: (1)
some awards will never be redeemed, (2) some will be redeemed for non-travel
benefits, and (3) some will be redeemed on partner carriers.
In 2000, 1.97 million Mileage
Plus travel awards were used on United. This number represents the
number of awards for which travel was actually provided in 2000 and not
the number of seats that were allocated to award travel. In 1999,
2.24 million awards were used, while 2.13 million awards were used in 1998.
Such awards represented 7.2% of United' s total revenue passenger miles
in 2000, 8.7% in 1999, and 8.6% in 1998. Passenger preference for
Saver awards, which have inventory controls, keep displacement of revenue
passengers at a minimum. Travel award seats flown on United represent
72% of the total awards issued, of which 87% are used for travel within
the U.S. and Canada. In addition to the awards issued for travel
on United, approximately 10% of the total awards issued are used for travel
on partner airlines.
Economy Plus®.
In late 1999, United announced Economy Plus, which is a reconfiguration
of the first six to eleven rows of the United Economy cabins on aircraft
serving the North America market. This reconfigured area provides
four to five additional inches of legroom for United' s Premier®
frequent-flyers and full-fare United Economy customers, many of whom often
travel in the United Economy cabin. United was the first U.S. airline
to offer additional legroom on its North America flights and completed
the seat reconfiguration in early 2000.
In early 2001, United announced
that it is reconfiguring its fleet of three-cabin international aircraft
to create Economy Plus seating. In doing so, United becomes the first
U.S. airline to offer premium seating area in the front of its economy
cabin on both its North America and international flights. United
also unveiled plans to enhance United Business class throughout its international
fleet to offer customers an additional seven inches of legroom.
Distribution Channels.
The overwhelming majority of United' s airline inventory continues to be
distributed through the traditional channels of travel agencies and computer
reservation systems (CRS). United uses the Apollo reservation system,
which is hosted by Galileo International, a CRS in which United holds approximately
a 15% equity interest. The hosting agreement with Galileo continues
through 2004.
Electronic Commerce.
Consumers are increasingly turning to online avenues to meet their travel
needs. United is using e-commerce capabilities to strengthen and
enhance its market position, attract new customer segments, and reduce
the overall costs of booking transportation. Additionally, United
is utilizing e-commerce capabilities in initiatives addressing opportunities
in the areas of cargo, process improvement and customer connectivity.
On October 3, 2000, UAL formed
United NewVentures, a new subsidiary to provide innovative solutions for
its customers, to strengthen United' s airline business and to create incremental
value for UAL Corporation' s stockholders. United NewVentures, Inc.
is a wholly owned subsidiary of UAL.
United NewVentures currently
has two divisions, United NetVentures and United NetWorks. United
NetWorks incorporates the E-Commerce Division created in January, 2000.
The focus of United NetVentures is business development of non-United branded
businesses, enhancing United' s e-commerce partnerships and identifying
new e-commerce opportunities with strategic partners. United' s involvement
in projects such as Orbitz, Hotwire and Cordiem, a business-to-business
Internet exchange, are managed by United NetVentures.
United NetWorks is responsible
for all United-branded e-commerce activities, such as strategy, operations,
planning, and support of united.com, the airline' s web site, as well as
wireless initiatives, such as proactive customer notification of flight
information. United NetWorks is also responsible for the Mileage
Plus non-airline relationships, which currently include over ninety partners
among car rental, hotel, telecommunications, shopping, dining and financial
services companies.
Our United Commitmentsm.
To renew its commitment to improve key areas of customer satisfaction and
as part of an industry-wide, voluntary initiative, United implemented a
comprehensive customer service plan, Our United Commitment, in late 1999
and fully deployed it in 2000. Our United Commitment addresses issues
identified by United' s frequent flyer customers as being most important
to them, such as improved communication, increased information throughout
the travel experience, more efficient baggage handling and greater responsiveness
to customer inquiries.
On February 13, 2001, the
Inspector General of the U.S. Department of Transportation released its
full-year report on the effectiveness of the airline industry' s voluntary
initiatives. Although the report found that progress had been made
in some areas, it stressed that the industry continues to fall short in
notifying passengers about flight delays and cancellations. The report
is based on a review of the voluntary programs of 17 carriers, including
United.
Over the past year, United
introduced new services aimed at helping customers avoid delays, keeping
customers informed when delays and cancellations occur, and minimizing
the impact of cancellations and delays upon customers. Examples of
such new services include:
--Deploying an industry-leading proactive flight paging system;
--Installing United EasyCheck-Insm kiosks, allowing customers
with E-tickets to bypass airport lines and check themselves in;
--Deploying state-of-the-art mobile "chariot" workstations in all hub
airports, providing additional passenger check-in stations;
--Installing the United EasyInfosm digital electronic information
display systems, which give real-time information; and
--Launching the customer advocate center, which proactively accommodates
customers in anticipation of irregular operations.
While the report identified
where the airlines have been lacking, United received praise for measures
that went beyond actions required by Our United Commitment. The report
stated that initiatives such as more legroom between seats, expansion of
overhead baggage compartments and providing chariots to reduce lines were
additional efforts to make the travel experience better. Additionally,
United was one of only three airlines to incorporate its customer service
plan into its contract of carriage.
Industry Conditions
Operating Environment.
The air travel business is subject to seasonal fluctuations. United'
s operations are often adversely impacted by winter weather and United'
s first- and fourth-quarter results normally reflect reduced travel demand.
Operating results for the Company are generally better in the second and
third quarters. In addition to weather conditions, air traffic control
limitations and concerted employee job actions may from time-to-time cause
disruptions in operations.
Competition.
The airline industry is highly competitive. In domestic markets,
new and existing carriers are free to initiate service on any route.
United' s domestic competitors include all of the other major U.S. airlines
as well as regional carriers, some of which have lower cost structures
than United.
In its international service,
United competes not only with U.S. carriers but also with foreign carriers,
including national flag carriers, which in certain instances enjoy forms
of governmental support not available to U.S. carriers. Competition
on certain international routes is subject to varying degrees of governmental
regulations (see "Government Regulation"). United has advantages
over foreign air carriers in the U.S. because of its ability to generate
U.S. origin-destination traffic from its integrated domestic route systems,
and because foreign carriers are prohibited by U.S. law from carrying local
passengers between two points in the U.S. United experiences comparable
restrictions in foreign countries.
In addition, U.S. carriers
are often constrained from carrying passengers to points beyond designated
international gateway cities due to limitations in air service agreements
or restrictions imposed unilaterally by foreign governments. To compensate
for these structural limitations, U.S. and foreign carriers have entered
into alliances and marketing arrangements that allow the carriers to provide
traffic feed to each other' s flights. (See "Marketing Strategy -
Alliances")
Government Regulation
General.
All carriers engaged in air transportation in the U.S. are subject
to regulation by the U.S. Department of Transportation ("DOT"). The
DOT has authority to: issue certificates of public convenience and necessity
for domestic air transportation and, through the Federal Aviation Administration
("FAA"), air-carrier operating certificates; authorize the provision of
foreign air transportation by U.S. carriers; prohibit unjust discrimination;
prescribe forms of accounts and require reports from air carriers; regulate
methods of competition, including the provision and use of computerized
reservation systems; and administer regulations providing for consumer
protection, including regulations governing the accessibility of air transportation
facilities for handicapped individuals. United holds certificates
of public convenience and necessity, as well as air-carrier operating certificates,
and therefore is subject to DOT regulations. The FAA also administers
the U.S. air traffic control system and oversees aviation safety issues.
United' s operations require
licenses issued by the aviation authorities of the foreign countries that
United serves. Foreign aviation authorities may from time to time
impose a greater degree of economic regulation than exists with respect
to United' s North America operations. United' s ability to serve
some international markets and its expansion into many of these markets
are presently restricted by a lack of aviation agreements to allow such
service or, in some cases, by the restrictive terms of such agreements.
In connection with its international
services, United is required to make regular filings with the DOT and to
observe tariffs establishing the fares charged and the rules governing
the transportation provided. In certain cases, fares and schedules
require the approval of the relevant foreign governments. Shifts
in U.S. or foreign government aviation policies can lead to the alteration
or termination of existing air service agreements between the U.S. and
other governments, and could diminish the value of United' s international
route authority. United' s operating rights under the air services
agreements might not be preserved in such cases.
Airport Access.
Historically, take-off and landing rights ("slots") at Chicago O' Hare
International, New York John F. Kennedy International, New York LaGuardia
and Washington Reagan National airports have been limited by the "high
density traffic rule." Under this rule, slots may be bought, sold
or traded. In April 2000, the U.S. President signed the Wendell H.
Ford Investment and Reform Act for the 21st Century ("AIR 21") which includes
a phase-out of slots at Chicago' s O' Hare International Airport and New
York' s LaGuardia and JFK airports. Starting in May 2000, AIR 21
has allowed carriers to operate foreign air service at Chicago O' Hare
without slots, thereby eliminating the government' s need to withdraw slots
from incumbent carriers.
As part of the phase-out
of the high density traffic rule, slot exemptions were made available for
new entrants, as well as for carriers providing service to small- to medium-sized
and non-hub airports. This exemption, however, led to a significant
increase of flights into and out of LaGuardia that far exceeded that airport'
s capacity. As a result, all carriers operating at LaGuardia, including
United, incurred a significant number of delays and cancellations during
2000.
To reduce the resulting traffic
congestion problems, the FAA implemented a slot lottery system for determining
the additional carriers that may operate from LaGuardia. The lottery
system is currently in effect and has substantially reduced delays and
cancellations. The slot lottery was designed as a temporary remedy;
the FAA is currently considering a number of capacity management alternatives
at LaGuardia for long-term improvement, including making slot lotteries
permanent.
AIR 21 also provides that
nearly $40 billion from the U.S. Aviation Trust Fund is to be invested
in aviation facilities, equipment and training, examples of which could
be radar modernization, airport construction projects, and the hiring and
training of air traffic controllers.
Across the Atlantic, the
Commission of the European Union ("EU") has proposed a regulation that
would, if enacted, dramatically alter the manner in which airport slots
are held and allocated. The centerpiece of the proposal is that a
slot at major airports would have a life-span of only ten years, at which
time it would automatically revert to the airport slot controller.
The proposal has been met with fierce opposition from airlines. The
Commission will likely re-evaluate its original proposal and consider a
milder form of slot reform.
United currently has a sufficient
number of leased gates and other airport facilities, but expansion by United
may be constrained at certain airports by insufficient availability of
gates on attractive terms or other factors, such as noise restrictions.
Safety.
The FAA has regulatory jurisdiction over flight operations generally, including
equipment, ground facilities, maintenance, communications and other matters.
United' s aircraft and engines are maintained in accordance with the standards
and procedures recommended and approved by the manufacturers and the FAA.
From time to time, the FAA
issues airworthiness directives ("ADs") which require air carriers to undertake
inspections and to make unscheduled modifications and improvements on aircraft,
engines and related components and parts. The ADs sometimes cause
United to incur substantial, unplanned expense when aircraft or engines
are removed from service prematurely in order to undergo mandated inspections
or modifications. The issuance of any particular AD may have a greater
or lesser impact on United, compared to its competitors, depending upon
the equipment covered by the directive. Civil and criminal sanctions
may be assessed for not complying with the ADs.
The Air Transport Association
("ATA"), an industry organization to which United belongs, and the Department
of Defense ("DoD") have signed a memorandum of understanding, establishing
procedures for auditing international code-share partners that carry DoD
personnel. Based on the DOT/FAA Safety Program Guidelines issued
to all U.S. carriers, United has also established a safety review plan
for Star Alliance and code-share airlines. Audits are conducted on
both prospective and existing code-share partners. The FAA reviews
audit reports and makes code-share approval recommendations to the DOT.
Passenger Rights Legislation.
Following the February 2001 report of the DOT Inspector General, several
pieces of legislation were introduced by members of the U.S. Congress to
implement a variety of changes in the airline industry, such as: requiring
airlines to disclose all available fares; allowing consumers to purchase
any published fare from an airline or a travel agent; requiring airlines
to disclose the number of seats available for frequent flyer travelers;
and granting authority to the DOT to intervene and roll back fares in certain
markets.
In 2000, the EU' s transport
commissioner proposed two legislative alternatives for limiting airlines'
use of overbooking as a revenue management device. The first alternative
would distinguish between an intention to fly and a confirmed booking.
If the passenger has only indicated an intention to fly, the passenger
would be allowed to cancel without penalty and the airline would be allowed
to give away the seat. For a confirmed booking, however, an airline
would have no choice but to provide a seat for a passenger with a confirmed
booking. The second alternative under consideration is to limit an
airline' s ability to overbook. The limitation would be combined
with efforts to encourage airlines to stage auctions where the carrier
improves its compensation offer until someone is tempted to surrender his
or her seat.
It is not clear what form
that any of the U.S. or European legislation might ultimately take.
Privacy Laws.
An initiative of significant impact within the EU and elsewhere is the
introduction of privacy standards that apply to companies transmitting
private information from the EU to countries abroad. To comply with
the privacy directives, the U.S. Commerce Department and the EU Commission
have agreed to safe harbor principles. Although the safe harbor principles
are voluntary at this point, United plans to comply with them. In
mid-2001, the U.S. Commerce Department and the EU Commission will review
the status of voluntary compliance.
Canada, Argentina and Australia
have enacted new privacy laws covering the collection and disclosure of
personally identifiable information. These laws have either gone
into force or will go into force later this year, and may have an impact
on the way United collects and transmits personal identifiable information
in these jurisdictions.
Environmental Regulations.
United operates a number of underground and above-ground storage tanks
throughout its system. They are used for the storage of fuels and
deicing fluids. United has been identified as a Potentially Responsible
Party in some state and federal recovery actions involving soil and ground
water contamination. The Company has been working with the relevant
government agencies to resolve the issues and believes they will be resolved
without material adverse effect on the Company.
Employees - Labor Matters
At December 31, 2000, the
Company and its subsidiaries had more than 102,000 employees. Approximately
80 % of United' s employees are represented by various labor organizations.
Collective bargaining agreements
are negotiated under the Railway Labor Act, which governs labor relations
in the transportation industry, and typically do not contain an expiration
date. Instead, they specify a date called the amendable date, by
which either party may notify the other of its desire to amend the agreement.
Upon reaching the amendable date, the contract is considered "open for
amendment." Prior to the amendable date, neither party is required
to agree to modifications to the bargaining agreement. Nevertheless,
nothing prevents the parties from agreeing to start negotiations or to
modify the agreement in advance of the amendable date.
Contracts remain in effect
while new agreements are negotiated. During the negotiating period,
both the Company and the negotiating union are required to maintain the
status quo. Recent operating disruptions suggest, however, that some
members of the negotiating employee group may engage in activities designed
to "slow down" the airline. These slowdown tactics may involve refusal
to work overtime, increased sick leave usage and other disruptive behavior
that could have an adverse impact on operations.
United' s collective bargaining
agreements with the International Association of Machinists and Aerospace
Workers ("IAM") became amendable on July 12, 2000. United is currently
in negotiations with the IAM, under the auspices of the National Mediation
Board ("NMB"). Under the law, the parties are not allowed to resort
to self-help, such as strikes or lock-outs, until they are released from
mediation by the NMB, and then only after a 30 day cooling-off period.
However, the NMB can request the U.S. president to create a Presidential
Emergency Board, the creation of which imposes an additional 60-day bar
against self-help remedies. If the parties fail to reach a resolution
by the end of the 60 days, the U.S. Congress can impose a settlement.
The Company cannot predict when the current negotiations will be resolved.
For additional information on the status of negotiations, see "Labor Agreements"
in Item 7. Management' s Discussion and Analysis of Financial Condition
and Results of Operations.
The employee groups, number
of employees, labor organization and current contract status for each of
United' s major collective bargaining groups in the U.S., as of December
31, 2000, are as follows:
| Number of | Contract Open | ||
| Employee Group | Employees | Union | for Amendment |
| Pilots | 10,045 | ALPA | Sept. 1, 2004 |
| Flight Attendants | 24,199 | AFA | March 1, 2006* |
| Mechanics/Ramp | 15,706 | IAM | July 12, 2000 |
| Passenger Service | 31,606 | IAM | July 12, 2000 |
* The collective bargaining agreement between the Company and the AFA
provides for mid-term wage adjustments.
Corporate Governance and the ESOPs
Background.
In July 1994, the stockholders of UAL approved a plan of recapitalization
that provided an approximately 55% equity and voting interest in UAL to
certain employees of United, in exchange for wage concessions and work-rule
changes. The employees' equity interest was allocated to individual
employee accounts through the year 2000 under the Employee Stock Ownership
Plans ("ESOPs") created as part of the recapitalization. The entire
ESOP voting interest is voted by the ESOP trustee at the direction of,
and on behalf of, the employees participating in the ESOPs.
As part of the recapitalization,
the Company' s stockholders approved an elaborate governance structure,
which is contained principally in the Company' s Restated Certificate of
Incorporation ("UAL Charter") and the ESOPs. Among other matters,
the UAL Charter provides that the Company' s Board of Directors is to consist
of five public directors, four independent directors, and three employee
directors which are appointed by different classes of stockholders (see
the Company' s Proxy Statement for its Annual Meeting of Stockholders for
information concerning the processes for electing the directors and for
Board committee requirements). A number of special stockholder and
Board voting requirements were also established, as summarized below.
Special Voting.
In specified circumstances ("Extraordinary Matters"), actions by UAL or
United Airlines require approval of either (a) 75% of the entire Board,
including at least one union director, or (b) 75% of the voting stock present
at a stockholder meeting. "Extraordinary Matters" include certain
business transactions outside the ordinary course of business, significant
asset dispositions, and most issuances of equity securities. Most
issuances of equity securities are also subject to a first refusal agreement
in favor of employees participating in the ESOPs.
Other special voting requirements
apply to amendments to the UAL Charter and certain bylaws, repurchases
of common stock, stock sales to employee benefit plans, and business transactions
with labor. The special voting rights referred to in the previous paragraph
will continue until "Sunset" (defined below), at which time the corporate
governance section will convert to a more traditional form, providing for
nine public directors and three employee directors.
In the case of a merger or
Control Transaction (defined below) that involves an Uninstructed Trustee
Action (defined below), any required stockholder approval must also include
at least a majority of the votes represented by all outstanding shares
of the Director Preferred Stocks (defined below), UAL common stock and
such other classes and series of stock that vote together with the common
stock as a single class ("Single Class Voting").
"Sunset." The
Voting Preferred Stock (see Item 8, Note 13 of the Notes to Consolidated
Financial Statements) outstanding at any
time commands voting power for approximately 55% of the vote of all classes
of capital stock in all matters requiring a stockholder vote, other than
the election of members of the Board of Directors. The Voting Preferred
Stock will generally continue to represent approximately 55% of the aggregate
voting power until Sunset, even though the common stock issuable upon conversion
of the ESOP stock may represent more or less than 55% of the fully diluted
common stock of UAL. Sunset will occur when the common shares issuable
upon conversion of Class 1 and Class 2 ESOP convertible preferred stock
(see Item 8, Note 13 of the Notes to Consolidated Financial
Statements), plus any common equity (generally common stock
issued or issuable at the time of the recapitalization) held by any other
Company sponsored employee benefit plans, plus any available unissued ESOP
shares held in the ESOPs equal, in the aggregate, less than 20% of the
common equity and available unissued ESOP shares of UAL. For purposes
of measuring the Sunset, employee ownership was approximately 63.84% at
December 31, 2000.
Control Transactions.
A "Control Transaction" is a tender or exchange offer, or other opportunity
to dispose of or convert at least 3% of UAL common stock, Class 1 and Class
2 ESOP convertible preferred stock into common stock, and Voting Preferred
Stocks, or any transaction or series of related transactions in which any
person or group acquires or seeks to acquire control of UAL or of all or
substantially all of the assets of UAL and its subsidiaries. In a
Control Transaction, ESOP participants are entitled to instruct the ESOP
trustee as to whether to tender, sell, convert or otherwise dispose of
shares allocated to their accounts under the ESOP, and current employees
who are ESOP participants may give the same instructions for ESOP shares
that have been issued, but not yet allocated to participants. Shares
held by the Supplemental ESOP will be tendered or directed by the Supplemental
ESOP Committee.
If a Control Transaction
results in the sale or exchange of any shares held by the ESOPs, the proceeds
will be used to acquire, to the extent possible, shares of common stock
(or preferred stock which is convertible into common) that qualify as "employer
securities" as defined in Internal Revenue Code Section 409(l). If
UAL shares do not qualify as "employer securities," then the shares must
be "employer securities" of a public company having a Moody' s senior long-term
debt rating at least as good as that of UAL and United at such time.
If such securities cannot be acquired, then UAL, ALPA and the IAM will
make appropriate arrangements reasonably satisfactory to the unions to
protect the interests of the participants.
Uninstructed Trustee Actions.
An uninstructed trustee action refers to situations in which the ESOP trustee
adopts a course of action without obtaining instructions from the ESOP
participants, or disregards their instructions, including situations involving
Control Transactions. Under specific circumstances, this action can
cause the Voting Preferred Stocks to be converted into UAL common stock,
with the special voting rights of these shares transferring to the Director
Preferred Stocks (defined as Class Pilot MEC, IAM, and SAM junior preferred
stock -- see Item 8, Note 13 of the Notes to Consolidated Financial
Statements) in the following approximate percentages: to the
holder of the Class Pilot MEC Preferred Stock, 46.23%; to the holder of
the Class IAM Preferred Stock, 37.13% ; and to the holders of the Class
SAM Preferred Stock, 16.64%. The Director Preferred Stocks will continue
to hold the Single Class Voting Rights until Sunset, or if Sunset occurs
because of, or within one year of, an uninstructed trustee action, July
12, 2010.
Specific
circumstances that give rise to a transfer of voting rights include:
(b) the ESOP trustee disposes of 10% or more of the common
equity represented by the Class 1 and Class 2 ESOP Preferred Stock (other
than in connection with the usual distribution or diversification under
the ESOP).
(2)
In addition, one of the following circumstances must be present:
(a) such transaction would not have been approved if the trustee
had solicited and/or followed the instructions;
(b) no timely solicitation of instructions occurs, and the
matter would not have been approved had the ESOP trustee cast all its votes
against the matter, or
(c) a matter that does not require a stockholder vote to approve
such transaction.
This section is intended
as a general summary and is qualified in its entirety by reference to the
UAL Charter, the Stockholders' Agreements, the First Refusal Agreement,
the ESOPs and the other exhibits to this Form 10-K.
ITEM 2. PROPERTIES.
Flight Equipment
As of December 31, 2000,
United' s operating aircraft fleet totaled 604 jet aircraft, of which 289
were owned and 315 were leased. These aircraft are listed below:
| Average | Average | |||||
| Aircraft Type | No. of Seats | Owned | Leased* | Total | Age (Years) | |
| A319-100 | 120 | 14 | 18 | 32 | 2 | |
| A320-200 | 138 | 19 | 49 | 68 | 4 | |
| B727-200 | 141 | 67 | 8 | 75 | 22 | |
| B737-200 | 103 | 24 | 0 | 24 | 22 | |
| B737-300 | 120 | 10 | 91 | 101 | 12 | |
| B737-500 | 104 | 27 | 30 | 57 | 9 | |
| B747-400 | 368 | 23 | 21 | 44 | 6 | |
| B757-200 | 182 | 41 | 57 | 98 | 9 | |
| B767-200 | 168 | 19 | 0 | 19 | 18 | |
| B767-300 | 219 | 15 | 20 | 35 | 6 | |
| B777-200 | 288 | 30 | 18 | 48 | 3 | |
| DC10-30 | 298 | 0 | 3 | 3 | 23 | |
| TOTAL OPERATING | 289 | 315 | 604 | 10 | ||
| FLEET | ||||||
*United'
s aircraft leases have initial terms of 10 to 26 years, and expiration
dates range from 2001 through 2020. Under the terms of all leases,
United has the right to purchase the aircraft at the end of the lease term,
in some cases at fair market value and in others, at fair market value
or a percentage of cost.
As of December 31, 2000,
110 of the 289 aircraft owned by United were encumbered under debt agreements.
On February 1, 2001, United
exercised options to acquire 15 additional aircraft. The following
table sets forth United' s firm aircraft orders and expected delivery schedules
as of December 31, 2000, plus the additional 15 aircraft:
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Ground Facilities and Equipment
United has entered into various
leases relating to its use of airport-landing areas, gates, hangar sites,
terminal buildings and other airport facilities in most of the municipalities
it serves. Major leases expire at Chicago O' Hare in 2018, Los Angeles
in 2021, San Francisco in 2011, and Washington Dulles in 2014. United
also has leased ticketing, sales and general office space in the downtown
and outlying areas of most of the larger cities in its system. In
suburban Chicago, United owns a 106-acre complex consisting of more than
one million square feet of office space for its world headquarters, a computer
facility and a training center.
United' s Maintenance Operation
Center ("MOC") at San Francisco International Airport occupies 129 acres
of land, three-million square feet of floor space and 12 aircraft hangar
docks under a lease expiring in 2003, with an option to extend for 10 years.
United' s Indianapolis Maintenance Center, a major aircraft maintenance
and overhaul facility, is operated under a lease with the Indianapolis
Airport Authority that expires in 2031. United also has a major facility
at the Oakland, California airport, dedicated to widebody airframe maintenance.
At Denver International Airport,
United operates under a lease and use agreement expiring in 2025, and occupies
52 gates and more than one million square feet of exclusive or preferential
use terminal building space. United' s flight training center, located
in the City and County of Denver, can accommodate 36 flight simulators
and more than 90 computer-based training stations.
In connection with the Company'
s planned acquisition of US Airways, the Company has announce plans to
invest up to $160 million in constructing a 300,000 to 360,000 square foot
maintenance complex in Pittsburgh. The Commonwealth of Pennsylvania
and Allegheny County have proposed to provide $60 million in incentive
assistance based, in part, on a job retention program.
ITEM 3. LEGAL PROCEEDINGS.
1. Frank, et al. v. United; EEOC v.
United
As previously reported in
our Form 10-Q for the quarter ended September 30, 2000, a class action
lawsuit against United was filed February 7, 1992 in federal district court
in California, alleging that United' s former flight attendant weight program,
in effect from 1989 to 1994, unlawfully discriminated against flight attendants
on the grounds of sex, age and other factors, and seeking monetary relief.
On April 29, 1994, the class was certified as to the sex and age claims.
Following extensive motion practice, on March 10, 1998, the district court
dismissed all the claims against United. Following an appeal to the
Court of Appeals for the Ninth Circuit, a three judge panel of the Ninth
Circuit, on June 21, 2000, overturned the ruling and held that United'
s former weight program violated the law. The court ruled that the
plaintiffs were entitled to judgment as a matter of law on their claims
for discrimination based on sex and that a trial was required for determination
on their claims for age discrimination. In addition, the appellate
court reversed the dismissal of all individual class representative claims
of discrimination and the case was remanded to the district court for further
proceedings. United' s petition for en banc review by an 11-judge
panel was denied on August 11, 2000. On December 8, 2000, United
petitioned for a review of the Ninth Circuit decision by the U.S. Supreme
Court, but that petition was denied on March 5, 2001. In accordance
with the appellate court ruling, the case will go back to the district
court for further proceedings with respect to the age discrimination claims
and for a determination of damages with respect to the sex discrimination
claims.
2. United v. Mesa Airlines, Inc. and WestAir
Commuter Airlines, Inc.
As previously reported in
our Form 10-Q for the quarter ended September 30, 2000, United sued Mesa
Airlines, Inc. and its subsidiary, WestAir Commuter Airlines, Inc., on
June 23, 1997, in the U.S. District Court for the Northern District of
Illinois, seeking an order declaring that United had the right to make
certain market adjustments in markets served by WestAir' s United Express
service in California. On January 22, 1998, United notified Mesa
that it was terminating Mesa' s United Express contract and United amended
its complaint to add claims against Mesa for failure to fly and for monetary
damages. Mesa and WestAir filed claims against United alleging, among
other things, wrongful termination of their contract and fraud, and seeking
monetary damages. On July 5, 2000, the Seventh Circuit Court of Appeals
affirmed the dismissal of Mesa' s tort claims, including its claim alleging
fraud on the ground that those claims are preempted by the Airline Deregulation
Act. Mesa filed a petition for certiorari with the U.S. Supreme Court.
That petition was denied, ending the appeals process for the tort claims.
On March 5, 2001, the parties agreed to a settlement and have since dismissed
the remaining claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to
a vote of security holders of the Company during the fourth quarter of
2000.
Executive Officers of the Registrant
Information regarding the
executive officers of the Company is as follows:
James E. Goodwin.
Age 56. Mr. Goodwin has been Chairman and Chief Executive Officer
of the Company and United since July 1999. Prior to his current position,
he was President and Chief Operating Officer of the Company and United
from September 1998; from April 1995 until September 1998, he served as
Senior Vice President - North America of United.
Rono Dutta.
Age 49. Mr. Dutta has been President of the Company and United since
July 1999. Prior to his current position, he served as Senior Vice
President - Planning of United.
Douglas A. Hacker.
Age 45. Mr. Hacker has been Executive Vice President and Chief
Financial Officer of the Company and Executive Vice President - Finance
& Planning and Chief Financial Officer of United since July 1999.
Prior to his current position, he had served as Senior Vice President and
Chief Financial Officer for the Company and United.
William P. Hobgood.
Age 62. Mr. Hobgood has been Senior Vice President - People of United
since March 1997 and Senior Vice President of the Company since September
1999. Prior to joining United, he was in private practice as an attorney
specializing in mediation and arbitration, including labor-management issues.
Francesca M. Maher.
Age 43. Ms. Maher has been Senior Vice President, General Counsel
and Secretary of the Company and United since October 1998. From
June 1997 until October 1998, she was Vice President, General Counsel and
Secretary of the Company and United. Previously, she was Vice President
- - Law and Corporate Secretary of the Company and Vice President-Law, Deputy
General Counsel and Corporate Secretary of United.
Andrew P. Studdert.
Age 44. Mr. Studdert has been Executive Vice President and Chief
Operating Officer of the Company and of United since July 1999. Prior
to his current position, he served as Senior Vice President - Fleet Operations
of United from September 1997. He served as Senior Vice President
and Chief Information Officer of United from April 1995 to September 1997.
There are no family relationships
among the executive officers of the Company. The executive officers
of the Company serve at the discretion of the Board of Directors.
PART II
ITEM 5. MARKET FOR REGISTRANT' S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company' s Common Stock,
$.01 par value (the "Common Stock"), is traded principally on the New York
Stock Exchange (the "NYSE") under the symbol UAL, and is also listed on
the Chicago Stock Exchange and the Pacific Stock Exchange. The following
sets forth for the periods indicated the high and low sales prices and
dividends paid per share of the Company' s Common Stock on the NYSE Composite
Tape.
| High | Low | Dividends Paid | ||
| 2000: | ||||
| 1st quarter | $ 79 | $ 45 3/4 | ||
| 2nd quarter | 65 1/8 | 49 | $0.3125 | |
| 3rd quarter | 61 5/8 | 40 1/4 | $0.3125 | |
| 4th quarter | 43 15/16 | 34 1/16 | $0.3125 | |
| 1999: | ||||
| 1st quarter | $ 80 1/4 | $ 57 9/16 | ||
| 2nd quarter | 87 3/8 | 60 1/16 | ||
| 3rd quarter | 69 3/8 | 58 3/16 | ||
| 4th quarter | 78 3/4 | 60 1/8 | ||
The Company initiated a quarterly
dividend during the second quarter of 2000. The payment of any future
dividends on the Common Stock and the amount thereof will be determined
by the Board of Directors of the Company based on the financial condition
of the Company and other relevant factors.
On March 14, 2001, based
on reports by the Company' s transfer agent for the Common Stock, there
were 23,542 common stockholders of record.
Item 6. Selected Financial Data and Operating
Statistics
| (In Millions, Except Per Share and Rates) |
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| Income Statement Data: | |||||
| Operating revenues |
$ 19,352
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$ 18,027
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$ 17,561
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$ 17,378
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$ 16,362
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| Earnings before extraordinary item | |||||
| and cumulative effect |
265
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1,238
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821
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958
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600
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| Net earnings |
50
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1,235
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821
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949
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533
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| Per share amounts, diluted: | |||||
| Earnings before extraordinary item | |||||
| and cumulative effect |
1.89
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9.97
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6.83
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9.04
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5.85
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| Net earnings |
0.04
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9.94
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6.83
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8.95
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5.06
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| Cash dividends declared per common share |
1.25
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-
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-
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-
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-
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| Pro Forma Income Statement Data1: | |||||
| Earnings before extraordinary item |
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$ 1,209
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$ 774
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$ 931
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$ 553
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| Net earnings |
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1,206
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774
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922
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486
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| Per share amounts, diluted: | |||||
| Earnings before extraordinary item |
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9.71
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6.38
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8.76
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5.29
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| Net earnings |
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9.68
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6.38
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8.67
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4.50
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| Other Information: | |||||
| Total assets at year-end |
$ 24,355
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$ 20,963
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$ 18,559
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$ 15,464
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$ 12,677
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| Long-term debt and capital lease | |||||
| obligations, including current portion, | |||||
| and redeemable preferred stock |
7,487
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5,369
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5,345
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4,278
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3,385
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| Revenue passengers |
85
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87
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87
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84
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82
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| Revenue passenger miles |
126,933
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125,465
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124,609
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121,426
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116,697
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| Available seat miles |
175,485
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176,686
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174,008
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169,110
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162,843
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| Passenger load factor |
72.3%
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71.0%
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71.6%
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71.8%
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71.7%
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| Breakeven passenger load factor |
69.4%
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64.9%
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64.9%
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66.0%
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66.0%
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| Passenger revenue per passenger mile (cents) |
13.3
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12.5
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12.4
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12.6
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12.4
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| Operating revenue per available seat mile (cents) |
11.0
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10.2
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10.1
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10.3
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10.0
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| Operating expense per available seat mile (cents) |
10.6
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9.4
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9.2
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9.5
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9.3
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| Fuel gallons consumed |
3,101
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3,065
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3,029
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2,964
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2,883
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| Average price per gallon of jet fuel (cents) |
81.0
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57.9
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59.0
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69.5
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72.2
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1 The pro forma income statement amounts reflect
adjustments to the historical income statement data assuming the Company
had adopted the provisions of Staff Accounting Bulletin 101 ("SAB 101")
in prior periods. (See Note 1i "Summary of Significant Accounting
Policies - Mileage Plus Awards" in the Notes to Consolidated Financial
Statements.)
Item 7. Management' s Discussion and Analysis of Financial Condition and
Results of Operations
This section contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are identified with an asterisk (*). Forward-looking statements represent the Company' s expectations and beliefs concerning future events, based on information available to the Company on the date of the filing of this Form 10K. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Factors that could significantly impact the expected results referenced in the forward-looking statements are listed in the last paragraph of the section, "Outlook for 2001."
US Airways Acquisition
On May 24, 2000, UAL announced
that it had entered into a definitive merger agreement with US Airways
Group, Inc. ("US Airways") pursuant to which US Airways will be acquired
by the Company in an all-cash transaction for $4.3 billion. Additionally,
UAL will assume approximately $1.7 billion in US Airways net debt and $6.3
billion in operating leases. On October 12, 2000, the stockholders
of US Airways approved the merger. The transaction, which the Company
anticipates closing in the second quarter of 2001, is still subject to
regulatory clearance and other customary closing conditions. Definitive
financing arrangements have not yet been determined although UAL expects
to incur approximately $4.5 billion in additional indebtedness, through
a combination of bank and public financing, to cover the cost of the acquisition
as well as additional costs related to the integration of the airlines.
Subject to regulatory approval
of the transaction and the successful outcome of negotiations with local
authorities, the Company announced its intentions to expand US Airways'
maintenance facility in Pittsburgh at a total projected cost of $160 million.
Additionally, the Company recognizes that it will incur significant costs
associated with the integration of US Airways in order to achieve the anticipated
benefits to both the Company and the millions of passengers and hundreds
of communities served by United throughout the United States. The
Company expects that the new network will make traveling more convenient
for passengers, connecting US Airways' eastern U.S. markets with
United' s east-west and international markets, thereby creating the nation'
s most comprehensive airline network. However, the Company recognizes
that it may encounter difficulties in achieving these significant benefits.
As part of the agreement with US Airways, UAL generally has agreed to pay
US Airways a $50 million termination fee in the event the merger does not
take place.
In addition, UAL and US Airways
entered into a binding memorandum of understanding with Robert Johnson,
a member of the US Airways Group Board of Directors, under which Mr. Johnson
would buy certain of US Airways' assets and create a new airline,
to be called DC Air, which would compete on numerous routes currently served
by US Airways in the Washington D.C. area.
In a transaction designed
to enhance the competitive benefits of the proposed merger with US Airways
and address regulatory concerns, UAL and AMR Corporation ("AMR") on January
9, 2001 announced the approval of a binding memorandum of understanding,
under which AMR' s American Airlines subsidiary ("American") will provide
competitive service on key hub-to-hub routes where United and US Airways
currently are the only competitors with non-stop flights. As part
of the agreement, American will also enter into a 20-year joint venture
with United to jointly provide service on routes currently served by the
US Airways Shuttle between New York' s LaGuardia Airport, Washington, D.C.'
s Reagan National Airport and Boston' s Logan Airport. In addition,
United will transfer a number of gates, slots and up to 86 aircraft acquired
in its merger with US Airways to American deemed to be surplus to the combined
United and US Airways entity.
AMR will pay UAL up to $1.2
billion in cash for this transaction. In addition, American will
assume certain lease obligations and buy certain spare engines and other
parts associated with the aircraft being transferred. The transaction
will provide financial benefits to UAL by reducing the debt requirements
related to the acquisition of US Airways.
On March 2, 2001, UAL announced
that it had reached agreement with Atlantic Coast Airlines Holdings, Inc.
("ACAI"), for US Airways to sell its three wholly owned regional airlines
to ACAI for an initial purchase price of $200 million. UAL and ACAI
will seek to agree upon the ultimate purchase price over an 18-month period.
If an ultimate purchase price is not agreed as to a carrier, then the transaction
as to that carrier is subject to being unwound. If ACAI is not the
ultimate purchaser of at least one of the carriers, they will receive a
fee of up to $10 million. The transaction, which is contingent upon
and will occur at the same time as closing of the proposed acquisition
of US Airways, is subject to regulatory approvals and to certain termination
rights by UAL. In addition, at closing, the three carriers (Allegheny
Airlines, Piedmont Airlines and PSA Airlines) are expected to execute agreements
to provide feeder service to the combined United and US Airways network.
Results of Operations
During 2000, the Company experienced significant operational disruptions, as a result of labor-related delays and cancellations, as well as weather and air traffic control limitations, which adversely affected both revenue and expense performance. The Company attempted to mitigate the impact of these operational difficulties by reducing capacity, particularly in the domestic markets, where most of the problems were concentrated. The Company estimates the revenue shortfall arising from these disruptions and associated schedule reductions and cancellations to be somewhere between $700 and $750 million for the year.
Summary of Results -
UAL' s earnings from operations
were $654 million in 2000, compared to operating earnings of $1.4 billion
in 1999. UAL' s net earnings in 2000 were $50 million ($0.04 per
share, diluted), compared to net earnings of $1.2 billion in 1999 ($9.94
per share, diluted).
The 2000 earnings include
an extraordinary loss of $6 million, after tax, on early extinguishment
of debt and the cumulative effect of a change in accounting principle of
$209 million, net of tax. The 2000 earnings also include an impairment
loss of $38 million, net of tax ($0.33 per share, diluted), related to
the Company' s equity investment in Priceline.com, as well as a gain of
$69 million, net of tax ($0.60 per share, diluted), on the sale of its
investment in GetThere.com (see Note 6 "Investments" in the Notes to
Consolidated Financial Statements).
The 1999 earnings include
an extraordinary loss of $3 million, after tax, on early extinguishment
of debt and an after-tax gain of $468 million ($4.19 per share, diluted),
on the sale of certain of the Company' s investments, as further described
in Note 6 "Investments" in the Notes to Consolidated Financial Statements.
2000 Compared with 1999 -
Operating Revenues.
Operating revenues increased $1.3 billion (7%) and United' s revenue
per available seat mile (unit revenue) increased 8% to 11.02 cents.
Passenger revenues increased $1.1 billion (7%) primarily due to a 6% increase
in yield to 13.25 cents. United' s revenue passenger miles increased
1%, while available seat miles decreased 1%, resulting in a passenger load
factor increase of 1.3 points to 72.3%. The decrease in available
seat miles reflects the Company' s response to the operational difficulties
as well as the impact of Economy Plus. The following analysis by
market is based on information reported to the DOT:
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Cargo revenues increased $25 million (3%) on increased freight ton miles of 3%, as freight yields remained constant and mail yields increased 1%. Other operating revenues increased $152 million (19%) primarily due to increased fuel sales to third parties and additional revenues from operating agreements with Galileo International, Inc. ("Galileo"), offset by the decrease in other revenues related to the change in accounting for Mileage Plus sale of miles to third parties (see Note 1i "Summary of Significant Accounting Policies - Mileage Plus Awards" in the Notes to Consolidated Financial Statements).
Operating Expenses.
Operating expenses increased $2.1 billion (12%) and United' s cost per
available seat mile increased 13% from 9.41 to 10.63 cents. Salaries
and related costs increased $1.1 billion (19%) due to a new salary program
implemented for non-contract employees, the impact of the new ALPA contract,
and the estimated costs of IAM contracts which became amendable in July
2000 and are currently under negotiation. ESOP compensation expense
decreased $609 million (81%) as the Company discontinued recording ESOP
compensation expense once the final ESOP shares were committed to be released
in April 2000. Aircraft fuel increased $735 million (41%) due to
a 40% increase in the cost of fuel to 81.0 cents per gallon. Commissions
decreased $114 million (10%) due to a change in the commission structure
implemented in the fourth quarter of 1999. Purchased services increased
$136 million (9%) due to increases in computer reservations fees and credit
card discount fees. Depreciation and amortization increased $138
million (16%) due to an increase in the number of owned aircraft and losses
on disposition of aircraft and other equipment. Cost of sales increased
$436 million (72%) primarily due to costs associated with fuel sales to
third parties.
Other Income and Expense.
Other income (expense) amounted to $223 million in expense in 2000
compared to $551 million in income in 1999. Interest expense
increased $40 million (11%) due to increased debt issuances in 2000.
Interest income increased $33 million (49%) due to higher investment balances.
In addition, 2000 included a $109 million gain on the sale of GetThere.com
stock and a $61 million investment impairment related to warrants held
in Priceline.com, while 1999 included a $669 million gain on the sale of
Galileo stock and a $62 million gain on the sale of Equant N.V. ("Equant")
stock.
1999 Compared with 1998 -
Operating Revenues.
Operating revenues increased $466 million (3%) and United' s revenue per
available seat mile (unit revenue) increased 1% to 10.17 cents. Passenger
revenues increased $264 million (2%) due to a 1% increase in United' s
revenue passenger miles and a 1% increase in yield to 12.48 cents.
Available seat miles across the system were up 2% year over year; however,
passenger load factor decreased 0.6 points to 71.0% as traffic only increased
1% system-wide. The following analysis by market is based on information
reported to the DOT:
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| North America |
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| Pacific |
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| Atlantic |
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| System |
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Cargo revenues decreased
$7 million (1%) despite increased freight ton miles of 5%, as a 4% decline
in freight yield combined with a 3% decline in mail yield. Other
operating revenues increased $209 million (19%) due to increases in frequent
flyer program partner related revenues and fuel sales to third parties.
Operating Expenses.
Operating expenses increased $553 million (3%) and United' s cost per available
seat mile increased 2% from 9.24 to 9.41 cents. ESOP compensation
expense decreased $73 million (9%), reflecting the decrease in the estimated
average fair value of ESOP stock committed to be released to employees
as a result of UAL' s lower common stock price. Salaries and related
costs increased $329 million (6%) as a result of increased staffing in
customer-contact positions, as well as salary increases for most labor
groups which took effect July 1, 1998. Commissions decreased $186
million (14%) due to a change in the commission structure implemented in
the third quarter 1998 as well as a slight decrease in commissionable revenues.
In addition, in October 1999, the Company reduced the base commissions
for tickets purchased in the U.S. and Canada to 5%, subject to roundtrip
caps of $50 and $100 for domestic and international tickets, respectively.
Purchased services increased $70 million (5%) due to increases in computer
reservations fees and year 2000-related expenses. Depreciation and
amortization increased $74 million (9%) due to an increase in the number
of owned aircraft and losses on disposition of aircraft partially offset
by changes in depreciable lives of certain aircraft. In addition,
United wrote-down two non-operating B747-200 aircraft to net realizable
value. Cost of sales increased $128 million (27%) primarily due to
costs associated with fuel sales to third parties. Aircraft maintenance
increased $65 million (10%) due to an increase in heavy maintenance visits.
Other Income and Expense.
Other income (expense) amounted to $551 million in income in 1999 compared
to $222 million in expense in 1998. Interest capitalized, primarily
on aircraft advance payments, decreased $30 million (29%). Interest
income increased $9 million (15%) due to higher investment balances.
In addition, 1999 included a $669 million gain on the sale of Galileo stock
and a $62 million gain on the sale of Equant stock.
Liquidity and Capital Resources
Liquidity -
UAL' s total of cash and
cash equivalents and short-term investments was $2.3 billion at December
31, 2000, compared to $689 million at December 31, 1999. Operating
activities during the year generated $2.5 billion.
Property additions, including
aircraft, aircraft spare parts, facilities and ground equipment, amounted
to $2.5 billion, while property dispositions resulted in proceeds of $324
million. In 2000, United took delivery of four A319, twelve A320,
one B747, three B767 and eight B777 aircraft. Twenty-six of these
aircraft were purchased and two were acquired under capital leases.
Five of the aircraft purchased during the year were later sold and then
leased back under capital leases. In addition, United retired three
DC10-10, four DC10-30F and seven B747 aircraft.
During 2000, the Company
made payments of $81 million for the repurchase of 1.3 million shares of
common stock. Financing activities included the issuance of $2.4
billion in equipment trust certificates, as well as principal payments
under debt and capital lease obligations of $441 million and $283 million,
respectively. Included in the debt payments was the retirement of
$116 million of long-term debt prior to maturity. Additionally, UAL
issued, and subsequently retired, $200 million in long-term debt during
the period to finance the acquisition of aircraft. UAL may also from
time to time repurchase on the open market, in privately negotiated purchases
or otherwise, its debt and equity securities.
Included in cash and cash
equivalents at December 31, 2000 were $39 million of securities held by
third parties under securities lending agreements, as well as collateral
in the amount of 102% of the value of the securities lent. United
is obligated to reacquire the securities at the end of the contract.
As of December 31, 2000,
UAL had a working capital deficit of $2.0 billion as compared to $2.5 billion
at December 31, 1999. Historically, UAL has operated with a working
capital deficit and, as in the past, UAL expects to meet all of its obligations
as they become due.
Prior Years.
Operating activities in 1999 generated cash flows of $2.4 billion and the
Company' s sale of part of its investments in Galileo and Equant provided
$828 million in cash. Cash was used primarily to fund net additions
to property and equipment ($2.2 billion) and to repurchase common stock
($261 million). Financing activities also included principal payments
under debt and capital lease obligations of $513 million and $248 million,
respectively.
Operating activities in 1998
generated cash flows of $3.2 billion. Cash was used primarily to
fund net additions to property and equipment ($2.4 billion) and to repurchase
common stock ($459 million). Financing activities also included repayments
of long-term debt totaling $271 million and payments under capital leases
of $322 million, as well as aircraft lease deposits of $154 million.
Additionally, the Company issued $928 million in debt and used part of
the proceeds to purchase $693 million in equipment certificates under Company
operating leases.
Capital Commitments -
At December 31, 2000, commitments
for the purchase of property and equipment, principally aircraft, approximated
$4.7 billion, after deducting advance payments. Of this amount, an
estimated $2.5 billion is due to be spent in 2001. For further details,
see Note 18 "Commitments, Contingent Liabilities and Uncertainties" in
the Notes to Consolidated Financial Statements.
Capital Resources -
Funds necessary to finance
aircraft acquisitions are expected to be obtained from internally generated
funds, external financing arrangements or other external sources.
Additionally, during 2001, UAL anticipates requiring additional financing
for its planned acquisition of US Airways.
At December 31, 2000, UAL
and United had an effective shelf registration statement on file with the
Securities and Exchange Commission to offer up to $2.5 billion of securities,
including secured and unsecured debt, equipment trust and pass through
certificates or a combination thereof. United also has available
approximately $1.7 billion in short-term revolving credit facilities, as
well as a separate $227 million short-term borrowing facility, as described
in Note 8 "Short-Term Borrowings" in the Notes to Consolidated Financial
Statements.
At December 31, 2000, United'
s senior unsecured debt was rated BB+ by Standard and Poor' s ("S&P")
and Baa3 by Moody' s Investors Service Inc. ("Moody' s"). UAL' s
Series B preferred stock and redeemable preferred securities were rated
B+ by S&P and Ba3 by Moody' s. Immediately following UAL' s announcement
of the planned acquisition of US Airways, S&P placed UAL and United
securities on CreditWatch with negative implications.
Other Information
Labor Agreements -
On April 12, 2000, the Company'
s contract with ALPA became amendable and in October 2000, the parties
signed a new contract. The agreement, which will become amendable
September 1, 2004, includes provisions for an immediate increase in wages
of 21.5% to 28.7%, retroactive to April 12, as well as additional annual
increases of 4.5% to 5.6% for the duration of the contract. Additionally,
the contract allows United Express carriers to increase the number of small
jets beyond the current 65-jet limit up to an additional 150 immediately
as replacements for existing turboprops, with additional increases in small
jets as United' s fleet grows. United may also share in profits and
losses of revenues with foreign carriers with whom United has antitrust
immunity, provided United gets its proportionate share of the flying.
In addition, the Company has reached agreement with ALPA to provide United
pilots with protections that are realistically representative of their
pre-merger expectations.
On July 12, 2000, the Company'
s contracts with the IAM became amendable. The Company has been in
negotiations with the IAM since January 2000 for new contracts. Since
September 2000, the negotiations have been conducted with the assistance
of the National Mediation Board. Under the terms of the Railway Labor
Act, United' s current agreements with the IAM will remain in effect while
negotiations continue. The Company has agreed that wage increases
under the new IAM contracts will be retroactive to July 12, 2000 and the
estimated costs of those contracts have been included in the Company' s
results for 2000. The Company and the IAM had also initialed an agreement
on December 12, 2000 that would have provided for job protection benefits
to most mechanics, including relocation protection in the case of displacement
due to the merger transaction. The IAM has recently notified the
Company that they consider that agreement to be rescinded. Talks
are ongoing and United hopes to reach agreement with the IAM on these issues.
The Company' s contract with
the AFA, which becomes amendable in 2006, provides for a mid-term wage
conference in the first quarter of 2001. However, in September 2000,
United and the AFA began wage discussions unrelated to the contract that
would have avoided the need for this wage conference. The parties
also began addressing integration issues related to United' s acquisition
of US Airways at this time. The Company and the AFA have not reached
agreement on these issues to date and the Company began wage conference
negotiations per the contract in February 2001. The Company is continuing
to seek to resolve all outstanding issues with the AFA, although arbitration
may be required per the collective bargaining agreement, if an agreement
cannot be reached on wages. It is the Company' s desire through these
discussions to avoid any AFA operational action that would significantly
inconvenience its customers or disrupt schedules. However, should
such action occur, the Company will take appropriate steps to minimize
the impact to the Company and its customers.
E-Commerce -
In October 2000, UAL announced
the formation of United NewVentures, Inc., a wholly owned subsidiary which
will create businesses to provide innovative solutions for its customers,
strengthen United' s airline business and create incremental value for
UAL' s stockholders. The subsidiary employs about 100 people, primarily
from the Company' s former e-commerce organization and consists of two
divisions, United NetWorks and United NetVentures.
United NetWorks focuses on
expanding United-branded e-commerce and wireless activities, including
the recently redesigned united.com web site, as well as assuming responsibility
for marketing the sale of Mileage Plus miles to third parties. Gross
air bookings on united.com in 2000 grew more than 101% over last year.
Total passenger revenue from sales over the Internet reached $755 million
for the year compared to $400 million for 1999, an 89% increase.
United NetVentures will manage
United' s investments in other Internet ventures, including two new multi-airline
travel-oriented web sites, Orbitz and Hotwire, and identify new business
opportunities in e-commerce.
Foreign Operations -
United generates revenues
and incurs expenses in numerous foreign currencies. These expenses
include aircraft leases, commissions, catering, personnel expense, advertising
and distribution costs, customer service expenses and aircraft maintenance.
Changes in foreign currency exchange rates impact operating income through
changes in foreign currency-denominated operating revenues and expenses.
Despite the adverse (favorable) effects a strengthening (weakening) foreign
currency may have on U.S. originating traffic, a strengthening (weakening)
of foreign currencies tends to increase (decrease) reported revenue and
operating income because United' s foreign currency-denominated operating
revenue generally exceeds its foreign currency-denominated operating expense
for each currency.
With a worldwide network
and significant sales and marketing efforts in the U.S. as well as every
major economic region in the world, United is able to mitigate its exposure
to fluctuations in any single foreign currency. The Company' s biggest
net exposures are typically for Japanese yen, Hong Kong dollars, Australian
dollars, British pounds and the euro. During 2000, yen-denominated
operating revenue net of yen-denominated operating expense was approximately
21 billion yen (approximately $195 million), Hong Kong dollar-denominated
operating revenue net of Hong Kong dollar-denominated operating expense
was approximately 1,397 million Hong Kong dollars (approximately $179 million),
British pound-denominated operating revenue net of British pound-denominated
operating expense was approximately 97 million British pounds (approximately
$142 million), Australian dollar-denominated operating revenue net of Australian
dollar-denominated operating expense was approximately 154 million Australian
dollars (approximately $90 million), and euro-denominated operating revenue
net of euro-denominated operating expense was approximately 34 million
euro (approximately $33 million).
To reduce the impact of exchange
rate fluctuations on United' s financial results, the Company hedged some
of the risk of exchange rate volatility on its anticipated future foreign
currency revenues by purchasing put options (consisting of Japanese yen,
euro, Australian dollars and British pounds) and selling Hong Kong dollar
forwards. To reduce hedging costs, the Company sells a correlation
option in the first four currencies referred to above. United also
attempts to reduce its exposure to transaction gains and losses by converting
excess local currencies generated to U.S. dollars on a timely basis and
by entering into currency forward or exchange contracts. The total
notional amount of outstanding currency options and forward exchange contracts,
and their respective fair market values as of December 31, 2000, are summarized
in Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.
United' s foreign operations
involve insignificant amounts of physical assets; however, the Company
does have sizable intangible assets related to acquisitions of Atlantic
and Latin America route authorities. Operating authorities in international
markets are governed by bilateral aviation agreements between the United
States and foreign countries. Changes in U.S. or foreign government
aviation policies can lead to the alteration or termination of existing
air service agreements that could adversely impact the value of United'
s international route authority. Significant changes in such policies
could also have a material impact on UAL' s operating revenues and results
of operations. In addition, the Financial Accounting Standards Board
("FASB") has issued an Exposure Draft, "Business Combinations and Intangible
Assets - Accounting for Goodwill," which could impact the Company' s accounting
for these assets. For further details, see "New Accounting Pronouncements"
below.
Airport Rents and Landing Fees -
United is charged facility
rental and landing fees at virtually every airport at which it operates.
In recent years, many airports have increased or sought to increase rates
charged to airlines as a means of compensating for increasing demands upon
airport revenues. Airlines have challenged certain of these increases
through litigation and in some cases have not been successful. The
FAA and the DOT have instituted an administrative hearing process to judge
whether rate increases are legal and valid. However, to the extent
the limitations on such charges are relaxed or the ability of airlines
to challenge such charges is restricted, the rates charged by airports
may increase substantially. Management cannot predict either the
likelihood or the magnitude of any such increase.
Environmental and Legal Contingencies -
United has been named as
a Potentially Responsible Party at certain Environmental Protection Agency
("EPA") cleanup sites which have been designated as Superfund Sites.
United' s alleged proportionate contributions at the sites are minimal;
however, at sites where the EPA has commenced litigation, potential liability
is joint and several. Additionally, United has participated and is
participating in remediation actions at certain other sites, primarily
airports. The estimated cost of these actions is accrued when it
is determined that it is probable that United is liable. Environmental
regulations and remediation processes are subject to future change, and
determining the actual cost of remediation will require further investigation
and remediation experience. Therefore, the ultimate cost cannot be
determined at this time. However, while such cost may vary from United'
s current estimate, United believes the difference between its accrued
reserve and the ultimate liability will not be material.*
UAL has certain other contingencies
resulting from this and other litigation and claims incident to the ordinary
course of business. Management believes, after considering a number
of factors, including (but not limited to) the views of legal counsel,
the nature of such contingencies and prior experience, that the ultimate
disposition of these contingencies is not likely to materially affect UAL'
s financial condition, operating results or liquidity.*
Common Stock Dividends -
During 2000, UAL instituted an annual dividend of $1.25 per share on UAL common stock. Accordingly, UAL paid $36 million ($0.3125 per share) in common dividends in each of the second, third and fourth quarters of 2000. In addition, on December 14, UAL' s Board of Directors declared a dividend of $0.3125 per share payable on February 1, 2001 to stockholders of record January 16, 2001.
New Accounting Pronouncements - -
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133"), which establishes accounting and reporting standards
requiring that every derivative instrument be recorded in the balance sheet
as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative' s fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative' s gains and
losses to offset related results on the hedged item in the income statement,
and requires that a company must formally document, designate and assess
the effectiveness of transactions that receive hedge accounting.
The effective date of SFAS No. 133 was delayed one year, to fiscal years
beginning after June 15, 2000. The Company plans to adopt SFAS No.
133, which was subsequently amended by SFAS No. 138, in the first quarter
of 2001. United has reviewed its various contracts to determine which
contracts meet the requirements of SFAS No. 133, as amended, and need to
be reflected as derivatives under the standard and accounted for at fair
value. Accordingly, the Company will recognize a charge for the cumulative
effect of a change in accounting principle of $8 million, net of tax, in
the first quarter 2001. In addition, the Company believes the adoption
of SFAS 133 will increase volatility in earnings and other comprehensive
income.
On February 14, 2001, the FASB issued an Exposure Draft "Business Combinations
and Intangible Assets - Accounting for Goodwill." The Exposure Draft
requires the use of a non-amortization approach to account for purchased
goodwill and for separately recognized (non-goodwill) intangible assets
that have an indefinite useful economic life. Under this approach,
goodwill and certain intangibles would not be amortized, but would be written
down and expensed against earnings only in periods in which the recorded
value is more than the fair value. The Company has not yet quantified
the impacts of adopting the new Exposure Draft, but it could result in
significant changes to the classification and recording of intangibles
and amortization expense currently on the books, as well as the accounting
for the planned acquisition of US Airways.
Outlook for 2001*-
The softening of the U.S.
economy has had an industry-wide effect on business travel; as a result,
the Company has experienced a decrease in high-yield near-term bookings.
In addition, passenger revenue performance is expected to be negatively
impacted by the reduced capacity level put in place to improve operational
reliability. Given these weaker-than-anticipated revenues, combined
with higher labor costs and fuel prices, the Company expects first-quarter
results to be substantially below the current First Call consensus of $2.82
loss per share.
The Company had previously
provided full-year guidance, including the possible effects of its planned
acquisition of US Airways, based on business plans prepared before the
onset of the revenue deterioration. With the weakening of the U.S.
economic situation, the Company has taken steps to reduce planned 2001
spending by $200 million. However, based on expectations that revenue
weakness will continue, the Company now expects performance to be below
plan levels for the full year.
The uncertainty surrounding
key factors affecting the Company' s financial performance, such as the
breadth and length of the U.S. economic slowdown, the outcome of the planned
United and US Airways merger and the outcome of labor negotiations and
the cost of fuel, among other factors, precludes the Company from providing
any specific estimates on results at this time.
Information included in the
above outlook section, as well as certain statements made throughout the
Management' s Discussion and Analysis of Financial Condition and Results
of Operations that are identified by an asterisk (*) is forward-looking
and involves risks and uncertainties that could result in actual results
differing materially from expected results. Forward-looking statements
represent the Company' s expectations and beliefs concerning future events,
based on information available to the Company as of the date of this filing.
Some factors that could significantly impact revenues, expenses, unit costs,
and the results and benefits of the pending merger between United and US
Airways include, without limitation, the airline pricing environment; industry
capacity decisions; competitors' route decisions; obtaining regulatory
approvals for the United and US Airways merger; successfully integrating
the businesses of United and US Airways; costs related to the United and
US Airways merger; achieving cost-cutting synergies resulting from the
United and US Airways merger; labor integration issues; the ultimate outcome
of existing litigation; the success of the Company' s cost-control efforts;
the cost of crude oil and jet fuel; the results of union contract negotiations
and their impact on labor costs; operational disruptions as a result of
bad weather, air traffic control-related difficulties and labor issues;
the growth of e-commerce and off-tariff distribution channels; the effective
deployment of customer service tools and resources; actions of the U.S.,
foreign and local governments; foreign currency exchange rate fluctuations;
the economic environment of the airline industry and the economic environment
in general.
Investors should not place
undue reliance on the forward-looking information contained herein, which
speaks only as of the date of this filing. UAL disclaims any intent
or obligation to update or alter any of the forward-looking statements
whether in response to new information, unforeseen events, changed circumstances
or otherwise.
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk
Interest Rate Risk -
United' s exposure to market risk associated with changes in interest rates
relates primarily to its debt obligations and short-term investments.
United does not use derivative financial instruments in its investments
portfolio. United' s policy is to manage interest rate risk through
a combination of fixed and floating rate debt and entering into swap agreements,
depending upon market conditions. A portion of the borrowings are
denominated in foreign currencies which exposes the Company to risks associated
with changes in foreign exchange rates. To hedge against some of
this risk, the Company has placed foreign currency deposits (primarily
for Japanese yen, French francs, German marks and euros) to meet foreign
currency lease obligations designated in the respective currencies.
Since unrealized mark-to-market gains or losses on the foreign currency
deposits are offset by the losses or gains on the foreign currency obligations,
the Company reduces its overall exposure to foreign currency exchange rate
volatility. The fair value of these deposits is determined based
on the present value of future cash flows using an appropriate swap rate.
The fair value of long-term debt is based on the quoted market prices for
the same or similar issues or the present value of future cash flows using
a U.S. Treasury rate that matches the remaining life of the instrument,
adjusted by a credit spread.
| (In Millions) |
|
|
|
|||||||
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ASSETS | ||||||||||
| Cash equivalents | ||||||||||
| Fixed rate |
$1,674
|
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
$1,674
|
$1,674
|
$ 231
|
$ 231
|
| Avg. interest rate |
6.68%
|
-
|
-
|
-
|
-
|
-
|
6.68%
|
5.27%
|
||
| Variable rate |
$ 5
|
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
$ 5
|
$ 5
|
$ 79
|
$ 79
|
| Avg. interest rate |
6.96%
|
-
|
-
|
-
|
-
|
-
|
6.96%
|
6.23%
|
||
| Short term investments | ||||||||||
| Fixed rate |
$ 590
|
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
$ 590
|
$ 590
|
$ 298
|
$ 298
|
| Avg. interest rate |
6.96%
|
-
|
-
|
-
|
-
|
-
|
6.96%
|
5.96%
|
||
| Variable rate |
$ 75
|
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
$ 75
|
$ 75
|
$ 81
|
$ 81
|
| Avg. interest rate |
6.77%
|
-
|
-
|
-
|
-
|
-
|
6.77%
|
6.42%
|
||
| Lease deposits | ||||||||||
| Fixed rate - yen deposits |
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
$ 348
|
$ 348
|
$ 394
|
$ 378
|
$ 423
|
| Avg. interest rate |
-
|
-
|
-
|
-
|
-
|
3.06%
|
3.06%
|
3.07%
|
||
| Fixed rate - FF deposits |
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
$ 10
|
$ 10
|
$ 9
|
$ 10
|
$ 9
|
| Avg. interest rate |
-
|
-
|
-
|
-
|
-
|
5.61%
|
5.61%
|
5.61%
|
||
| Fixed rate - DM deposits |
$ 2
|
$ 2
|
$ 2
|
$ 2
|
$ 2
|
$ 304
|
$ 314
|
$ 354
|
$ 167
|
$ 177
|
| Avg. interest rate |
4.57%
|
4.53%
|
4.57%
|
4.60%
|
4.63%
|
6.79%
|
6.72%
|
6.49%
|
||
| Fixed rate - EUR deposits |
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
$ 26
|
$ 26
|
$ 24
|
$ 27
|
$ 23
|
| Avg. interest rate |
-
|
-
|
-
|
-
|
-
|
4.14%
|
4.14%
|
4.14%
|
||
| Fixed rate- USD deposits |
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
$ 12
|
$ 12
|
$ 13
|
$ 11
|
$ 10
|
| Avg. interest rate |
-
|
-
|
-
|
-
|
-
|
6.49%
|
6.49%
|
6.49%
|
||
| LONG-TERM DEBT | ||||||||||
| U. S. Dollar denominated | ||||||||||
| Fixed rate debt |
$ 87
|
$ 86
|
$ 218
|
$ 333
|
$ 246
|
$ 2,514
|
$3,484
|
$3,617
|
$1,433
|
$1,542
|
| Avg. interest rate |
7.62%
|
7.63%
|
8.43%
|
9.85%
|
7.73%
|
7.64%
|
7.90%
|
8.26%
|
||
| Variable rate debt |
$ 83
|
$ 569
|
$ 523
|
$ 17
|
$ 17
|
$ 174
|
$1,383
|
$1,383
|
$1,307
|
$1,307
|
| Avg. interest rate |
6.23%
|
5.91%
|
6.70%
|
6.34%
|
6.34%
|
6.43%
|
6.30%
|
6.26%
|
||
Foreign Currency Risk
- - United has established a foreign currency hedging program using currency
forwards and options (purchasing put options and selling correlation options)
to hedge exposure to the Japanese yen, Hong Kong dollar, British pound,
Australian dollar and the euro. The goal of the hedging program is
to effectively manage risk associated with fluctuations in the value of
the foreign currency, thereby making financial results more stable and
predictable. United does not use currency forwards or currency options
for trading purposes.
|
|
|||
| (In millions, except average contract rates) |
|
|
|
|
|
|
|
|
| Forward exchange contracts |
|
||
| Japanese Yen - Purchased forwards |
$ 141
|
112.33
|
$ (3)
|
| - - Sold forwards |
$ 66
|
114.71
|
$ -
|
| Hong Kong Dollar - Sold forwards |
$ 23
|
7.79
|
$ -
|
| French Franc - Purchased forwards |
$ 50
|
5.05
|
$ (5)
|
| Euro - Purchased forwards |
$ 140
|
1.30
|
$ (14)
|
As of December 31, 1999,
United had $144 million of Japanese yen purchased forwards outstanding
with a fair value of $(1) million, $62 million yen sold forwards with a
fair value of $0 and $402 million yen put options with a fair value of
$7 million.
Price Risk (Aircraft Fuel)
- - When market conditions indicate risk reduction is achievable, United
enters into fuel option contracts to reduce its price risk exposure to
jet fuel. The option contracts are designed to provide protection
against sharp increases in the price of aircraft fuel. Based on current
market conditions, United does not believe risk reduction is achievable
and is no longer entering into new option contracts. As market conditions
change, so may United' s hedging program. In addition, to a limited
extent, United trades short-term heating oil futures and option contracts,
which are immaterial.
At December 31, 1999, United
had $1.1 billion in purchased call option contracts for crude oil with
an estimated fair value of $120 million.
*Estimated fair values represent the amount United would pay/receive on December 31, 2000 to terminate the contracts.
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors, UAL Corporation:
We have audited the accompanying statements of consolidated financial
position of UAL Corporation (a Delaware corporation) and subsidiary companies
as of December 31, 2000 and 1999, and the related statements of consolidated
operations, consolidated cash flows and consolidated stockholders'
equity for each of the three years in the period ended December 31, 2000.
These financial statements and the schedule referred to below are the responsibility
of the Company' s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of UAL
Corporation and subsidiary companies as of December 31, 2000 and 1999,
and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
As explained in Note 1 of the Notes to Consolidated Financial Statements,
effective January 1, 2000, the Company changed certain of its accounting
principles for revenue recognition as a result of the adoption of Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements."
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule referenced in
Item 14(a) 2 herein is presented for purposes of complying with the Securities
and Exchange Commission' s rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as
a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 22, 2001
UAL Corporation and Subsidiary Companies
Statements of Consolidated Operations
(In millions, except per share)
|
|
|||
| Operating revenues: |
|
|
|
| Passenger |
$ 16,932
|
$ 15,784
|
$ 15,520
|
| Cargo |
931
|
906
|
913
|
| Other operating revenues |
1,489
|
1,337
|
1,128
|
|
19,352
|
18,027
|
17,561
|
|
| Operating expenses: | |||
| Salaries and related costs |
6,730
|
5,670
|
5,341
|
| ESOP compensation expense |
147
|
756
|
829
|
| Aircraft fuel |
2,511
|
1,776
|
1,788
|
| Commissions |
1,025
|
1,139
|
1,325
|
| Purchased services |
1,711
|
1,575
|
1,505
|
| Aircraft rent |
919
|
876
|
893
|
| Landing fees and other rent |
959
|
949
|
881
|
| Depreciation and amortization |
1,058
|
867
|
793
|
| Cost of sales |
1,038
|
602
|
474
|
| Aircraft maintenance |
698
|
689
|
624
|
| Other operating expenses |
1,902
|
1,737
|
1,630
|
|
18,698
|
16,636
|
16,083
|
|
| Earnings from operations |
654
|
1,391
|
1,478
|
| Other income (expense): | |||
| Interest expense |
(402)
|
(362)
|
(355)
|
| Interest capitalized |
77
|
75
|
105
|
| Interest income |
101
|
68
|
59
|
| Equity in earnings (losses) of affiliates |
(12)
|
37
|
72
|
| Gain on sale of investments |
109
|
731
|
-
|
| Investment impairment |
(61)
|
-
|
-
|
| Miscellaneous, net |
(35)
|
2
|
(103)
|
|
(223)
|
551
|
(222)
|
|
| Earnings before income taxes, distributions on preferred | |||
| securities, extraordinary item and cumulative effect |
431
|
1,942
|
1,256
|
| Provision for income taxes |
160
|
699
|
429
|
| Earnings before distributions on preferred securities, | |||
| extraordinary item and cumulative effect |
271
|
1,243
|
827
|
| Distributions on preferred securities, net of tax |
(6)
|
(5)
|
(6)
|
| Earnings before extraordinary item and cumulative effect |
265
|
1,238
|
821
|
| Extraordinary loss on early extinguishment of debt, net of tax |
(6)
|
(3)
|
- -
|
| Cumulative effect of accounting change, net of tax |
(209)
|
- -
|
- -
|
| Net earnings |
$ 50
|
$ 1,235
|
$ 821
|
|
=====
|
=====
|
=====
|
|
| Per share, basic: | |||
| Earnings before extraordinary item and cumulative effect |
$ 4.29
|
$ 21.26
|
$ 12.71
|
| Extraordinary loss on early extinguishment of debt, net of tax |
(0.13)
|
(0.06)
|
- -
|
| Cumulative effect of accounting change, net of tax |
(4.08)
|
- -
|
- -
|
| Net earnings |
$ 0.08
|
$ 21.20
|
$ 12.71
|
|
=====
|
=====
|
=====
|
|
| Per share, diluted: | |||
| Earnings before extraordinary item and cumulative effect |
$ 1.89
|
$ 9.97
|
$ 6.83
|
| Extraordinary loss on early extinguishment of debt, net of tax |
(0.06)
|
(0.03)
|
- -
|
| Cumulative effect of accounting change, net of tax |
(1.79)
|
- -
|
- -
|
| Net earnings |
$ 0.04
|
$ 9.94
|
$ 6.83
|
|
=====
|
=====
|
=====
|
|
See accompanying Notes to Consolidated Financial Statements.
UAL Corporation and Subsidiary Companies
Statements of Consolidated Financial Position
(In Millions)
|
|
||
| Assets |
|
|
| Current assets: | ||
| Cash and cash equivalents |
$ 1,679
|
$ 310
|
| Short-term investments |
665
|
379
|
| Receivables, less allowance for doubtful | ||
| accounts (2000 - - $14; 1999 - $13) |
1,216
|
1,284
|
| Aircraft fuel, spare parts and supplies, less | ||
| obsolescence allowance (2000 - $55; 1999 - $45) |
424
|
340
|
| Income tax receivables |
110
|
32
|
| Deferred income taxes |
225
|
222
|
| Prepaid expenses and other |
460
|
368
|
|
4,779
|
2,935
|
|
| Operating property and equipment: | ||
| Owned - | ||
| Flight equipment |
14,888
|
13,518
|
| Advances on flight equipment |
810
|
809
|
| Other property and equipment |
3,714
|
3,368
|
|
19,412
|
17,695
|
|
| Less - Accumulated depreciation and amortization |
5,583
|
5,207
|
|
13,829
|
12,488
|
|
| Capital leases - | ||
| Flight equipment |
3,055
|
2,929
|
| Other property and equipment |
99
|
93
|
|
3,154
|
3,022
|
|
| Less - Accumulated amortization |
640
|
645
|
|
2,514
|
2,377
|
|
|
16,343
|
14,865
|
|
| Other assets: | ||
| Investments |
435
|
750
|
| Intangibles, less accumulated amortization | ||
| (2000 - $306; 1999 - $279) |
671
|
568
|
| Aircraft lease deposits |
710
|
594
|
| Prepaid rent |
567
|
585
|
| Other |
850
|
666
|
|
3,233
|
3,163
|
|
|
$ 24,355
|
$ 20,963
|
|
|
=====
|
=====
|
|
See accompanying Notes to Consolidated Financial Statements.
UAL Corporation and Subsidiary Companies
Statements of Consolidated Financial Position
(In millions, except share data)
|
|
||
| Liabilities and Stockholders' Equity |
|
|
| Current liabilities: | ||
| Notes payable |
$
- -
|
$ 61
|
| Long-term debt maturing within one year |
170
|
92
|
| Current obligations under capital leases |
269
|
190
|
| Advance ticket sales |
1,454
|
1,412
|
| Accounts payable |
1,188
|
967
|
| Accrued salaries, wages and benefits |
1,508
|
1,002
|
| Accrued aircraft rent |
840
|
783
|
| Other accrued liabilities |
1,352
|
904
|
|
6,781
|
5,411
|
|
| Long-term debt |
4,688
|
2,650
|
| Long-term obligations under capital leases |
2,261
|
2,337
|
| Other liabilities and deferred credits: | ||
| Deferred pension liability |
136
|
70
|
| Postretirement benefit liability |
1,557
|
1,489
|
| Deferred gains |
912
|
986
|
| Accrued aircraft rent |
408
|
390
|
| Deferred income taxes |
1,241
|
1,147
|
| Other |
511
|
339
|
|
4,765
|
4,421
|
|
| Commitments and contingent liabilities (Note 18) | ||
| Company-obligated mandatorily redeemable | ||
| preferred securities of a subsidiary trust |
99
|
100
|
| Preferred stock committed to Supplemental ESOP |
571
|
893
|
| Stockholders' equity: | ||
| Serial preferred stock (Note 12) |
-
|
-
|
| ESOP preferred stock (Note 13) |
-
|
-
|
| Common stock at par, $0.01 par value; authorized 200,000,000 | ||
| shares; issued 68,834,167 shares at December 31, 2000 and | ||
| 65,771,802 shares at December 31, 1999 |
1
|
1
|
| Additional capital invested |
4,530
|
4,099
|
| Retained earnings |
1,998
|
2,138
|
| Unearned ESOP preferred stock |
-
|
(28)
|
| Stock held in treasury, at cost - | ||
| Preferred, 10,213,519 depositary shares at December 31, | ||
| 2000 and 1999 (Note 12) |
(305)
|
(305)
|
| Common, 16,295,475 shares at December 31, 2000 and | ||
| 14,995,219 shares at December 31, 1999 |
(1,179)
|
(1,097)
|
| Accumulated other comprehensive income |
152
|
352
|
| Other |
(7)
|
(9)
|
|
5,190
|
5,151
|
|
|
$ 24,355
|
$ 20,963
|
|
|
======
|
======
|
|
See accompanying Notes to Consolidated Financial Statements.
UAL Corporation and Subsidiary Companies
Statements of Consolidated Cash Flows
(In Millions)
|
|
|||
|
|
|
|
|
| Cash and cash equivalents at beginning of year |
$ 310
|
$ 390
|
$ 295
|
| Cash flows from operating activities: | |||
| Net earnings |
50
|
1,235
|
821
|
| Adjustments to reconcile to net cash provided by | |||
| operating activities - | |||
| ESOP compensation expense |
147
|
756
|
829
|
| Cumulative effect of accounting change, net of tax |
209
|
-
|
-
|
| Extraordinary loss on debt extinguishment, net of tax |
6
|
3
|
-
|
| Gain on sale of investments |
(109)
|
(731)
|
-
|
| Investment impairment |
61
|
-
|
-
|
| Pension funding less than (greater than) expense |
(21)
|
94
|
101
|
| Deferred postretirement benefit expense |
153
|
65
|
149
|
| Depreciation and amortization |
1,058
|
867
|
793
|
| Provision for deferred income taxes |
317
|
590
|
307
|
| Undistributed (earnings) losses of affiliates |
13
|
(20)
|
(62)
|
| Decrease (increase) in receivables |
68
|
(146)
|
(97)
|
| Decrease (increase) in other current assets |
(208)
|
2
|
105
|
| Increase (decrease) in advance ticket sales |
42
|
(17)
|
162
|
| Increase (decrease) in accrued income taxes |
(77)
|
(76)
|
38
|
| Increase (decrease) in accounts payable | |||
| and accrued liabilities |
761
|
(86)
|
69
|
| Amortization of deferred gains |
(66)
|
(66)
|
(64)
|
| Other, net |
68
|
(49)
|
43
|
|
2,472
|
2,421
|
3,194
|
|
| Cash flows from investing activities: | |||
| Additions to property and equipment |
(2,538)
|
(2,389)
|
(2,832)
|
| Proceeds on disposition of property and equipment |
324
|
154
|
452
|
| Proceeds on sale of investments |
147
|
828
|
-
|
| Decrease (increase) in short-term investments |
(286)
|
46
|
125
|
| Other, net |
(168)
|
(263)
|
(63)
|
|
(2,521)
|
(1,624)
|
(2,318)
|
|
| Cash flows from financing activities: | |||
| Reacquisition of preferred stock |
-
|
-
|
(3)
|
| Repurchase of common stock |
(81)
|
(261)
|
(459)
|
| Proceeds from issuance of long-term debt |
2,515
|
286
|
928
|
| Repayment of long-term debt |
(441)
|
(513)
|
(271)
|
| Principal payments under capital leases |
(283)
|
(248)
|
(322)
|
| Purchase of equipment certificates under Company leases |
(208)
|
(47)
|
(693)
|
| Decrease in equipment certificates under Company leases |
228
|
33
|
22
|
| Increase (decrease) in short-term borrowings |
(61)
|
(123)
|
184
|
| Aircraft lease deposits |
(138)
|
(20)
|
(154)
|
| Cash dividends |
(118)
|
(10)
|
(10)
|
| Other, net |
5
|
26
|
(3)
|
|
1,418
|
(877)
|
(781)
|
|
| Increase (decrease) in cash and cash equivalents during the year |
1,369
|
(80)
|
95
|
| Cash and cash equivalents at end of year |
$ 1,679
|
$ 310
|
$ 390
|
|
=====
|
=====
|
=====
|
|
See accompanying Notes to Consolidated Financial Statements.
UAL Corporation and Subsidiary Companies
Statements of Consolidated Stockholders' Equity
(In millions, except per share)
|
|
|
||||||||
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
Income |
|
|
|
| Balance at December 31, 1997 |
$ -
|
$ 1
|
$ 2,876
|
$ 309
|
$ (177)
|
$ (663)
|
$ (2)
|
$ (7)
|
$ 2,337
|
| Year ended December 31, 1998: | |||||||||
| Net earnings |
-
|
-
|
-
|
821
|
-
|
-
|
-
|
-
|
821
|
| Other comprehensive income, net: | |||||||||
| Unrealized gains on securities, net |
-
|
-
|
-
|
-
|
-
|
-
|
1
|
-
|
1
|
| Minimum pension liability adj. |
-
|
-
|
-
|
- -
|
-
|
-
|
(1)
|
-
|
(1)
|
| Total comprehensive income |
-
|
-
|
-
|
821
|
-
|
-
|
- -
|
-
|
821
|
| Cash dividends on preferred | |||||||||
| stock ($1.44 per Series B share) |
-
|
-
|
-
|
(10)
|
-
|
-
|
-
|
-
|
(10)
|
| Common stock repurchases |
-
|
-
|
-
|
-
|
-
|
(459)
|
-
|
-
|
(459)
|
| Issuance and amortization of | |||||||||
| ESOP preferred stock |
-
|
-
|
823
|
-
|
6
|
-
|
-
|
-
|
829
|
| ESOP dividend ($8.89 per share) |
-
|
-
|
42
|
(92)
|
50
|
-
|
-
|
-
|
-
|
| Preferred stock committed to | |||||||||
| Supplemental ESOP |
-
|
-
|
(177)
|
-
|
-
|
-
|
-
|
-
|
(177)
|
| Other |
- -
|
- -
|
(47)
|
- -
|
- -
|
(18)
|
-
|
5
|
(60)
|
| Balance at December 31, 1998 |
- -
|
1
|
3,517
|
1,028
|
(121)
|
(1,140)
|
(2)
|
(2)
|
3,281
|
| Year ended December 31, 1999: | |||||||||
| Net earnings |
-
|
-
|
-
|
1,235
|
-
|
-
|
-
|
-
|
1,235
|
| Other comprehensive income, net: | |||||||||
| Unrealized gains on securities, net |
-
|
-
|
-
|
- -
|
-
|
-
|
354
|
-
|
354
|
| Total comprehensive income |
-
|
-
|
-
|
1,235
|
-
|
-
|
354
|
-
|
1,589
|
| Cash dividends on preferred | |||||||||
| stock ($1.44 per Series B share) |
-
|
-
|
-
|
(10)
|
-
|
-
|
-
|
-
|
(10)
|
| Common stock repurchases |
-
|
-
|
-
|
-
|
-
|
(261)
|
-
|
-
|
(261)
|
| Issuance and amortization of | |||||||||
| ESOP preferred stock |
-
|
-
|
740
|
-
|
16
|
-
|
-
|
-
|
756
|
| ESOP dividend ($8.89 per share) |
-
|
-
|
38
|
(115)
|
77
|
-
|
-
|
-
|
-
|
| Preferred stock committed to | |||||||||
| Supplemental ESOP |
-
|
-
|
(201)
|
-
|
-
|
-
|
-
|
-
|
(201)
|
| Other |
- -
|
- -
|
5
|
- -
|
- -
|
(1)
|
- -
|
(7)
|
(3)
|
| Balance at December 31, 1999 |
- -
|
1
|
4,099
|
2,138
|
(28)
|
(1,402)
|
352
|
(9)
|
5,151
|
| Year ended December 31, 2000: | |||||||||
| Net earnings |
-
|
-
|
-
|
50
|
-
|
-
|
-
|
-
|
50
|
| Other comprehensive income, net: | |||||||||
| Unrealized losses on securities, net |
-
|
-
|
-
|
-
|
-
|
-
|
(196)
|
-
|
(196)
|
| Minimum pension liability adj. |
-
|
-
|
-
|
- -
|
-
|
-
|
(4)
|
-
|
(4)
|
| Total comprehensive income |
-
|
-
|
-
|
50
|
-
|
-
|
(200)
|
-
|
(150)
|
| Cash dividends on preferred | |||||||||
| stock ($1.44 per Series B share) |
-
|
-
|
-
|
(10)
|
-
|
-
|
-
|
-
|
(10)
|
| Cash dividends on common | |||||||||
| stock ($1.25 per share) |
-
|
-
|
-
|
(144)
|
-
|
-
|
-
|
-
|
(144)
|
| Common stock repurchases |
-
|
-
|
-
|
-
|
-
|
(81)
|
-
|
-
|
(81)
|
| Issuance and amortization of | |||||||||
| ESOP preferred stock |
-
|
-
|
147
|
-
|
-
|
-
|
-
|
-
|
147
|
| ESOP dividend ($8.89 per share) |
-
|
-
|
8
|
(36)
|
28
|
-
|
-
|
-
|
-
|
| Preferred stock committed to | |||||||||
| Supplemental ESOP |
-
|
-
|
322
|
-
|
-
|
-
|
-
|
-
|
322
|
| Other |
- -
|
- -
|
(46)
|
- -
|
- -
|
(1)
|
- -
|
2
|
(45)
|
| Balance at December 31, 2000 |
$ -
|
$ 1
|
$ 4,530
|
$ 1,998
|
$ -
|
$(1,484)
|
$ 152
|
$ (7)
|
$ 5,190
|
|
====
|
====
|
=====
|
=====
|
====
|
=====
|
====
|
====
|
====
|
|
See accompanying Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
(a) Basis of
Presentation - UAL Corporation ("UAL") is a holding company whose
principal subsidiary is United Air Lines, Inc. ("United"). The consolidated
financial statements include the accounts of UAL and all of its majority-owned
affiliates (collectively "the Company"). All significant intercompany
transactions are eliminated. Certain prior-year financial statement items
have been reclassified to conform to the current year' s presentation.
(b) Use of Estimates
- - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(c) Airline Revenues
- - Passenger fares and cargo revenues are recorded as operating revenues
when the transportation is furnished. The value of unused passenger
tickets is included in current liabilities.
(d) Cash and
Cash Equivalents and Short-term Investments - Cash in excess of
operating requirements is invested in short-term, highly liquid, income-producing
investments. Investments with a maturity of three months or less
on their acquisition date are classified as cash and cash equivalents.
Other investments are classified as short-term investments.
From time to time, United
lends certain of its securities classified as cash and cash equivalents
and short-term investments to third parties. United requires collateral
in an amount exceeding the value of the securities and is obligated to
reacquire the securities at the end of the contract. United accounts
for these transactions as secured borrowings rather than sales and does
not remove the securities from the balance sheet. At December 31,
2000, United was obligated to repurchase $39 million of securities lent
to third parties.
At December 31, 2000 and
1999, $598 million and $406 million, respectively, of investments in debt
securities included in cash and cash equivalents and short-term investments
were classified as available-for-sale, and $1.7 billion and $177 million,
respectively, were classified as held-to-maturity. Investments in
debt securities classified as available-for-sale are stated at fair value
based on the quoted market prices for the securities, which does not differ
significantly from their cost basis. Investments classified as held-to-maturity
are stated at cost which approximates market due to their short-term maturities.
The gains or losses from sales of available-for-sale securities are included
in interest income for each respective year.
(e) Derivative Financial Instruments -
Foreign Currency - - From time to time, United enters into Japanese yen forward exchange contracts to minimize gains and losses on the revaluation of short-term yen-denominated liabilities. The yen forwards typically have short-term maturities and are marked to fair value at the end of each accounting period. The unrealized mark-to-market gains and losses on the yen forwards generally offset the losses and gains recorded on the yen liabilities.
United has also entered
into forwards and swaps to reduce exposure to currency fluctuations on
Japanese yen-, euro- and French franc-denominated capital lease obligations.
The cash flows of the forwards and swaps mirror those of the capital leases.
The premiums on the forwards and swaps, as measured at inception, are being
amortized over their respective lives as components of interest expense.
Any gains or losses realized upon early termination of these forwards and
swaps are deferred and recognized in income over the remaining life of
the underlying exposure.
The Company hedges
some of the risks of exchange rate volatility on its anticipated future
Japanese yen, euro, Australian dollar and British pound revenues by purchasing
put options with little or no intrinsic value and on Hong Kong dollar revenues
by entering into forward contracts. The amount and duration of these
options are synchronized with the expected revenues, and thus, the put
options have been designated as a hedge. The premiums on purchased
option contracts are amortized over the lives of the contracts. Unrealized
gains on purchased put option contracts are deferred until contract expiration
and then recognized as a component of passenger revenue. To reduce
hedging costs, the Company sells a correlation option in the first four
currencies referred to above. The unrealized mark-to-market gains
and losses on the correlation options are included in Miscellaneous, net,
net of premiums received.
Interest Rates
- - United may from time to time, enter into swaps to reduce exposure
to interest rate fluctuations in connection with certain debt, capital
leases and operating leases. The cash flows of the swaps mirror those
of the underlying exposures. The premiums on the swaps, as measured
at inception, are amortized over their respective lives as components of
interest expense. Any gains or losses realized upon the early termination
of these swaps are deferred and recognized in income over the remaining
life of the underlying exposure.
Aircraft Fuel
- - Under favorable market conditions, United uses purchased call options
to hedge a portion of its price risk related to aircraft fuel purchases.
The purchased call options have been designated as a hedge. Gains
or losses on hedge positions, net of premiums paid, are recognized upon
contract expiration as a component of aircraft fuel inventory. In
addition, to a limited extent, United trades short-term heating oil futures
contracts. Unrealized losses on these contracts are recorded currently
in income while unrealized gains are deferred until contract expiration.
Both gains and losses are recorded as a component of aircraft fuel expense.
(f) Aircraft
Fuel, Spare Parts and Supplies - Aircraft fuel and maintenance
and operating supplies are stated at average cost. Flight equipment
spare parts are stated at average cost less an obsolescence allowance.
(g) Operating
Property and Equipment - Owned operating property and equipment
is stated at cost. Property under capital leases, and the related
obligation for future lease payments, are initially recorded at an amount
equal to the then present value of those lease payments.
Depreciation and amortization
of owned depreciable assets is based on the straight-line method over their
estimated service lives. Leasehold improvements are amortized over
the remaining period of the lease or the estimated service life of the
related asset, whichever is less. Aircraft are depreciated to estimated
salvage values, generally over lives of 4 to 30 years; buildings are depreciated
over lives of 25 to 45 years; and other property and equipment are depreciated
over lives of 3 to 15 years.
Properties under capital
leases are amortized on the straight-line method over the life of the lease,
or in the case of certain aircraft, over their estimated service lives.
Lease terms are 10 to 30 years for aircraft and flight simulators and 25
years for buildings. Amortization of capital leases is included in
depreciation and amortization expense.
Maintenance and repairs,
including the cost of minor replacements, are charged to maintenance expense
accounts. Costs of additions to and renewals of units of property
are charged to property and equipment accounts.
(h) Intangibles
- - Intangibles consist primarily of route acquisition costs and intangible
pension assets (see Note 16 "Retirement and Postretirement Plans").
Route acquisition costs are amortized over 40 years. During 2001,
the FASB issued an Exposure Draft "Business Combinations and Intangible
Assets - Accounting for Goodwill" which could impact the Company' s accounting
for intangible assets. See Other Information, "New Accounting
Pronouncements" in Management' s Discussion and Analysis of Financial
Condition and Results of Operations.
(i) Mileage
Plus Awards - United accrues the estimated incremental cost of
providing free travel awards earned under its Mileage Plus frequent flyer
program when such award levels are reached. United, through its wholly
owned subsidiary, Mileage Plus Holdings, Inc., sells mileage credits to
participating partners in the Mileage Plus program.
Effective January 1,
2000, the Company changed its method of accounting for the sale of mileage
to participating partners in its Mileage Plus program, in accordance with
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements."
Under the new accounting method, a portion of revenue from the sale of
mileage (previously recognized in other revenue) is deferred and recognized
as passenger revenue when the transportation is provided. Accordingly,
UAL has recorded a charge of $209 million, net of tax, for the cumulative
effect of a change in accounting principle to reflect the application of
the accounting method to prior years. This change resulted in a reduction
to revenues of approximately $38 million for 2000 and would have reduced
1999 revenues by $45 million.
The pro forma effect
of the accounting change on net income and earnings per share as previously
reported for 1999 and prior years is as follows:
|
|
|
|
|
|
||
| Earnings before extraordinary | ||||||
| items (in millions) | As reported |
$ 1,238
|
$ 821
|
$ 958
|
$ 600
|
$ 378
|
| Pro forma |
$ 1,209
|
$ 774
|
$ 931
|
$ 553
|
$ 348
|
|
| Earnings per share before | ||||||
| extraordinary items | ||||||
| Basic | As reported |
$ 21.26
|
$12.71
|
$14.98
|
$ 8.76
|
$ 6.98
|
| Pro forma |
$ 20.71
|
$11.87
|
$14.52
|
$ 7.92
|
$ 6.37
|
|
| Diluted | As reported |
$ 9.97
|
$ 6.83
|
$ 9.04
|
$ 5.85
|
$ 5.23
|
| Pro forma |
$ 9.71
|
$ 6.38
|
$ 8.76
|
$ 5.29
|
$ 4.81
|
|
| Net earnings (in millions) | As reported |
$ 1,235
|
$ 821
|
$ 949
|
$ 533
|
$ 349
|
| Pro forma |
$ 1,206
|
$ 774
|
$ 922
|
$ 486
|
$ 319
|
|
| Net earnings per share | ||||||
| Basic | As reported |
$ 21.20
|
$12.71
|
$14.83
|
$ 7.57
|
$ 6.39
|
| Pro forma |
$ 20.65
|
$11.87
|
$14.37
|
$ 6.73
|
$ 5.78
|
|
| Diluted | As reported |
$ 9.94
|
$ 6.83
|
$ 8.95
|
$ 5.06
|
$ 4.82
|
| Pro forma |
$ 9.68
|
$ 6.38
|
$ 8.67
|
$ 4.50
|
$ 4.40
|
(j) Deferred
Gains - Gains on aircraft sale and leaseback transactions are deferred
and amortized over the lives of the leases as a reduction of rental expense.
(k) Advertising- Advertising costs, which are
included in other operating expenses, are expensed as incurred. Advertising
expense was $269 million, $232 million and $213 million for the years ended
December 31, 2000, 1999 and 1998, respectively.
(2) Employee Stock Ownership Plans and Recapitalization
On July 12, 1994, the
stockholders of UAL approved a plan of recapitalization to provide an approximately
55% equity interest in UAL to certain employees of United in exchange for
wage concessions and work-rule changes. The employees' equity
interest was allocated to individual employees through the year 2000 under
Employee Stock Ownership Plans ("ESOPs") which were created as a part of
the recapitalization.
The ESOPs cover employees
represented by ALPA, the IAM and U.S. management and salaried employees.
The ESOPs include a "Leveraged ESOP," a "Non-Leveraged ESOP" and a "Supplemental
ESOP." Both the Leveraged ESOP and the Non-Leveraged ESOP are tax-qualified
plans while the Supplemental ESOP is not a tax-qualified plan. Shares
are delivered to employees primarily through the Leveraged ESOP, then through
the Non-Leveraged ESOP, and finally, through the Supplemental ESOP.
The equity interests
were delivered to employees through two classes of preferred stock (Class
1 and Class 2 ESOP Preferred Stock, collectively "ESOP Preferred Stock"),
and the voting interests were delivered through three separate classes
of preferred stocks (Class P, M and S Voting Preferred Stock, collectively,
"Voting Preferred Stock"). The Class 1 ESOP Preferred Stock was delivered
to an ESOP trust in seven separate sales under the Leveraged ESOP, the
last of which occurred on January 5, 2000. Based on Internal Revenue
Code Limitations, shares of the Class 2 ESOP Preferred Stock are either
contributed to the Non-Leveraged ESOP or allocated as "book entry" shares
to the Supplemental ESOP annually through the year 2000. The classes
of preferred stock are described more fully in Note 13, "ESOP Preferred
Stock."
The Leveraged ESOP
and Non-Leveraged ESOP are being accounted for under AICPA Statement of
Position 93-6, "Employers' Accounting for Employee Stock Ownership
Plans." For the Leveraged ESOP, as shares of Class 1 ESOP Preferred
Stock are sold to an ESOP trust, the Company reports the issuance as a
credit to additional capital invested and records a corresponding charge
to unearned ESOP preferred stock. ESOP compensation expense is recorded
for the average fair value of the shares committed to be released during
the period with a corresponding credit to unearned ESOP preferred stock
for the cost of the shares. Any difference between the fair value
of the shares and the cost of the shares is charged or credited to additional
capital invested. For the Non-Leveraged ESOP, the Class 2 ESOP Preferred
Stock is recorded as additional capital invested as the shares are committed
to be contributed, with the offsetting charge to ESOP compensation expense.
The ESOP compensation expense is based on the average fair value of the
shares committed to be contributed. The Supplemental ESOP is being
accounted for under Accounting Principles Board Opinion 25, "Accounting
for Stock Issued to Employees" ("APB 25").
Shares of ESOP Preferred
Stock are legally released or allocated to employee accounts as of year-end.
Dividends on the ESOP Preferred Stock are also paid at the end of the year.
Dividends on unallocated shares are used by the ESOP to pay down the loan
from UAL and are not considered dividends for financial reporting purposes.
Dividends on allocated shares are satisfied by releasing shares from the
ESOP' s suspense account to the employee accounts and are charged to equity.
During 2000, 2,390,931
shares of Class 1 ESOP Preferred Stock, 434,465 shares of Class 2 ESOP
Preferred Stock and 2,819,479 shares of Voting Preferred Stock were allocated
to employee accounts, and another 248,572 shares of Class 2 ESOP Preferred
Stock were allocated in the form of "book entry" shares, effective December
31, 1999. Another 198,629 shares of Class 2 ESOP Preferred Stock
previously allocated in book entry form were issued and either contributed
to the qualified plan or converted and sold on behalf of terminating employees.
At December 31, 2000, the year-end allocation of Class 1 ESOP Preferred
Stock to employee accounts had not yet been completed; however, there were
669,820 shares of Class 1 ESOP Preferred Stock committed to be released.
For the Class 2 ESOP Preferred Stock, 187,276 shares were committed to
be contributed to employees at December 31, 2000. The fair value
of the unearned ESOP shares recorded on the balance sheet at December 31,
1999 was $41 million.
For the Class 2 ESOP
Preferred Stock committed to be contributed to employees under the Supplemental
ESOP, employees can elect to receive their "book entry" shares in cash
upon termination of employment. The estimated fair value of such
shares at December 31, 2000 and 1999 was $304 million and $954 million,
respectively.
(3) Other Income (Expense) - Miscellaneous
Included in Other income
(expense) - "Miscellaneous, net" was $(22) million, $4 million and $(84)
million in foreign exchange gains (losses) in 2000, 1999 and 1998, respectively.
(4) Other Comprehensive Income
The following table presents
the tax effect of those items included in other comprehensive income:
|
|
|||||||||
| (In Millions) |
|
|
|
||||||
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
| Unrealized holding gains (losses) | |||||||||
| arising during period |
$(297)
|
$101
|
$(196)
|
$ 547
|
$ (193)
|
$ 354
|
$ 1
|
$ -
|
$ 1
|
| Minimum pension liability |
(6)
|
2
|
(4)
|
-
|
-
|
-
|
(1)
|
-
|
(1)
|
| Total other comprehensive income |
$(303)
|
$103
|
$(200)
|
$ 547
|
$ (193)
|
$ 354
|
$ -
|
$ -
|
$ -
|
|
===
|
===
|
===
|
===
|
===
|
===
|
===
|
===
|
===
|
|
Unrealized gains (losses)
on securities primarily represent gains (losses) on the Company' s investments
in Galileo and Equant as discussed in Note 6 "Investments."
(5) Per Share Amounts
Basic earnings per share
were computed by dividing net income before extraordinary item and cumulative
effect by the weighted-average number of shares of common stock outstanding
during the year. In addition, diluted earnings per share amounts
include potential common shares, including common shares issuable upon
conversion of ESOP shares committed to be released.
| Earnings Attributable to Common Stockholders (in millions) |
|
|
|
| Net income before extraordinary item and cumulative effect |
$ 265
|
$1,238
|
$ 821
|
| Preferred stock dividends |
(46)
|
(125)
|
(102)
|
| Earnings attributable to common stockholders (Basic and Diluted) |
$ 219
|
$1,113
|
$ 719
|
|
====
|
====
|
====
|
|
| Shares (in millions) | |||
| Weighted average shares outstanding (Basic) |
51.3
|
52.3
|
56.5
|
| Convertible ESOP preferred stock |
64.5
|
58.0
|
47.1
|
| Other |
0.7
|
1.3
|
1.6
|
| Weighted average number of shares (Diluted) |
116.5
|
111.6
|
105.2
|
|
====
|
====
|
====
|
|
| Earnings Per Share | |||
| Basic |
$ 4.29
|
$21.26
|
$12.71
|
| Diluted |
$ 1.89
|
$ 9.97
|
$ 6.83
|
At December 31, 2000, stock
options to purchase 5,646,557 shares of common stock were outstanding,
but were not included in the computation of diluted earnings per share,
because the exercise price of these options was greater than the average
market price of the common shares.
(6) Investments
During 2000, UAL invested
approximately $24 million in Orbitz, an entity which is developing an Internet
travel web site. UAL owns approximately 25% of Orbitz and accounts
for this investment using the equity method of accounting.
During 1998 and 1999, United
invested approximately $51 million in GetThere.com (a leading provider
of Internet-based travel planning products tailored to individual, corporate,
travel supplier and travel agency customers) resulting in a 28% minority
interest consisting of common stock, warrants and options. United
accounted for its investment in GetThere.com using the equity method of
accounting.
On October 6, 2000, Sabre
Holdings Corporation acquired all of the outstanding common stock of GetThere.com
for $17.75 per share. Accordingly, after converting its options and
warrants, United tendered all of its shares for net proceeds of $147 million,
resulting in a gain of approximately $69 million, net of tax.
During 2000, United recorded
an impairment loss of $38 million, net of tax, related to its warrants
held in Priceline.com.
In June 1999, United sold
17,500,000 common shares of Galileo in a secondary offering for $766 million,
resulting in a gain of approximately $428 million, net of tax. This
sale reduced United' s holdings in Galileo from 32 percent to approximately
15 percent, requiring United to discontinue the equity method of accounting
for its investment in Galileo. United has classified its remaining
15,940,000 shares of Galileo common stock as available-for-sale.
The market value of these shares at December 31, 2000 ($319 million) is
reflected in investments on the balance sheet and the market value in excess
of United' s investment is classified net-of-tax ($144 million) in accumulated
other comprehensive income. The market value of United' s investment
in Galileo at December 31, 1999 was $477 million. Included in the
Company' s retained earnings is approximately $248 million of undistributed
earnings of Galileo and its predecessor companies.
United owns 1,391,791 depositary certificates in Equant, a provider of international data network services to multinational businesses and a single source for global desktop communications. Each depositary certificate represents a beneficial interest in an Equant common share and the investment is classified as available-for-sale. The market value in excess of United' s investment is classified net-of-tax ($24 million) in accumulated other comprehensive income. In December 1999, United sold 709,000 shares of common stock in Equant in a secondary offering by Equant for $62 million. At December 31, 2000 and 1999, the estimated fair value of United' s remaining investment in Equant was approximately $36 million and $156 million, respectively.
(7) Income Taxes
In 2000, UAL incurred
both a regular and an alternative minimum tax ("AMT") loss. The carryback
of the regular tax loss to 1999 and 1998 and the carryback loss of the
AMT loss to 1998 will produce both federal and state refunds and generate
additional AMT credits. The primary differences between UAL' s regular
tax loss and AMT loss are the depreciation adjustments and preferences.
The provision for income
taxes is summarized as follows:
| (In Millions) |
|
|
|
|
| Current - | ||||
| Federal |
$ (133)
|
$ 93
|
$ 113
|
|
| State |
(24)
|
16
|
9
|
|
|
(157)
|
109
|
122
|
||
| Deferred - | ||||
| Federal |
278
|
536
|
270
|
|
| State |
39
|
54
|
37
|
|
|
317
|
590
|
307
|
||
|
$ 160
|
$ 699
|
$ 429
|
||
|
====
|
====
|
====
|
The income tax provision
differed from amounts computed at the statutory federal income tax rate,
as follows:
| (In Millions) |
|
|
|
| Income tax provision at statutory rate |
$ 151
|
$ 680
|
$ 440
|
| State income taxes, net of federal income | |||
| tax benefit |
10
|
46
|
30
|
| ESOP dividends |
(32)
|
(40)
|
(33)
|
| Nondeductible employee meals |
24
|
24
|
24
|
| Tax credits |
-
|
-
|
(7)
|
| Other, net |
7
|
(11)
|
(25)
|
|
$ 160
|
$ 699
|
$ 429
|
|
|
====
|
====
|
====
|
Temporary differences
and carryforwards that give rise to a significant portion of deferred tax
assets and liabilities for 2000 and 1999 are as follows:
| (In Millions) |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
| Employee benefits, including | ||||
| postretirement medical and ESOP |
$ 1,076
|
$ 214
|
$ 990
|
$ 135
|
| Depreciation, capitalized interest | ||||
| and transfers of tax benefits |
-
|
3,009
|
-
|
2,489
|
| Gains on sale and leasebacks |
307
|
-
|
335
|
-
|
| Rent expense |
461
|
-
|
435
|
-
|
| AMT credit carryforwards |
371
|
-
|
210
|
-
|
| Other |
1,012
|
1,020
|
758
|
1,029
|
|
$3,227
|
$ 4,243
|
$ 2,728
|
$ 3,653
|
|
|
=====
|
=====
|
=====
|
=====
|
|
At December 31, 2000,
UAL and its subsidiaries had $371 million of federal AMT credits and $43
million of federal and state net operating losses which may be carried
forward to reduce the tax liabilities of future years.
- Short-Term Borrowings
United has an agreement
with a syndicate of banks for a $750 million revolving credit facility
expiring in 2002. Interest on drawn amounts under the facility is
calculated at floating rates based on the London interbank offered rate
("LIBOR") plus a margin which is subject to adjustment based on certain
changes in the credit ratings of United' s long-term senior unsecured debt.
Among other restrictions, the credit facility contains a covenant that
restricts United' s ability to grant liens on or otherwise encumber certain
identified assets with a market value of approximately $1.1 billion.
Additionally, United
has available $900 million in short-term secured aircraft financing facilities.
Interest on drawn amounts under the facilities is calculated at floating
rates based on LIBOR plus a margin.
At December 31, 1999,
United had outstanding $61 million under a separate short-term borrowing
facility, bearing an average interest rate of 5.72%. Receivables
amounting to $233 million were pledged by United to secure repayment of
such outstanding borrowings. The maximum available borrowing amount
under this arrangement is $227 million. There were no borrowings
outstanding under this arrangement at December 31, 2000.
(9) Long-Term Debt
A summary of long-term
debt, including current maturities, as of December 31 is as follows (interest
rates are as of December 31, 2000):
| (In Millions) |
|
|
| Secured notes, 5.97% to 8.99%, averaging | ||
| 7.33%, due through 2014 |
$ 3,417
|
$ 1,229
|
| Debentures, 9.00% to 11.21%, averaging | ||
| 9.89%, due through 2021 |
646
|
762
|
| Promissory notes, 11.00%, due 2000 |
-
|
1
|
| Commercial paper, 6.71%, due through 2003 |
549
|
571
|
| Special facility bonds, 5.63% to 6.25%, | ||
| averaging 5.71%, due through 2034 |
255
|
190
|
|
4,867
|
2,753
|
|
| Less: Unamortized discount on debt |
(9)
|
(11)
|
| Current maturities |
(170)
|
(92)
|
|
$ 4,688
|
$ 2,650
|
|
|
=====
|
=====
|
|
See Item 7a "Quantitative
and Qualitative Disclosures About Market Risk" for disclosures regarding
the fair values of debt.
In addition to scheduled
principal payments, in 2000 and 1999 the Company repaid $116 million and
$23 million, respectively, in principal amount of debentures prior to maturity.
The debentures were scheduled to mature at various times through 2021.
Extraordinary losses of $6 million and $3 million, respectively, net of
tax benefits of $4 million and $2 million, respectively, was recorded reflecting
amounts paid in excess of the debt carrying value.
The Company, through
a special-purpose financing entity that is consolidated, has issued commercial
paper to refinance certain lease commitments. Although the issued
commercial paper has short maturities, the Company expects to continually
rollover this obligation throughout the 5-year life of its supporting liquidity
facility or bank standby facility. As such, the commercial paper
is classified as a long-term obligation in the Company' s statement of
financial position.
In July 2000, the Company
issued $921 billion in enhanced equipment trust certificates to refinance
certain owned aircraft and aircraft under operating leases. Net proceeds
after refinancing the operating leases was $622 million. In December
2000, the Company issued an additional $1.5 billion in enhanced equipment
trust certificates to refinance certain owned aircraft.
At December 31, 2000,
United had recorded $255 million in special facilities revenue bonds to
finance the acquisition and construction of certain facilities at Los Angeles,
San Francisco and Miami. United guarantees the payment of these bonds
under various payment and loan agreements. The bond proceeds are
restricted to expenditures on the facilities and unspent amounts are classified
as other assets in the balance sheet.
In February 2001, United
recorded an additional $200 million in special facility bonds to finance
the acquisition and construction of certain facilities at Chicago.
At December 31, 2000,
United had outstanding a total of $1.4 billion of long-term debt bearing
interest rates at 22.5 to 60.0 basis points over LIBOR.
Maturities of long-term
debt for each of the four years after 2001 are: 2002 - $655 million;
2003 - $741 million; 2004 - $350 million; and 2005 - $264 million.
Various assets, principally aircraft, having an aggregate book value of
$4.1 billion at December 31, 2000, were pledged as security under various
loan agreements.
(10) Lease Obligations
The Company leases
aircraft, airport passenger terminal space, aircraft hangars and related
maintenance facilities, cargo terminals, other airport facilities, real
estate, office and computer equipment and vehicles.
Future minimum lease
payments as of December 31, 2000, under capital leases (substantially all
of which are for aircraft) and operating leases having initial or remaining
noncancelable lease terms of more than one year are as follows:
| (In Millions) |
|
|
|
|
|
|
|
|
| Payable during - | |||
| 2001 |
$ 941
|
$ 612
|
$ 472
|
| 2002 |
922
|
574
|
415
|
| 2003 |
972
|
541
|
316
|
| 2004 |
1,008
|
514
|
325
|
| 2005 |
1,022
|
504
|
293
|
| After 2005 |
9,445
|
7,279
|
1,867
|
| Total minimum lease payments |
$14,310
|
$10,024
|
3,688
|
| Imputed interest (at rates of 5.3% to 12.2%) |
======
|
=====
|
(1,158)
|
| Present value of minimum lease payments |
2,530
|
||
| Current portion |
(269)
|
||
| Long-term obligations under capital leases |
$ 2,261
|
||
|
=====
|
|||
As of December 31,
2000, United leased 315 aircraft, 82 of which were under capital leases.
These leases have terms of 10 to 26 years, and expiration dates range from
2001 through 2020.
In connection with the financing
of certain aircraft accounted for as capital leases, United had on deposit
at December 31, 2000 an aggregate 40 billion yen ($348 million), 661 million
German marks ($314 million), 67 million French francs ($10 million), 28
million Euro ($26 million) and $12 million in certain banks and had pledged
an irrevocable security interest in such deposits to certain of the aircraft
lessors. These deposits will be used to pay off an equivalent amount
of recorded capital lease obligations.
Amounts charged to rent expense,
net of minor amounts of sublease rentals, were $1.5 billion in 2000, $1.4
billion in 1999 and $1.4 billion in 1998. Included in 2000 rental
expense was $21 million in contingent rentals, resulting from changes in
interest rates for operating leases under which the rent payments are based
on variable interest rates.
(11) Company-Obligated Mandatorily Redeemable Preferred Securities of a
Subsidiary Trust
In December 1996, UAL Corporation
Capital Trust I (the "Trust") issued $75 million of its 13 1/4% Trust Originated
Preferred Securities (the "Preferred Securities") in exchange for 2,999,304
depositary shares, each representing 1/1000 of one share of Series B 12
1/4% preferred stock (see Note 12 "Serial Preferred Stock"). Concurrent
with the issuance of the Preferred Securities and the related purchase
by UAL of the Trust' s common securities, the Company issued to the Trust
$77 million aggregate principal amount of its 13 1/4% Junior Subordinated
Debentures (the "Debentures") due 2026. The Debentures are and will
be the sole assets of the Trust. The interest and other payment dates
on the Debentures correspond to the distribution and other payment dates
on the Preferred Securities. Upon maturity or redemption of the Debentures,
the Preferred Securities will be mandatorily redeemed. The Debentures
are redeemable at UAL' s option, in whole or in part, on or after July
12, 2004, at a redemption price equal to 100% of the principal amount to
be redeemed, plus accrued and unpaid interest to the redemption date.
Upon the repayment of the Debentures, the proceeds thereof will be applied
to redeem the Preferred Securities.
There is a full and unconditional
guarantee by UAL of the Trust' s obligations under the securities issued
by the Trust. However, the Company' s obligations are subordinate
and junior in right of payment to certain other of its indebtedness.
UAL has the right to defer payments of interest on the Debentures by extending
the interest payment period, at any time, for up to 20 consecutive quarters.
If interest payments on the Debentures are so deferred, distributions on
the Preferred Securities will also be deferred. During any deferral,
distributions will continue to accrue with interest thereon. In addition,
during any such deferral, UAL may not declare or pay any dividend or other
distribution on, or redeem or purchase, any of its capital stock.
The fair value of the Preferred
Securities at December 31, 2000 and 1999 was $85 million and $83 million,
respectively.
(12) Serial Preferred Stock
At December 31, 2000, UAL
had outstanding 3,203,177 depositary shares, each representing 1/1000 of
one share of Series B 12 1/4% preferred stock, with a liquidation preference
of $25 per depositary share ($25,000 per Series B preferred share) and
a stated capital of $0.01 per Series B preferred share. Under its
terms, any portion of the Series B preferred stock or the depositary shares
is redeemable for cash after July 11, 2004, at UAL' s option, at the equivalent
of $25 per depositary share, plus accrued dividends. The Series B
preferred stock is not convertible into any other securities, has no stated
maturity and is not subject to mandatory redemption.
The Series B preferred stock
ranks senior to all other preferred and common stock, except the Preferred
Securities, as to receipt of dividends and amounts distributed upon liquidation.
The Series B preferred stock has voting rights only to the extent required
by law and with respect to charter amendments that adversely affect the
preferred stock or the creation or issuance of any security ranking senior
to the preferred stock. Additionally, if dividends are not paid for
six cumulative quarters, the Series B preferred stockholders are entitled
to elect two additional members to the UAL Board of Directors until all
dividends are paid in full. Pursuant to UAL' s restated certificate
of incorporation, UAL is authorized to issue a total of 50,000 shares of
Series B preferred stock.
During 1998, UAL repurchased
64,300 depositary shares, at an aggregate cost of $3 million, to be held
in treasury.
UAL is authorized to issue
up to 15,986,584 additional shares of serial preferred stock.
(13) ESOP Preferred Stock
The following activity related
to UAL' s outstanding ESOP preferred stocks (see Note 2 for a description
of the ESOPs):
|
|
|
|
|
| Balance December 31, 1997 |
8,652,618
|
806,260
|
7,266,406
|
| Shares issued |
2,011,812
|
177,166
|
3,073,969
|
| Converted to common |
(213,061)
|
(116,104)
|
(331,620)
|
| Balance December 31, 1998 |
10,451,369
|
867,322
|
10,008,755
|
| Shares issued |
1,955,756
|
227,689
|
3,073,969
|
| Converted to common |
(306,662)
|
(146,975)
|
(457,401)
|
| Balance December 31, 1999 |
12,100,463
|
948,036
|
12,625,323
|
| Shares issued |
539,177
|
855,998
|
3,073,968
|
| Converted to common |
(420,958)
|
(283,428)
|
(710,056)
|
| Balance December 31, 2000 |
12,218,682
|
1,520,606
|
14,989,235
|
|
========
|
========
|
========
|
An aggregate of 17,675,345
shares of Class 1 and Class 2 ESOP Preferred Stock was issued to employees
under the ESOPs. Each share of ESOP Preferred Stock is convertible
into four shares of UAL common stock. Shares typically are converted
to common as employees retire or otherwise leave the Company. The
stock has a par value of $0.01 per share and is nonvoting. The Class
1 ESOP Preferred Stock has a liquidation value of $126.96 per share plus
all accrued and unpaid dividends; the Class 2 does not have a liquidation
value. The Class 1 ESOP Preferred Stock provided a fixed annual dividend
of $8.8872 per share, which ceased on March 31, 2000; the Class 2 does
not pay a fixed dividend.
Class P, M and S Voting Preferred
Stocks were established to provide the voting power to the employee groups
participating in the ESOPs. Additional Voting Preferred Stock was
issued as shares of the Class 1 and Class 2 ESOP Preferred Stock were allocated
to employees. In the aggregate, 17,675,345 shares of Voting Preferred
Stock were issued through the year 2000. The Voting Preferred Stock
outstanding at any time commands voting power for approximately 55% of
the vote of all classes of capital stock in all matters requiring a stockholder
vote, other than for the election of members of the Board of Directors.
The Voting Preferred Stock has a par value and liquidation preference of
$0.01 per share. The stock is not entitled to receive any dividends
and is convertible into .0004 shares of UAL common stock.
Class Pilot MEC, IAM, SAM
and I junior preferred stock (collectively "Director Preferred Stocks")
were established to effectuate the election of one or more members to UAL'
s Board of Directors. One share each of Class Pilot MEC and Class
IAM junior preferred stock is authorized and issued. The Company
is authorized to issue ten shares each of Class SAM and Class I junior
preferred stock. There are three shares of Class SAM and four shares
of Class I issued. Each of the Director Preferred Stocks has a par
value and liquidation preference of $0.01 per share. The stock is
not entitled to receive any dividends and Class I will be redeemed automatically
upon the transfer of the shares to any person not elected to the Board
of Directors or upon the occurrence of the "Sunset." (See "Corporate
Governance and the ESOPs" in Item 1. Business.)
(14) Common Stockholders' Equity
Changes in the number of
shares of UAL common stock outstanding during the years ended December
31 were as follows:
|
|
|
|
|
| Shares outstanding at beginning of year |
50,776,583
|
51,804,653
|
57,320,486
|
| Stock options exercised |
187,400
|
939,262
|
382,136
|
| Shares issued from treasury under | |||
| compensation arrangements |
32,458
|
89,745
|
11,944
|
| Shares acquired for treasury |
(1,326,877)
|
(3,877,912)
|
(7,237,975)
|
| Forfeiture of restricted stock |
(5,800)
|
(5,800)
|
(7,600)
|
| Conversion of ESOP preferred stock |
2,817,829
|
1,814,731
|
1,316,786
|
| Other |
57,099
|
11,904
|
18,876
|
| Shares outstanding at end of year |
52,538,692
|
50,776,583
|
51,804,653
|
|
========
|
========
|
========
|
During 2000, 1999 and
1998, the Company repurchased 1,258,263, 3,754,802 and 7,061,109 shares
of common stock, respectively, at a total purchase price of $81 million,
$261 million and $459 million, respectively.
(15) Stock Options and Awards
The Company has granted
options to purchase common stock to various officers and employees.
The option price for all stock options is at least 100% of the fair market
value of UAL common stock at the date of grant. Options generally
vest and become exercisable in four equal, annual installments beginning
one year after the date of grant, and generally expire in ten years.
As a result of the
1994 recapitalization, all outstanding options became fully vested at the
time of the transaction and those options are exercisable for shares of
old common stock, each of which is in turn converted into two shares of
new common stock and $84.81 in cash upon exercise. Subsequent to
the recapitalization, the Company granted stock options which are exercisable
for shares of new common stock.
The Company has also
awarded shares of restricted stock to officers and key employees.
These shares generally vest over a five-year period and are subject to
certain transfer restrictions and forfeiture under certain circumstances
prior to vesting. Unearned compensation, representing the fair market
value of the stock at the measurement date for the award, is amortized
to salaries and related costs over the vesting period. During 2000
and 1999, respectively, 23,000 and 75,000 shares of restricted stock were
issued from treasury. No shares were issued in 1998. As of
December 31, 2000, 98,000 shares were restricted and still nonvested.
Additionally, 265,952 shares were reserved for future awards under the
plan.
Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123") establishes a fair value based method of accounting for stock options.
The Company has elected to continue using the intrinsic value method of
accounting prescribed in APB 25, as permitted by SFAS No. 123. Had
compensation cost for awards been determined based on the fair value at
the grant dates consistent with the method of SFAS No. 123, the Company'
s net income and earnings per share would have instead been reported as
the pro forma amounts indicated below:
|
|
|
|
||
| Net income (in millions) | As reported |
$ 50
|
$ 1,235
|
$ 821
|
| Pro forma |
$ 33
|
$ 1,219
|
$ 812
|
|
| Basic net earnings per share | As reported |
$ 0.08
|
$ 21.20
|
$12.71
|
| Pro forma |
$(0.24)
|
$ 20.89
|
$12.55
|
|
| Diluted net earnings per share | As reported |
$ 0.04
|
$ 9.94
|
$ 6.83
|
| Pro forma |
$(0.10)
|
$ 9.79
|
$ 6.74
|
|
The weighted-average grant
date fair value of restricted shares issued was $51.83 for shares issued
in 2000 and $69.51 for shares issued in 1999. The fair value of each
option grant was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
|
|
|
|
|
| Risk-free interest rate |
6.4%
|
5.2%
|
5.6%
|
| Dividend yield |
2.4%
|
0.0%
|
0.0%
|
| Volatility |
35.0%
|
34.0%
|
33.0%
|
| Expected life (years) |
4.0
|
4.0
|
4.0
|
The Black-Scholes option
valuation model was developed for use in estimating the fair value of traded
options which have no vesting restrictions and are fully transferable.
In addition, option valuation models require the input of highly subjective
assumptions including expected stock price volatility. Because the
Company' s stock options have characteristics significantly different from
those of traded options and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management' s opinion,
the existing models do not necessarily provide a reliable single measure
of the fair value of its stock options.
Stock option activity for
the past three years was as follows:
|
|
|
|
||||
| Old Share Options: |
|
|
|
|||
|
|
|
|
|
|
|
|
| Outstanding at beginning of year |
76,350
|
$ 116.74
|
118,475
|
$ 121.64
|
168,393
|
$ 121.65
|
| Exercised |
(26,600)
|
$ 102.73
|
(42,125)
|
$ 130.53
|
(49,918)
|
$ 121.67
|
| Outstanding at end of year |
49,750
|
$ 124.23
|
76,350
|
$ 116.74
|
118,475
|
$ 121.64
|
| Options exercisable at year-end |
49,750
|
$ 124.23
|
76,350
|
$ 116.74
|
118,475
|
$ 121.64
|
|
|
|
|
||||
| New Share Options: |
|
|
|
|||
|
|
|
|
|
|
|
|
| Outstanding at beginning of year |
6,513,709
|
$ 53.27
|
5,411,836
|
$ 45.07
|
4,749,612
|
$ 36.27
|
| Granted |
1,447,600
|
$ 53.24
|
2,081,600
|
$ 64.29
|
1,064,200
|
$ 81.40
|
| Exercised |
(134,200)
|
$ 29.91
|
(855,012)
|
$ 25.67
|
(282,300)
|
$ 28.79
|
| Terminated |
(261,912)
|
$ 67.50
|
(124,715)
|
$ 70.74
|
(119,676)
|
$ 57.12
|
| Outstanding at end of year |
7,565,197
|
$ 53.19
|
6,513,709
|
$ 53.27
|
5,411,836
|
$ 45.07
|
| Options exercisable at year-end |
4,101,248
|
$ 44.00
|
3,240,210
|
$ 38.26
|
3,400,607
|
$ 29.97
|
| Reserved for future grants at year-end |
280,331
|
1,466,019
|
3,422,904
|
|||
| Wtd avg fair value of options | ||||||
| granted during the year |
|
|
|
|||
The following information
related to stock options outstanding as of December 31, 2000:
|
|
|
||||
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Old Share Options: | |||||
|
|
|
|
|
|
|
| New Share Options: | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(16) Retirement and Postretirement Plans
The Company has various retirement
plans, both defined benefit and defined contribution, which cover substantially
all employees. The Company also provides certain health care benefits,
primarily in the U.S., to retirees and eligible dependents, as well as
certain life insurance benefits to retirees. The Company has reserved
the right, subject to collective bargaining agreements, to modify or terminate
the health care and life insurance benefits for both current and future
retirees.
The following table sets
forth the reconciliation of the beginning and ending balances of the benefit
obligation and plan assets, the funded status and the amounts recognized
in the statement of financial position for the defined benefit and other
postretirement plans as of December 31:
| (In Millions) | ||||
| Change in Benefit Obligation |
|
|
||
|
|
|
|
|
|
| Benefit obligation at beginning of year |
$ 7,381
|
$ 8,038
|
$ 1,465
|
$ 1,626
|
| Service cost |
269
|
295
|
47
|
53
|
| Interest cost |
629
|
583
|
120
|
116
|
| Plan participants' contributions |
1
|
1
|
8
|
7
|
| Amendments |
260
|
1
|
3
|
-
|
| Actuarial (gain) loss |
1,162
|
(1,161)
|
164
|
(254)
|
| Foreign currency exchange rate changes |
(15)
|
12
|
-
|
-
|
| Benefits paid |
(435)
|
(388)
|
(101)
|
(83)
|
| Benefit obligation at end of year |
$ 9,252
|
$ 7,381
|
$ 1,706
|
$ 1,465
|
|
=====
|
=====
|
=====
|
=====
|
|
| Change in Plan Assets | ||||
|
|
|
|
|
|
| Fair value of plan assets at beginning of year |
$ 8,701
|
$ 7,654
|
$ 113
|
$ 112
|
| Actual return on plan assets |
21
|
1,255
|
8
|
6
|
| Employer contributions |
230
|
175
|
88
|
71
|
| Plan participants' contributions |
1
|
1
|
8
|
7
|
| Foreign currency exchange rate changes |
(7)
|
4
|
-
|
-
|
| Benefits paid |
(435)
|
(388)
|
(101)
|
(83)
|
| Fair value of plan assets at end of year |
$ 8,511
|
$ 8,701
|
$ 116
|
$ 113
|
|
=====
|
=====
|
=====
|
=====
|
|
| Funded status |
$ (741)
|
$ 1,320
|
$ (1,590)
|
$ (1,352)
|
| Unrecognized actuarial (gains) losses |
14
|
(1,870)
|
(54)
|
(229)
|
| Unrecognized prior service costs |
806
|
604
|
2
|
- -
|
| Net amount recognized |
$ 79
|
$
54
|
$ (1,642)
|
$ (1,581)
|
|
=====
|
=====
|
=====
|
=====
|
|
| Amounts recognized in the statement of | ||||
| financial position consist of: |
|
|
|
|
| Prepaid (accrued) benefit cost |
$ 79
|
$ 54
|
$ (1,642)
|
$ (1,581)
|
| Accrued benefit liability |
(266)
|
(151)
|
-
|
-
|
| Intangible asset |
255
|
148
|
-
|
-
|
| Accumulated other comprehensive income |
11
|
3
|
- -
|
- -
|
| Net amount recognized |
$ 79
|
$ 54
|
$ (1,642)
|
$ (1,581)
|
|
=====
|
=====
|
=====
|
=====
|
|
| Weighted-average assumptions |
|
|
|
|
| Discount rate |
|
|
|
|
| Expected return on plan assets |
|
|
|
|
| Rate of compensation increase |
|
|
|
|
The assumed health care cost
trend rates for gross claims paid were 4.5% and 4.0% for 2000 and 1999,
respectively.
The net periodic benefit
cost included the following components:
| (In Millions) |
|
|
||||
|
|
|
|
|
|
|
|
| Service cost |
$ 269
|
$ 295
|
$ 276
|
$ 47
|
$ 53
|
$ 48
|
| Interest cost |
629
|
583
|
533
|
120
|
116
|
109
|
| Expected return on plan assets |
(740)
|
(665)
|
(581)
|
(9)
|
(9)
|
(8)
|
| Amortization of prior service cost | ||||||
| including transition obligation/(asset) |
58
|
57
|
57
|
-
|
-
|
-
|
| Recognized actuarial (gain)/loss |
(7)
|
1
|
9
|
(9)
|
(5)
|
(4)
|
| Net period benefit costs |
$ 209
|
$ 271
|
$ 294
|
$ 149
|
$ 155
|
$ 145
|
|
=====
|
=====
|
=====
|
=====
|
=====
|
=====
|
|
Total pension expense for
all retirement plans (including defined contribution plans) was $302 million
in 2000, $285 million in 1999 and $304 million in 1998.
The projected benefit obligation,
accumulated benefit obligation, and fair value of plan assets for the plans
with accumulated benefit obligations in excess of plan assets were $1.0
billion, $632 million and $61 million, respectively, as of December 31,
2000 and $500 million and $444 million and $47 million, respectively, as
of December 31, 1999.
Assumed health care cost
trend rates have a significant effect on the amounts reported for the health
care plan. A one-percentage-point change in assumed health care trend
rate would have the following effects:
| (In Millions) |
|
|
| Effect on total service and interest cost |
|
|
| Effect on postretirement benefit obligation |
|
|
Changes in interest rates
or rates of inflation may impact the assumptions used in the valuation
of pension obligations and postretirement obligations including discount
rates and rates of increase in compensation, resulting in increases or
decreases in United' s pension and postretirement liabilities and pension
and postretirement costs.
(17) Financial Instruments and Risk Management
See Item 7A. Quantitative
and Qualitative Disclosures About Market Risk ("Item 7A") for a discussion
of the Company' s foreign currency and fuel price risk management activities,
and the fair value of all significant financial instruments.
Credit Exposures of Derivatives
The Company' s theoretical
risk in the derivative financial instruments described in Item 7A is the
cost of replacing the contracts at current market rates in the event of
default by any of the counterparties. However, the Company does not
anticipate such default as counterparties are selected based on credit
ratings and the relative market positions with each counterparty are monitored.
Financial Guarantees
Special facility revenue
bonds have been issued by certain municipalities to build or improve airport
and maintenance facilities leased by United. Under the lease agreements,
United is required to make rental payments in amounts sufficient to pay
the maturing principal and interest payments on the bonds. At December
31, 2000, $1.2 billion principal amount of such bonds was outstanding.
As of December 31, 2000, UAL and United had jointly guaranteed $35 million
of such bonds and United had guaranteed $1.2 billion of such bonds, including
accrued interest. The payments required to satisfy these obligations
are included in the future minimum lease payments disclosed in Note 10,
"Lease Obligations."
Concentrations of Credit Risk
The Company does not believe
it is subject to any significant concentration of credit risk. Most
of the Company' s receivables result from sales of tickets to individuals
through geographically dispersed travel agents, company outlets or other
airlines, often through the use of major credit cards. These receivables
are short term, generally being settled shortly after the sale.
(18) Commitments, Contingent Liabilities and Uncertainties
The Company has certain contingencies
resulting from litigation and claims (including environmental issues) incident
to the ordinary course of business. Management believes, after considering
a number of factors, including (but not limited to) the views of legal
counsel, the nature of contingencies to which the Company is subject and
its prior experience, that the ultimate disposition of these contingencies
is not expected to materially affect UAL' s consolidated financial position
or results of operations. UAL records liabilities for legal and environmental
claims against it in accordance with generally accepted accounting principles.
These amounts are recorded based on the Company' s assessments of the likelihood
of their eventual settlements. The amounts of these liabilities could
increase or decrease in the near term, based on revisions to estimates
relating to the various claims.
At December 31, 2000, commitments
for the purchase of property and equipment, principally aircraft, approximated
$4.7 billion, after deducting advance payments. An estimated $2.5
billion will be spent in 2001, $1.7 billion in 2002 and $0.5 in 2003.
The major commitments are for the purchase of A319, A320, B767, and B777
aircraft, which are scheduled to be delivered through 2003. The above
numbers include a recent conversion of 15 option aircraft to firm orders
to be delivered in 2003.
In connection with the construction
of the Indianapolis Maintenance Center, United agreed to spend an aggregate
$800 million on capital investments by the year 2001 and employ at least
7,500 individuals by the year 2004. In the event such targets are
not reached, United may be required to make certain payments to the city
of Indianapolis and state of Indiana.
Approximately 80% of United' s employees are represented by various labor organizations. The labor contracts with the IAM became amendable in July 2000. The Company is currently in the process of negotiating these contracts. The contracts with ALPA and the AFA become amendable in 2004 and 2006, respectively. See Other Information, "Labor Agreements" in Management' s Discussion and Analysis of Financial Condition and Results of Operations for details.
(19) Segment Information
United has a global route
network designed to transport passengers and cargo between destinations
in North America, the Pacific, the Atlantic and Latin America. These
regions constitute United' s four reportable segments. The accounting
policies for each of these segments are the same as those described in
Note 1, "Summary of Significant Accounting Policies," except that segment
financial information has been prepared using a management approach which
is consistent with how the Company' s management internally disaggregates
financial information for the purpose of making internal operating decisions.
UAL evaluates performance based on United' s earnings before income taxes
and gains on sales. Revenues are attributed to each reportable segment
based on the allocation guidelines provided by the U.S. Department of Transportation,
which classifies flights between the U.S. and foreign designations as part
of each respective region. A reconciliation of the total amounts
reported by reportable segments to the applicable amounts in the financial
statements follows:
| (In Millions) |
|
||||||
|
|
|||||||
|
|
|
|
|
||||
| America |
|
|
|
|
|
|
|
| Revenue |
$ 13,094
|
$ 3,161
|
$ 2,260
|
$ 816
|
$ 19,331
|
$ 21
|
$ 19,352
|
| Interest income |
55
|
23
|
16
|
5
|
99
|
2
|
101
|
| Interest expense |
234
|
95
|
66
|
21
|
416
|
(14)
|
402
|
| Equity in losses of affiliates |
(5)
|
(2)
|
(1)
|
-
|
(8)
|
(4)
|
(12)
|
| Depreciation and amortization |
630
|
176
|
141
|
43
|
990
|
68
|
1,058
|
| Earnings before income taxes, | |||||||
| investment impairment and | |||||||
| gains on sales |
205
|
60
|
102
|
10
|
377
|
6
|
383
|
| (In Millions) |
|
||||||
|
|
|||||||
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
| Revenue |
$ 12,516
|
$ 2,691
|
$ 1,973
|
$ 787
|
$ 17,967
|
$ 60
|
$ 18,027
|
| Interest income |
40
|
14
|
10
|
4
|
68
|
-
|
68
|
| Interest expense |
217
|
79
|
55
|
21
|
372
|
(10)
|
362
|
| Equity in earnings of affiliates |
21
|
9
|
5
|
2
|
37
|
-
|
37
|
| Depreciation and amortization |
550
|
145
|
115
|
42
|
852
|
15
|
867
|
| Earnings before income taxes | |||||||
| and gains on sales |
889
|
81
|
164
|
20
|
1,154
|
57
|
1,211
|
| (In Millions) |
|
||||||
|
|
|||||||
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
| Revenue |
$ 11,997
|
$ 2,843
|
$ 1,846
|
$ 832
|
$ 17,518
|
$ 43
|
$ 17,561
|
| Interest income |
33
|
14
|
8
|
3
|
58
|
1
|
59
|
| Interest expense |
207
|
84
|
49
|
22
|
362
|
(7)
|
355
|
| Equity in earnings of affiliates |
41
|
17
|
10
|
4
|
72
|
-
|
72
|
| Depreciation and amortization |
520
|
145
|
95
|
45
|
805
|
(12)
|
793
|
| Earnings (loss) before | |||||||
| income taxes |
1,118
|
(105)
|
185
|
22
|
1,220
|
36
|
1,256
|
| (In Millions) |
|
|
|
| Total earnings for reportable segments |
$ 377
|
$ 1,154
|
$ 1,220
|
| Gains on sales |
109
|
731
|
-
|
| Investment impairment |
(61)
|
-
|
-
|
| UAL subsidiary earnings |
6
|
57
|
36
|
| Total earnings before income taxes, distributions | |||
| on preferred securities, extraordinary item | |||
| and cumulative effect |
$ 431
|
$ 1,942
|
$ 1,256
|
|
=====
|
=====
|
=====
|
UAL' s operations involve
an insignificant level of dedicated revenue producing assets by reportable
segment. The overwhelming majority of UAL' s revenue producing assets
can be deployed in any of the four reportable segments. UAL has significant
intangible assets related to the acquisition of its Atlantic and Latin
America route authorities.
(20) Statement of Consolidated Cash Flows - Supplemental
Disclosures
Supplemental disclosures
of cash flow information and non-cash investing and financing activities
were as follows:
| (In Millions) |
|
|
|
| Cash paid during the year for: | |||
| Interest (net of amounts capitalized) |
$ 298
|
$ 260
|
$ 234
|
| Income taxes |
23
|
296
|
160
|
| Non-cash transactions: | |||
| Capital lease obligations incurred |
339
|
482
|
701
|
| Long-term debt incurred in connection | |||
| with additions to equipment |
32
|
-
|
-
|
| Increase (decrease) in pension intangible assets |
107
|
(123)
|
(15)
|
| Net unrealized gain (loss) on investments |
(196)
|
354
|
-
|
(21) Selected Quarterly Financial Data (Unaudited)
| (In Millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
| 2000: | |||||
| Operating revenues |
$ 4,546
|
$ 5,109
|
$ 4,905
|
$ 4,792
|
$ 19,352
|
| Earnings (loss) from operations |
252
|
605
|
(41)
|
(162)
|
654
|
| Earnings (loss) before extraordinary item | |||||
| and cumulative effect |
110
|
336
|
(110)
|
(71)
|
265
|
| Extraordinary loss on early | |||||
| extinguishment of debt, net |
-
|
-
|
(6)
|
-
|
(6)
|
| Cumulative effect of accounting change, net |
(209)
|
-
|
-
|
-
|
(209)
|
| Net earnings (loss) |
$ (99)
|
$ 336
|
$ (116)
|
$ (71)
|
$
50
|
| Per share amounts, basic: | |||||
| Earnings before extraordinary item | |||||
| and cumulative effect |
$ 1.42
|
$ 6.61
|
$ (2.17)
|
$ (1.40)
|
$ 4.29
|
| Extraordinary loss on early | |||||
| extinguishment of debt, net |
-
|
-
|
(0.13)
|
-
|
(0.13)
|
| Cumulative effect of accounting change, net |
(4.14)
|
-
|
-
|
-
|
(4.08)
|
| Net earnings |
$ (2.72)
|
$ 6.61
|
$ (2.30)
|
$ (1.40)
|
$ 0.08
|
| Net earnings per share, diluted |
$ (1.18)
|
$ 2.86
|
$ (2.30)
|
$ (1.40)
|
$ 0.04
|
| 1999: | |||||
| Operating revenues |
$ 4,160
|
$ 4,541
|
$ 4,845
|
$ 4,481
|
$ 18,027
|
| Earnings from operations |
146
|
433
|
619
|
193
|
1,391
|
| Earnings before extraordinary item |
78
|
672
|
359
|
129
|
1,238
|
| Extraordinary loss on early | |||||
| extinguishment of debt, net |
-
|
(3)
|
-
|
-
|
(3)
|
| Net earnings |
$ 78
|
$ 669
|
$ 359
|
$ 129
|
$ 1,235
|
| Per share amounts, basic: | |||||
| Earnings before extraordinary item |
$ 0.91
|
$ 12.26
|
$ 6.18
|
$ 1.85
|
$ 21.26
|
| Extraordinary loss on early | |||||
| extinguishment of debt, net |
-
|
(0.05)
|
-
|
-
|
(0.06)
|
| Net earnings |
$ 0.91
|
$ 12.21
|
$ 6.18
|
$ 1.85
|
$ 21.20
|
| Net earnings per share, diluted |
$ 0.44
|
$ 5.78
|
$ 2.89
|
$ 0.84
|
$ 9.94
|
The sum of quarterly earnings
per share amounts is not the same as annual earnings per share amounts
because of changing numbers of shares outstanding.
During the third quarter
of 2000, UAL recorded an investment impairment of $61 million related to
its warrants in Priceline.com. Additionally, in the fourth quarter
2000, UAL recognized a pre-tax gain of $109 million on the sale of its
investment in GetThere.com. (See Note 6 "Investments".)
During the second quarter
of 1999, UAL recognized a pre-tax gain of $669 million on the sale of a
portion of its investment in Galileo. Additionally, in the fourth
quarter 1999, UAL recognized a pre-tax gain of $62 million on the sale
of a portion of its investment in Equant. (See Note 6 "Investments".)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required
by this item is incorporated by reference from the Company' s definitive
proxy statement for its 2001 Annual Meeting of Stockholders. Information
regarding the executive officers is included in Part I of this Form 10-K
under the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
Information required
by this item is incorporated by reference from the Company' s definitive
proxy statement for its 2001 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
Information required
by this item is incorporated by reference from the Company' s definitive
proxy statement for its 2001 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required
by this item is incorporated by reference from the Company' s definitive
proxy statement for its 2001 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a) 1. Financial
Statements. The financial statements required by this item are
listed in Item 8, "Financial Statements and Supplementary Data" herein.
2.
Financial Statement Schedules. The financial statement schedule
required by this item is listed below and included in this report after
the signature page hereto.
All other schedules are omitted because they are not applicable, not
required or the required information is shown in the consolidated financial
statements or notes thereto.
(b) Reports on Form 8-K.
Form 8-K dated October 19,
2000 to report a cautionary statement for purposes of the "Safe Harbor
for Forward Looking Statements" provision of the Private Securities Litigation
Reform Act.
Form 8-K dated November 6,
2000 to report a cautionary statement for purposes of the "Safe Harbor
for Forward Looking Statements" provision of the Private Securities Litigation
Reform Act.
SIGNATURES
Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 22nd day of February, 2001.
UAL CORPORATION
/s/ James E. Goodwin
James E. Goodwin
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below
on the 22nd day of February 2001 by the following persons on behalf of
the registrant and in the capacities indicated.
| /s/ James E. Goodwin | /s/ Douglas A. Hacker | |
| James E. Goodwin | Douglas A. Hacker | |
| Chairman of the Board and Chief Executive Officer (principal executive officer) | Executive Vice President and Chief Financial Officer (principal financial and accounting officer) | |
| /s/ Rono Dutta | /s/ Hazel R. O' Leary | |
| Rono Dutta | Hazel R. O' Leary | |
| President and Director | Director | |
| /s/ John W. Creighton, Jr. | /s/ Deval L. Patrick | |
| John W. Creighton, Jr. | Deval L. Patrick | |
| Director | Director | |
| /s/ Frederick C. Dubinsky | /s/ John F. Peterpaul | |
| Frederick C. Dubinsky | John F. Peterpaul | |
| Director | Director | |
| /s/ Richard D. McCormick | /s/ Paul E. Tierney, Jr. | |
| Richard D. McCormick | Paul E. Tierney, Jr. | |
| Director | Director | |
|
/s/ John F. McGillicuddy |
/s/ John K. Van de Kamp | |
| John F. McGillicuddy | John K. Van de Kamp | |
| Director | Director | |
| /s/ James J. O' Connor | ||
| James J. O' Connor | ||
| Director | ||
UAL Corporation and Subsidiary Companies
Schedule II - Valuation and Qualifying Accounts
For the Year Ended December 31, 2000
| (In Millions) |
|
|
|
||
|
|
|
|
|
||
|
|
|
|
|
|
|
| Reserve deducted from asset to which
it applies:
|
|||||
| Allowance for doubtful accounts |
|
|
|
|
|
|
|
|
|
|
|
|
| Obsolescence allowance - | |||||
| Flight equipment spare parts |
|
|
|
|
|
|
|
|
|
|
|
|
F-1
___________
1Deduction from reserve for purpose for which reserve was created.
UAL Corporation and Subsidiary Companies
Schedule II - Valuation and Qualifying Accounts
For the Year Ended December 31, 1999
| (In Millions) |
|
|
|
||
|
|
|
|
|
||
|
|
|
|
|
|
|
| Reserve deducted from asset to which
it applies:
|
|||||
| Allowance for doubtful accounts |
|
|
|
|
|
|
|
|
|
|
|
|
| Obsolescence allowance - | |||||
| Flight equipment spare parts |
|
|
|
|
|
|
|
|
|
|
|
|
F-2
___________
1Deduction from reserve for purpose for which reserve was created.
UAL Corporation and Subsidiary Companies
Schedule II - Valuation and Qualifying Accounts
For the Year Ended December 31, 1998
| (In Millions) |
|
|
|
||
|
|
|
|
|
||
|
|
|
|
|
|
|
| Reserve deducted from asset to which
it applies:
|
|||||
| Allowance for doubtful accounts |
|
|
|
|
|
|
|
|
|
|
|
|
| Obsolescence allowance - | |||||
| Flight equipment spare parts |
|
|
|
|
|
|
|
|
|
|
|
|
F-3
___________
1Deduction from reserve for purpose for which reserve was
created.
| 3.1 | Restated Certificate of Incorporation of UAL Corporation ("UAL"), as amended (filed as Exhibit 3.1 to UAL' s Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference). |
| 3.2 | By-laws (filed as Exhibit 3.2 to UAL' s Form 10-Q for the quarter ended September 30, 1999 and incorporated herein by reference). |
| 4.1 | Deposit Agreement dated as of July 12, 1994 between UAL Corporation and holders from time to time of Depository Receipts described herein. |
| 4.2 | Indenture dated as of December 20, 1996 between UAL Corporation and The First National Bank of Chicago, as Trustee (filed as Exhibit 4.2 to UAL' s Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). |
| 4.3 | Officer' s Certificate relating to UAL' s 13-1/4% Junior Subordinated Debentures due 2026 (filed as Exhibit 4.3 to UAL' s Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). |
| 4.4 | Form of UAL' s 13-1/4% Junior Subordinated Debenture due 2026 (filed as Exhibit 4.4 to UAL' s Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). |
| 4.5 | Guarantee Agreement dated as of December 30, 1996 with respect to the 13-1/4% Trust Originated Preferred Securities of UAL Corporation Capital Trust I (filed as Exhibit 4.5 to UAL' s Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). |
| 4.6 | Amended and Restated Declaration of Trust of UAL Corporation Capital Trust I dated as of December 30, 1996 (filed as Exhibit 4.6 to UAL' s Form 10-K for year ended December 31, 1996 and incorporated herein by reference). |
| UAL' s indebtedness under any single instrument does not exceed 10% of UAL' s total assets on a consolidated basis. Copies of such instruments will be furnished to the Securities and Exchange Commission upon request. | |
| 10.1 | Amended and Restated Agreement and Plan of Recapitalization, dated as of March 25, 1994 (the "Recapitalization Agreement"), as amended, among UAL Corporation, the Air Line Pilots Association, International ("ALPA") and the International Association of Machinists and Aerospace Workers ("IAM"). |
| 10.2 | Second Amendment to the Agreement and Plan of Recapitalization, dated as of June 2, 1994, among UAL, ALPA and the IAM. |
| 10.3 | Agreement, dated as of July 16, 1996, pursuant to Section 1.6q of the Recapitalization Agreement among UAL, ALPA and IAM (filed as Exhibit 10.3 to UAL' s Form 10-Q for the quarter ended June 30, 1996 and incorporated herein by reference). |
| 10.4 | UAL Corporation Employee Stock Ownership Plan, effective as of July 12, 1994. |
| 10.5 | First Amendment to UAL Corporation Employee Stock Ownership Plan, dated December 28, 1994. |
| 10.6 | Second Amendment to UAL Corporation Employee Stock Ownership Plan, dated as of August 17, 1995. |
| 10.7 | Third Amendment to UAL Corporation Employee Stock Ownership Plan, dated as of December 28, 1995 (filed as Exhibit 10.7 to UAL' s Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). |
| 10.8 | Fourth Amendment to UAL Corporation Employee Stock Ownership Plan, dated as of July 16, 1996 (filed as Exhibit 10.1 to UAL' s Form 10-Q for the quarter ended June 30, 1996 and incorporated herein by reference). |
| 10.9 | Fifth Amendment to UAL Corporation Employee Stock Ownership Plan, dated as of December 31, 1996 (filed as Exhibit 10.10 of UAL' s Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). |
| 10.10 | Sixth Amendment to UAL Corporation Employee Stock Ownership Plan, dated as of August 11, 1997 (filed as Exhibit 10.3 to UAL' s Form 10-Q for the quarter ended September 30, 1997, as amended, and incorporated herein by reference). |
| 10.11 | Seventh Amendment to UAL Corporation Employee Stock Ownership Plan, dated as of May 19, 1999 (filed as Exhibit 10.10 to UAL' s Form 10-K for the year ended December 31, 2000 and incorporated herein by reference). |
| 10.12 | Eighth Amendment to UAL Corporation Employee Stock Ownership Plan, dated as of November 10, 1999 (filed as Exhibit 10.11 to UAL' s Form 10-K for the year ended December 31, 2000 and incorporated herein by reference). |
| 10.13 | Ninth Amendment to UAL Corporation Employee Stock Ownership Plan, dated as of October 29, 1999 (filed as Exhibit 10.12 to UAL' s Form 10-K for the year ended December 31, 2000 and incorporated herein by reference). |
| 10.14 | Tenth Amendment to UAL Corporation Employee Stock Ownership Plan, dated as of April 28, 2000 (filed as Exhibit 10.3 to UAL' s Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference). |
| 10.15 | Eleventh Amendment to UAL Corporation Employee Stock Ownership Plan, dated as of December 29, 2000. |
| 10.16 | UAL Corporation Employee Stock Ownership Plan Trust Agreement between UAL Corporation and State Street Bank and Trust Company ("State Street"), effective July 12, 1994. |
| 10.17 | UAL Corporation Supplemental ESOP, effective as of July 12, 1994. |
| 10.18 | First Amendment to UAL Corporation Supplemental ESOP, dated February 22, 1995. |
| 10.19 | Second Amendment to UAL Corporation Supplemental ESOP, dated as of August 17, 1995. |
| 10.20 | Third Amendment to UAL Corporation Supplemental ESOP, dated as of December 28, 1995. |
| 10.21 | Fourth Amendment to UAL Corporation Supplemental ESOP, dated as of July 16, 1996 (filed as Exhibit 10.2 to UAL' s Form 10-Q for the quarter ended June 30, 1996 and incorporated herein by reference). |
| 10.22 | Fifth Amendment to UAL Corporation Supplemental ESOP, dated as of December 31, 1996 (filed as Exhibit 10.17 to UAL' s Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). |
| 10.23 | Sixth Amendment to UAL Corporation Supplemental ESOP, dated as of August 11, 1997 (filed as Exhibit 10.4 of UAL' s Form 10-Q for the quarter ended September 30, 1997, as amended, and incorporated herein by reference). |
| 10.24 | Seventh Amendment to UAL Corporation Supplemental ESOP, dated as of May 19, 1999 (filed as Exhibit 10.21 to UAL' s Form 10-K for the year ended December 31, 2000 and incorporated herein by reference). |
| 10.25 | Eighth Amendment to UAL Corporation Supplemental ESOP, dated as of November 10, 1999 (filed as Exhibit 10.22 to UAL' s Form 10-K for the year ended December 31, 2000 and incorporated herein by reference). |
| 10.26 | Ninth Amendment to UAL Corporation Supplemental ESOP, dated as of October 29, 1999 (filed as Exhibit 10.23 to UAL' s Form 10-K for the year ended December 31, 2000 and incorporated herein by reference). |
| 10.27 | Eleventh Amendment to UAL Corporation Supplemental ESOP |
| 10.28 | UAL Corporation Supplemental ESOP Trust Agreement between UAL Corporation and State Street, effective July 12, 1994. |
| 10.29 | Class I Junior Preferred Stockholders' Agreement, dated as of June 12, 1994. |
| 10.30 | Class SAM Preferred Stockholders' Agreement, dated as of July 12, 1994. |
| 10.31 | First Refusal Agreement, dated as of July 12, 1994, as amended (filed as Exhibit 10.25 to UAL' s Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). |
| 10.32 | UAL Corporation 2000 Incentive Stock Plan (filed as Exhibit 10.1 to UAL' s Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference). |
| 10.33 | United Employees Performance Incentive Plan (filed as Exhibit 10.1 to UAL' s Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference). |
| 10.34 | UAL Corporation 1998 Restricted Stock Plan (filed as Exhibit 10.1 to UAL' s Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference). |
| 10.35 | Summary Description of Compensation and Benefits for Directors (filed as Exhibit 10.34 to UAL' s Form 10-K for the year ended December 31, 1999 and incorporated herein by reference). |
| 10.36 | UAL Corporation 1995 Directors Plan, as amended June 26, 1997 (filed as Exhibit 10.1 of UAL' s Form 10-Q for the quarter ended September 30, 1997, as amended, and incorporated herein by reference). |
| 10.37 | United Supplemental Retirement Plan (filed as Exhibit 10.35 of UAL' s 10-K for the year ended December 31, 1998 and incorporated herein by reference). |
| 10.38 | Description of Officer Benefits (filed as Exhibit 10.36 of UAL' s 10-K for the year ended December 31, 1998 and incorporated herein by reference). |
| 10.39 | Employment Agreement, dated as of April 12, 1999, between UAL Corporation, United Air Lines, Inc. and James E. Goodwin (filed as Exhibit 10.1 of UAL' s Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference). |
| 10.40 | Employment Agreement between William P. Hobgood and UAL and United, dated March 1, 2000 (filed as Exhibit 10.1 of UAL' s Form 10-Q for the quarter ended March 31, 2000 and incorporated herein by reference). |
| 10.41 | 2000 Agreement between United Air Lines, Inc. and the Air Line Pilots in the service of United Air Lines, Inc. represented by the Air Line Pilots Association, International. |
| 12 | Computation of Ratio of Earnings to Fixed Charges. |
| 12.1 | Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividend Requirements. |
| 21 | List of UAL' s subsidiaries |
| 23 | Consent of Independent Public Accountants |
| 99 | Annual Report on Form 11-K for Employees' Stock Purchase Plan of UAL Corporation |
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<TYPE> EX-4.1
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UAL CORPORATION
FIRST CHICAGO TRUST COMPANY OF NEW YORK, As Depositary
AND
THE HOLDERS FROM TIME TO TIME OF
THE DEPOSITARY RECEIPTS DESCRIBED HEREIN
DEPOSIT AGREEMENT
Dated as of July 12, 1994
TABLE OF CONTENTS
ARTICLE I
Definitions
ARTICLE II
FORM OF RECEIPTS, DEPOSIT OF STOCK,EXECUTION AND DELIVERY, TRANSFER,SURRENDER AND REDEMPTION OF RECEIPTS
SECTION 2.1 Form and Transfer of Receipts
SECTION 2.2 Deposit of Stock; Execution and Delivery
of Receipts in Respect Thereof
SECTION 2.3 Registration of Transfer of Receipts
SECTION 2.4 Split-ups and Combinations of Receipts;
Surrender of Receipts and Withdrawal of Stock
SECTION 2.5 Limitations on Execution and Delivery,
Transfer, Surrender and Exchange of Receipts
SECTION 2.6 Lost Receipts, etc.
SECTION 2.7 Cancellation and Destruction of Surrendered
Receipts
SECTION 2.8 Redemption of Stock
ARTICLE III
CERTAIN OBLIGATIONS OFHOLDERS OF RECEIPTS AND THE COMPANY
SECTION 3.1 Filing Proofs, Certificates and Other
Information
SECTION 3.2 Payment of Taxes or Other Governmental
Charges
SECTION 3.3 Warranty as to Stock
ARTICLE IV
THE DEPOSITED SECURITIES; NOTICES
SECTION 4.1 Cash Distributions
SECTION 4.2 Distributions Other than Cash, Rights,
Preferences or Privileges
SECTION 4.3 Subscription Rights, Preferences or Privileges
SECTION 4.4 Notice of Dividends, etc.; Fixing Record
Date for Holders of Receipts
SECTION 4.5 Voting Rights
SECTION 4.6 Changes Affecting Deposited Securities
and Reclassifications, Recapitalizations, etc.
SECTION 4.7 Delivery of Reports
SECTION 4.8 List of Receipt Holders
ARTICLE V
THE DEPOSITARY, THE DEPOSITARY'SAGENTS, THE REGISTRAR AND THE COMPANY
SECTION 5.1 Maintenance of Offices, Agencies and Transfer
Books by the Depositary; Registrar
SECTION 5.2 Prevention of or Delay in Performance
by the Depositary, The Depositary's Agents, the Registrar or the Company
SECTION 5.3 Obligation of the Depositary, the Depositary's
Agents, The Registrar and the Company
SECTION 5.4 Resignation and Removal of the Depositary;
Appointment of Successor Depositary
SECTION 5.5 Corporate Notices and Reports
SECTION 5.6 Indemnification by the Company
SECTION 5.7 Charges and Expenses
SECTION 5.8 Deposit of Stock by the Company
SECTION 5.9 Tax Compliance
ARTICLE VI
AMENDMENT AND TERMINATION
SECTION 6.1 Amendment
SECTION 6.2 Termination
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 Counterparts
SECTION 7.2 Exclusive Benefit of Parties
SECTION 7.3 Invalidity of Provisions
SECTION 7.4 Notices
SECTION 7.5 Appointment of Registrar
SECTION 7.6 Depositary's Agents
SECTION 7.7 Holders of Receipts Are Parties
SECTION 7.8 GOVERNING LAW
SECTION 7.9 Inspection of Deposit Agreement
SECTION 7.10 Headings
Annex A
DEPOSIT AGREEMENT, dated as of July 12, 1994,
among UAL CORPORATION, a Delaware corporation (the "Company"), FIRST CHICAGO TRUST COMPANY OF NEW YORK, a New York State trust Company (the "Depositary"), and the holders from time to time of the Receipts described herein.
WHEREAS, it is desired to provide, as hereinafter set forth in this Deposit Agreement, for the deposit of shares of Series B Preferred Stock of the Company with the Depositary for the purposes set forth in this Deposit Agreement and for the issuance hereunder of Receipts evidencing Depositary Shares in respect of the Stock so deposited; and
WHEREAS, the Receipts are to be substantially in the form of Exhibit A annexed hereto, with appropriate insertions, modifications and omissions, as hereinafter provided in this Deposit Agreement;
NOW, THEREFORE, in consideration of the promises contained herein, the
parties hereto agree as follows:
131:
138:
139:
ARTICLE I
DEFINITIONS
The following definitions shall, for all purposes, unless otherwise indicated, apply to the respective terms used in this Deposit Agreement:
"Certificate" shall mean the Amended and Restated Certificate of Incorporation of the Company, filed with the Secretary of State of the State of Delaware, that, among other things, establishes the Stock as a series of preferred stock of the Company.
"Company" shall mean the party named as such in the first paragraph of this Deposit Agreement and any successor hereunder.
"Deposit Agreement" shall mean this Deposit Agreement, as amended or supplemented from time to time.
"Depositary" shall mean the person named as such in the first paragraph of this Deposit Agreement and any successor as Depositary hereunder.
"Depositary Shares" shall mean depositary shares, each representing one one-thousandth (1/1,000) of a share of Stock and evidenced by a Receipt.
"Depositary's Agent" shall mean an agent appointed by the Depositary pursuant to Section 5.1 and shall include the Registrar if such Registrar is not the Depositary.
"Depositary's Office" shall mean the principal office of the Depositary, at which at any particular time its depositary receipt business shall be administered.
"Receipt" shall mean one of the depositary receipts, substantially in the form set forth as Exhibit A hereto, issued hereunder, whether in definitive or temporary form and evidencing the number of Depositary Shares held of record by the record holder of such Depositary Shares.
"record holder" or "holder" as applied to a Receipt shall mean the person in whose name a Receipt is registered on the books of the Depositary maintained for such purpose.
"Registrar" shall mean the Depositary or such other bank or trust company that shall be appointed to register ownership and transfers of Receipts as herein provided.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Stock" shall mean shares of the Company's Series B Preferred Stock,
without par value, $25,000 liquidation value per share.
ARTICLE II
FORM OF RECEIPTS, DEPOSIT OF STOCK, EXECUTION AND DELIVERY, TRANSFER, SURRENDER AND REDEMPTION OF RECEIPTS
SECTION 2.1 Form and Transfer of Receipts. Definitive Receipts shall be engraved or printed or lithographed on steel-engraved borders, with appropriate insertions, modifications and omissions as hereinafter provided, if required by any securities exchange on which the Receipts are listed. Pending the preparation of definitive Receipts or if definitive Receipts are not required by any securities exchange on which the Receipts are listed, the Depositary, upon the written order of the Company or any holder of Stock, as the case may be, delivered in compliance with Section 2.2, shall execute and deliver temporary Receipts that are printed, lithographed, typewritten, mimeographed or otherwise substantially of the tenor of the definitive Receipts in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the persons executing such Receipts may determine, as evidenced by their execution of such Receipts. If temporary Receipts are issued, the Company and the Depositary shall cause definitive Receipts to be prepared without unreasonable delay. After the preparation of definitive Receipts, the temporary Receipts shall be exchangeable for definitive Receipts upon surrender of the temporary Receipts at the Depositary's Office or at such other place or places as the Depositary shall determine, without charge to the holder. Upon surrender for cancellation of any one or more temporary Receipts, the Depositary shall execute and deliver in exchange therefor definitive Receipts representing the same number of Depositary Shares as represented by the surrendered temporary Receipt or Receipts. Such exchange shall be made at the Company's expense and without any charge to the holder therefor. Until so exchanged, the temporary Receipts shall in all respects be entitled to the same benefits under this Agreement, and with respect to the Stock, as definitive Receipts.
Receipts shall be executed by the Depositary by the manual signature of a duly authorized officer of the Depositary; provided that such signature may be a facsimile if a Registrar for the Receipts (other than the Depositary) shall have been appointed and such Receipts are countersigned by a manual signature of a duly authorized officer of the Registrar. No Receipt shall be entitled to any benefits under this Deposit Agreement or be valid or obligatory for any purpose unless it shall have been executed manually by a duly authorized officer of the Depositary or, if a Registrar for the Receipts (other than the Depositary) shall have been appointed, by manual or facsimile signature of a duly authorized officer of the Depositary and countersigned manually by a duly authorized officer of such Registrar. The Depositary shall record on its books each Receipt so signed and delivered as hereinafter provided.
Receipts shall be in denominations of any number of whole Depositary Shares. The Company shall deliver to the Depositary from time to time such quantities of Receipts as the Depositary may request to enable the Depositary to perform its obligations under this Deposit Agreement.
Receipts may be endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with the provisions of this Deposit Agreement as may be required by the Depositary or required to comply with any applicable law or any regulation thereunder or with the rules and regulations of any securities exchange upon which the Stock, the Depositary Shares or the Receipts may be listed or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Receipts are subject.
Title to Depositary Shares evidenced by a Receipt, which is properly endorsed or accompanied by a properly executed instrument of transfer, shall be transferable by delivery with the same effect as in the case of a negotiable instrument; provided that until transfer of a Receipt shall be registered on the books of the Depositary as provided in Section 2.3, the Depositary may, notwithstanding any notice to the contrary, treat the record holder thereof at such time as the absolute owner thereof for the purpose of determining the person entitled to distributions of dividends or other distributions or to any notice provided for in this Deposit Agreement and for all other purposes.
On each date on which the Stock is initially issued by the Company, the Depositary, upon receipt of written instructions from the Company and a certificate or certificates for the Stock to be deposited under this Deposit Agreement in accordance with the provisions of this Section 2.1, shall execute and deliver a Receipt or Receipts for the number of Depositary Shares representing such deposited Stock to the person or persons stated in such instructions as provided in Section 2.2.
If required by the Depositary, Stock presented for deposit at any time, whether or not the register of stockholders of the Company is closed, shall also be accompanied by an agreement or assignment, or other instrument satisfactory to the Depositary, that shall provide for the prompt transfer to the Depositary or its assigns of any dividend or right to subscribe for additional Stock or to receive other property that any person in whose name the Stock is or has been registered may thereafter receive upon or in respect of such deposited Stock or, in lieu thereof, such agreement of indemnity or other agreement as shall be satisfactory to the Depositary.
SECTION 2.2 Deposit of Stock; Execution and Delivery of Receipts in Respect Thereof. Subject to the terms and conditions of this Deposit Agreement, the Company or any holder of Stock may from time to time deposit shares of the Stock under this Deposit Agreement by delivering to the Depositary a certificate or certificates for the Stock to be deposited, properly endorsed or accompanied, if required by the Depositary, by a duly executed instrument of transfer or endorsement, in form satisfactory to the Depositary, together with all such certifications as may be required by the Depositary in accordance with the provisions of this Deposit Agreement, and together with a written order of the Company or such holder, as the case may be, directing the Depositary to execute and deliver to, or upon the written order of, the person or persons stated in such order a Receipt or Receipts for the number of Depositary Shares representing such deposited Stock.
Deposited Stock shall be held by the Depositary at the Depositary's Office or at such other place or places as the Depositary shall determine.
Upon receipt by the Depositary of a certificate or certificates for Stock deposited in accordance with the provisions of this Section, together with the other documents required as above specified, and upon recordation of the Stock on the books of the Company in the name of the Depositary or its nominee, the Depositary, subject to the terms and conditions of this Deposit Agreement, shall execute and deliver, to or upon the order of the person or persons named in the written order delivered to the Depositary referred to in the first paragraph of this Section, a Receipt or Receipts for the whole number of Depositary Shares representing the Stock so deposited and registered in such name or names as may be requested by such person or persons. The Depositary shall execute and deliver such Receipt or Receipts at the Depositary's Office or such other offices, if any, as the Depositary may designate. Delivery at other offices shall be at the risk and expense of the person requesting such delivery. In each case, delivery shall be made only upon payment as provided in Section 5.7 to the Depositary of all taxes and other governmental charges and any fees payable in connection with such deposit and transfer of the Stock.
SECTION 2.3 Registration of Transfer of Receipts. Subject to the terms and conditions of this Deposit Agreement, the Depositary shall register on its books from time to time transfers of Receipts upon any surrender thereof by the holder in person or by duly authorized attorney, properly endorsed or accompanied by a properly executed instrument of transfer or endorsement together with evidence of the payment of any transfer taxes as may be required by law. Thereupon, the Depositary shall execute a new Receipt or Receipts evidencing the same aggregate number of Depositary Shares as those evidenced by the Receipt or Receipts surrendered and deliver such new Receipt or Receipts to or upon the order of the person entitled thereto.
SECTION 2.4 Split-ups and Combinations of Receipts; Surrender of Receipts and Withdrawal of Stock. Upon surrender of a Receipt or Receipts at the Depositary's Office or at such other offices as it may designate for the purpose of effecting a split-up or combination of such Receipt or Receipts, and subject to the terms and conditions of this Deposit Agreement, the Depositary shall execute and deliver a new Receipt or Receipts in the authorized denomination or denominations requested, evidencing the aggregate number of Depositary Shares evidenced by the Receipt or Receipts surrendered, provided that the Depositary shall not issue any Receipt evidencing a fractional Depositary Share.
Any holder of a Receipt or Receipts representing any number of whole shares of Stock may (unless the related Depositary Shares have previously been called for redemption) withdraw the Stock and all money and other property, if any, represented thereby by surrendering such Receipt or Receipts, at the Depositary's Office or at such other offices as the Depositary may designate for such withdrawals. Thereafter, without unreasonable delay, the Depositary shall deliver to such holder, or to the person or persons designated by such holder as hereinafter provided, the number of whole shares of Stock and all money and other property, if any, represented by the Receipt or Receipts so surrendered for withdrawal, but holders of such whole shares of Stock shall not thereafter be entitled to deposit such Stock hereunder or to receive Depositary Shares therefor. If a Receipt delivered by the holder to the Depositary in connection with such withdrawal shall evidence a number of Depositary Shares in excess of the number of Depositary Shares representing the number of whole shares of Stock to be so withdrawn, the Depositary shall at the same time, in addition to such number of whole shares of Stock and such money and other property, if any, to be so withdrawn, deliver to such holder, or upon his order, a new Receipt evidencing such excess number of Depositary Shares, provided that the Depositary shall not issue any Receipt evidencing a fractional Depositary Share. Delivery of the Stock and money and other property being withdrawn may be made by the delivery of such certificates, documents of title and other instruments as the Depositary may deem appropriate, which, if required by the Depositary, shall be properly endorsed or accompanied by proper instruments of transfer.
If the Stock and the money and other property being withdrawn are to be delivered to a person or persons other than the record holder of the Receipt or Receipts being surrendered for withdrawal of Stock, such holders shall execute and deliver to the Depositary a written order so directing the Depositary and the Depositary may require that the Receipt or Receipts surrendered by such holder for withdrawal of such shares of Stock be properly endorsed in blank or accompanied by a properly executed instrument of transfer in blank.
Delivery of the Stock and the money and other property, if any, represented by Receipts surrendered for withdrawal shall be made by the Depositary at the Depositary's Office, except that, at the request, risk and expense of the holder surrendering such Receipt or Receipts and for the account of the holder thereof, such delivery may be made at such other place as may be designated by such holder.
SECTION 2.5 Limitations on Execution and Delivery, Transfer, Surrender and Exchange of Receipts. As a condition precedent to the execution and delivery, registration of transfer, split-up, combination, surrender or exchange of any Receipt, the Depositary, the Registrar, any of the Depositary's Agents or the Company may require payment to it of a sum sufficient for the payment (or, if the Depositary or the Company shall have made such payment, the reimbursement to it) of any charges or expenses payable by the holder of a Receipt pursuant to Sections 3.2 and 5.7, may require the production of evidence satisfactory to it as to the identity and genuineness of any signature and may also require compliance with such regulations, if any, as the Depositary or the Company may establish consistent with the provisions of this Deposit Agreement.
The deposit of Stock may be refused, the delivery of Receipts against Stock may be suspended, the registration of transfer of Receipts may be refused and the registration of transfer, surrender or exchange of outstanding Receipts may be suspended (i) during any period when the register of stockholders of the Company is closed, (ii) if any such action is deemed necessary or advisable by the Depositary, the Registrar, any of the Depositary's Agents or the Company at any time or from time to time because of any requirement of law or of any government or governmental body or commission or under any provision of this Deposit Agreement or (iii) with the approval of the Company, for any other reason.
SECTION 2.6 Lost Receipts, etc. If any receipt shall be mutilated, destroyed, lost or stolen, the Depositary in its discretion may execute and deliver a Receipt of like form and tenor in exchange and substitution for such mutilated Receipt, or in lieu of and in substitution for such destroyed, lost or stolen Receipt, upon (i) the filing by the holder thereof with the Depositary of evidence satisfactory to the Depositary of such destruction or loss or theft of such Receipt, of the authenticity thereof and of his or her ownership thereof, (ii) the furnishing of the Depositary with reasonable indemnification satisfactory to it and (iii) the payment of any expense (including fees, charges and expenses of the Depositary) in connection with such execution and delivery.
SECTION 2.7 Cancellation and Destruction of Surrendered Receipts. All Receipts surrendered to the Depositary or any Depositary's Agent shall be cancelled by the Depositary and returned to the Company. Except as prohibited by applicable law or regulation, the Company is authorized to destroy all Receipts so cancelled.
SECTION 2.8 Redemption of Stock. Whenever the Company shall be permitted and shall elect to redeem shares of Stock in accordance with the provisions of the Certificate, it shall (unless otherwise agreed to in writing with the Depositary) give or cause notice to be given to the Depositary not less than 30 days, but not more than 60 days, prior to the date of such proposed redemption of Stock and of the number of such shares held by the Depositary to be so redeemed and the applicable redemption price, as set forth in the Certificate, which notice shall be accompanied by a certificate from the Company stating that such redemption of Stock is in accordance with the provisions of the Certificate. On the date of such redemption, if the Company shall then have paid or caused to be paid in full to the Depositary the redemption price of the Stock to be redeemed, plus an amount equal to any accrued and unpaid dividends thereon to the date fixed for redemption, in accordance with the provisions of the Certificate, the Depositary shall redeem the number of Depositary Shares representing such Stock. The Depositary shall mail notice of the Company's redemption of Stock and the proposed simultaneous redemption of the number of Depositary Shares representing the Stock to be redeemed by first-class mail, postage prepaid, not less than 20 days, but not more than 50 days, prior to the date fixed for redemption of such Stock and Depositary Shares (the "Redemption Date") to the record holders of the Receipts evidencing the Depositary Shares to be so redeemed, at the address of such holders as they appear on the records of the Depositary; but neither failure to mail any such notice of redemption of Depositary Shares to one or more such holders nor any defect in any notice of redemption of Depositary Shares to one or more such holders shall affect the sufficiency of the proceedings for redemption as to the other holders. The Company shall provide the Depositary with the information necessary for the Depositary to prepare such notice and each such notice shall state: (i) the Redemption Date, (ii) the number of Depositary Shares to be redeemed and, if less than all the Depositary Shares held by any such holder are to be redeemed, the number of such Depositary Shares held by such holder to be so redeemed, (iii) the redemption price, (iv) the place or places where Receipts evidencing Depositary Shares are to be surrendered for payment of the redemption price, and (v) that dividends in respect of the Stock represented by the Depositary Shares to be redeemed shall cease to accrue on such Redemption Date. If less than all the outstanding Depositary Shares are to be redeemed, the Depositary Shares to be so redeemed shall be selected by the Depositary by lot or pro rata (as nearly as may be) or by any other method, in each case, as determined by the Depositary in its sole discretion to be equitable.
Notice having been mailed by the Depositary as aforesaid, from and after the Redemption Date (unless the Company shall have failed to provide the funds necessary to redeem the Stock evidenced by the Depositary Shares called for redemption) (i) dividends on the shares of Stock so called for redemption shall cease to accrue from and after such date, (ii) the Depositary Shares being redeemed from such proceeds shall be deemed no longer to be outstanding, (iii) all rights of the holders of Receipts evidencing such Depositary Shares (except the right to receive the redemption price) shall, to the extent of such Depositary Shares, cease and terminate, and (iv) upon surrender in accordance with such redemption notice of the Receipts evidencing any such Depositary Shares called for redemption (properly endorsed or assigned for transfer, if the Depositary or applicable law shall so require), such Depositary Shares shall be redeemed by the Depositary at a redemption price per Depositary Share equal to one one-thousandth (1/1,000) of the redemption price per share paid with respect to the shares of Stock plus all money and other property, if any, represented by such Depositary Shares, including all amounts paid by the Company in respect of dividends that on the Redemption Date have accumulated on the shares of Stock to be so redeemed and have not theretofore been paid.
If fewer than all of the Depositary Shares evidenced by a Receipt are called for redemption, the Depositary shall deliver to the holder of such Receipt upon its surrender to the Depositary, together with the redemption payment, a new Receipt evidencing the Depositary Shares evidenced by such prior Receipt and not called for redemption. The Depositary shall not be required (a) to issue, transfer or exchange any Receipts for a period beginning at the opening of business ten days next preceding any selection of Depositary Shares and Stock to be redeemed and ending at the close of business on the day of the mailing of notice of redemption of Depositary Shares or (b) to transfer or exchange for another Receipt any Receipt evidencing Depositary Shares called or being called for redemption in whole or in part, except as provided in the preceding paragraph of this Section 2.8.
ARTICLE III
CERTAIN OBLIGATIONS OF HOLDERS OF RECEIPTS AND THE COMPANY
SECTION 3.1 Filing Proofs, Certificates and Other Information. Any holder of a Receipt may be required from time to time to file such proof of residence, or other matters or other information, to execute such certificates and to make such representations and warranties as the Depositary or the Company may reasonably deem necessary or proper. The Depositary or the Company may withhold the delivery, or delay the registration of transfer, redemption or exchange, of any Receipt or the withdrawal or conversion of the Stock represented by the Depositary Shares evidenced by any Receipt or the distribution of any dividend or other distribution or the sale of any rights or of the proceeds thereof until such proof or other information is filed or such certificates are executed or such representations and warranties are made.
SECTION 3.2 Payment of Taxes or Other Governmental Charges. If any tax or other governmental charge shall become payable by or on behalf of the Depositary with respect to any Receipt, the Depositary Shares evidenced by the Receipts, the Stock (or any beneficial interest therein) or any transaction referred to in Section 4.6, such taxes or charges shall be payable by the holder of the Receipts. Holders of Receipts shall also be obligated to make payments to the Depositary of certain charges and expenses, as provided in Section 5.7. Registration of transfer of any Receipt or any withdrawal of Stock and all money or other property, if any, represented by the Depositary Shares evidenced by such Receipt may be refused until any such payment due is made, and any dividends or other distributions may be withheld or any part of or all the Stock or other property represented by the Depositary Shares evidenced by such Receipt and not theretofore sold may be sold for the account of the holder thereof (after attempting by reasonable means to notify such holder prior to such sale), and such dividends or other distributions or the proceeds of any such sale may be applied to any payment of such charges or expenses, the holder of such Receipt remaining liable for any deficiency.
SECTION 3.3 Warranty as to Stock. The Company hereby represents and warrants and each person so depositing Stock under this Deposit Agreement shall be deemed thereby to represent and warrant that the Stock and each certificate therefor, when issued, shall be duly authorized, validly issued, fully paid and nonassessable. Such representation and warranty shall survive the deposit of the Stock and the issuance of Receipts.
ARTICLE IV
THE DEPOSITED SECURITIES; NOTICES
SECTION 4.1 Cash Distributions. Whenever the Depositary shall receive any cash dividend or other cash distribution on Stock, the Depositary shall, subject to Section 3.1 and 3.2, distribute to record holders of Receipts on the record date fixed pursuant to Section 4.4 such amounts of such dividend or distribution as are, as nearly as practicable, in proportion to the respective numbers of Depositary Shares evidenced by the Receipts held by such holders; provided that, if the Company or the Depositary shall be required to withhold and shall withhold from any cash dividend or other cash distribution in respect of the Stock an amount on account of taxes or as otherwise required by law, regulation or court process, the amount made available for distribution or distributed in respect of Depositary Shares shall be reduced accordingly. If the calculation of any such cash dividend or other cash distribution to be paid to any record holder on the aggregate number of Receipts held by such holder results in an amount that is a fraction of a cent, the amount the Depositary shall distribute to such record holder shall be rounded to the next highest whole cent, and upon request of the Depositary, the Company shall pay the additional amount to the Depositary for distribution.
SECTION 4.2 Distributions Other than Cash, Rights, Preferences or Privileges. Whenever the Depositary shall receive any distribution other than cash, rights, preferences or privileges upon the Stock, the Depositary shall, subject to Sections 3.1 and 3.2, distribute to record holders of Receipts on the record date fixed pursuant to Section 4.4 such amounts of the securities or property received by it as are, as nearly as practicable, in proportion to the respective numbers of Depositary Shares evidenced by the Receipts held by such holders, in any manner that the Depositary may deem equitable and practicable for accomplishing such distribution. If in the opinion of the Depositary such distribution cannot be made proportionately among such record holders, or if for any other reason (including any requirement that the Company or the Depositary withhold an amount on account of taxes or as otherwise required by law, regulation or court process) the Depositary deems such distribution not to be feasible, the Depositary may adopt such method as it deems equitable and practicable for the purpose of effecting such distribution, including the sale (at public or private sale) of the securities or property thus received, or any part thereof, at such place or places and upon such terms as it may deem proper. The net proceeds of any such sale shall, subject to Sections 3.1 and 3.2, be distributed or made available for distribution, as the case may be, by the Depositary to record holders of Receipts as provided by Section 4.1 in the case of a distribution received in cash.
SECTION 4.3 Subscription Rights, Preferences or Privileges. If the Company shall at any time offer or cause to be offered to the persons in whose names Stock is recorded on the books of the Company any rights, preferences or privileges to subscribe for or to purchase any securities or any rights, preferences or privileges of any other nature, such rights, preferences or privileges shall in each such instance be made available by the Depositary to the record holders of Receipts in such manner as the Depositary may determine, either by the issuance to such record holders of warrants representing such rights, preferences or privileges or by such other method as may be approved by the Depositary in its discretion with the approval of the Company; provided that, (i) if at the time of issue or offer of any such rights, preferences or privileges the Depositary determines that it is not lawful or (after consultation with the Company) not feasible to make such rights, preferences or privileges available to holders of Receipts by the issue of warrants or otherwise or (ii) if and to the extent so instructed by holders of Receipts who do not desire to exercise such rights, preferences or privileges, then the Depositary, in its discretion (with approval of the Company, if the Depositary has determined that it is not feasible to make such rights, preferences or privileges available), may, if applicable laws or the terms of such rights, preferences or privileges so permit, sell such rights, preferences or privileges at public or private sale, at such place or places and upon such terms as it may deem proper. The net proceeds of any such sale shall, subject to Sections 3.1 and 3.2, be distributed by the Depositary to the record holders of Receipts entitled thereto as provided by Section 4.1 in the case of a distribution received in cash.
If the securities to which such rights, preferences or privileges relate must be registered under the Securities Act in order to be offered or sold to holders of Receipts, the Company shall file a registration statement under the Securities Act with respect to such rights, preferences or privileges and securities promptly and shall use its best efforts and take all steps available to it to cause such registration statement to become effective sufficiently in advance of the expiration of such rights, preferences or privileges to enable such holders to exercise such rights, preferences or privileges. In no event shall the Depositary make available to the holders of Receipts any right, preference or privilege to subscribe for or to purchase any securities unless and until it has received written notice from the Company that such registration statement has become effective or that the offer and sale of such securities to such holders are exempt from registration under the Securities Act and the Company shall have provided to the Depositary an opinion of counsel to such effect. If any other action under the laws of any jurisdiction or any governmental or administrative authorization, consent or permit is required to permit such rights, preferences or privileges to be made available to holders of Receipts, the Company shall use its reasonable best efforts to take such action or obtain such authorization, consent or permit sufficiently in advance of the expiration of such rights, preferences or privileges to enable such holders to exercise such rights, preferences or privileges.
SECTION 4.4 Notice of Dividends, etc.; Fixing Record Date for Holders of Receipts. Whenever any cash dividend or other cash distribution shall become payable or any distribution other than cash shall be made, or if rights, preferences or privileges shall at any time be offered, with respect to the Stock, or whenever the Depositary shall receive notice of any meeting at which holders of Stock are entitled to vote or of which holders of Stock are entitled to notice, or whenever the Depositary and the Company shall decide that it is appropriate, the Depositary shall in each such instance fix a record date (which shall be the same date as the record date fixed by the Company with respect to or otherwise in accordance with the terms of the Stock) for determining which holders of Receipts shall be entitled to receive such dividend, distribution, rights, preferences or privileges or the net proceeds of the sale thereof, or to give instructions for the exercise of voting rights at any such meeting, or shall be entitled to notice of such meeting or for any other appropriate reasons.
SECTION 4.5 Voting Rights. Upon receipt of notice of any meeting at which the holders of Stock are entitled to vote, the Depositary shall, as soon as practicable thereafter, mail to the record holders of Receipts a notice which shall be provided by the Company that shall contain (i) such information as is contained in such notice of meeting and (ii) a statement that the holders may, subject to any applicable restrictions, instruct the Depositary as to the exercise of the voting rights pertaining to the amount of Stock represented by their respective Depositary Shares (including an express indication that instructions may be given to the Depositary to give a discretionary proxy to a person designated by the Company) and a brief statement as to the manner in which such instructions may be given. Upon the written request of the holders of Receipts on the relevant record date, the Depositary shall endeavor insofar as practicable to cast or cause to be cast, in accordance with the instructions set forth in such requests, the number of votes in respect of the Stock represented by the Depositary Shares evidenced by Receipts as to which voting instructions are received. The Company hereby agrees to take all reasonable action that may be deemed necessary by the Depositary to enable the Depositary to cast such votes or cause such votes to be cast. In the absence of instructions from the holder of a Receipt, the Depositary shall not cast any vote (but, at its discretion, may appear at any meeting with respect to such Stock unless directed to the contrary by the holders of all the Receipts) in respect of the Stock represented by the Depositary Shares evidenced by such Receipt.
SECTION 4.6 Changes Affecting Deposited Securities and Reclassifications, Recapitalizations, etc. Upon any change in par or stated value or liquidation preference, split-up, combination or any other reclassification of the Stock, or upon any recapitalization, reorganization, merger or consolidation affecting the Company or to which it is a party, the Depositary may in its discretion with the approval of, and shall upon the instructions of, the Company, and (in either case) in such manner as the Depositary may deem equitable, (i) make such adjustments as are certified by the Company in the fraction of an interest represented by one Depositary Share in one share of Stock as may be necessary fully to reflect the effects of such change in par or stated value or liquidation preference, split-up, combination or other reclassification of the Stock, or of such recapitalization, reorganization, merger or consolidation, and (ii) treat any securities that shall be received by the Depositary in exchange for or upon conversion of or in respect of the Stock as new deposited securities so received in exchange for or upon conversion or in respect of such Stock. In any such case the Depositary may in its discretion, with the approval of the Company, execute and deliver additional Receipts or may call for the surrender of all outstanding Receipts to be exchanged for new Receipts specifically describing such new deposited securities. Anything to the contrary herein notwithstanding, holders of Receipts shall have the right from and after the effective date of any such change in par or stated value or liquidation preference, split-up, combination or other reclassification of the Stock or any such recapitalization, reorganization, merger or consolidation to surrender such Receipts to the Depositary with instructions to convert, exchange or surrender the Stock represented thereby only into or for, as the case may be, the kind and amount of shares of stock and other securities and property and cash into which the Stock represented by such Receipts might have been converted or for which such Stock might have been exchanged or surrendered immediately prior to the effective date of such transaction.
SECTION 4.7 Delivery of Reports. The Depositary shall, at the expense of the Company, furnish to holders of Receipts any reports and communications received from the Company that are received by the Depositary as the holder of Stock.
SECTION 4.8 List of Receipt Holders. Promptly upon request from time to time by, and at the expense of, the Company, the Depositary shall furnish to it a list, as of the most recent practicable date, of the names, addresses and holdings of Depositary Shares of all record holders of Receipts. The Company shall be entitled to receive such list twice annually without charge.
ARTICLE V
THE DEPOSITARY, THE DEPOSITARY'S AGENTS, THE REGISTRAR AND THE COMPANY
SECTION 5.1 Maintenance of Offices, Agencies and Transfer Books by the Depositary; Registrar. Upon execution of this Deposit Agreement, the Depositary shall maintain at the Depositary's Office, facilities for the execution and delivery, registration and registration of transfer, surrender and exchange of Receipts, and at the offices of the Depositary's Agents, if any, facilities for the delivery, registration of transfer, surrender and exchange of Receipts, all in accordance with the provisions of this Deposit Agreement.
The Depositary shall keep books at the Depositary's Office for the registration and registration of transfer of Receipts, which books during normal business hours shall be open for inspection by the record holders of Receipts, provided that any such holder requesting to exercise such right shall certify to the Depositary that such inspection shall be for a proper purpose reasonably related to such person's interest as an owner of Depositary Shares evidenced by the Receipts.
The Depositary may close such books, at any time or from time to time, when deemed necessary or appropriate by it in connection with the performance of its duties hereunder.
The Depositary may, with the approval of the Company, appoint a Registrar for registration of the Receipts or the Depositary Shares evidenced thereby. If the Receipts or the Depositary Shares evidenced thereby or the Stock represented by such Depositary Shares shall be listed on one or more national stock exchanges, the Depositary shall appoint a Registrar (acceptable to the Company) for registration of such Receipts or Depositary Shares in accordance with any requirements of such exchange. Such Registrar (which may be the Depositary if so permitted by the requirements of any such exchange) may be removed and a substitute registrar appointed by the Depositary upon the request or with the approval of the Company. If the Receipts, such Depositary Shares or such Stock are listed on one or more other stock exchanges, the Depositary shall, at the request and at the expense of the Company, arrange such facilities for the delivery, registration, registration of transfer, surrender and exchange of such Receipts, such Depositary Shares or such Stock as may be required by law or applicable stock exchange regulation.
The Depositary may from time to time appoint Depositary's Agents to act in any respect for the Depositary for the purposes of this Deposit Agreement and may at any time appoint additional Depositary's Agents and vary or terminate the appointment of such Depositary's Agents. The Depositary shall notify the Company of any such action.
SECTION 5.2 Prevention of or Delay in Performance by the Depositary, the Depositary's Agents, the Registrar or the Company. Neither the Depositary nor any Depositary's Agent nor the Registrar nor the Company shall incur any liability to any holder of any Receipt if by reason of any provision of any present or future law, or regulation thereunder, of the United States of America or of any other governmental authority or, in the case of the Depositary, the Depositary's Agent or the Registrar, by reason of any provision, present or future, of the Certificate or by reason of any act of God or war or other circumstance beyond the reasonable control of the relevant party, the Depositary, the Depositary's Agent, the Registrar or the Company shall be prevented, delayed or forbidden from, or subjected to any penalty on account of, doing or performing any act or thing that the terms of this Deposit Agreement provide shall be done or performed; nor shall the Depositary, any Depositary's Agent, the Registrar or the Company incur liability to any holder of a Receipt (i) by reason of any nonperformance or delay, caused as aforesaid, in the performance of any act or thing that the terms of this Deposit Agreement shall provide shall or may be done or performed or (ii) by reason of any exercise of, or failure to exercise, any discretion provided for in this Deposit Agreement except, in the case of any such exercise or failure to exercise discretion not caused as aforesaid, if caused by the gross negligence, willful misconduct or bad faith of the party charged with such exercise or failure to exercise.
SECTION 5.3 Obligation of the Depositary, the Depositary's Agents, the Registrar and the Company. Neither the Depositary nor any Depositary's Agent nor the Registrar nor the Company assumes any obligation or shall be subject to any liability under this Deposit Agreement or any Receipt to holders of Receipts other than for its gross negligence, willful misconduct or bad faith in performing such duties as are specifically set forth in this Deposit Agreement.
Neither the Depositary nor any Depositary's Agent nor the Registrar nor the Company shall be under any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of the Stock, the Depositary Shares or the Receipts that in its opinion may involve it in expense or liability unless indemnity satisfactory to it against all expense and liability be furnished as often as may be required.
Neither the Depositary nor any Depositary's Agent nor the Registrar nor the Company shall be liable for any action or any failure to act by it in reliance upon the written advice of legal counsel or accountants, or information from any person presenting Stock for deposit, any holder of a Receipt or any other person believed by it in good faith to be competent to give such information. The Depositary, any Depositary's Agent, the Registrar and the Company may each rely and shall each be protected in acting upon any written notice, request, direction or other document believed by it to be genuine and to have been signed or presented by the proper party or parties.
The Depositary shall not be responsible for any failure to carry out any instruction to vote any of the shares of Stock or for the manner or effect of any such vote made, as long as any such action or non-action is in good faith. The Depositary undertakes, and any Registrar shall be required to undertake, to perform such duties and only such duties as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against the Depositary or any Registrar. The Depositary shall indemnify the Company and hold it harmless from any loss, liability or expense (including the reasonable costs and expenses of defending itself) actually incurred or suffered arising from acts performed or omitted by the Depositary, including when such Depositary acts as Registrar, or the Depositary's Agents in connection with this Agreement directly related to its or their negligence, willful misconduct or bad faith. The indemnification obligations of the Depositary set forth in this Section 5.3 shall survive any termination of this Agreement and any succession of any Depositary.
The Depositary, its parent, affiliates and subsidiaries, the Depositary's Agents, and the Registrar may own, buy, sell and deal in any class of securities of the Company and its affiliates and in Receipts or Depositary Shares or become pecuniarily interested in any transaction in which the Company or its affiliates may be interested or contract with or lend money to or otherwise act as fully or as freely as if it were not the Depositary, its parent, affiliate or subsidiary or the Depositary's Agent or the Registrar hereunder. The Depositary may also act as trustee, transfer agent or registrar of any of the securities of the Company and its affiliates.
It is intended that none of the Depositary, any Depositary's Agent or the Registrar, acting as the Depositary, the Depositary's Agent or the Registrar, as the case may be, shall be deemed to be an "issuer" of the securities under the federal securities laws or applicable state securities laws, it being expressly understood and agreed that the Depositary, any Depositary's Agent and the Registrar are acting only in a ministerial capacity as Depositary or Registrar for the Stock.
Neither the Depositary (or its officers, directors, employees or agents) nor any Depositary's Agent nor the Registrar makes any representation or has any responsibility as to the validity of the registration statements pursuant to which the Depositary Shares are registered under the Securities Act, the Stock, the Depositary Shares or the Receipts (except for its counter-signatures thereon) or any instruments referred to therein or herein or as to the correctness of any statement made therein or herein. The Depositary assumes no responsibility for the correctness of the description that appears in the Receipts, which can be taken as a statement of the Company summarizing certain provisions of this Deposit Agreement. Notwithstanding any other provision herein or in the Receipts, the Depositary makes no warranties or representations as to the validity, genuineness or sufficiency of any Stock at any time deposited with the Depositary hereunder or of the Depositary Shares, as to the validity or sufficiency of this Deposit Agreement, as to the value of the Depositary Shares or as to any right, title or interest of the record holders of Receipts in and to the Depositary Shares. The Depositary shall not be accountable for the use or application by the Company of the Depositary Shares or the Receipts or the proceeds thereof.
SECTION 5.4 Resignation and Removal of the Depositary; Appointment of Successor Depositary. The Depositary may at any time resign as Depositary hereunder by delivering notice of its election to do so to the Company, such resignation to take effect upon the appointment of a successor Depositary and acceptance of such appointment by such successor as hereinafter provided.
The Depositary may at any time be removed by the Company by notice of such removal delivered to the Depositary, such removal to take effect upon the appointment of a successor Depositary and acceptance of such appointment by such successor as hereinafter provided. If at any time the Depositary acting hereunder shall resign or be removed, the Company shall, within 60 days after the delivery of the notice of resignation or removal, as the case may be, appoint a successor Depositary, which shall be a bank or trust company having its principal office in the United States of America and having a combined capital and surplus of at least $50,000,000. If no successor Depositary shall have been so appointed and have accepted appointment within 60 days after delivery of such notice, the resigning or removed Depositary may petition any court of competent jurisdiction for the appointment of a successor Depositary. Every successor Depositary shall execute and deliver to its predecessor and to the Company an instrument in writing accepting its appointment hereunder, and thereupon such successor Depositary, without any further act or deed, shall become fully vested with all the rights, powers, duties and obligations of its predecessor and for all purposes shall be the Depositary under this Deposit Agreement, and such predecessor, upon payment of all sums due it and on the written request of the Company, shall execute and deliver an instrument transferring to such successor all rights and powers of such predecessor hereunder, shall duly assign, transfer and deliver all right, title and interest in the Stock and any moneys or property held hereunder to such successor and shall deliver to such successor a list of the record holders of all outstanding Receipts and such records, books and other information in its possession relating thereto. Any successor Depositary shall promptly mail notice of its appointment to the record holders of Receipts.
Any corporation into or with which the Depositary may be merged, consolidated or converted shall be the successor of such Depositary without the execution or filing of any document or any further act, and notice thereof shall not be required hereunder. Such successor Depositary may authenticate the Receipts in the name of the predecessor Depositary or in the name of the successor Depositary.
SECTION 5.5 Corporate Notices and Reports. The Company agrees that it shall deliver to the Depositary, and the Depositary shall, promptly after receipt thereof transmit to the record holders of Receipts, in each case at the addresses recorded in the Depositary's books, copies of all notices and reports (including without limitation financial statements) required by law or by the rules of any national securities exchange upon which the Stock, the Depositary Shares or the Receipts are listed, to be furnished to the record holders of Receipts or that the Company otherwise determines to furnish. Such transmission shall be at the Company's expense and the Company shall provide the Depositary with such number of copies of such documents as the Depositary may reasonably request.
SECTION 5.6 Indemnification by the Company. The Company shall indemnify the Depositary, any Depositary's Agent and the Registrar against, and hold each of them harmless from, any loss, liability or expense (including the reasonable costs and expenses of defending itself) that may arise out of acts performed or omitted in connection with this Agreement and the Receipts by the Depositary, any Registrar or any of their respective agents (including any Depositary's Agent), except for any liability arising out of negligence, willful misconduct or bad faith on the respective parts of any such person or persons. The obligations of the Company set forth in this Section 5.6 shall survive termination of this Agreement and any succession of any Depositary or Depositary's Agent.
SECTION 5.7 Charges and Expenses. The Company shall pay all transfer and other taxes and governmental charges arising solely from the existence of the depositary arrangements provided for herein. The Company shall pay all charges of the Depositary in connection with the initial deposit of the Stock and the initial issuance of the Depositary Shares, all withdrawals of shares of the Stock by owners of Depositary Shares, and any redemption or exchange of the Stock. All other transfer and other taxes and governmental charges shall be at the expense of holders of Depositary Shares. If, at the request of a holder of Receipts, the Depositary incurs charges or expenses for which it is not otherwise liable hereunder, such holder shall be liable for such charges and expenses. All other charges and expenses of the Depositary and any Depositary's Agent hereunder (including, in each case, reasonable fees and expenses of counsel) incident to the performance of their respective obligations hereunder shall be paid upon prior consultation and agreement between the Depositary and the Company as to the amount and nature of such charges and expenses. The Depositary shall present its statement for charges and expenses to the Company at such intervals as the Company and the Depositary may agree.
SECTION 5.8. Deposit of Stock by the Company. The Company agrees with the Depositary that neither the Company nor any company controlled by the Company shall at any time deposit any Stock if such Stock is required to be registered under the provisions of the Securities Act and no registration statement is at such time in effect as to such Stock.
SECTION 5.9 Tax Compliance. The Depositary, on its own behalf and on behalf of the Company shall comply with all applicable certification, information reporting and withholding (including "backup" withholding) requirements imposed by applicable tax laws, regulations or administrative practice with respect to (i) any payments made with respect to the Depositary Shares or (ii) the issuance, delivery, holding, transfer, redemption or exercise of rights under the Receipts or the Depositary Shares. Such compliance shall include, without limitation, the preparation and timely filing of required returns and the timely payment of all amounts required to be withheld to the appropriate taxing authority or its designated agent. The Company shall fully cooperate with the Depositary in fulfilling any and all duties set forth in this Section 5.9.
The Depositary shall comply with directions received from the Company with respect to the application of such requirements to particular payments or holders or in other particular circumstances and may for purposes of this Agreement rely on any such direction in accordance with the provisions of Section 5.3 hereof.
The Depositary shall maintain all appropriate records documenting compliance with such requirements and shall make such records available on request to the Company or to its authorized representatives.
ARTICLE VI
AMENDMENT AND TERMINATION
SECTION 6.1 Amendment. The form of the Receipts and any provisions of this Deposit Agreement may at any time and from time to time be amended by agreement between the Company and the Depositary in any respect that they may deem necessary or desirable, provided that no such amendment (other than any change in the fees of any Depositary or Registrar, which shall not go into effect sooner than 30 days after notice thereof to the holders of the Receipts) that materially and adversely alters the rights of the holders of Receipts shall become effective unless such amendment is approved by the holders of at least a majority of the Depositary Shares then outstanding. Every holder of an outstanding Receipt at the time any such amendment becomes effective shall be deemed, by continuing to hold such Receipt, to consent and agree to such amendment and to be bound by the Deposit Agreement as amended thereby.
SECTION 6.2 Termination. This Agreement may be terminated by the Company or the Depositary only after (i) all outstanding Depositary Shares have been redeemed pursuant to Section 2.8 or (ii) there shall have been made a final distribution in respect of the Stock in connection with any liquidation, dissolution or winding up of the Company and such distribution shall have been distributed to the holders of Receipts pursuant to Sections 4.1 or 4.2, as applicable.
If any Receipts shall remain outstanding after the date of termination of this Deposit Agreement, the Depositary thereafter shall discontinue the transfer of Receipts, shall suspend the distribution of dividends to the holders thereof and shall not give any further notices (other than notice of such termination) or perform any further acts under this Deposit Agreement, except that the Depositary shall continue to collect dividends and other distributions pertaining to the Stock, shall sell rights, preferences or privileges as provided in this Deposit Agreement and shall continue to deliver the Stock and any money and other property represented by Receipts upon surrender thereof by the holders thereof. At any time after the expiration of two years from the date of termination, the Depositary may sell Stock then held hereunder at public or private sale, at such places and upon such terms as it deems proper and may thereafter hold the net proceeds of any such sale, together with any money and other property held by it hereunder, without liability for interest, for the benefit, pro rata in accordance with their holdings, of the holders of Receipts that have not theretofore been surrendered. After making such sale, the Depositary shall be discharged from all obligations under this Deposit Agreement except to account for such net proceeds and money and other property.
Upon the termination of this Deposit Agreement, the Company shall be discharged from all obligations under this Deposit Agreement except for its obligations to the Depositary, the Registrar and any Depositary's Agent under Sections 5.6 and 5.7.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 Counterparts. This Deposit Agreement may be executed in any number of counterparts, and by each of the parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed an original, but all such counterparts taken together shall constitute one and the same instrument.
SECTION 7.2 Exclusive Benefit of Parties. This Deposit Agreement is for the exclusive benefit of the parties hereto, and their respective successors hereunder, and shall not be deemed to give any legal or equitable right, remedy or claim to any other person whatsoever.
SECTION 7.3 Invalidity of Provisions. If one or more of the provisions contained in this Deposit Agreement or in the Receipts should be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall not be affected, prejudiced or disturbed thereby.
SECTION 7.4 Notices. Any and all notices to be given to the Company hereunder or under the Receipts shall be in writing and shall be deemed to have been duly given if personally delivered or sent by mail, or by telegram or facsimile transmission confirmed by letter, addressed to the Company at:
[if by mail]
UAL Corporation
P.O. Box 66100
Chicago, Illinois 60666
Attention: Corporate Secretary
or
[other delivery]
UAL Corporation
1200 Algonquin Road
Elk Grove Township, Illinois 60007
Attention: Corporate Secretary
Facsimile No.: (708) 952-4683
or at any other address of which the Company shall have notified the Depositary in writing.
Any and all notices to be given to the Depositary hereunder or under the Receipts shall be in writing and shall be deemed to have been duly given if personally delivered or sent by mail, or by telegram or facsimile transmission confirmed by letter, addressed to the Depositary at the Depositary's Office, at:
[if by mail]
First Chicago Trust Company of New York
P.O. Box 2565
Mail Suite 4660
Jersey City, New Jersey 07303-2565
[if by hand or courier]
First Chicago Trust Company of New York
14 Wall Street, 8th Floor
Suite 4680
New York, New York 10005
or at any other address of which the Depositary shall have notified the Company in writing.
Any and all notices to be given to any record holder of a Receipt hereunder or under the Receipts shall be in writing and shall be deemed to have been duly given if personally delivered or sent by mail, or by telegram or facsimile transmission confirmed by letter, addressed to such record holder at the address of such record holder as it appears on the books of the Depositary, or if such holder shall have filed with the Depositary a written request that notices intended for such holder be mailed to some other address, at the address designated in such request.
Delivery of a notice sent by mail or by telegram or facsimile transmission shall be deemed to be effected at the time when a duly addressed letter containing the same (or a confirmation thereof in the case of a telegram or facsimile transmission) is deposited, postage prepaid, in a post office letter box. The Depositary or the Company may act upon any telegram or facsimile transmission received by it from the other or from any holder of a Receipt, notwithstanding that such telegram or facsimile transmission shall not subsequently be confirmed by letter or as aforesaid.
SECTION 7.5 Appointment of Registrar. The Company hereby also appoints the Depositary as Registrar in respect of the Receipts and the Depositary hereby accepts such appointment.
SECTION 7.6. Depositary's Agents. The Depositary may from time to time appoint Depositary's Agents to act in any respect for the Depositary for the purposes of this Deposit Agreement and may at any time appoint additional Depositary's Agents and vary or terminate the appointment of such Depositary's Agents. The Depositary shall notify the Company prior to any such action. It is understood and agreed that the Company is hereby appointed as a Depositary Agent and may perform any and all of the obligations of the Depositary under this Agreement, except that it may not hold Stock that is to be delivered to the Depositary.
SECTION 7.7 Holders of Receipts Are Parties. The holders of Receipts from time to time shall be parties to this Deposit Agreement and shall be bound by all of the terms and conditions hereof and of the Receipts by acceptance of delivery thereof.
SECTION 7.8 GOVERNING LAW. THIS DEPOSIT AGREEMENT AND THE RECEIPTS AND ALL RIGHTS HEREUNDER AND THEREUNDER AND PROVISIONS HEREOF AND THEREOF SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7.9 Inspection of Deposit Agreement. Copies of this Deposit Agreement shall be filed with the Depositary and the Depositary's Agent and shall be open to inspection during business hours at the Depositary's Office or respective offices of the Depositary's Agent, if any, by any holder of a Receipt.
SECTION 7.10 Headings. The headings of articles and sections in this Deposit Agreement and in the form of the Receipt set forth in Exhibit A hereto have been inserted for convenience only and are not to be regarded as a part of this Deposit Agreement or the Receipts or to have any bearing upon the meaning or interpretation of any provision contained herein or in the Receipts.
IN WITNESS WHEREOF, the Company and the Depositary have duly executed this Agreement as of the day and year first above set forth, and all holders of Receipts shall become parties hereto by and upon acceptance by them of delivery of Receipts issued in accordance with the terms hereof.
Attested by
UAL CORPORATION
/s/ Francesca M. Maher
By /s/ James M. Guyette
Name: Francesca M. Maher
Name: James M. Guyette
Title Vice President - Law
Title: Executive Vice President
and Corporate Secretary
Attested by
FIRST CHICAGO TRUST
COMPANY OF NEW YORK
/s/ John Ruocco
By /s/ Craig Bloomfield
Name: John Ruocco
Name: Craig Bloomfield
Title: Administrator
Title: Account Officer
DEPOSITARY SHARES TRANSFERABLE DEPOSITARY RECEIPT. This Certificate is transferable in New York, New York.
SEE REVERSE FOR CERTAIN DEFINITIONS
THE DEPOSITARY SHARES REPRESENTED BY THIS RECEIPT ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF FIRST CHICAGO TRUST COMPANY OF NEW YORK, THE DEPOSITARY HEREUNDER, OR OF ANY BANK OR NON-BANK DEPOSITORY OF UAL CORPORATION AND ARE NOT INSURED BY THE SAVINGS ASSOCIATION INSURANCE FUND OR THE BANK INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY OTHER GOVERNMENT AGENCY
UAL CORPORATION
A CORPORATION INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
First Chicago Trust Company of New York, as Depositary (the "Depositary"), hereby certifies that
is the registered owner of ____________ DEPOSITARY SHARES ("Depositary Shares"), each Depositary Share representing a one one-thousandth (1/1,000) interest in one share of 121/4% Series B Preferred Stock, without par value, $25,000 liquidation value per share (the "Stock"), of UAL Corporation, a Delaware corporation (the "Corporation"), on deposit with the Depositary, subject to the terms and entitled to the benefits of the Deposit Agreement dated as of July 12, 1994 (the "Deposit Agreement"), between the Corporation and the Depositary. By accepting this Depositary Receipt, the holder hereof becomes a party to and agrees to be bound by all the terms and conditions of the Deposit Agreement. This Depositary Receipt shall not be valid or obligatory for any purpose or be entitled to any benefits under the Deposit Agreement unless it shall have been executed by the Depositary by the manual signature of a duly authorized officer or, if executed in facsimile by the Depositary, countersigned by a Registrar in respect of the Depositary Receipts by a duly authorized officer thereof.
Dated: ____________
Countersigned
FIRST CHICAGO TRUST COMPANY OF NEW YORK
Depositary and Registrar By:_____________________
Authorized Officer
UAL CORPORATION
UAL CORPORATION SHALL FURNISH WITHOUT CHARGE TO EACH RECEIPT HOLDER WHO SO REQUESTS A COPY OF THE DEPOSIT AGREEMENT AND A STATEMENT OR SUMMARY OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION THAT ESTABLISHES THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIFIED RIGHTS OF THE 121/4% SERIES B PREFERRED STOCK AND EACH OTHER CLASS OF PREFERRED STOCK OR SERIES THEREOF THAT THE CORPORATION IS AUTHORIZED TO ISSUE AND OF THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCE AND/OR RIGHTS. ANY SUCH REQUEST SHOULD BE ADDRESSED TO UAL CORPORATION, 1200 ALGONQUIN ROAD, ELK GROVE TOWNSHIP, ILLINOIS 60007, ATTENTION: CORPORATE SECRETARY.
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of this Depositary Receipt, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN
COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants
in common
UNIF
GIFT MIN ACT - ______ Custodian _______
(Cust)
(Minor)
under Uniform Gifts to Minors Act______________
(State)
UNIF
TRAN MIN ACT - _______ Custodian (until age __)
(Cust)
_______ under Uniform Transfers
(Minor)
to Minors Act___________________
(State)
Additional abbreviations may also be used though not in the above list. For value received, ________________________ hereby sell(s), assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
______________________________Depositary Shares represented by the within Depositary Receipt, and do(es) hereby irrevocably constitute and appoint ______________________________ Attorney to transfer the said Depositary Shares on the books of the within named Depositary with full power of substitution in the premises.
Dated: Signature: ______________________________
NOTICE: The signature to this assignment must correspond with the name
as written upon
the face of this Depositary Receipt in every particular, without alteration
or enlargement or any
change whatever.
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<TYPE> EX-10.1
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF RECAPITALIZATION
dated as of
March 25, 1994
among
INTERNATIONAL
AND AEROSPACE WORKERS
TABLE OF CONTENTS
| ARTICLE I | THE RECAPITALIZATION |
|
| Section 1.1 | The Recapitalization |
1
|
| Section 1.2 | Reclassification of Old Shares |
1
|
| Section 1.3 | Redemption |
2
|
| Section 1.4 | Pricing of Specified Securities |
2
|
| Section 1.5 | Surrender and Exchange |
4
|
| Section 1.6 | Other Issuances |
7
|
| Section 1.7 | Stock Options |
12
|
| Section 1.8 | Convertible Company Securities |
13
|
| Section 1.9 | Form of Recapitalization Consideration |
13
|
| Section 1.10 | Addition ESOP Shares |
14
|
| Section 1.11 | Underwriting Alternative |
15
|
| ARTICLE II | THE COMPANY AND UNITED |
|
| Section 2.1 | Certificate of Incorporation |
|
| Section 2.2 | Bylaws |
|
| Section 2.3 | Directors and Officers |
|
| Section 2.4 | United |
|
| ARTICLE III | REPRESENTATIONS AND WARRANTIES OF THE COMPANY |
|
| Section 3.1 | Corporate Existence and Power |
|
| Section 3.2 | Corporate Authorization |
|
| Section 3.3 | Governmental Authorization |
|
| Section 3.4 | Non-Contravention |
|
| Section 3.5 | Capitalization |
|
| Section 3.6 | Subsidiaries |
|
| Section 3.7 | Securities and Exchange Commission ("SEC") Filings |
|
| Section 3.8 | Financial Statements |
|
| Section 3.9 | Disclosure Documents |
|
| Section 3.10 | Absence of Certain Changes |
|
| Section 3.11 | Finders' Fees |
|
| Section 3.12 | Board Action |
|
| Section 3.13 | Securities |
|
| Section 3.14 | Opinion of Financial Advisers |
|
| Section 3.15 | Vote Required |
|
| Section 3.16 | Limitations |
|
| Section 3.17 | Compliance with Status Quo |
|
| Section 3.18 | Rights Agreement |
|
| ARTICLE IV | REPRESENTATIONS AND WARRANTIES OF THE UNIONS |
|
| Section 4.1 | Existence and Power |
|
| Section 4.2 | Authorization |
|
| Section 4.3 | Governmental Authorization |
|
| Section 4.4 | Non-Contravention |
|
| Section 4.5 | Disclosure Documents |
|
| Section 4.6 | Finders' Fees |
|
| Section 4.7 | Limitations |
|
| ARTICLE V | COVENANTS OF THE COMPANY |
|
| Section 5.1 | Conduct of the Company |
|
| Section 5.2 | Stockholder Meeting; proxy Material |
|
| Section 5.3 | Access |
|
| Section 5.4 | Other Potential Transactions |
|
| Section 5.5 | Notices of Certain Events |
|
| Section 5.6 | Amendment of Rights Agreement |
|
| Section 5.7 | Employee Benefit Plans |
|
| Section 5.8 | Labor Agreements |
|
| Section 5.9 | Solvency Letter |
|
| Section 5.10 | Other Transaction Documents |
|
| Section 5.11 | Certain Agreements |
|
| ARTICLE VI | COVENANTS OF EACH UNION |
|
| Section 6.1 | Confidentiality |
|
| Section 6.2 | Labor Agreements |
|
| Section 6.3 | No Public Director Nominations |
|
| Section 6.4 | Independent Director Vacancies |
|
| ARTICLE VII | COVENANTS OF EACH OF THE UNIONS AND THE COMPANY |
|
| Section 7.1 | Best Efforts |
|
| Section 7.2 | Certain Filings |
|
| Section 7.3 | Participation |
|
| ARTICLE VIII | CONDITIONS TO THE RECAPITALIZATION |
|
| Section 8.1 | Conditions to the Obligations of Each Party |
|
| Section 8.2 | Conditions to the Obligations of Each of the Unions |
|
| Section 8.3 | Conditions to the Obligations of the Company |
|
| ARTICLE IX | TERMINATION |
|
| Section 9.1 | Termination |
|
| Section 9.2 | Termination of Status Quo |
|
| Section 9.3 | Effect of Termination |
|
| ARTICLE X | MISCELLANEOUS |
|
| Section 10.1 | Notices |
|
| Section 10.2 | Survival |
|
| Section 10.3 | Amendments; No Waivers |
|
| Section 10.4 | Fees and Expenses; Indemnification |
|
| Section 10.5 | Successors and Assigns |
|
| Section 10.6 | Governing Law |
|
| Section 10.7 | Counterparts; Effectiveness |
|
| Section 10.8 | Parties in Interest |
|
| Section 10.9 | Specific Performance |
|
| Section 10.10 | Entire Agreement |
|
SCHEDULES
| Schedule 1.1 | Restated Certificate of Incorporation of the Company |
| Schedule 1.3(a) | Deposit Agreement |
| Schedule 1.3(b) | Officers' Certificate Regarding Indenture for the Debentures |
| Schedule 1.6(a)(i) | Trust Agreement for the ESOP Trust |
| Schedule 1.6(a)(ii) | ESOP |
| Schedule 1.6(a)(iii) | Supplemental ESOP |
| Schedule 1.6 (a)(iv) | Trust Agreement for the Supplemental ESOP Trust |
| Schedule 1.6(d) | ESOP Stock Purchase Agreement and Amendment |
| Schedule 1.6(m) | Class I Preferred Stock Subscription Agreement |
| Schedule 1.6(n) | Class Pilot MEC Preferred Stock Subscription Agreement |
| Schedule 1.6(o) | Class IAM Preferred Stock Subscription Agreement |
| Schedule 1.6(p)(i) | Class SAM Preferred Stock Subscription Agreement |
| Schedule 1.6(p)(ii) | SAM Director Selection Process |
| Schedule 1.10 | Adjusted Percentage Table |
| Schedule 2.2 | Restated Bylaws of the Company |
| Schedule 2.3(i) | Directors of the Company Resigning at Effective Time |
| Schedule 2.3(ii) | New Directors of the Company |
| Schedule 2.4 | Provision to be Inserted in United Air Lines, Inc. Certificate |
| Schedule 3.2(i) | UAL 1981 Incentive Stock Program Amendment |
| Schedule 3.2(ii) | UAL 1988 Restricted Stock Plan Amendment |
| Schedule 3.2(iii) | UAL Incentive Compensation Plan Amendment |
| Schedule 3.4 | Contraventions and Conflicts |
| Schedule 3.6(c) | CRS Company Disclosure |
| Schedule 3.17 | Status Quo Matters |
| Schedule 3.18 | Rights Amendment |
| Schedule 5.1(i) | Conduct of the Company |
| Schedule 5.1(ii) | IAM Job Security Provisions |
| Schedule 5.1(iii) | Existing Employee Stock Purchase Policies of the Company |
| Schedule 5.8(i) | ALPA Collective Bargaining Agreement |
| Schedule 5.8(ii) | IAM Collective Bargaining Agreement |
| Schedule 5.8(iii) | Employment Terms for Employees Performing the Functions of the Company's Salaried and Management Employees |
| Schedule 5.9 | Solvency Letter |
| Schedule 5.10(i) | Class I Preferred Stock Shareholders Agreement |
| Schedule 5.10(ii) | Class SAM Director Shareholders Agreement |
| Schedule 5.10(iii) | First Refusal Agreement |
| Schedule 6.1 | Confidentiality Statement |
AMENDED AND RESTATED
AGREEMENT AND PLAN OF RECAPITALIZATION
AGREEMENT AND PLAN OF RECAPITALIZATION, dated as of March 25, 1994,
as amended and restated (the "Agreement"), among UAL Corporation, a Delaware
corporation (the "Company"), Air Line Pilots Association, International
("ALPA"), pursuant to its authority as the collective bargaining representative
for the crafts or class of pilots employed by United Air Lines, Inc., a
Delaware corporation and a wholly owned subsidiary of the Company ("United"),
and International Association of Machinists and Aerospace Workers ("IAM"
and, together with ALPA, the "Unions"), pursuant to its authority as the
collective bargaining representative for the crafts or classes of mechanics
and related employees, ramp and stores employees, food service employees,
dispatchers and security officers employed by United.
In consideration of the mutual covenants and agreements contained herein,
the parties hereto agree as follows:
(ii) one one-thousandth of a share of Series D Redeemable Preferred
Stock of the Company, without par value (the "Redeemable Preferred Stock"),
having the rights, powers and privileges described in the Restated Certificate.
(b) 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"), shall be reclassified and converted in
accordance with Section 1.2(a), 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
(as defined in Section 3.6) shall surrender for cancellation the Redeemable
Preferred Stock received upon Reclassification of the Retained Treasury
Shares and no payment shall be made in respect thereof.
SECTION 1.3 Redemption. Following the
Effective Time, all outstanding shares of Redeemable Preferred Stock shall,
to the extent of funds legally available therefor and subject to the provisions
of the Restated Certificate, be redeemed immediately after issuance according
to the terms thereof (the "Redemption"). Pursuant to the Redemption, the
holders of Redeemable Preferred Stock, if any, shall be entitled to receive,
in respect of each one one-thousandth of a share of Redeemable Preferred
Stock, subject to the terms thereof and Section 1.5(f):
(iii) either (a) $15.55 principal amount of Series A Senior Unsecured
Debentures due 2004 of United issued as provided below (the "Series A Debentures")
or (b) if the Underwriting Alternative with respect to the Series A Debentures
is consummated, a cash payment equal to the Series A Debenture Proceeds
Amount (as defined); and
(iv) either (a) $15.55 principal amount of Series B Senior Unsecured
Debentures due 2014 of United issued as provided below (the "Series B Debentures"
and, together with the Series A Debentures, collectively, the "Debentures")
or (b) if the Underwriting Alternative with respect to the Series B Debentures
is consummated, a cash payment equal to the Series B Debenture Proceeds
Amount (as defined).
(b) On the Trading Day immediately preceding the Announcement Date,
CS First Boston Corporation ("First Boston") (in consultation with Lazard
Freres & Co. ("hazard")) 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") shall
seek to mutually determine the interest or dividend rates, as applicable
(the "Applicable Rate"), that each of the Specified Securities should bear
in order for such Specified Security (in the case of the Debentures) or
the Depositary Shares (in the case of the Public Preferred Stock) to trade
at par as of the close of business, New York time, on the Trading Day immediately
preceding the Announcement Date, assuming both that an Underwriting Alternative
with respect thereto had and had not been elected and further assuming
in each such case that such Specified Security or Depositary Shares, as
the case may be, were fully distributed on such Trading Day. If the Primary
Banking Firms agree on the Applicable Rate with respect to a Specified
Security, such Specified Security shall bear such rate and such rate shall
be the Applicable Rate with respect to such Specified Security. If the
Primary Banking Firms are unable to agree on the Applicable Rate with respect
to a Specified Security, then (i) Salomon Brothers Inc, or such other firm
as agreed in writing by the Primary Banking Firms (the "Deadlock Firm"),
shall render its opinion, on the Trading Day immediately preceding the
Announcement Date, as to the Applicable Rate with respect to such Specified
Security or Securities, and (ii) the Applicable Rate with respect to such
Specified Security or Securities shall be the average of the two closest
rates specified in the opinions of the Primary Banking Firms and the Deadlock
Firm, rounded to the nearest one one-hundredth of a percent in the case
of the interest rate for the Debentures and to the nearest one one-hundredth
of a percent in the case of the dividend rate for the Public Preferred
Stock; provided however, that, in no event shall the Applicable Rate with
respect to the Specified Securities exceed (x) in the case of the Series
A Debentures, 10.125%; (y) in the case of the Series B Debentures, 10.825%;
and (z) in the case of the Public Preferred Stock, 11.375% (the "Maximum
Pricing").
(c) On the Announcement Date, the Company shall issue a press release
setting forth the Applicable Rate for each of the Specified Securities,
which press release shall be distributed to major wire services and news
agencies, and shall confirm that the Company Stockholder Meeting (as defined
in Section 5.2) will be held as scheduled, and shall contain such other
information as may be mutually agreed upon by the Company and the Unions.
(d) "Announcement Date" shall mean a Trading Day which shall be not
fewer than five calendar days nor greater than ten calendar days preceding
the date of the Company Stockholder Meeting, such date to be disclosed
to the Unions not fewer than ten calendar days prior thereto. "Trading
Day" shall mean a day on which the New York Stock Exchange. Inc. ("NYSE")
is open for the transaction of business.
(e) The parties agree that the Initial Pricing of the Debentures (and
the Maximum Pricing for the Debentures) was based on, and the Applicable
Rates will be based on, the assumption that the Debentures will not be
callable prior to their respective stated maturities. The parties further
agree that the Unions may request, not less than seven days prior to the
Announcement Date, that, in the event that the Underwriting Alternative
is not consummated with respect to either or both series of Debentures,
either or both of the series of Debentures shall be callable prior to stated
maturity. If so requested, immediately following the establishment of the
Applicable Rates and prior to the Announcement Date, an additional procedure
(based on the procedure set forth in Section 1.4(b)) shall be implemented
whereby the Primary Banking Firms shall 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 in accordance with the procedures
set forth in Section 1.4(b) involving the Deadlock Firm; provided however,
that the Unions may withdraw the request for a call feature at any time
up to the issuance of the press release in accordance with subsection 1.4(c).
(f) Notwithstanding any provision of this Agreement or the Schedules
or Exhibits hereto to the contrary, if the Underwriting Alternative with
respect to the Depositary Shares or either series of Debentures is consummated,
(i) with respect to the securities that are subject to the Underwriting
Alternative, the Company and United, in consultation with the underwriters,
may set the record dates and payment dates (quarterly and semiannually,
respectively) for the Public Preferred Stock (to which the Depositary Shares
relate) and the Debentures, may select a regular interest payment date
in the year 2004 as the maturity date for the Series A Debentures and may
set a regular interest payment date in the year 2014 as the maturity date
for the Series B Debentures and (ii) the following provisions of this subsection
1.4(f), with respect to the securities that are subject to the Underwriting
Alternative, shall be null and void. If the Company causes a regular quarterly
dividend to be paid on both the Public Preferred Stock and the Prior Preferred
Stock (as defined below) in respect of any regular quarterly dividend payment
date, then the Company shall cause the quarterly record date (and corresponding
dividend payment date) for the payment of such dividend on the Public Preferred
Stock to be the same as the quarterly record date (and corresponding dividend
payment date) for the payment of such dividend on the Series A 6.25% Convertible
Preferred Stock of the Company (the "Prior Preferred Stock"). With respect
to a regular quarterly dividend payment date for the Public Preferred Stock
and the Prior Preferred Stock that coincides with a regular semi-annual
interest payment date for the Debentures, if the Company causes (i) a regular
quarterly dividend to be paid on the Public Preferred Stock or the Prior
Preferred Stock, or both, in respect of any such quarterly dividend payment
date and (ii) a regular semi-annual installment of interest to be paid
on the Debentures in respect of such regular semi-annual interest payment
date, then the Company shall cause the semi-annual record date (and corresponding
interest payment date) for such payment of interest on the Debentures to
be the same as the quarterly record date (and corresponding dividend payment
date) for the payment of such dividend on the Public Preferred Stock or
the Prior Preferred Stock or both, as the case may be.
(b) Each holder of Old Shares that have been converted into New Shares
and Redeemable Preferred Stock, upon surrender to the Exchange Agent of
an Old Certificate or Certificates, together with a properly completed
letter of transmittal covering such Old Shares, will be entitled to receive
in respect of such Old Shares, subject to Section 1.5(f):
(ii) either (a) a depositary receipt or receipts representing Depositary
Shares representing interests in $31.10 liquidation preference of Public
Preferred Stock for each Old Share formerly represented by such Old Certificate
or Certificates in respect of the Redemption or (b) if the Underwriting
Alternative with respect to the Depositary Shares is consummated, a cash
payment equal to the Depositary Share Proceeds Amount in respect of the
Redemption;
(iii) either (a) $15.55 principal amount of Series A Debentures for
each Old Share formerly represented by such Old Certificate or Certificates
in respect of the Redemption or (b) if the Underwriting Alternative with
respect to the Series A Debentures is consummated, a cash payment equal
to the Series A Debenture Proceeds Amount in respect of the Redemption;
(iv) either (a) $15.55 principal amount of Series B Debentures for each
Old Share formerly represented by such Old Certificate or Certificates
in respect of the Redemption or (b) if the Underwriting Alternative with
respect to the Series B Debentures is consummated, a cash payment equal
to the Series B Debenture Proceeds Amount in respect of the Redemption;
and
(v) a cash payment of $25.80 for each Old Share formerly represented
by such Old Certificate or Certificates in respect of the Redemption (the
cash and/or securities distributed pursuant to clauses (i) through (v),
collectively, the "Recapitalization Consideration").
(c) If any portion of the Recapitalization Consideration is to be paid
to a person other than the registered holder of the Old Shares formerly
represented by the Old Certificate or Certificates so surrendered in exchange
therefor, it shall be a condition to such payment that the Old Certificate
or Certificates so surrendered shall be properly endorsed or otherwise
be iii proper form for transfer and that the person requesting such payment
shall pay to the Exchange Agent any transfer or other taxes required as
a result of such payment to a person other than the registered holder of
such Old Shares or establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not payable.
(d) In the event any Old Certificate or Certificates shall have been
lost, stolen or destroyed, upon the making of an affidavit to that fact
by the person claiming such certificate to be lost, stolen or destroyed,
the Company will issue in exchange for such lost, stolen or destroyed Old
Certificate or Certificates the Recapitalization Consideration deliverable
in respect thereof in accordance with this Article I. 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 there, require the person claiming ownership of such lost, stolen
or destroyed Old Certificate or 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 Certificate or Certificates alleged to have been
lost, stolen or destroyed.
(e) After the Effective Time, there shall be no further registration
of transfers of Old Shares. If, after the Effective Time, Old Certificate
or Certificates are presented to the Company or its transfer agent, such
Old Certificate or Certificates shall be canceled and exchanged for the
Recapitalization Consideration provided for, and in accordance with the
procedures set forth, in this Article I. All Recapitalization Consideration
to be distributed pursuant to this Section 1.5, if unclaimed on the first
anniversary of the Effective Time, shall be released and paid 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.
(f) Notwithstanding anything to the contrary contained in this Agreement:
(ii) As promptly as practicable following the Effective Time, the Exchange
Agent shall determine the excess of (x) the number of whole New Shares
into which all of the Old Shares will be reclassified and converted pursuant
to Section 1.2 over (y) the aggregate number of whole New Shares to be
distributed to holders of Old Shares pursuant to Section 1.5 (such excess
being referred to herein as the "Excess New Shares"); and if the Underwriting
Alternative has not been elected with respect to the Depositary Shares,
the Series A Debentures and/or the Series B Debentures, as the case may
be, or, if elected has not been consummated for any reason at or prior
to the Effective Time, the Exchange Agent shall also determine, as appropriate,
(I) the excess of (a) the number of whole Depositary Shares representing
interests in shares of Public Preferred Stock issuable upon Redemption
in accordance with Article FOURTH, Part I.D, Section 6 of the Restated
Certificate with respect to the Redeemable Preferred Stock into which the
Old Shares will be reclassified and converted pursuant to Section 1.2(a)
over (b) the aggregate number of whole Depositary Shares representing interests
in shares of Public Preferred Stock to be distributed to holders of Old
Shares pursuant to Section 1.5 (such excess being referred to herein as
the "Excess Depositary Shares"); (II) the excess of (a) the number of whole
Series A Debentures issuable upon Redemption in accordance with Article
FOURTH, Part I.D, Section 6 of the Restated Certificate with respect to
the Redeemable Preferred Stock into which the Old Shares will be reclassified
and converted pursuant to Section 1.2(a) over (b) the aggregate number
of whole Series A Debentures to be distributed to holders of Old Shares
pursuant to Section 1.5 (such excess being referred to herein as the "Excess
Series A Debentures"); and/or (III) the excess of (a) the number of whole
Series B Debentures issuable upon Redemption in accordance with Article
FOURTH, Part I.D, Section 6 of the Restated Certificate with respect to
the Redeemable Preferred Stock into which the Old Shares will be reclassified
and converted pursuant to Section 1.2(a) over (b) the aggregate number
of whole Series B Debentures to be distributed to holders of Old Shares
pursuant to Section 1.5 (such excess being referred to herein as the "Excess
Series B Debentures" and, together with the Excess New Shares, the Excess
Depositary Shares and/or the Excess Series A Debentures, as applicable,
collectively, the "Excess Securities"). As soon after the Effective Time
as practicable taking into account market conditions based on consultations
with the Company, the Exchange Agent, as agent for the holders of Old Shares,
shall sell the Excess Securities at then prevailing prices on the principal
national securities exchange, automated quotation system or other trading
market (the "Applicable Exchange") on which the relevant Excess Securities
are listed or admitted for trading (which shall be the NYSE in the case
of the New Shares), all in the manner provided in paragraph (iii) of this
Section.
(iii) The sale of the Excess Securities by the Exchange Agent shall
be executed on an Applicable Exchange through one or more member firms
of such Applicable Exchange and shall be executed in round lots to the
extent practicable. Until the net proceeds of such sale or sales have been
distributed to the holders of Old Shares, the Exchange Agent will hold
such proceeds in trust for the holders of Old Shares (the "Excess Securities
Trust"). Until distributed as provided below, the Excess Securities Trust
shall be invested, as directed by the Company, in Permitted Securities
and any net earnings with respect thereto shall be paid to the Company.
The Company shall pay all commissions, transfer taxes and other out-of-pocket
transaction costs, including the expenses and compensation of the Exchange
Agent, incurred in connection with such sale of the Excess Securities.
The Exchange Agent shall determine the portion of the Excess Securities
Trust to which each holder of Old Shares shall be entitled, if any, by
(w) multiplying the amount of the aggregate net proceeds comprising the
Excess Securities Trust attributable to the sale of Excess New Shares by
a fraction, the numerator of which is the amount of the fractional New
Share interest to which such holder of Old Shares would be entitled but
for the application of Section 1.5(f)(i) and the denominator of which is
the aggregate amount of fractional New Share interests to which all holders
of Old Shares would be entitled but for the application of Section 1.5(f)(i);
and if the Underwriting Alternative has not been elected with respect to
the Depositary Shares, the Series A Debentures and/or the Series B Debentures,
as the case may be, or, if elected has not been consummated for any reason
at or prior to the Effective Time, as appropriate, by (x) multiplying the
amount of the aggregate net proceeds comprising the Excess Securities Trust
attributable to the sale of Excess Depositary Shares by a fraction, the
numerator of which is the amount of the fractional Depositary Share interest
to which such holder of Old Shares would be entitled but for the application
of Section 1.5(t)(i) and the denominator of which is the aggregate amount
of fractional Depositary Share interests to which all holders of Old Shares
would be entitled but for the application of Section 1.5(f)(i); (y) multiplying
the amount of the aggregate net proceeds comprising the Excess Securities
Trust attributable to the sale of Excess Series A Debentures by a fraction,
the numerator of which is the amount of the fractional Series A Debenture
interest to which such holder of Old Shares would be entitled but for the
application of Section 1.5(f)(i) and the denominator of which is the aggregate
amount of fractional Series A Debenture interests to which all holders
of Old Shares would be entitled but for the application of Section 1.5(f)(i);
and (z) multiplying the amount of the aggregate net proceeds comprising
the Excess Securities Trust attributable to the sale of Excess Series B
Debentures by a fraction, the numerator of which is the amount of the fractional
Series B Debenture interest to which such holder of Old Shares would be
entitled but for the application of Section 1.5(f)(i) and the denominator
of which is the aggregate amount of fractional Series B Debenture interests
to which all holders of Old Shares would be entitled but for the application
of Section 1.5(f)(i).
(iv) As soon as practicable after the determination of the total amount
of cash, if any, to be paid to holders of Old Shares in lieu of any fractional
New Share and, if applicable, Depositary Share interests, Series A Debenture
interests and/or Series B Debenture interests, the Exchange Agent shall
make available such amounts to such holders of Old Shares; provided, however,
that such amounts shall be paid to each holder of Old Shares only upon
surrender of such holder's Old Certificate or Certificates together with
a properly completed and duly executed letter of transmittal and any other
required documents. All cash in lieu of fractional interests to be paid
pursuant to this Section 1.5(f), if unclaimed on the first anniversary
of the Effective Time, shall be released and paid 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.
(a) During the 69 months following the Effective Time, the "Final Number"
(as defined in subsection (b)) of shares of convertible preferred stock
described below (the "ESOP Convertible Preferred Stock") shall be (i) issued
to State Street Bank and Trust Company, a Massachusetts business trust,
as trustee (the "ESQP Trustee") under a trust to be created pursuant to
the Employee Stock Ownership Trust Agreement between the Company and the
ESOP Trustee in form and substance as set forth on Schedule 1.6(a) (i)
(the "ESOP Trust") and to be established for the benefit of certain employees
of the Company and its Subsidiaries participating in the UAL Corporation
Employee Stock Ownership Plan in form and substance as set forth on Schedule
1.6(a) (ii) (the "ESOP") and, to the extent not so issued, (ii) credited
as book entry credits to the accounts of certain employees of the Company
and its Subsidiaries participating in the UAL Corporation Supplemental
ESOP in form and substance as set forth on Schedule 1.6(a) (iii) (the "Supplemental
ESOP" and together with the ESOP, collectively, the "ESOPs") and in certain
circumstances issued to the ESOP Trustee under a trust (the "Supplemental
ESOP Trust" and together with the ESOP Trust, collectively, the "ESOP Trusts")
to be created pursuant to the Supplemental ESOP Trust Agreement between
the Company and the ESOP Trustee in form and substance as set forth on
Schedule 1.6(a)(iv).
(b) The number of shares of ESOP Convertible Preferred Stock to be so
issued and credited as contemplated by subsection (a) shall initially be
17,675,345, which is equal to the product of (i) 0.5, (ii) 55/45ths, (iii)
the "Fully Diluted Old Shares" immediately prior to the Effective Time,
and (iv) 0.9999. The "Fully Diluted Old Shares" immediately prior to the
Effective Time shall equal 28,926,185. The total number of shares of ESOP
Convertible Preferred Stock to be so issued and credited is subject to
increase (in accordance with Section 1.10) up to an amount equal to the
sum of (i) 17,675,345 plus (ii) the Additional Shares (as defined in Section
1.10). Such total number of shares, including to the extent, if any, so
increased, is referred to as the "Final Number."
(c) The ESOP Convertible Preferred Stock shall consist of (i) Class
1 ESOP Convertible Preferred Stock, par value $0.01 per share, of the Company,
with a fixed dollar dividend in a dollar amount (the "Dollar Amount") that
is equal to 7.00%, or such lesser percentage that may be agreed to by the
Company and the ESOP Trustee prior to the Effective Time, of the per share
price at which the Class 1 ESOP Preferred Stock is issued to the ESOP Trustee
at the Effective Time (the "Initial Price"), and having the rights, powers
and privileges set forth in the Restated Certificate (the "ESOP Preferred"),
and (ii) Class 2 ESOP Convertible Preferred Stock, par value $0.01 per
share, of the Company having the rights, powers and privileges set forth
in the Restated Certificate (the "Supplemental ESOP Preferred").
(d) At the Effective Time, the Company shall issue to the ESOP Trustee
in accordance with a stock purchase agreement and amendment in form and
substance as.set forth on Schedule 1.6(d) (as so amended, the "ESOP Stock
Purchase Agreement"), a number of shares of ESOP Preferred (the "Initial
Shares") equal to the Year 1 Release Shares (as defined), divided by the
Year 1 Decimal (as defined).
(z) 0.7815 (the "Class 1 Decimal").
(ii) The term "Year 1 Decimal" shall mean one minus the product of
(yy) 5.25.
As of December 31, 1994, there shall be credited to the accounts of
Supplemental ESOP participants a number of shares of Supplemental ESOP
Preferred equal to the product of
(bb) the First Year Fraction, and
(cc) one minus the Class 1 Decimal.
(B) the Class 1 Decimal, over
(zz) the number of years and fractional years from the end of the plan
year for which such shares are being issued to March 31, 2000.
For each of the second through sixth plan years of the Supplemental
ESOP, there shall be credited to the accounts of Supplemental ESOP participants
shares of Supplemental ESOP Preferred equal to the product of (aa) tz/69ths
of the Final Number and (bb) the decimal equal to one minus the Class 1
Decimal.
(f) Commencing not later than December 1, 1999, the Company shall negotiate
in good faith with the ESOP Trustee to reach an agreement under which the
Company shall issue to the ESOP Trustee shares of ESOP Preferred at an
agreed.upon price (the "Purchase Price" for such year). If such agreement
is reached, then on the first business day in the year 2000, the Company
shall sell to the ESOP Trustee, and the ESOP Trustee shall purchase from
the Company, pursuant to an agreement substantially in the form of Exhibit
B to the ESOP Stock Purchase Agreement, a number of shares of ESOP Preferred
("Final Year Shares"), which number shall equal the excess of
(g) The Company may, with the consent of the Unions, which shall not
be unreasonably withheld, make all or any part of the sales of ESOP Preferred
to the ESOP Trustee described above at any earlier date or dates, provided
that the timing and amount of the release of such shares to the accounts
of employees in the ESOPs contemplated by subsections (d), (e) and (f)
above shall not be altered by the different date or dates of the sales.
If any sale of Subsequent Shares or Final Year Shares is not consummated
in accordance with subsection (e) or (f) above (if not earlier consummated
pursuant to this subsection (g)), a number of shares of Supplemental ESOP
Preferred as is equal to the number of shares of ESOP Preferred not so
sold shall be contributed to the ESOP (Part B) or credited to the accounts
of participants in the Supplemental ESOP, as applicable. Such contribution
or crediting shall be at such time or times such that the release (or crediting)
of shares to the accounts of employees contemplated by subsections (d),
(e) and (f) above shall not be altered. Notwithstanding anything to the
contrary herein (other than the provisions of this subsection (g) relating
to "catch-up" dividends), the aggregate number of shares of ESOP Convertible
Preferred Stock issued, credited, or contributed under this Section 1.6
and Section 1.10 shall not exceed, or be less than, the Final Shares. In
the event that fixed dividends on the ESOP Preferred attributable to a
particular acquisition loan are not paid when initially due because the
Company lacks sufficient earnings and profits, and such earnings and profits
later become available, it is possible that such dividends (the "skipped
dividends") may then be paid on a catch-up basis, to the ESOP Trustee at
a time when such catch-up dividends (when added to other fixed dividends
payable on shares attributable to such loan) exceed the principal and interest
then payable on the loan to which such dividends relate. In that event,
compliance with the rules applicable to the ESOP may require a portion
of such catch-up dividends to be used to purchase New Shares rather than
pay principal or interest on such acquisition loan. If such purchase causes
the New Shares and ESOP Preferred allocated to participants in that year
to exceed the number of shares that would have been allocable absent payment
of the catch-up dividend, then, notwithstanding the provisions of Section
1.6, the parties agree that they shall negotiate in good faith to determine
whether there is a manner in which the ESOP and the Supplemental ESOP can
be amended so that, in subsequent years, allocations to participants can
be reduced in a manner that results in participants achieving the same
economic position that would have resulted if no such skipped dividends
had occurred; and if the result described in the preceding clause of this
sentence can be achieved without material detriment to any participant
(in relation to the econonuc position such participant would have enjoyed
had the skipped dividend not occurred) and without interference with the
general objectives of the ESOP program, then the Company may, with the
consent of the Unions as to the satisfaction of the standards set forth
in this sentence, which shall not be unreasonably withheld, adopt appropriate
amendments to this Agreement, the ESOP and Supplemental ESOP to effectuate
the intent of this sentence. Achievement of the goal described in the preceding
sentence may require issuance of fewer shares of ESOP Convertible Preferred
Stock in future periods than would have otherwise been the case (because
of the ESOP's unexpected early acquisition of New Shares). All disputes
concerning whether the Unions reasonably withheld a consent in accordance
with the provisions of this subsection (g) shall be resolved in accordance
with the arbitration procedures described in Section 11.2(b)(ii)(G)-(J)
of the ESOP.
(h) In consideration of each issuance by the Company of the shares of
ESOP Preferred to the ESOP Trust, the ESOP Trustee, on behalf of the ESOP
Trust, shall (y) pay to the Company an amount of cash equal to the aggregate
par value of the shares of ESOP Preferred so issued and (z) execute and
deliver a promissory note, in the aggregate principal amount equal to the
aggregate ,.purchase price for the ESOP Preferred so issued less the amount
paid pursuant to clause (y), in substantially the form set forth on Exhibit
A to the ESOP Stock Purchase Agreement (each, an "ESOP Note").
(x) One (1) share of Class P ESOP Voting Junior Preferred Stock, par
value 50.01 per share, of the Company having the rights, powers and privileges
set forth in the Restated Certificate (the "Class P Voting Preferred");
(y) One (1) share of Class M ESOP Voting Junior Preferred Stock, par
value $0.01 per share, of the Company having the rights, powers and privileges
set forth in the Restated Certificate (the "Class M Voting Preferred");
and
(z) One (1) share of Class S ESOP Voting Junior Preferred Stock, par
value $0.01 per share, of the Company having the rights, powers and privileges
set forth in the Restated Certificate (the "Class S Voting Preferred" and,
together with the Class P Voting Preferred and the Class M Voting Preferred,
collectively, the "ESOP Voting Preferred Stocks").
(j) In addition, the Company shall also issue and contribute to the
Supplemental ESOP Trust (together with the ESOP Trust, the "ESOP Trusts"),
at the times provided for in the Supplemental ESOP, an aggregate (to give
effect to the 0.5 Common Stock exchange ratio) of: .
(ii) a number of shares of Class M Voting Preferred Stock equal to the
product of (aa) 55/45ths, (bb) .3713, (cc) one half of the Fully Diluted
Old Shares and (dd) .9999, minus one (1.0); and
(iii) a number of shares of Class S Voting Preferred Stock equal to
the product of (aa) 55/45ths, (bb) .1664, (cc) one half of the Fully Diluted
Old Shares and (dd) .9999, minus one (1.0).
(bb) a number of shares of Class M Voting Preferred Stock equal to the
product of .3713 and the number of Additional Shares; and
(cc) a number of shares of Class S Voting Preferred Stock equal to the
product of .1664 and the number of Additional Shares.
(1) The ESOP program is designed to deliver equity ownership and voting
power to the employee groups in pre-negotiated proportions and at a pre-negotiated
pace. If and to the extent that, despite the best and cooperative efforts
of the Unions and the Company, the tax qualified ESOP cannot be implemented
in all material respects or the non-qualified Supplemental ESOP cannot
be implemented in all material respects and without income tax (excluding
the employee portion of FICA, FUTA and Medicare taxes) to participants
prior to actual distributions being made, appropriate arrangements will
be made to effectuate in all material respects the delivery of equity ownership
and voting power in the agreed-upon proportions and at the agreed-upon
pace and to accomplish the purposes contemplated by the ESOP program described
in Schedules 1.6(a)(i)-(iv) and (d). As used herein, the phrase "appropriate
arrangements" shall not (i) require the expenditure of any material amount
of funds by the Company or the issuance of securities to the ESOP Trusts
representing a greater proportion of the equity value or voting power of
the Company than that contemplated by this Agreement or (ii) result in
the diminution of the equity value or voting power of the New Shares held
by the stockholders of the Company other than the ESOP Trusts.
(m) In accordance with subscription agreements in form and substance
as set forth on Schedule 1.6(m) (the "Class I Preferred Stock Subscription
Agreement"), the Company shall issue one (1) share of Class I Junior Preferred
Stock, par value $0.01 per share, of the Company having the rights, powers
and privileges set forth in the Restated Certificate (the "Class I Preferred")
to each of the persons identified on Schedule 2.3(ii) as the initial "Independent
Directors," provided that each initial Independent Director shall have
paid to the Company an amount of cash equal to the par value of the share
of Class I Preferred to be so issued.
(n) In accordance with a subscription agreement in form and substance
as set forth on Schedule 1.6(n) (the "Class Pilot MEC Preferred Stock Subscription
Agreement"), the Company shall issue one (1) share of Class Pilot MEC Junior
Preferred Stock, par value $0.01 per share, of the Company having the rights,
powers and privileges set forth in the Restated Certificate (the "Class
Pilot MEC Preferred") to the United Air Lines Master Executive Council
of ALPA (the "MEC"), provided that the MEC shall have paid to the Company
an amount of cash equal to the aggregate par value of the share of Class
Pilot MEC Preferred to be so issued.
(o) In accordance with a subscription agreement in form and substance
as set forth on Schedule 1.6(o) (the "Class IAM Preferred Stock Subscription
Agreement"), the Company shall issue one (1) share of Class IAM Junior
Preferred Stock, par value $0.01 per share, of the Company having the rights,
powers and privileges set forth in the Restated Certificate (the "Class
IAM Preferred") to the IAM or its designee, provided that the IAM or such
designee shall have paid to the Company an amount of cash equal to the
aggregate par value of the share of Class IAM Preferred to be so issued.
(p) In accordance with a subscription agreement inform and substance
asset forth on Schedule 1.6(p)(i) (the "Class SAM Preferred Stock Subscription
Agreement"), the Company shall issue three (3) shares of Class SAM Junior
Preferred Stock, par value $0.01 per share, of the Company having the rights,
powers and privileges set forth in the Restated Certificate (the "Class
SAM Preferred") as follows: (i) two (2) shares to the person identified
as the Salaried and Management Director on Schedule 2.3(ii) or a replacement
director identified in accordance with the nomination procedures in Schedule
1.6(p)(ii) (the "SAM Director), and (ii) one (1) share to an additional
Class SAM stockholder, defined in Schedule 1.6(p)(i) as the Designated
Stockholder, provided that such persons shall have paid to the Company
an amount of cash equal to the aggregate par value of the shares of Class
SAM Preferred to be so issued.
(q) If, due to limitations of Section 415 of the Internal Revenue Code
or due to the issuance of Additional Shares, the respective Employee Groups
(as defined in the ESOP) are prevented from reasonably achieving the contemplated
allocations among and within their respective Employee Groups, the parties
agree to cooperate to modify the Class 1 Decimal with respect to sales
contemplated by Section 1.6(e) and Section 1.6(t) and to make appropriate
conforming modifications to the ESOP, Supplemental ESOP and all related
instruments if so requested by the Company, ALPA or the IAM. Such modifications
shall maximize the Class 1 Decimal consistent with achieving with a high
degree of certainty that the limits of the Internal Revenue Code Section
415(c)(6) shall not be exceeded (which condition regarding Section 415(c)(6)
may be waived by ALPA).
SECTION 1.7 Stock Options. Each
employee stock option to purchase Old Shares granted under any employee
stock option or compensation plan or arrangement of the Company outstanding
immediately prior to the Effective Time (an "Option") shall remain outstanding
upon and following consummation of the Recapitalization, and each such
Option, whether or not then vested or exercisable immediately prior to
the Effective Time, shall (i) if provided by the terms thereof (or if accelerated
in accordance with the relevant plan) become fully vested and exercisable
at the Effective Time and (ii) after the Effective Time represent the right
to receive, until the expiration thereof and in accordance with its terms,
in exchange for the aggregate exercise price for such Option, without interest,
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. The Recapitalization
Consideration issuable upon exercise of an Option shall be issued in the
same proportion as holders of Old Shares would be entitled to receive their
Recapitalization Consideration, but for fractional interests, among cash
and New Shares and, if applicable, principal amount of Series A and Series
B Debentures and Depositary Shares representing interests in the $25 liquidation
preference of Public Preferred Stock, except that (i) if the Underwriting
Alternative has not been consummated for any reason at of prior to the
Effective Time with respect to the Depositary Shares, the Series A Debentures
or the Series B Debentures, as the case may be, the total amount of each
of Series A and Series B Debentures and Depositary Shares representing
interests in the $25 liquidation preference of the Public Preferred Stock
to be issued upon exercise of each such Option shall be rounded upwards
to the nearest integral multiple of $100, $100 and $25, respectively (collectively,
the "Option Adjustment"), and the amount of cash payable shall be reduced
by a corresponding amount so that the holder does not receive fractional
Depositary Shares, fractional Series A Debentures or fractional Series
B Debentures (provided, however, if upon exercise of an Option the amount
of cash to be received is less than the Option Adjustment, the total amount
of each of Series A and Series B Debentures and Depositary Shares representing
interests in the $25 liquidation preference of Public Preferred Stock shall
be rounded downwards to the nearest integral multiple of $100, $100 and
$25, respectively, and the amount of cash payable shall be increased by
a corresponding amount so that the holder does not receive fractional Depositary
Shares, fractional Series A Debentures or fractional Series B Debentures)
and (ii) whether or not the Underwriting Alternative has been consummated
at or prior to the Effective Time the total amount of New Shares issuable
to each Option holder in respect of all Options held by such holder shall
be rounded upwards to the nearest whole New Share. Except as specifically
provided in this Section 1.7, the Company shall not make any other adjustments
to the terms of the Options as a result of the issuance of the ESOP Preferred
Stocks or the terms of the ESOP Preferred Stocks (including, without limitation,
the dividend and conversion rights thereof).
SECTION 1.8 Convertible Company Securities.
Each share of the Prior Preferred Stock and each of the Air Wis Services,
Inc. 73/4% Convertible Subordinated Debentures, due 2010, and Air Wis Services,
Inc. 8 1/2% Convertible Subordinated Notes, due 1995 (collectively,
the "Air Wis Convertible Debentures"), outstanding immediately prior to
the Effective Time (each, a "Convertible Company Security") shall upon
and following consummation of the Recapitalization remain outstanding,
and each holder of any such Convertible Company Security shall thereafter
have the right to receive, upon conversion, without interest, 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. The Recapitalization
Consideration issuable upon conversion of a Convertible Company Security
shall be issued in the same proportion as holders of Old Shares receive
their Recapitalization Consideration, but for fractional interests, among
cash and New Shares and, if applicable, principal amount of Series A and
Series B Debentures and Depositary Shares representing interests in the
$25 liquidation preference of Public Preferred Stock, except that (i) if
the Underwriting Alternative has not been consummated for any reason at
or prior to the Effective Time with respect to the Depositary Shares, the
Series A Debentures or the Series B Debentures, as the case may be, the
total amount of each of Series A and Series B Debentures and Depositary
Shares to be issued upon conversion of the Convertible Company Security
shall be rounded upwards to the nearest integral multiple of $100, $100
and $25, respectively, (collectively, the "Convertible Company Security
Adjustment") and the amount of cash payable shall be reduced by a corresponding
amount so that the holder does not receive fractional Depositary Shares
representing interests in the $25 liquidation preference of Public Preferred
Stock, fractional Series A Debentures or fractional Series B Debentures
(provided, however; if upon conversion of a Convertible Company Security
the amount of cash to be received is less than the Convertible Company
Security Adjustment, the total amount of each of Series A and Series B
Debentures and Depositary Shares representing interests in the $25 liquidation
preference of Public Preferred Stock shall be rounded downwards to the
nearest integral multiple of $100, $100 and $25, respectively, and the
amount of cash payable shall be increased by a corresponding amount so
that the holder does not receive fractional Depositary Shares, fractional
Series A Debentures of fractional Series B Debentures) and (ii) whether
or not the Underwriting Alternative has been consummated at of prior to
the Effective Time the total amount of New Shares issuable to each holder
of Convertible Company Securities in respect of all Convertible Company
Securities held by such holder shall be rounded upwards to the nearest
whole New Share. Except as specifically provided in this Section 1.8, the
Company shall not make any other adjustments to the terms of the Convertible
Company Securities as a result of the issuance of the ESOP Preferred Stocks
or the terms of the ESOP Preferred Stocks (including, without limitation,
the dividend and conversion rights thereof).
SECTION 1.9 Form of Recapitalization Consideration.
Notwithstanding anything in Section 1.7 or 1.8 to the contrary, if
the holder of an Option or a Convertible Company Security exercises such
Option or Convertible Company Security at any time after either series
of Debentures or the Public Preferred Stock has been redeemed, retired
or repaid in full (the securities redeemed, retired or repaid hereinafter
referred to as the "Retired Securities"), the holder of such Option or
Convertible Company Security shall not be entitled to receive any Retired
Securities but shall receive in lieu thereof an amount of cash equal to
the principal amount (without premium regardless of whether a premium is
paid at the time of redemption, retirement or repayment in full) or liquidation
preference (without the amount of accrued dividends regardless of whether
accrued dividends were paid at the time of redemption, retirement or repayment
in full), as the case may be, of or represented by the Retired Securities
that such holder otherwise would have received in respect of the exercise
of such Option or Convertible Company Security.
SECTION 1.10 Additional ESOP Shares.
(a) As soon as practicable after the Measuring Date, the Company shall
(x) contribute shares of Supplemental ESOP Preferred Stock to Part B of
the ESOP and (y) provide an allocation of shares of Supplemental ESOP Preferred
Stock on a book entry basis in a manner consistent with the allocation
under the Supplemental ESOP, such that the aggregate number of shares under
(x) and (y) is equal to a fraction of the Additional Shares (as defined
in Section 1.10(b) below), which fraction shall be the First Year Fraction.
All such shares shall be Supplemental ESOP Preferred. To the extent permissible
under the limitations imposed by the Internal Revenue Code, .the shares
determined under this subsection (a) shall be contributed to Part B of
the ESOP, and the remaining shares shall be allocated under the Supplemental
ESOP.
(b) "Additional Shares" shall mean the number of shares of ESOP
Convertible Preferred Stock determined as the excess of (A) the product
of (w) a fraction, the numerator of which is the Adjusted Percentage (as
defined in Section 1.10(c) below) at the close of business on the Measuring
Date, and the denominator of which is the excess of one over such Adjusted
Percentage (expressed as a decimal), (x) the Fully-Diluted Shares (as defined
in Section 1.10(d) below) 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 (as defined in Article FOURTH, Part II, Section
6.1 of the Restated Certificate), and (z) .9999, over (B) 17,675,345 ,
provided
that
the number of Additional Shares shall not be less than zero.
(c) "Adjusted Percentage" shall mean that percentage set forth
under the heading "Adjusted Percentage" on the table set forth on Schedule
1.10 that corresponds to the Average Closing Price (as defined in Section
1.10(e) below) set forth under the heading "Average Closing Price" on such
table, provided that if the Average Closing Price falls between
two entries on the table, the Adjusted Percentage shall be determined by
a straight-line interpolation between the two entries in the "Adjusted
Percentage" column that correspond to the next lowest and next highest
entries in the "Average Closing Price" column, rounded to the nearest 0.00000001
%.
(d) "Fully-Diluted Shares" shall mean 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 Old Share Equivalent Price
(as defined in Section 1.10(t) below) 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 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.
(e) "Average Closing Price" shall mean the average of the product
of (i) the Current Market Price (as defined in Section l.10(g) below) of
a New Share for each Trading Day (as defined in Section 1.10(h) below)
during the Measuring Period (as defined in Section 1.10(i) below) (or in
case the New Shares are exchanged for or changed, reclassified or converted
into stock, securities or other property (including cash or any combination
thereof), whether or not of the Company, the Fair Market Value (as defined
in Section 1.10(j) below) of such stock, securities or other property into
which a New Share has been exchanged, changed, reclassified or converted)
and (ii) the Conversion Rate in effect on such Trading Day.
(f) "Old Share Equivalent Price" shall mean the sum of (i) the
product of (x) 0.5 and (y) the Average Closing Price of a New Share, (ii)
either (a) the product of (x) 1.244 and (y) the average of the Current
Market Price of a Depositary Share for each Trading Day during the Measuring
Period or (b) if the Underwriting Alternative with respect to the Depositary
Shares has been consummated, the Depositary Share Proceeds Amount, (iii)
either (a) the product of (x) .1550 and (y) the average of the Current
Market Price of a Series A Debenture for each Trading Day during the Measuring
Period or (b) if the Underwriting Alternative with respect to the Series
A Debentures has been consummated, the Series A Debenture Proceeds Amount,
(iv) either (a) the product of (x) .1550 and (y) the average of the Current
Market Price of a Series B Debenture for each Trading Day during the Measuring
Period or (b) if the Underwriting Alternative with respect to the Series
B Debentures has been consummated, the Series B Debenture Proceeds Amount
and (v) $25.80.
(g) "Current Marker Price" of publicly traded New Shares or any
other class or series of capital stock or other security of the Company
or any other issuer for any day shall mean the last reported sales price,
regular way on such day, or, if no sale takes place on such day, the average
of the reported closing bid and asked prices on such day, regular way,
in either case as reported on the New York Stock Exchange Composite Tape
or, if such security is not listed or admitted for trading on the New York
Stock Exchange, Inc. ("NYSE"), on the principal national securities exchange
on which such security is listed or admitted for trading or quoted or,
if not listed or admitted for trading or quoted on any national securities
exchange, on the Nasdaq National Market, or, if such security is not quoted
on such National Market, the average of the closing bid and asked prices
on such day in the over-the-counter market as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ")
or, if bid and asked prices for such security on such day shall not have
been reported through NASDAQ, the average of the bid and asked prices on
such day as furnished by any NYSE member firm regularly making a market
in such security selected for such purpose by the Board of Directors of
the Company.
(h) "Trading Day" shall mean any day on which the securities
in question are traded on the NYSE, or if such securities are not listed
or admitted for trading or quoted on the NYSE, on the principal national
securities exchange on which such securities are listed or admitted, or
if not listed or admitted for trading or quoted on any national securities
exchange, on the Nasdaq National Market, or if such securities are not
quoted on such National Market, in the applicable securities market in
which the securities are traded.
(i) "Measuring Period" shall mean the period commencing on the
day of the Effective Time and ending on the Measuring Date.
(j) "Fair Market Value" shall mean the average of the daily Current
Market Prices of the security in question during the five (5) consecutive
Trading Days before the earlier of the day in question and the "ex" date
with respect to the issuance or distribution requiring such computation.
The term "'ex' date," when used with respect to any issuance or distribution,
means the first day on which the New Shares trade regular way, without
the right to receive such issuance or distribution, on the exchange or
in the market, as the case may be, used to determine that day's Current
Market Price. With respect to any asset or security for which there is
no Current Market Price, the Fair Market Value of such asset or security
shall be determined in good faith by the Board of Directors of the Company.
SECTION 1.11 Underwriting Alternative. Prior to the date that
is ten days after the date of the Company Proxy Statement, but at least
seven days prior to the Announcement Date, the Company may elect to pursue
the underwriting of (a) the Depositary Shares, (b) the Series A Debentures,
(c) the Series B Debentures, or (d) any combination of the foregoing (referred
to collectively herein as the "Underwriting Alternative"), provided that
consummating an underwriting with respect to the Depositary Shares and/or
either or both series of Debentures, as the case may be, shall be in lieu
of issuing Depositary Shares or either or both such series of Debentures
to holders ef Old Shares pursuant to Section 1.5 hereof, to holders of
Options pursuant to Section 1.7 hereof and to holders of Convertible Company
Securities pursuant to Section 1.8 hereof. If the Company elects the Underwriting
Alternative, it may offer pursuant thereto approximately the amounts of
Depositary Shares and/or Debentures which if the Underwriting Alternative
were not elected would be issuable upon the exchange of all outstanding
Old Shares in the Reclassification and upon exercise of Options and conversion
of the Convertible Company Securities reasonably expected to be exchanged
or converted in accordance with Sections 1.7 and 1.8 hereof (at the rate
of $31.10 liquidation preference of Public Preferred Stock as represented
by Depositary Shares, $15.55 principal amount of Series A Debentures and
$15.55 principal amount of Series B Debentures per Old Share), which amounts
shall be rounded up to produce aggregate amounts of Depositary Shares and
Debentures of each series that are consistent with customary aggregate
underwriting denominations. If it so elects to pursue the Underwriting
Alternative, the Company shall use its best efforts to accomplish such
underwritings, including selecting a managing underwriter or underwriters,
filing registration statements with the SEC, and entering into a firm commitment
underwriting agreement or agreements, provided, however, that the
Company may elect to terminate the Underwriting Alternative at any time
prior to the Effective Time. The Unions will cooperate and use their best
efforts to facilitate the underwritings. The Underwriting Alternative will
be effected in accordance with customary underwriting agreements which
may reflect that, if the Company is advised by the managing underwriter
or managing underwriters that the Public Preferred Stock (represented by
Depositary Shares), Series A Debentures or Series B Debentures would be
priced in excess of the Maximum Price applicable to such security (so that
such security, if priced at the applicable Maximum Pricing, could only
be sold at less than par), and is further advised that consistent with
industry practice the Underwriting Alternative would be facilitated by
the sale of such securities at or closer to par, the Company may reduce
the amount of such securities to be sold and increase the dividend or interest
rate above the applicable Maximum Pricing so that such securities may be
sold at or closer to par, provided that the aggregate amount of
dividends payable annually in respect of the Public Preferred Stock (represented
by the Depositary Shares) to be sold, and the aggregate amount of interest
payable annually in respect of either series of Debentures to be sold,
that are priced above the applicable Maximum Pricing may not exceed the
aggregate amount of dividends or interest payable annually in respect of
such security at the applicable Maximum Pricing with respect to the amount
of such securities as originally proposed to be offered. If the Underwriting
Alternative with respect to the Depositary Shares and both series of Debentures
is consummated, the amount of cash payable in respect of each Old Share
shall equal the sum of (i) $25.80 per share and (ii) the gross proceeds
(price to public without deducting any underwriting discount or other costs)
received by the Company for each $31.10 liquidation preference of the Public
Preferred Stock as represented by Depositary Shares in the appropriate
underwriting (the "Depositary Share Proceeds Amount"), (iii) the gross
proceeds (price to public without deducting any underwriting discount or
other costs) received by United for each $15.55 principal amount of Series
A Debentures in the appropriate underwriting (the "Series A Debenture Proceeds
Amount") and (iv) the gross proceeds (price to public without deducting
any underwriting discount or other costs) received by United for each $15.55
principal amount of Series B Debentures in the appropriate underwriting
(the "Series B Debenture Proceeds Amount").
SECTION 2.2 Bylaws. As of
the Effective Time, the bylaws of the Company in effect immediately prior
to the Effective Time shall be amended and restated in accordance with
applicable law and the Restated Certificate, in form and substance as set
forth in Schedule 2.2 (the "Restated Bylaws").
SECTION 2.3. Directors and Officers. Immediately
prior to the Effective Time, the Company shall cause the persons identified
on Schedule 2.3(i) to resign, as of the Effective Time, from the
Board of Directors of the Company (which resignations, for purposes of
all rights and benefits of such directors under all agreements, plans,
policies and arrangements of the Company and United including those identified
in the letter referred to in Section 5.11 hereof, shall be deemed to have
occurred immediately following the Effective Time). From and after the
Effective Time, until their successors are duly elected or appointed and
qualified in accordance with applicable law, the Restated Certificate and
the Restated Bylaws, or until their earlier death, resignation, disqualification
or removal, the persons identified or described on Schedule 2.3(ii)
shall
constitute the entire Board of Directors of the Company (the "New Directors")
and each shall serve in the classes and capacities identified in such Schedule.
Except as provided in the two preceding sentences, or as otherwise provided
in the Restated Certificate or in the Restated. Bylaws, the officers of
the Company immediately prior to the Effective Time (other than the Chairman
and Chief Executive Officer, the President and Chief Operating Officer
and the Executive Vice-President-Corporate Affairs and General Counsel
of the Company (the "Retiring Executives")) shall be the officers of the
Company from and after the Effective Time until their successors are duly
elected or appointed and qualified or until their earlier death, resignation,
disqualification or removal. The Retiring Executives shall retire from
all positions with the Company and the Subsidiaries held by them effective
at or immediately prior to the Effective Time and such retirement shall
be treated as set forth in separate letter agreements to be entered into
at or prior to the Effective Time among each Retiring Executive, on the
one hand, and the Company and United, on the other hand, substantially
in the form and substance provided to the Unions prior to the date hereof.
Other than the Retiring Executives, no other officer of the Company or
United may be terminated for a period of six months following the Effective
Time unless such termination shall be approved, specifically as to such
officer, by at least two of the New Directors identified as "Outside Public
Directors" in Schedule 2.3(ii) and the Chief Executive Officer of the Company
following the Effective Time. At the Effective Time, Gerald Greenwald or
such other person as shall be proposed by the Unions prior to the Effective
Time (and not found unacceptable by the Company) shall be appointed by
the Board of Directors, subject to his being ready, willing and able to
serve, as Chief Executive Officer of the Company and United. Such person
as shall be proposed by the Chief Executive Officer and the Unions following
the Effective Time (and approved in accordance with the provisions of Article
FIFTH, Section 3.6.2 of the Restated Certificate) shall be appointed by
the Board of Directors, subject to his/her being ready, willing and able
to serve, as Chief Operating Officer of the Company and United. From and
after the Effective Time, subject to the fiduciary duties of the Board
of Directors, until the Termination Date the Company shall cause (i) the
Chief Executive Officer of the Company to also be one of the Board's nominees
to serve as a Management Public Director (as defined in the Restated Certificate)
and (ii) the Chief Executive Officer of the Company to also serve as the
Chief Executive Officer of United.
SECTION 2.4 United. The Company
shall take all appropriate actions such that, as of the Effective Time,
the certificate of incorporation of United shall be amended to include
the provision set forth in Schedule 2.4 hereto.
OF THE COMPANY
SECTION 3.2 Corporate Authorization.
The execution, delivery and performance by the Company of this Agreement
and the consummation by the Company of the transactions contemplated hereby
are within the Company's corporate powers and, except for (w) any required
approval by the Company's stockholders in connection with the consummation
of the Shareholder Vote Matters (as defined in Section 5.2), (x) the approval
by the Company's stockholders of amendments to each of the Company's 1981
Incentive Stock Program, 1988 Restricted Stock Plan and Incentive Compensation
Plan, in form and substance as set forth on Schedule 3.2(i), Schedule
3.2(ii)
and
Schedule 3.2(iii), respectively (the "Company Plan Matters"), (y) the approval
and ratification of the Company Plan Matters by the New Directors following
the Effective Time and (z) approval by the Board of Directors of the Company
of the filing of the Restated Certificate in accordance with the applicable
provisions of Delaware Law, have been duly authorized by all necessary
corporate action. Prior to the Effective Time, the Board of Directors of
the Company shall approve the filing of the Restated Certificate in accordance
with the applicable provisions of Delaware Law. This Agreement has been
duly executed and delivered by the Company and, assuming due authorization,
execution and delivery by each of the Unions, constitutes a legal, valid
and binding agreement of the Company, enforceable against the Company in
accordance with its terms. The Board of Directors of the Company has taken
all necessary and appropriate actions so that the restrictions on "business
combinations" contained in Section 203 of Delaware Law (i) will not apply
with respect to or as a result of the Recapitalization, including, without
limitation, the acquisition of the ESOP Preferred Stock by the ESOPs and
(ii) will not apply prior to the Termination Date (as defined in Article
FIFTH, Section 1.72 of the Restated Certificate) to "business combinations"
(as defined in Section 203 of Delaware Law) involving the Company
or any of its Subsidiaries, on the one hand, and the ESOP Trustee, the
ESOPS or either of the Unions, on the other hand, which otherwise would
be subject to Article FIFTH, Section 3.8 of the Restated Certificate. The
Company has taken all appropriate action to establish each of the ESOPS
effective not later than the Effective Time.
SECTION 3.3 Governmental Authorization. The
execution, delivery and performance by the Company of this Agreement and
the consummation by the Company of the transactions contemplated hereby
require no consent, approval, authorization or other action by or in respect
of, or filing with or notification to, any governmental body, agency, official
or authority other than (i) the filing of the Restated Certificate in accordance
with Delaware Law; (ii) compliance with any applicable requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"); (iii) compliance with any applicable requirements of the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder
(the "1933 Act"), the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder (the "1934 Act") and the
TIA; (iv) any applicable filings with the United States Department of Transportation
("DOT"); and (v) actions or filings the absence of which would not have
a Material Adverse Effect.
SECTION 3.4 Non-Contravention. Except
as set forth on Schedule 3.4, the execution, delivery and performance by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby do not and will not (i) contravene or
conflict with the Certificate of Incorporation or bylaws of the Company,
(ii) assuming compliance with the matters referred to in Section 3.3, contravene
or conflict with or constitute a violation of any provision of any law,
regulation, judgment, injunction, order or decree binding upon or applicable
to the Company, any Subsidiary, or, to the knowledge of the Company, any
of the CRS Companies (as defined in Section 3.6), (iii) constitute a default
under or give rise to a right of termination, cancellation or acceleration
(other than with respect to the acceleration of the exercisability of Options,
the vesting of restricted stock of the Company or the payment of severance
benefits) of any right or obligation of the Company, any Subsidiary or,
to the knowledge of the Company, any of the CRS Companies, or to a loss
of any benefit to which the Company, any Subsidiary or, to the knowledge
of the Company, any of the CRS Companies, is entitled under. any provision
of any agreement, contract or other instrument binding upon the Company,
any Subsidiary or, to the knowledge of the Company, any of the CRS Companies,
or any license, franchise, permit or other similar authorization held by
the Company, any Subsidiary, or, to the knowledge of the Company, any of
the CRS Companies, or (iv) result in the creation or imposition of any
Lien (as defined below) on any asset of the Company, any Subsidiary, or,
to the knowledge of the Company, any of the CRS Companies, which violations,
defaults, rights of termination or Liens could have a Material Adverse
Effect. For purposes of this Agreement, "Lien" means, with respect to any
asset, any mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset. For purposes of the representations
and warranties relating to the CRS Companies that are qualified by the
knowledge of the Company, "knowledge of the Company" shall mean the knowledge
of the executive officers of the Company, United and Covia Corporation.
There are no (i) consents from holders of Options nor (ii) amendments to
the terms of Options or compensation plans or arrangements, that are necessary
to give effect to the transactions contemplated by Section 1.7.
SECTION 3.5 Capitalization. The
authorized capital stock of the Company is set forth in the Certificate
of Incorporation of the Company and consists of (i) 125,000,000 Old Shares
and (ii) 16,000,000 shares of Preferred Stock, without par value, of which
1,250,000 hive been designated as Series C Junior Participating Preferred
Stock ("Junior Preferred Stock") and are reserved for issuance upon exercise
of the Rights (as defined in the Rights Agreement dated as of December
11, 1986 between the Company and First Chicago Trust Company of New York
(formerly Morgan Shareholder Services Trust Company), as amended (the "Rights
Agreement")) and 6,000,000 have been designated as Prior Preferred Stock.
As of March 22, 1994, there were outstanding (a) 24,570,539 Old Shares
(including 119,643 unvested shares issued under the UAL 1988 Restricted
Stock Plan), (b) 6,000,000 shares of Prior Preferred Stock (convertible
into 3,833,866 Old Shares), (c) Rights to purchase 245,710 shares of Junior
Preferred Stock, (d) Options to purchase an aggregate of 1,648,668 Old
Shares (of which 13,927 have tandem stock appreciation rights held by former
employees with an aggregate exercise price of $1,061,872.75 and of which
Options 11,500 are held by ex-employees of the Company with vesting dates
after the expiration of such Options pursuant to such ex-employees' severance
agreements), and (e) $35,535,000 principal amount of Air Wis Convertible
Debentures convertible into 140,134 Old Shares, of which $2,530,000 principal
amount, convertible into 9,765 Old Shares, is held by Air Wis Services,
Inc. All outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. Except
as set forth in this Section 3.5 and except for changes since March 1,
1994 resulting from the exercise of Options or the conversion of Convertible
Company Securities, in each case outstanding on such date, there are outstanding
no (w) shares of capital stock or other voting securities of the Company,
(x) securities of the Company or any Subsidiary convertible into or exchangeable
for shares of capital stock or voting securities of the Company, (y) options,
subscriptions, warrants or other rights, agreements, arrangements or commitments
of any character to acquire from the Company or any Subsidiary any capital
stock, voting securities or securities convertible into or exchangeable
or exercisable for capital stock or voting securities of the Company, or
(z) obligations of the Company or any Subsidiary to issue any capital stock,
voting securities or securities convertible into or exchangeable or exercisable
for capital stock or voting securities of the Company (the items in clauses
(w), (x), (y) and (z) being referred to collectively as the "Company Securities").
Except (i) as set forth above, (ii) for tax withholding and cashless exercise
features of the Options and restricted stock, and (iii) for stock appreciation
rights that do not become exercisable until September 1, 1994 and expire
at the Effective Time, there are no obligations of the Company or any Subsidiary
to repurchase, redeem or otherwise acquire any Company Securities or make
any payments based upon the value of any Company Securities.
(b) Except for director qualifying shares and similar securities, all
of the outstanding capital stock of, or other ownership interests in, each
Subsidiary is owned by the Company, directly or indirectly, free and clear
of any Lien and free of any other limitation or restriction (including
any restriction on the right to vote, sell or otherwise dispose of such
capital stock or other ownership interests). Except for director qualifying
shares and similar securities, there are outstanding no (i) securities
of the Company or any Subsidiary convertible into or exchangeable for shares
of capital stock or other voting securities or ownership interests in any
Subsidiary or (ii) options, subscriptions, warrants or other rights, agreements,
arrangements or commitments of any character to acquire from the Company
or any Subsidiary, and no other obligation of the Company or any Subsidiary
to issue, any capital stock, voting securities or other ownership interests
in, or any securities convertible into or exchangeable or exercisable for
any capital stock, voting securities or ownership interests in, any Subsidiary
(the items in clauses (i) and (ii) being referred to collectively as the
"Subsidiary Securities"). There are no outstanding obligations of the Company
or any Subsidiary to repurchase, redeem or otherwise acquire any outstanding
Subsidiary Securities or make any payments based upon the value of any
Subsidiary Securities.
(c) Each of Apollo Travel Services Partnership, a Delaware general partnership
("ATS"), Galileo Japan Partnership, a Delaware general partnership ("GJP"),
and Galileo International Partnership, a Delaware general partnership ("GIP"
and, together with ATS and GJP, collectively, the "CRS Companies") is a
general partnership formed under the laws of the State of Delaware, is
validly existing and in good standing under the laws of Delaware, and has
all partnership power and authority and all governmental licenses, authorizations,
consents and approvals required to own, operate and lease its assets and
to carry out its business as now conducted (except for those the absence
of which would not have a Material Adverse Effect). The partnership agreement
establishing each of the CRS Companies, together with _ all exhibits and
amendments thereto has been provided to the Unions, and no Subsidiary that
is party to either such partnership agreement is or has been in any manner
in breach of, or in default under, any provision thereof, nor is the Company,
United or any officer or director of either of them aware of any breach
or default by any other party to either of such partnership agreements
that would or could be reasonably expected to result in a Material Adverse
Effect. Except as set forth on Schedule 3.6(c), all of the outstanding
ownership interests held by Covia Corporation, a Delaware corporation and
wholly owned Subsidiary, of the CRS Companies are free and clear of any
Lien other than as set forth in the partnership agreement with respect
to such entity.
(b) As of its filing date, no such report, statement or schedule filed
pursuant to the 1934 Act contained any untrue statement of a material fact
or omitted to state any material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they were made,
not misleading.
(c) No such registration statement, as amended or supplemented, if applicable,
filed pursuant to the 1933 Act as of the date such statement or amendment
became effective contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading.
SECTION 3.8 Financial Statements. The
audited consolidated financial statements of the Company included in its
Annual Reports on Form 10-K and the unaudited consolidated interim financial
statements included in its Quarterly Reports on Form 10-Q referred to in
Section 3.7 have been prepared in accordance with generally accepted accounting
principles consistently applied and fairly present (except as may be indicated
in the notes thereto) the consolidated financial position -of the Company
and its consolidated subsidiaries as of the dates thereof and their consolidated
results of operations and cash flows for the periods then ended (subject
to normal, immaterial year-end audit adjustments in the case of any unaudited
interim financial statements).
(b) At the time the Company Proxy Statement and Schedule 13E-3 or any
amendment or supplement thereto is first mailed to stockholders of the
Company, and at the time such stockholders of the Company vote on the Shareholder
Vote Matters, the Company Proxy Statement and Schedule 13E-3, as supplemented
or amended, if applicable, will not be false or misleading with respect
to any material fact, or omit to state any material fact required to be
stated therein or necessary to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
At the time of the filing of the Registration Statement and the Underwriting
Registration Statements and any amendment or supplement thereto, at the
time the same are declared effective by the SEC, at the time of any distribution
under the Registration Statement and the Underwriting Registration Statements,
at the time the stockholders of the Company vote on the Shareholder Vote
Matters and at the Effective Time, such Registration Statement and Underwriting
Registration Statements, as so amended or supplemented, will not be false
or misleading with respect to any material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
made therein, in the light of the circumstances under which they were made,
not misleading. At the time of the filing of any Company Disclosure Document
other than the Company Proxy Statement, Schedule 13E-3, Registration Statement
and the Underwriting Registration Statements and at the time of any distribution
thereof, such Company Disclosure Document will not be false or misleading
with respect to any material fact or omit to state any material fact required
to be stated therein or necessary to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
The representations and warranties contained in this Section 3.9(b) will
not apply to statements included in or omissions from the Company Disclosure
Documents based upon information furnished to the Company in writing by
either Union specifically for use therein.
SECTION 3.10 Absence of Certain Changes.
Except as disclosed in SEC filings referred to in Section 3.7 filed prior
to the date hereof, since December 31, 1993, there has been no event, and
no state of circumstances has existed, that has had or will, or could reasonably
be expected to, have a Material Adverse Effect.
SECTION 3.11 Finders' Fees.
Except for First Boston and Lazard, whose fees will be paid by the Company,
and as specifically contemplated herein, there is no investment banker,
broker or finder which has been retained by or is authorized to act on
behalf of the Company, any Subsidiary or, to the knowledge of the Company,
any CRS Company, who might be entitled to any fee or commission from the
Company, either Union or any affiliate of either of them upon consummation
of the transactions contemplated by this Agreement (other than in connection
with the Underwriting Alternative), based upon arrangements made by or
on behalf of the Company. .
SECTION 3.12. Board Action. The Board
of Directors (i) has determined that the transactions contemplated hereby
are fair to and in the best interest of the Company's stockholders, (ii)
has approved the Reclassification, the Recapitalization and this Agreement,
(iii) has approved the Company Plan Matters, subject to ratification by
the Company's stockholders and the New Directors, and (iv) has resolved
to recommend (subject to the provisions of Section 5.4) the approval and
adoption of the Shareholder Vote Matters to the Company's stockholders
at the Company Stockholder Meeting.
SECTION 3.13 Securities. The
Recapitalization Securities and the ESOP Preferred Stocks (and the New
Shares into which the ESOP Preferred Stocks are convertible) to be issued
pursuant to Sections 1.2, 1.3, 1.4, 1.6 and 1.10, when so issued in accordance
with such Sections and the Registration Statement and the Underwriting
Registration Statements, if applicable, will be duly authorized and validly
issued and, in the case of such securities other than the Debentures, will
be fully paid and nonassessable.
SECTION 3.14 Opinion of Financial Advisers.
The Company has received the respective oral opinions of First Boston and
Lazard to the effect that, as of May 20, 1994, the consideration to be
received in the Recapitalization by the Company's stockholders is fair
to the Company's stockholders from a financial point of view, which opinions
shall be confirmed in writing and delivered to each of the Unions promptly
following receipt (the "Company Fairness Opinions").
SECTION 3.15 Vote Required. The
affirmative vote of a majority of the votes that holders of the outstanding
Old Shares are entitled to cast is the only vote of the holders of any
class or series of capital stock of the Company necessary to approve the
Shareholder Vote Matters. The Shareholder Vote Matters are the only matters
required to be approved by holders of capital stock of the Company in connection
with the Recapitalization.
SECTION 3.16. Limitations. As of
the date of this Agreement, the Company has no knowledge of any event or
condition which would preclude it from taking any action necessary to consummate
the transactions contemplated hereby.
SECTION 3.17. Compliance with Status Quo.
The Company has complied in all material respects with its obligations
contained in Sections 10 and 11 of that certain letter setting forth the
principal terms of the Recapitalization, dated December 22, 1993, among
the Company, the IAM and ALPA (the "Letter Agreement"), which apply to
transactions entered into after December 22, 1993 and on or prior to March
15, 1994 (the "Status Quo Provisions"). Except as set forth on Schedule
3.17, neither the Company nor any of its Subsidiaries has taken any action
that would have violated the Status Quo Provisions in any material respect
had the Status Quo Provisions continued to remain in effect through the
date hereof. Except as set forth on Schedule 5.1, the Company has not disclosed
to the Unions any plans of the type referred to in Section 5.1 (e) since
December 22, 1993.
SECTION 3.18 Rights Agreement. The
Board of Directors has taken all necessary action to amend the Rights Agreement,
effective at or immediately prior to the Effective Time, in form and substance
as set forth in Schedule 3.18 (the "Rights Amendment").
OF THE UNIONS
SECTION 4.2 Authorization. The
execution, delivery and performance by such Union of this Agreement and
the consummation by such Union of the transactions contemplated hereby
(including the applicable Labor Agreement) are within the organizational
powers of such Union and have been duly authorized by all necessary organizational
action of such Union. This Agreement has been duly executed and delivered
by such Union and, assuming due authorization, execution and delivery by
the Company and the other Union, constitutes a valid and binding agreement
of such Union, enforceable against such Union in accordance with its terms.
SECTION 4.3 Governmental Authorization.
The execution, delivery and performance by such Union of this Agreement
and the consummation by such Union of the transactions contemplated by
this Agreement require no consent, approval, authorization or other action
by or in respect of, or filing with or notification to, any governmental
body, agency, official or authority other than (i) compliance with any
applicable requirements of the HSR Act, (ii) any applicable filings with
DOT, and (iii) actions or filings the absence of which would not, in the
aggregate, have a material adverse effect on such Union or on the ability
of such Union to perform its obligations under this Agreement.
SECTION 4.4 Non-Contravention The
execution, delivery and performance by such Union of this Agreement and
the consummation by such Union of the transactions contemplated hereby
do not and will not (i) contravene or conflict with the organizational
documents of-such Union, (ii) assuming compliance with the matters referred
to in Section 4.3, contravene or conflict with any provision of law, regulation,
judgment, order or decree binding upon such Union or (iii) constitute a
default under or give rise to any right of termination, cancellation or
acceleration of any right or obligation of such Union or to a loss of any
benefit to which such Union is entitled under any agreement, contract or
other instrument binding upon such Union, which defaults, terminations,
cancellations, accelerations or losses, could individually or in the aggregate
have a material adverse effect on such Union or on the ability of such
Union to perform its obligations under this Agreement.
SECTION 4.5. Disclosure Documents. The
information with respect to such Union that such Union furnishes to the
Company in writing specifically for use in any Company Disclosure Documents,
taken as a whole, will not be false or misleading with respect to any material
fact of omit to state any material fact required to be stated therein or
necessary to make the statements made therein, in the light of the circumstances
under which they were made, not misleading (i) in the case of the Company
Proxy Statement and the Schedule 13E-3, at the time it or any amendment
or supplement thereto is first mailed to stockholders of the Company, and
at the time the stockholders vote on adoption of the Shareholder Vote Matters,
(ii) in the case of the Registration Statement and each of the Underwriting
Registration Statements, at the time it or any amendment is filed and is
declared effective by the SEC and is distributed and, in the case of the
Registration Statement, at the time the stockholders vote on the Shareholder
Vote Matters and at the Effective Time, and (iii) in the case of any other
Company Disclosure Document, at the time of the filing thereof and at the
time of any distribution thereof.
SECTION 4.6 Finders' Fees Except
as previously disclosed to the Company in writing (and such other persons
that such Union may have selected after the date hereof whose fees will
be paid by such Union or the Company, subject, in the case of payment by
the Company, to the terms of the Fee Letter (as defined in Section 10.4))
or as otherwise contemplated hereby or by their engagement letters, there
is no investment banker, broker, finder or other intermediary who might
be entitled to any fee or commission from the Company, such Union or any
affiliate of either of them upon consummation of the transactions contemplated
by this Agreement based upon arrangements made by or on behalf of such
Union.
SECTION 4.7. Limitations. As of
the date of this Agreement, such Union has no knowledge of any event or
conditions which would preclude it from taking any action necessary to
consummate the transactions contemplated hereby.
(b) reclassify, combine, split, subdivide, redeem, purchase or otherwise
acquire, or propose to purchase or otherwise acquire, any Company Securities
or Subsidiary Securities, except repurchases of Company securities, (x)
pursuant to employee stock purchase, stock option, stock grant or other
employee arrangements or (y) pursuant to rules or requirements under the
Employee Retirement Income Security Act of 1974, as amended;
(c) declare or pay any dividend or distribution on the Old Shares;
(d) (i) increase the compensation of any of its directors, officers
or key employees, except in the ordinary course of business and consistent
with past practice or pursuant to the terms of agreements or plans currently
in effect; (ii) pay or agree to pay any pension, retirement allowance or
other employee benefit that is either not required or specifically permissible
by any existing plan, agreement or arrangement to any director, officer
or key employee, other than in the ordinary course of business and consistent
with past practice; (iii)'commit itself to any additional pension, profit-sharing,
bonus, extra compensation, incentive, deferred compensation, stock purchase,
stock option, stock appreciation right, group insurance, severance pay,
retirement or other employee benefit plan, agreement or arrangement, or
to any employment or consulting agreement with or for the benefit of any
director, officer or key employee whether past or present, except in the
ordinary course of business consistent with past practice; or (iv) except
as required by applicable law, amend in any material respect any such plan,
agreement or arrangement; provided that the foregoing shall not be deemed
to restrict necessary and reasonable actions taken in connection with (aa)
retention of personnel other than executive officers or (bb) promotions
and new hires in the ordinary course of business consistent with past practice;
provided,
further. that nothing herein shall preclude the Company or any of its
Subsidiaries from taking any action reasonably designed to permit any employee
to realize vested benefits under any existing plan, agreement or arrangement
referred to above;
(e) except in the ordinary course of business and consistent with past
practice and except for refinancings or pursuant to existing plans of the
Company disclosed to the Unions in writing prior to the date hereof (i)
incur any material amount of long-term indebtedness for borrowed money
or issue any material amount of debt securities (other than trade debt
and commercial paper) or assume, guarantee or endorse the obligations of
any other person except for obligations of wholly owned Subsidiaries; (ii)
make any material loans, advances or capital contributions to, or investments
in, any other person (other than to wholly owned Subsidiaries or customary
loans or advances to employees in amounts not material to the maker of
such loan or advance); or (iii) mortgage or pledge any of its material
assets, tangible or intangible, or create or suffer to exist any
lien thereupon, other than any purchase money mortgage or lien; or
(f) enter into any agreement or arrangement to do any of the foregoing.
The Flight Kitchen severance package described in paragraph 26 of Exhibit
E-2 to the Letter Agreement shall be restored and benefits described in
that paragraph shall be provided as if the condition described in paragraph
26, section 5(a) of Exhibit E-2 had been fully complied with. Any Food
Service Agreement employee who can demonstrate that his or her job status
at United was adversely affected by his or her detrimental reliance on
United's March 16, 1994 announcement cancelling the Flight Kitchen LPP's
will be entitled to receive a remedy from United for his or her actual
contractual damages, if any. Any disagreement regarding entitlement to
or the nature of such remedy may be submitted to the United-IAM System
Board of Adjustment.
SECTION 5.2 Stockholder Meeting; Proxy Material.
Subject to receipt by the Company of updated Company Fairness Opinions
from First Boston and Lazard to the effect that, as of the date of the
Company Proxy Statement, the consideration to be received in the Recapitalization
by the Company's stockholders is fair to the Company's stockholders from
a financial point of view, the Company shall cause a meeting of its stockholders
(the "Company Stockholder Meeting") to be duly called and held as soon
as reasonably practicable after the date on which the Registration Statement
is declared effective by the SEC, for the purpose of voting on the approval
and adoption of each of the Reclassification, the Restated Certificate,
the election of four of the five initial Public Directors to the Board
of Directors of the Company, the Recapitalization and the issuance of the
ESOP Preferred Stock as part of the Recapitalization (such matters are
collectively referred to as the "Shareholder Vote Matters") and the Company
Plan Matters. The Shareholder Vote Matters shall be presented as a single
proposal, or the effectiveness of each such matter shall be conditioned
on the approval of all of such matters. Consistent with its obligations
under Section 7.1, the Company shall be entitled to delay the Company Stockholder
Meeting if the Company does not receive, as of the Announcement Date, updated
Company Fairness Opinions from First Boston and Lazard to the effect that,
as of the Announcement Date, the consideration to be received in the Recapitalization
by the Company's stockholders is fair to the Company's stockholders from
a financial point of view. Subject to Section 5.4, the directors of the
Company shall recommend the approval and adoption of the Shareholder Vote
Matters by the Company's stockholders and shall use its best efforts (as
defined in Section 7.1) in soliciting such approval. Subject to Section
5.4, in connection with such meeting, the Company (i) will promptly prepare
and file with the SEC, will use its best efforts to have cleared by the
SEC and will, subject to the effectiveness of the Registration Statement,
thereafter mail to its stockholders as promptly as practicable, the Company
Proxy Statement (including the information required by the Schedule 13E-3)
and all other proxy materials for such meeting, (ii) will use its best
efforts to obtain the necessary approvals by its stockholders of the Shareholder
Vote Matters and (iii) will otherwise comply with all legal requirements
applicable to such meeting. A reasonable period of time prior to the initial
filing of (or the filing of any amendment of supplement to) any of the
Company Proxy Statement, the Registration Statement, the Underwriting Registration
Statements, the Schedule 13E-3 or any other Company Disclosure Document,
the Company shall provide to each of the Unions, in accordance with the
notice provisions contained in Section 10.1, a copy of the same. The Company
shall provide the Unions with a reasonable opportunity to review and comment
on each of such documents prior to such filing with a view toward the production
and filing of mutually acceptable documents, subject to (1) the Company's
responsibilities under applicable securities laws and (2) other applicable
legal requirements.
SECTION 5.3 Access. Subject to the absence of a material
breach of Section 6.1, from the date hereof until the Effective Time, the
Company will give each Union, its counsel, financial advisors, auditors
and other designated representatives reasonable access following reasonable
notice during normal business hours (which access shall be coordinated
through a person designated by the Company, which person (or another authorized
person) shall be available during normal business hours) to the offices,
employees, properties, books and records of the Company and the Subsidiaries,
will furnish, if reasonably requested, to each Union, its counsel, financial
advisors, auditors and other authorized representatives such financial
and operating data and other information in connection with the Agreement
and the transactions contemplated hereby as such persons may reasonably
request and will instruct the Company's officers, employees, counsel and
financial advisors to cooperate reasonably with each Union and each Union's
counsel, financial advisors, auditors and other designated representatives
in their investigation of the business of the Company and the Subsidiaries
and to take such steps as may be reasonably requested by each Union and
such counsel, advisors, auditors and other representatives to assist them
in connection with the transactions contemplated by this Agreement; provided
that no investigation pursuant to this Section shall affect any representation,
warranty, covenant or agreement made by the Company to each Union under
this Agreement. Each Union, its counsel, financial advisors, auditors and
other designated representatives shall conduct themselves under this Section
5.3 so as not to interfere with the day-to-day operations of the Company.
SECTION 5.4 Other Potential Transactions.
The Company shall not, directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with, or provide
any information to, any corporation, partnership, person or other entity
or group (other than the Unions or their advisors or the ESOP Trustee or
its advisors) 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"), except as set forth below.
The Company may, directly or indirectly, furnish information and access,
in each case in response to an unsolicited request therefor, to the same
extent permitted by Section 5.3 hereof, to any corporation, partnership,
person or other entity or group pursuant to appropriate confidentiality
agreements, and may participate in discussions and negotiate with such
entity or group concerning any such transaction, if the entire Board of
Directors of the Company (the "Board") (and, to the extent a director is
a participant in an alternative Acquisition, the disinterested members
of the Board) determine in their good faith judgment, upon advice of independent
legal and financial advisors (who may be the Company's regularly engaged
independent legal and financial advisors), that such action is required
by their fiduciary duties. In addition, the Company's officers and other
appropriate personnel may take such steps as are necessary or appropriate
to provide the Board with sufficient information to make an informed decision
concerning the matters described in the previous sentence and, if the Board
so determines that such actions are required by their fiduciary duties,
the Company may direct its officers and other appropriate personnel to
cooperate with and be reasonably available to consult with any such entity
or group which were the subject of such determination. Nothing herein shall
prevent the Board from taking, and disclosing to the Company's shareholders,
a position contemplated by Rules 14d-9 and 14e-2 promulgated under the
1934 Act with respect to any tender offer or from making such other disclosure
to shareholders or taking such other action which, in the judgment of the
Board, upon advice of such counsel, is required by law to discharge any
fiduciary duty imposed thereby.
SECTION 5.5 Notices of Certain Events.
The Company shall notify each Union of, and provide to each Union all
relevant details relating to, and documentation submitted to or by the
Company in respect of, (i) any notice or other communication from any person
alleging that the consent of such person is or may be required in connection
with the transactions contemplated by this Agreement, (ii) any notice or
other communication from any governmental or regulatory agency or authority
in connection with the transactions contemplated by this Agreement and
(iii) any proposal for, or contacts and expressions of interest relating
to, an Acquisition or other matter contemplated by Section 5.4 and action
taken by the Company in respect thereof.
SECTION 5.6 Amendment of Rights Agreement.
The Company shall amend the Rights Agreement, effective immediately
prior to the Effective Time, in accordance with the Rights Amendment and
to provide that each outstanding share of ESOP Convertible Preferred Stock
following the Effective Time, as well as each Available Unissued ESOP Share
(as defined in Article FIFTH, Section 1.5 of the Restated Certificate),
shall have associated with it and represent that number of Rights (as defined
in the Rights Agreement) as would be associated with the number of New
Shares into which the relevant share of ESOP Convertible Preferred Stock
is then convertible and to cause such Rights to be exercisable by, and
to cause separate certificates representing such Rights to be distributed
to, and be separately transferable by, holders of shares of ESOP Convertible
Preferred Stock (and Available Unissued ESOP Shares) at the time and upon
terms substantially the same as those applicable to the holders of New
Shares.
SECTION 5.7 Employee Benefit Plans.
The Company shall take such action to amend, in form reasonably satisfactory
to each Union, the directed account plans and 401(k) plans maintained by
the Company or United for the benefit of employees, and shall take all
other reasonable action, so as to permit investment of the funds held thereunder
at the individual direction of the beneficiaries of such plans to purchase
the Company's common stock, preferred stock, Depositary Shares and/or debt
securities in the open market, subject to rules and regulations under the
1934 Act. The Company shall take such action to amend the stock purchase
plans maintained by the Company or United for the benefit of employees
so as to require the distribution of the consideration received upon redemption
of the Redeemable Preferred Stock in accordance with Section 1.3 to be
received by such plans in the Reclassification, or the cash proceeds from
the sale thereof, to participants, subject to applicable law. Consistent
with existing Company policy with respect to purchases of Old Shares, the
aforementioned plan amendments to the directed account plans and the 401(k)
plans, and the stock purchase plans, shall 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 (i)
30% of the outstanding New Shares held by persons other than the ESOPs
and (ii) 20% of the aggregate number of outstanding New Shares and New
Shares issuable upon conversion of the ESOP Preferred Stock outstanding
or issuable to Sections 1.6 or 1.10 hereof (including Available Unissued
ESOP Shares) and (Y) except with respect to the stock purchase plan, up
to (i) 20% of the outstanding Depositary Shares, (ii) 20% of the outstanding
principal amount of Series A Debentures and (iii) 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 (which,
for this purpose, shall mean employees represented by each of ALPA, the
IAM, and the AFA (as defined in Section 7.3) and the Salaried and Management
Employees (as defined in Section 5.8(b)) (each, an "Employee Group") may
individually acquire more than 10% of the outstanding shares or amount
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 may individually acquire more than 2% of the outstanding shares or
amount 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 Reclassification) 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, as defined in Section
1.10.
The Company shall not be required to expand the scope of any third party
indemnity in a manner adverse to the Company in order to implement the
amendments referred to in clause (Y) above.
(b) The Company shall also 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 (including any functions which such group of
employees begin performing in the future) (the "Salaried and Management
Employees"), in form and substance as set forth on Schedule 5.8(iii), effective
at the Effective Time. From and after the date hereof, the Company shall
provide the Unions and their respective counsel, financial advisors, auditors
and other representatives with the access and information necessary to
confirm the Company's continuing implementation of the provisions of this
Section 5.8(b).
SECTION 5.9 Solvency Letter. The
Company has retained American Appraisal Associates (the "Appraiser") to
provide, at or prior to the Effective Time, opinion in writing to the Company
and the Board substantially similar to the letter set forth on Schedule
5.9 (the "Solvency Letter"). If the Solvency Letter is delivered to the
effect that sufficient surplus is available to permit the consummation
of the Recapitalization consistent with Delaware Law, the Board shall take
all lawful and appropriate action, effective as at the Effective Time,
to revalue the Company's assets and liabilities to permit the consummation
of the Recapitalization in accordance with Delaware Law.
SECTION 5.10 Other Transaction Documents.
The Company hereby agrees that at the Effective Time it will execute
the form of employment agreement (the "Employment Agreement") between the
Company and Gerald Greenwald in the form attached to the agreement (the
"Retention Agreement") between the Unions and Gerald Greenwald providing
for his employment by the Company from and after the Effective Time on
the terms set forth in the Employment Agreement. The Comply hereby agrees
from and after execution by Gerald Greenwald of the Employment Agreement
at the Effective Time to perform all of its obligations, whether or not
due and owing, under the Employment Agreement. The Retention Agreement
may not be amended without the written consent of the Company. A true and
correct copy of the Retention Agreement (with the attached form of the
Employment Agreement) has been delivered by the Unions to the Company.
In addition, immediately prior to the Effective Time, the Company shall
execute and deliver (or shall have theretofore executed and delivered)
the following documents and agreements: the Officers' Certificate relating
to the Indenture, the Deposit Agreement, the initial ESOP Stock Purchase
Agreement, the ESOP Trusts, the Exchange Agent Agreement, the Rights Amendment,
the Class I Preferred Stock Subscription Agreement, the Class Pilot MEC
Preferred Stock Subscription Agreement, the Class IAM Preferred Stock Subscription
Agreement, the Class SAM Preferred Stock Subscription Agreement, a shareholders
agreement with the initial Independent Directors in form and substance
as set forth on Schedule 5.10 (i) (the "Class I Preferred Stock Shareholders
Agreement"), a shareholder agreement with the holders of the Class SAM
Preferred Stock in form and substance as set forth on Schedule 5.10(ii),
and a First Refusal Agreement between the Company, the Unions and the SAM
Director, in form and substance as set forth on Schedule 5.10(iii) (collectively,
the "Closing Agreements").
SECTION 5.11 Certain Agreements. Without
limiting in any respect the Company's and United's rights or obligations
under any other agreement, arrangement or understanding to which it is
a party, the Company specifically confirms, and shall cause United to confirm,
their respective obligations under the employee and director benefit plans,
agreements, policies and arrangements maintained by the Company and/or
United or to which the Company and/or United is a party, in each case as
in effect on the date hereof (subject to revision in accordance with Section
5.1), identified in a letter to the Unions dated the date hereof (the "Officer
and Director Arrangements"); provided, that the provisions of this Section
5.11 (a) shall be subject to Section 5.1 prior to the Effective Time and
(b) shall not restrict the Company's or United's ability to terminate,
revise or replace any Officer and Directors Arrangements after the Effective
Time so long as such action does not reduce or otherwise adversely affect
rights of any beneficiary under any such Officers and Directors Arrangements
that the Company or United is obligated to provide following the Effective
Time without his or her consent.
SECTION 6.1 Confidentiality.
(b) Each Union shall limit access to the Confidential Information to
its officials and Representatives who in the reasonable judgment of such
Union need to know the Confidential Information for purposes of participating
in making decisions concerning, or advising it with respect to, the Confidential
Information ("informed officials and Representatives"). Disclosure of Confidential
Information may be made only to officers, directors, employees, accountants,
counsel, consultants, advisors and agents of one of the Unions who executes
a Confidentiality Statement (a "Representative"), in the form attached
either to this Agreement as Schedule 6.1 or as an attachment to a confidentiality
agreement between the Company and such Union entered into prior to the
date hereof (a "Confidentiality Statement"). An executed original of each
such Confidentiality Statement shall be provided to the Company by the
Union obtaining it. Each Union and its Representatives tray discuss with
the informed officials and Representatives of each other Union the Confidential
Information which such Union has been provided pursuant to this Agreement
or any prior confidentiality agreement between the Company afar such Union
relating to the Confidential Information provided that such Confidential
Information shall continue to be subject to this Agreement and any other
applicable confidentiality agreement. In all events, each Union shall be
responsible for any actions by its Representatives which are not in accordance
with the provisions hereof and of any Confidentiality Statement executed
by a Representative but shall not be responsible for such actions of any
informed official or Representative of the other Union. ..
(c) In the event that a Union, its Representatives or anyone to whom
a Union or its Representatives supply Confidential Information are requested
or required through legal process (by oral questions, interrogatories,
requests for information or documents, subpoena, civil investigative demand,
any informal or formal investigation by any government or governmental
agency or authority or otherwise) to disclose any Confidential Information,
the Union will, upon learning of such request or requirement, (i) immediately
notify the Company of the existence, terms and circumstances surrounding
such a request, (ii) consult with the Company on the advisability of taking
legally available steps to resist or narrow such request and (iii) if disclosure
of such information is required, furnish only that portion of the Confidential
Information which, in the opinion of the Union's legal counsel, it is legally
compelled to disclose and cooperate with any action by the Company to obtain
an appropriate protective order or other reliable assurance that confidential
treatment will be accorded the Confidential Information.
(d) Except in respect of any Confidential Information that is in this
Agreement (or may in the future be) the subject of an express representation
by the Company, (i) neither the Company nor its employees, agents, affiliates
or representatives (collectively hereinafter referred to as the "Company
Representatives") makes any express or implied representation as to the
accuracy or completeness of the Confidential Information and (ii) each
Union and its Representatives agree that neither the Company nor any Company
Representative shall have any liability to such Union or its Representatives
resulting from the use by such Union or its Representatives of Confidential
Information. So long as neither Union is in material breach of its obligations
under this Section 6.1, nothing in this Section 6.1(d) is intended to limit
Section 5.3.
(e) Each Union hereby acknowledges that it is aware, and that it will
advise its Representatives who are informed in accordance with the terms
of this Agreement, as to the matters which are the subject of this Agreement,
that the United States securities laws prohibit any person who has received
from an issuer material, non-public information concerning the matters
which are the subject of this Agreement from purchasing or selling securities
of such issuer due to the receipt of Confidential Information or from communicating
such information to any other person under circumstances in which it is
reasonably foreseeable that such person is likely to purchase or sell such
securities due to the receipt of Confidential Information.
(f) Each Union expressly acknowledges that (i) the preservation of the
confidentiality of the Confidential Information has highly important commercial
significance for the Company and (ii) its unauthorized disclosure could
have serious and irreparable adverse commercial, financial and legal consequences
for the Company. It accordingly agrees that the Company shall be entitled
to injunctive relief to prevent breaches of this Agreement and to specifically
enforce the terms and provisions of this Section, in addition to any other
remedy to which the Company may be entitled, at law or in equity or pursuant
to this Agreement.
(g) Each Union and its Representatives hereby acknowledge that the Confidential
Information is being furnished to them solely in connection with a review
in connection with the transactions contemplated by this Agreement and
analysis of the Company's business and financial condition and none of
such Unions or their Representatives shall use the Confidential Information
other than in connection with such review and analysis and potential responses
thereto made directly to the Company (which may be discussed among and
be made by the Unions). No right or license, express or implied, under
any patent, copyright, trademark, trade secret, or other proprietary right
in the Confidential Information is granted hereunder by United to a Union
or its Representatives.
(h) Each Union will keep a record of the location of the Confidential
Information. If the Agreement is terminated prior to the Effective Time,
each Union agrees for itself and for its Representatives who reviewed the
Confidential Information, to return to the Company or destroy all documents
reflecting the Confidential Information and to certify in writing to the
Company that such documents have been so returned or destroyed.
SECTION 6.2 Labor Agreements. Such
Union shall execute and deliver, at the Effective Time, the relevant Labor
Agreement.
SECTION 6.3 No Public Director Nominations.
Such Union shall not, directly or indirectly, nominate or cause to
be nominated any individual for election as an Outside- Public Director
(as defined in Article FIFTH, Section 2.3 of the Restated Certificate)
of the Company; provided, however, that any such nomination by an
employee of the Company or United, acting in his or her individual capacity
as a shareholder of the Company, shall not be deemed to violate this Section
6.3 so long as such nomination was not made with the advice, support, or
assistance of any officer of such Union.
SECTION 6.4 Independent Director Vacancies.
The Unions agree to use their best efforts to cause any Independent
Director vacancy resulting after the Effective Time promptly to be filled
in accordance with Article FIFTH, Section 4.1.6 of the Restated Certificate.
AND THE COMPANY
SECTION 7.2 Certain Filings. The
Company and each of the Unions shall cooperate with one another (a) in
connection with any preparation of the Company Disclosure Documents, the
Company Proxy Statement, the Schedule 13E-3, the Registration Statement
and the Underwriting Registration Statements, (b) in determining whether
any action by or in respect of, or filing with, any governmental body,
agency, official or authority is required, or any actions, consents, approvals
or waivers are required to be obtained from parties to any material contracts,
permits, licenses and franchises, in connection with the consummation of
the transactions contemplated by this Agreement and (c) in seeking any
such actions, consents, approvals or waivers or making any such filings,
furnishing information required in connection therewith or with the Company
Disclosure Documents, the Company Proxy Statement, the Schedule 13E-3,
the Registration Statement or the Underwriting Registration Statements,
and seeking timely to obtain any such actions, consents, approvals or waivers.
As soon as practicable after the date hereof, the Company shall, in accordance
with Section 5.2, (a) file with the SEC the Company Proxy Statement, the
Schedule 13E-3 and the Registration Statement, (b) obtain and furnish the
information required to be included therein, (c) after consultation with
each Union, respond promptly to comments made by the SEC with respect to
the Company Proxy Statement, the Schedule 13E-3 and Registration Statement
and any preliminary version thereof and (d) cause the Registration Statement
to become effective and the Company Proxy Statement to be mailed to the
Company's stockholders at the earliest practicable date. Prior to the effective
date of the Registration Statement, the Company shall obtain all necessary
state securities laws or "blue sky" permits and approvals required to carry
out the Recapitalization and the transactions contemplated by this Agreement.
SECTION 7.3 Participation. If,prior
to the Effective Time, the Association of Flight Attendants ("AFA") agrees
to provide, in the sole judgment of the Company, an investment equal to
$416 million (present value in January 1994 dollars for a five year AFA
mainline investment and a twelve year AFA Competitive Action Plan (as defined
in Schedule 1.1) investment and assuming semi-annual payments, first period
not discounted, and annual discount rate of 10%) then, provided that the
parties hereto agree upon all aspects of the AFA's participation in the
transactions contemplated hereby (e.g. governance provisions set forth
in Schedule 1.1, ESOP provisions set forth in Section 1.6 and related schedules)
other than the matters described in clauses (i) and (ii) below, the parties
hereto shall revise all applicable documents such that (i) the employee
investment period with respect to ALPA, IAM and salaried and management
employees shall be reduced by nine months; and (ii) 12.62% of the ESOP
Preferred Stock otherwise to be allocated to ALPA-represented employees,
IAM-represented employees and Salaried and Management Employees (the "Allocated
Shares") shall be made available for allocation to the AFA-represented
employees, such that after such allocation, 40.4% of the Allocated Shares
shall be allocated to ALPA-represented employees, 32.44% of the Allocated
Shares shall be allocated to the IAM-represented employees, 14.54% of the
Allocated Shares shall be allocated to the Salaried and Management Employees
and 12.62% of the Allocated Shares shall be allocated to the AFA-represented
employees.
(ii) any applicable waiting period under the HSR Act relating to the
Recapitalization shall have expired or been terminated;
(iii) the Registration Statement shall have become effective under the
1933 Act and shall not be 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 shall 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) shall have been authorized
for listing on the NYSE subject to official notice of issuance;
(vi) there shall have been no change in Delaware Law enacted or any
applicable decision of a court of competent jurisdiction decided after
the date hereof 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 Delaware Law;
(vii) the ESOP Trustee shall have 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 pursuant to Section 1.6(d)
hereof by the ESOPs is fair, from a financial point of view, to the ESOP
participants;
(viii) the Board of Directors of the Company shall have received the
Solvency Letter; and
(ix) (A) there shall not be 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
DOT, before any court or governmental regulatory or administrative agency,
authority or tribunal, which (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, this Agreement or any of the transactions contemplated hereby 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 aA 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 shall not have 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 shall not be 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 shall have been satisfied or
are capable of being satisfied concurrently upon the occurrence of the
Effective Time;
(xi) the Closing Agreements shall 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) Gerald Greenwald (or such other person as shall be proposed by
the Unions prior to the Effective Time and not found unacceptable by the
Company) shall be ready, willing and able to assume the office of Chief
Executive Officer of the Company and United.
(ii) the representations and warranties of the Company set forth in
this Agreement shall 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; provided that the representations and warranties of
the Company set forth in Section 3.10 and each representation and warranty
of the Company set forth in this Agreement that is qualified by a "materiality"
or similar standard (including, Material Adverse Effect), shall be true
in all respects (taking into account all "materiality" and similar qualifications
(including; Material Adverse Effect) contained in such representation or
warranty) at and as of the Effective Time, as if trade at and as of such
time.
(ii) the representations and warranties of the Unions set forth in this
Agreement shall 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; provided that each representation and warranty of
the Unions set forth in this Agreement that is qualified by a "materiality"
or similar standard shall be true in all respects (taking into account
all "materiality" and similar qualifications contained in such representation
or warranty) at and as of the Effective Time, as if made at and as of such
time;
(iii) the Board of Directors of the Company shall have received the
written opinions of each of First Boston and Lazard, each dated as of the
Announcement Date, confirming their earlier opinions, to the effect that
the Recapitalization is fair from a financial point of view to the holders
of Old Shares; and
(iv) the Labor Agreements shall have been executed and delivered by
the Unions and shall be in full force and effect as of the Effective Time.
(v) the Board of Directors of the Company shall have received the written
opinions of Skadden, Arps, Slate, Meagher & Flom to the effect that
(A) when issued, all New Shares, all Depositary Shares and all shares of
Public Preferred Stock represented thereby will be duly authorized, validly
issued, fully paid and nonassessable, (B) the revaluation of the Company's
and United's assets contemplated by Section 5.9 hereof may be effected
in connection with the Recapitalization consistent with Delaware Law, (C)
when issued, the Debentures will be validly issued and enforceable obligations
of United, (D) the consummation of the transactions contemplated by Section
1.6(d) hereof will not result in a non-exempt prohibited transaction under
Section 4975(c)(1) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), or Section 406(a) of the Employee Retirement
Income Security Act of 1974, (E) the Recapitalization and Reclassification
will not result in the recognition of income, gain or loss to the Company
for United States federal income tax purposes and (F) the contributions
made by the Company to the ESOPs and, assuming the Company has sufficient
earnings and profits, the dividends paid on the ESOP Preferred Stock that,
in each case, are used to repay the debt evidenced by the ESOP Note issued
in connection with the transactions contemplated by Section 1.6(d) hereof
will be deductible under Section 404 of the Internal Revenue Code;
(vi) the Company shall have determined that it is reasonably likely
to have sufficient earnings and profits such that, based on the opinion
of counsel described in Section 8.3(v)(F) above, the dividends paid on
the ESOP Preferred Stock that are used to repay the debt evidenced by the
ESOP Note issued in connection with the transactions contemplated by Section
1.6(d) hereof are reasonably likely to be deductible under Section 404
of the Internal Revenue Code; and
(vii) the Company shall have determined that the Company will be reasonably
likely to have sufficient surplus (whether revaluation surplus or earned
surplus) or net profits under Delaware Law to permit the legal payment
of dividends on the ESOP Preferred Stock and the Public Preferred Stock
when due.
(c) by either Union if (i) the Board shall have withdrawn or modified
in a manner materially adverse to such Union its approval or recommendation
of the Recapitalization or the Shareholder Vote Matters or shall have recommended,
or shall have failed to recommend against, another Acquisition, (ii) the
Board shall have resolved to do any of the foregoing, (iii) the Company
shall have breached, either individually or collectively, in any material
respect any of its material representations, warranties, covenants or other
agreements contained in this Agreement, (iv) any person shall have acquired
"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) shall have been formed which beneficially owns, or has the
right to acquire beneficial ownership of, more than 15% of the then outstanding
Old Shares, or shall have become an "Acquiring Person" under the Rights
Agreement, or (v) there shall have occurred a "Share Acquisition Date"
or "Distribution Date" under the Rights Agreement; or
(d) by the Company if (i) either Union shall have breached, either individually
or collectively, in any material respect any of its material representations,
warranties, covenants or other agreements contained in this Agreement or
(ii) the Board, in accordance with Section 5.4, shall have withdrawn or
modified in a manner adverse to either Union its approval or recommendation
of the Recapitalization or shall have recommended another Acquisition,
or shall have resolved- to do any of the foregoing.
SECTION 9.3 Effect of Termination.
Except as provided in the next sentence, if this Agreement is terminated
pursuant to Section 9.1 or 9.2, this Agreement shall become void and of
no effect with no liability on the part of any party hereto, except that
the agreements contained in Sections 6.1, 9.3 and 10.4 shall survive the
termination hereof. Notwithstanding the preceding sentence, if the failure
of the Effective Time to occur on or prior to the Outside Termination Date
results directly from either (i) a material breach of a specific material
representation or warranty contained in this Agreement by one of the parties
hereto under circumstances where the breaching party had actual knowledge
at the date of this Agreement 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 hereto has established, as determined by a court of competent
jurisdiction, that such Willful Breach has occurred, the breaching party
shall be liable to the other parties hereto 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
hereby other than in connection with any litigation or other dispute between
or among parties hereto); 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 shall be actionable hereunder 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
shall not include consequential or punitive damages and shall 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" shall 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 shall conclusively be deemed to
have read this Agreement.
6400 Shafer Court
Suite 700
Rosemont, IL 60018
Telephone: (708) 292-1700
Telecopy: (708) 292-1760
Attention: Captain Roger D. Hall
1285 Avenue of the Americas
New York, NY 10019
Telephone: (212) 373-3000
Telecopy: (212) 757-3990
Attention: Stuart I. Oran, Esq.
330 West 42nd Street
New York, NY 10036
Telephone: (212) 563-4100
Telecopy: (212) 695-5436
Attention: Stephen Presser, Esq.
IAM Local 1487
321 Allerton Avenue
San Francisco, CA 94080
Telephone: (415) 873-0662
Telecopy: (415) 873-1676
Attention: Ken Theide
3500 W. Olive, Suite 1100
Burbank, CA 91505
Telephone: (818) 973-3200
Telecopy: (818) 973-3201
Attention: Robert A. Bush, Esq.
Lowenstein Sandler Kohl Fisher & Boylan
65 Livingston Avenue
Roseland, New Jersey 07068
Telephone: (201) 992-8700
Telecopy: (201) 992-5820
Attention: Peter H. Ehrenberg, Esq.
1200 E. Algonquin Road
Elk Grove Township, Illinois 60007
Telephone: (708) 956-2400
Telecopy: (708) 952-4683
Attention: Stephen M. Wolf and
919 Third Avenue
New York, NY 10022
Telephone: (212) 735-3000
Telecopy: (212) 735-2000
Attention: Peter Allan Atkins, Esq.
SECTION 10.2 Survival. The
representations and warranties contained herein and in any certificate
or other writing delivered pursuant hereto shall not survive the Effective
Time. The agreements of the parties contained herein and in any certificate
or other writing delivered pursuant hereto shall not survive the Effective
Time unless expressly provided in such agreement (it being understood that,
without limiting the survival of any other agreements contained herein
the survival of which is expressly provided for in such agreement, the
following agreements shall survive the Effective Time: Sections 1.2, 1.3,
1.5, 1.6, 1.7, 1.8, 1.9, 1.10, 2.3, 2.4, clause (iii) of the last sentence
of Section 5.1, 5.7, 5.8(b), 5.10, 5.11, 6.3, 6.4, 10.2 and 10.4) (all
such surviving agreements being referred to herein as the "Express Agreements").
Except with respect to any Collective Bargaining Agreement (as defined
in the Restated Certificate) 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 hereto (in their capacities
as such) fully releases, discharges, waives, and renounces (collectively
"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 agrees not to initiate any suit, action or other proceeding
involving, each of the other parties hereto, its officials, officers, directors,
employees, accountants, counsel, consultants, advisors and agents and,
if applicable, security holders relating to or arising out of this Agreement
or the transactions contemplated hereby (including, but not limited to,
matters contemplated under Section 5.11 and matters involving claims, controversies,
demands, rights, disputes or cause of action based on securities laws,
ERISA, common law tort theory or any other similar bodies of law); provided
that the foregoing Releases shall not apply to any claims, controversies,
demands, rights, disputes and causes of action arising from and after the
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 this Agreement, to the extent provided in this Section 10.2).
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall 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 herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
SECTION 10.4 Fees and Expenses; Indemnification.
(a) Except as provided in the fee letter agreement, dated the date hereof,
among the Company and the Unions (the "Fee Letter"), or hereafter agreed
by the parties in writing or as set forth in this Section, all fees, costs
and expenses incurred in connection with this Agreement shall be paid by
the party incurring such fee, cost or expense. The parties agree that the
fees, costs and expenses of the Deadlock Firm and the Solvency Firm shall
be paid by the Company. The Company represents and agrees that the fees
of its principal financial and legal advisors to be incurred by the Company
in connection with the transactions contemplated by this Agreement other
than fees in connection with the underwriting described in Section 1.11
hereof shall not exceed $25 million.
(b) Upon the occurrence of a Triggering Event (as defined below), the
Company shall promptly pay to or at the direction of the Unions any amounts
the Company would otherwise have been required to pay pursuant to the Fee
Letter had the Effective Time occurred at the time of the occurrence of
such Triggering Event. Such amounts shall be exclusive of any amounts paid
or payable pursuant to indemnification or contribution arrangements. For
purposes of this paragraph (b), "Triggering Event" shall mean the occurrence
of each of the following: (i)(A) following the public announcement of a
proposal for an Acquisition, either the stockholders of the Company shall
not have approved the Shareholder Vote Matters at the Company Stockholder
Meeting or (B) the Board shall have withdrawn or modified in a manner materially
adverse to the Unions its approval or recommendation of the Recapitalization
or the Shareholder Vote Matters or shall have recommended, or failed to
recommend against, another Acquisition; (ii) subsequent to the stockholder
or Board action referred to in clause (i) above, this Agreement shall have
been terminated by the Company pursuant to Sections 9.1(b)(i) or 9.1(d)(ii)
or by either Union pursuant to Sections 9.1(b)(i) or 9.1(c)(i); and (iii)
within 12 months of the termination of the Agreement in accordance with
clause (ii) above, an Acquisition shall have been consummated.
(c) All amounts payable by the Company to either Union under this Section
10.4 shall be paid directly to such Union or directly to persons designated
in writing by such Union as such Union may specify.
(d) To the extent that the Company shall make payments to, or on behalf
of, either Union under this Section 10.4 and such Union is reimbursed by
another source (or otherwise receives a refund of the amount paid), such
Union shall return such amounts to the Company to the extent of such reimbursement
(or refund).
(e) The Company (the "Indemnitor") shall 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 (all of the foregoing, and
including expenses (including reasonable attorneys' fees, disbursements
and other charges) incurred in connection with the defense thereof, except
as set forth below, being referred to as "Liabilities") based upon, relating
to or arising out of the execution, delivery or performance of this Agreement
or the transactions contemplated hereby (including, without limitation,
the underwriting described in Section 1.11 hereof); provided, however,
that
the Indemnitor shall not be liable in any such case to the extent that
any such Liability arises out of any inaccurate information supplied by
any such Union Indemnified Person specifically for inclusion in the proxy
materials related to such transactions or any other filings made by the
Company or any Union Indemnified Person with any federal or state governmental
agency in connection therewith (including without limitation the prospectuses
relating to the underwriting described in Section 1.11 hereof) or if any
such Liability is finally judicially determined, not subject to further
appeal, to have resulted from bad faith, willful misconduct or negligence
on such Union Indemnified Person's part. Notwithstanding anything to the
contrary contained herein, "Liabilities" shall not include any losses,
claims, damages or expenses (including attorneys' fees, disbursements and
other charges) based upon, relating to or arising out of any action, claim,
proceeding, investigation or threat thereof (i) brought by a Union against
the other Union, (ii) brought by any employee of the Company or a subsidiary
of the Company, as such, represented by a Union or any member of a Union
(whether or not an employee of the Company or a subsidiary of the Company),
in his or her capacity as such, if, and only if, the underlying action,
claim, proceeding or threat is made against (1) his or her Union or (2)
against the other Union, (iii) brought by any Union or any Union Indemnified
Person against the Company or any controlling persons, directors, officers,
partners, agents, representatives, advisors or employees of the Company
(a "Company Related Person") or by the Company or any Company Related Person
against any Union or Union Indemnified Person or (iv) which arise primarily
as a result of acts by a Union Indemnified Person following the Effective
Time.
(f) In connection with the Indemnitor's obligation to indemnify for
expenses as set forth above in subsection (e) of this Section, the Indemnitor
further agrees to reimburse each Union Indemnified Person for all such
expenses (including reasonable attorneys' fees, disbursements and other
charges) as they are incurred by such Union Indemnified Person, provided,
however, that if a Union Indemnified Person is reimbursed hereunder for
any such expenses, such reimbursement of expenses shall be refunded to
the extent it is finally judicially determined, not subject to further
appeal, that the Union Indemnified Person is not entitled to indemnification
by reason of the proviso clause in the first sentence or the last sentence
of subsection (e) of this Section. The Company shall not be required to
reimburse any Union Indemnified Person for the reasonable attorney's
fees, disbursements or other charges of more than one counsel (plus local
counsel, if appropriate), or of more than one counsel (plus local counsel,
if appropriate) for any one Union (together with Union Indemnified Persons
who are controlling persons, directors, officers, partners, affiliates,
agents, representatives, advisors and employees of such Union) who can
be represented by common counsel so long as no conflict of interest or
different or additional colorable defenses are reasonably believed by such
Indemnified Persons to exist between or among them relative to the claims
asserted.
(g) Promptly after receipt by a Union Indemnified Person of notice of
any claim or the commencement of any action, proceeding or investigation
in respect of which indemnity or reimbursement may be sought as provided
in this Section, such Union Indemnified Person will notify the Indemnitor
in writing of the receipt or commencement thereof, but the failure to so
notify shall not relieve the Indemnitor from any obligation or liability
which it may have pursuant to this Section or otherwise except to the extent
that the Indemnitor is materially prejudiced thereby. In case any such
action, proceeding or investigation is brought or threatened against a
Union Indemnified Person, the Indemnitor will be entitled to participate
therein and, to the extent that it may wish, to assume the defense thereof,
with counsel selected by the Indemnitor and approved by the Union Indemnified
Person (such approval not to be unreasonably withheld). After notice from
the Indemnitor to such Union Indemnified Person of its election to assume
the defense thereof, the Indemnitor will not be liable to such Union Indemnified
Person for any legal expense subsequently incurred for services rendered
by any other counsel retained by such Union Indemnified Person in connection
with the defense unless such Union Indemnified Person, in the opinion of
its counsel, has colorable defenses which are different from or in addition
to defenses available to the Indemnitor or the Indemnitor has an interest
which conflicts with the interests of such Union Indemnified Person and
which makes separate representation advisable, in which event all legal
expenses of such Union Indemnified Person (subject to the last sentence
of subsection (f) above) shall continue to be paid by the Indemnitor. Notwithstanding.
Section 10.4(f), the indemnification provided for in this Section 10.4
shall include reimbursement for all expenses (including reasonable attorneys'
fees, disbursements and other charges) incurred by Union Indemnified Persons
to enforce their rights under this Section 10.4. The Indemnitor shall not
settle any action, claim, proceeding or investigation which is the subject
of this Section 10.4 without the prior written approval of the Union Indemnified
Person (such approval not to be unreasonably withheld), unless such settlement
involves solely the payment of money and the Indemnitor is not contesting
any right of a Union Indemnified Person to receive. indemnification hereunder.
References to Union Indemnified Persons shall in all cases include the
controlling persons, directors, officers, affiliates, agents, representatives,
advisors and employees of each Union Indemnified Person.
(h) If the indemnification provided for in this Section 10.4 is finally
judicially determined, not subject to further appeal, to be unavailable
to a Union Indemnified Person, then the Indemnitor shall, in lieu of indemnifying
such Union Indemnified Person, contribute to the amount paid or payable
in respect of any Liability by such Union Indemnified Person in such proportion
as shall be fair and equitable after taking into account the relative benefits
received by the parties, the relative fault of the parties and such other
equitable considerations as any court of competent jurisdiction shall determine.
For purposes of the preceding sentence, the benefits received by a Union
Indemnified Person that is an advisor shall not be deemed to exceed the
amount of fees payable to such Union Indemnified Person. The rights accorded
to the Indemnified Persons under this Section 10.4 shall be in addition
to any rights that any Union Indemnified Person may have at common law,
by separate agreement or otherwise.
(i) 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 Certificate of Incorporation or By-laws 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 hereof with respect to matters occurring at
or prior to the Effective Time shall survive the Effective Time and shall
continue in full force and effect. In addition, the Company shall 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 shall 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 shall
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 shall 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 shall not pay in excess of an amount set forth in a letter
previously delivered by the Company to counsel to the Unions. The Company
shall 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.
SECTION 10.5 Successors and Assigns. The
provisions of this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns; provided
that no party may assign, delegate or otherwise transfer any of its rights
or obligations under this Agreement without the written consent of the
other parties hereto. In the event the Company or any of its successors,
transferees or assigns (i) consolidates with or merges with or into any
other person and shall not be the continuing or surviving entity of such
consolidation or merger, (ii) transfers or conveys all or substantially
all of its properties or assets to any transferee or (iii) engages in any
similar transaction with any person, then, as a condition to the consummation
of such transaction, proper provision shall be made so the successor, transferee
or assignee of the Company pursuant to such transaction assumes the obligations
of the Company set forth in each of the Express Agreements.
SECTION 10.6 Governing Law. This
Agreement shall be construed in accordance with and governed by the law
of the State of Delaware, without regard to the conflicts of laws principles
thereof. The parties agree that this Agreement (including the Schedules
and other attachments hereto), other than Schedules 1.6(a)(i), 1.6(a)(ii),
1.6(a)(iii), 1.6(a)(iv), 5.8(i) and 5.8(ii) (to the extent
such Schedules relate to employees of the Company and its Subsidiaries
represented by the Unions), shall not be subject to the jurisdiction of
any System Board of Adjustment under the Railway Labor Act.
SECTION 10.7 Counterparts; Efectiveness.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement shall become effective
when each party hereto shall have received counterparts hereof signed by
all of the other parties hereto.
SECTION 10.8 Parties in Interest. This
Agreement shall be binding upon and inure solely, other than the provisions
of Section 10.4, to the-benefit of the parties hereto, and, except for
the Express Agreements, nothing in the Agreement, 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 in the
following Sections are for the benefit of, and may be enforced by, the
following parties: Sections 1.2, 1.3, 1.5, 6.3 and 6.4: the holders
of New Shares; Section 1.7: holders of Options; Section 1.8: holders of
Company Convertible Securities; Sections 2.3 (other than the last sentence
thereof) and 5.11: officers and directors of the Company prior to the Effective
Time; the first sentence of Section 5.8(b): the ESOP Trustee; the first
sentence of Section 5.10: Gerald Greenwald; Section 10.4(c)-(h): Union
Indemnified Persons; and Section 10.4(i): Company Indemnified Persons.
SECTION 10.9 Specific Performance.
Prior to the Effective Time or the termination of this Agreement, the
parties agree that in the event a Willful Breach is established by a court
of competent jurisdiction, the other parties hereto shall be entitled to
specific performance of the terms hereof which were the subject of such
Willful Breach; provided, however, in no event shall such remedy
of specific performance in any way extend or modify the Outside Termination
Date. The parties acknowledge that in the event of a Willful Breach, irreparable
damage would occur, no adequate remedy at law would exist and damages would
be difficult to determine. No other remedy shall be available prior to
the Effective Time or the termination of this Agreement except that the
remedy of damages shall be available if such remedy (including the amount
of damages) would be available after termination pursuant to the terms
of Section 9.3 hereof.
SECTION 10.10 Entire Agreement. Except
as otherwise explicitly set forth in this Agreement, or in other writings
signed concurrently herewith, this Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes
all other prior agreements and understandings, both written and oral, between
the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day
and year first above written.
By /S/ STEPHEN M. WOLF
Title: Chairman and Chief
Executive Officer
By /S/ ROGER D. HALL
Title: Chairman, UAL-MEC
INTERNATIONAL ASSOCIATION OF MACHINISTS AND AEROSPACE WORKERS
Name: Ken Thiede
Title: President and General Chairman, District Lodge 141
</TEXT>
</DOCUMENT>
<TYPE> EX-10.2
<TEXT>
<HTML>
SECOND AMENDMENT TO THE AGREEMENT
AND PLAN OF RECAPITALIZATION
Second Amendment (this "Amendment"), dated as of June 29,
1994, to the Agreement and Plan of Recapitalization (as amended,
the "Plan of Recapitalization"), dated as of March 25, 1994,
by
and among UAL Corporation, a Delaware corporation (the "Company"), Air
Line Pilots Association, International, pursuant to its authority as the
collective bargaining representative for the crafts or class of pilots
employed by United Air Lines, Inc., a Delaware corporation and a wholly-owned
subsidiary of the Company ("United"), and the International Association
of Machinists and Aerospace Workers, pursuant to its authority as the collective
bargaining representative for the crafts or classes of mechanics and related
employees, ramp and stores employees, food service employees, dispatchers
and security officers employed by United, as amended by the First Amendment
to the Plan of Recapitalization, dated as of June 2, 1994.
W I T N E S S ET H
WHEREAS, the parties hereto desire to amend the Plan of Recapitalization
and certain Schedules thereto; and
WHEREAS, Section 10.3 (a) of the Plan of Recapitalization permits amendments
to the Plan of Recapitalization and the Schedules thereto by written instrument
signed by all parties;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties hereto agree an follows:
1. Section 1.3 of the Plan of Recapitalization is hereby amended and
restated in its entirety in the form attached to this Amendment asExhibit
A.
2. Section 1.5(b) of the Plan of Recapitalization in hereby amended and restated in its entirety in the form attached to this Amendment as Exhibit B.
3. Section 1.11 of the Plan of Recapitalization is hereby amended and
restated in its entirety in the form attached to this Amendment as Exhibit
C.
4. Article FOURTH, Part I.D, Section 2.5 of the Restated Certificate
is hereby amended and restated in its entirety in the form attached to
this Amendment as Exhibit D.
Miscellaneous
A. Definitions. Capitalized terms used in this Amendment and
not defined herein shall have the meanings ascribed to them in the Plan
of Recapitalization or the Schedules or other attachments thereto.
B. Entire Plan of Recapitalization; Restatement. The Plan of
Recapitalization, as amended by this Amendment, is the entire agreement
of the parties with respect to the subject matter hereof and the parties
hereto hereby agree that the Plan of Recapitalization and all Schedules
thereto may be restated to reflect all amendments provided for in this
Amendment.
C. Governing Law. This Amendment shall be deemed to be made in
and in all respects shall be interpreted, governed by and construed in
accordance with the laws of the State of Delaware, without regard to the
conflicts of laws principles thereof.
D. Counterparts. This Amendment may be executed in counterparts,
each of which shall be an original and all of which shall together constitute
one and the same instrument.
Second Amendment to the Agreement
and Plan of Recapitalization
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be executed by their respective officers thereunto duly
authorized on the date first above written.
By: /s/ Stephen M. Wolf
Name: Stephen M. Wolf
Title: Chairman and Chief
Executive Officer
AIR LINE PILOTS ASSOCIATION,
INTERNATIONAL
By: /s/ Roger D. Hall
Name: Roger D. Hall
Title: Chairman, UAL-MEC
INTERNATIONAL ASSOCIATION OF
MACHINISTS AND AEROSPACE WORKERS
By: /s/ Ken Thiede
Name: Ken Thiede
Title: President and
General Chairman,
District Lodge 141
EXHIBIT INDEX
SECTION 1.3 Redemption. Following the Effective Time, all
outstanding shares of Redeemable Preferred Stock shall, to the extent of
funds legally available therefor and subject to the provisions of the Restated
Certificate, be redeemed immediately after issuance according to the terms
thereof (the "Redemption"). Pursuant to the Redemption, the holders of
Redeemable Preferred Stock, if any, shall be entitled to receive, in respect
of each one one-thousandth of a share of Redeemable Preferred Stock, subject
to the terms thereof and Section 1. 5(f):
(iii) either (a) $15.55 principal amount of Series A Senior Unsecured Debentures due 2004 of United issued as provided below (the "Series A Debentures") or (b) if the Underwriting Alternative with respect to the Series A Debentures is consummated, a cash payment equal to the Series A Debenture Proceeds Amount (as defined in Section 1.11 below); and
(iv) either (a) $15.55 principal amount of Series B Senior Unsecured Debentures due 2014 of United issued as provided below (the "Series B Debentures" and, together with the Series A Debentures, collectively, the "Debentures") or (b) if the underwriting Alternative with respect to the Series B Debentures is consummated, a cash payment equal to
(ii) either (a) if the Underwriting Alternative with respect to Depositary
Shares representing interests in the Public Preferred Stock is not consummated,
for each Old Share formerly represented by such Old Certificate or Certificates
in respect of the Redemption, both (I) a cash payment equal to $12.20,
plus (II) a depositary receipt or receipts representing Depositary Shares
representing interests in a liquidation preference of Public Preferred
Stock equal to the excess of (xx) $31.10 over (yy) the product of $12.20
and a fraction (but in no event less than one) the numerator of which is
the Applicable Rate with respect to the Depositary Shares assuming that
the Underwriting Alternative with respect to the Depositary Shares is consummated,
and the denominator of which is 11.375%, or (b) if the Underwriting Alternative
with respect to the Depositary Shares is consummated, a cash payment equal
to the Depositary Share Proceeds Amount in respect of the Redemption;
(iii) either (a) $15.55 principal amount of Series A Debentures for each old Share formerly represented by such Old Certificate or Certificates in respect of the Redemption or (b) if the Underwriting Alternative with respect to the Series A Debentures is consummated, a cash payment equal to the Series A Debenture Proceeds Amount in respect of the Redemption;
(iv) either (a) $15.55 principal amount of Series B Debentures for each
Old Share formerly represented by such Old Certificate or Certificates
in respect of the Redemption or (b) if the Underwriting Alternative with
respect to the Series B Debentures is consummated, a cash payment equal
to the Series B Debenture Proceeds Amount in respect of the Redemption;
and
(v) a cash payment of $25.80 for each Old Share formerly represented
by such Old Certificate or Certificates in respect of the Redemption (the
cash and/or securities distributed pursuant to clauses (i) through (v),
collectively, the "Recapitalization Consideration").
Section 1.11 Underwriting Alternative
The Company has elected to pursue the underwriting of (a) a number of
Depositary Shares calculated as provided in the next sentence, (b) $382.5
million principal amount of Series A Debentures, subject to reduction as
described below, and (c) $382.5 principal amount of Series B Debentures,
subject to reduction as described below (referred to collectively herein
as the "Underwriting Alternative"), and the consummation of the underwritings
with respect to the Depositary Shares and the Debentures shall be in lieu
of issuing Depositary Shares and Debentures to holders of Old Shares pursuant
to Section 1.5 hereof, to holders of Options pursuant to Section 1.7 hereof
and to holders of Convertible Company Securities pursuant to Section 1.8
hereof. The number of Depositary Shares that shall be subject to the Underwriting
Alternative (which may be rounded up to produce an aggregate amount of
Depositary Shares that is consistent with customary aggregate underwriting
denominations) shall equal one twenty-fifth of the excess of (I)
the product of $765 million and a fraction (such fraction, which shall
in no event be greater than one, is referred to herein as the "Liquidation
Preference Fraction"), the numerator of which is 11.375%, and the denominator
of which is the Applicable Rate with respect to the Depositary Shares assuming
that the Underwriting Alternative with respect to the Depositary
Shares is consummated, over (II) $300 million. The Company shall use its
best efforts to accomplish such underwritings, including entering into
a firm commitment underwriting agreement or agreements, provided, however,
that the Company may elect to terminate the Underwriting Alternative at
any time prior to the Effective Time. The Unions will cooperate and use
their respective best efforts to facilitate the underwritings. The Underwriting
Alternative will be effected in accordance with customary underwriting
agreements which may reflect that, if the Company is advised by the managing
underwriter or managing underwriters that the Series A Debentures or Series
B Debentures would be priced in excess of the maximum price applicable
to such security (so that such security, if priced at the applicable Maximum
Pricing, could only be sold at less than par), and is further advised that
consistent with industry practice the Underwriting Alternative will be
facilitated by the sale of such securities at or closer to par, the Company
may reduce the amount of such securities to be sold and increase the interest
rate above the applicable Maximum Pricing so that such securities may be
sold at or closer to par, provided that (1) the yield to maturity
of the reduced par amount of Debentures will not exceed the yield to maturity
that would result if the unreduced par amount of such Debentures were priced
at a discount to par using the Maximum Pricing for the respective Debenture
and (2) the proceeds from the issuance of the reduced par amount of Debentures
will equal the proceeds that would result if the unreduced par amount of
such Debentures were priced at a discount to par using the Maximum Pricing
for the respective Debenture. If the Underwriting Alternative is consummated,
the amount of cash payable in respect of each Old Share shall equal the
sum of (i) $25.80 per share, (ii) the sum of $12.20 and the
gross proceeds (price to the public without deducting any underwriting
discount or other cost) received by the Company from the sale of the "Underwriting
Liquidation Preference" of Public Preferred Stock as represented by Depositary
Shares in the Underwriting Alternative (collectively, the "Depositary Share
Proceeds Amount"), (iii) the gross proceeds (price to the public without
deducting any underwriting discount or other costs) received by United
from the sale of each $15.55 principal amount of Series A Debentures in
the Underwriting Alternative (subject to adjustment as described in the
immediately preceding sentence, the "Series A Debenture Proceeds Amount")
and (iv) the gross proceeds (price to the public without deducting any
underwriting discount or other costs) received by United from the sale
of each $15.55 principal amount of Series B Debentures in the Underwriting
Alternative (subject to adjustment as described in the immediately preceding
sentence, the "Series B Debenture Proceeds Amount"). The "Underwriting
Liquidation Preference" shall equal the excess of (I) the product of $31.10
and the Liquidation Preference Fraction over (III) $12.20.
SERIES D REDEEMABLE PREFERRED STOCK]
$15.55 principal amount of Series B Debentures** and (iv) an additional $12.20 in cash and Depositary Shares representing interests in $ *** in liquidation preference of shares of Series B Preferred Stock, which Preferred Stock shall be issued in the name of the Depositary
pursuant to the Deposit Agreement and against which the Depositary shall issue Depositary Shares to the holder of the fraction of a share of the Series D Preferred Stock being redeemed, as provided in the Deposit Agreement,**** such Redemption Consideration to be distributed by the
Corporation in respect of each 1/1,OOOth of a share of Series D Preferred Stock to the holder thereof upon the redemption of such fraction of a share as provided in Section 6 hereof and as adjusted as provided in Section 6
hereof.
** If the Underwriting Alternative with respect to the Series B Debentures
is consummated, delete clause (iii), increase the cash payment in clause
(i) by the Series B Debenture Proceeds Amount and revise definitions as
appropriate.
*** Amount to be calculated in accordance with Plan of Recapitalization.
**** If the Underwriting Alternative with respect to the Depositary
Shares is consummated, delete clause (iv), increase the cash payment in
clause (i) by the Depositary Share Proceeds Amount and revise definitions
as appropriate.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE> EX-10.4
<TEXT>
<HTML>
EMPLOYEE STOCK OWNERSHIP PLAN
(Effective as of July 12, 1994)
Table of Contents
|
Page
|
|
| PREAMBLE |
1
|
| SECTION 2 |
12
|
| 2.1 Eligibility for Participation |
12
|
| 2.2 Participation Not Guarantee of Employment |
12
|
| 2.3 Transferred Participants |
13
|
| SECTION 3 |
13
|
| 3.1 Employer Contributions |
13
|
| 3.2 Limitation on Contributions |
15
|
| 3.3 Timing of Contributions |
15
|
| 3.4 Participant Contributions |
15
|
| SECTION 4 |
15
|
| 4.1 Exclusive Benefit of Participants |
16
|
| 4.2 Investment in Company Stock |
16
|
| 4.3 Acquisition Loans |
16
|
| 4.4 Fiduciary Concerns |
16
|
| SECTION 5 |
17
|
| 5.1 Accounting for Allocations |
17
|
| 5.2 Allocation and Crediting of Participants' ESOPStock Accounts |
17
|
| 5.3 Allocation and Crediting of Participants' ESOPCash Accounts |
17
|
| 5.4 Allocation and Crediting of Employer Contributions |
18
|
| 5.5 Limitation on Allocations to Participants |
26
|
| 5.6 Valuations |
27
|
| SECTION 6 |
27
|
| SECTION 7 |
27
|
| 7.1 Pre-Retirement Diversification Rights |
27
|
| 7.2 Distributions on Account of Termination of Employment |
28
|
| 7.3 Manner and Form of Distributions |
28
|
| 7.4 Special Distribution Rules |
29
|
| 7.5 Direct Rollover |
30
|
| 7.6 Facility of Payment |
30
|
| 7.7 Interests Not Transferable |
31
|
| 7.8 Absence of Guaranty |
31
|
| 7.9 Designation of Beneficiary |
31
|
| 7.10 Missing Participants or Beneficiaries |
32
|
| 7.11 Qualified Domestic Relations Order |
32
|
| SECTION 8 |
32
|
| 8.1 Voting |
32
|
| 8.2 Control Transaction |
34
|
| 8.3 No Illegal Actions |
39
|
| SECTION 9 |
39
|
| 9.1 Right of First Refusal |
39
|
| 9.2 Put Option |
40
|
| 9.3 Share Legend |
40
|
| 9.4 Nonterminable Rights |
40
|
| SECTION 10 |
40
|
| 10.1 Class 1 Non-Voting Preferred Stock |
40
|
| 10.2 Other Dividends |
41
|
| 10.3 Special Allocated Share Rule |
42
|
| SECTION 11 |
42
|
| 11.1 General |
42
|
| 11.2 Membership and Authority |
42
|
| 11.3 Delegation by ESOP Committee |
46
|
| 11.4 Information To Be Furnished to ESOP Committee |
47
|
| 11.5 ESOP Committee's Decision Final |
47
|
| 11.6 Remuneration and Expenses |
47
|
| 11.7 Indemnification of the ESOP Committee |
47
|
| 11.8 Resignation or Removal of ESOP Committee Member |
48
|
| 11.9 Appointment of Successor ESOP Committee Members |
48
|
| 11.10 Interested ESOP Committee Member |
48
|
| 11.11 Compliance with Laws |
48
|
| 11.12 Expenses of the Plan and Trust |
48
|
| SECTION 12 |
49
|
| 12.1 Written Claim |
49
|
| 12.2 Notice of Denial |
49
|
| 12.3 Review Procedure |
49
|
| 12.4 Notices |
50
|
| SECTION 13 |
50
|
| 13.1 Amendment |
50
|
| 13.2 Termination |
51
|
| 13.3 Merger and Consolidation of Plan; Transferof Plan Assets |
51
|
| 13.4 Distribution on Termination |
52
|
| SECTION 14 |
52
|
| 14.1 Top-Heavy Provisions |
52
|
| 14.2 Amendments |
52
|
| 14.3 Super Top-Heavy Provisions |
53
|
| 14.4 Special Rule |
53
|
| SECTION 15 |
53
|
| 15.1 Qualification |
53
|
| 15.2 Reversions to Employer |
54
|
| 15.3 Governing Law |
54
|
| 15.4 Notices |
54
|
| 15.5 Evidence |
55
|
| 15.6 Action by Employer |
55
|
| 15.7 Execution |
55
|
| 15.8 Adjustments |
56
|
UAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
(Effective as of July 12, 1994)
PREAMBLE
Nature of Plan
The Plan has been established to enable Eligible Employees of the Company and certain of its Affiliates to acquire stock ownership interests in the Company. The Plan is designed to invest exclusively in Company Stock (except for de minimis investments of cash pending investment in Company Stock or pending distribution to Participants) and, to the extent it is an employee stock ownership plan, primarily in "qualifying employer securities" (as defined in Code section 4975(e)(8)).
Subject to Section 13, the Plan is intended to be permanent and to benefit Eligible Employees of the Company and its participating Affiliates on the Effective Date, as well as the Eligible Employees entering employment thereafter.
The Plan consists of an employee stock ownership plan and a stock bonus plan. The employee stock ownership plan ("Part A" hereof) forms a part of the stock bonus plan, includes a money purchase pension plan and is intended to be qualified under Code sections 401(a) and 4975(e)(7). With respect to the portion of this Plan that is an employee stock ownership plan, as a single employee stock ownership plan: (i) the Initial Acquisition Loan and the Additional Acquisition Loans shall be a joint obligation of the component plans, (ii) the Plan shall not maintain separate Loan Suspense Accounts for the stock bonus and money purchase pension components, (111) dividends paid on Company Stock in either such component plan shall be used to repay the Initial Acquisition Loan and the Additional Acquisition Loans to the extent provided in the Plan, and (iv) separate Accounts shall not be maintained for Participants with respect to such component plans. The Trust holding the assets of the Trust Fund is intended to be exempt from taxation under Code section 501(a).
The Plan consists of two portions, a "leveraged" portion (Part A) that is intended to be an employee stock ownership plan and an "unleveraged" portion (Part B). Part A consists of both a stock bonus plan component and a money purchase pension plan component and Part B consists solely of a stock bonus plan component. Unless the context otherwise requires or unless specifically provided, all provisions of this Plan document shall apply to both Part A and Part B.
Transaction
The Plan is part of an overall program (which includes the Supplemental Plan) resulting in the acquisition by Eligible Employees of a majority ownership stake in the Company as contemplated by the Agreement and Plan of Recapitalization, among UAL Corporation and Air Line Pilots Association, International and International Association of Machinists and Aerospace Workers, as amended (the "Recapitalization Agreement"). Specifically, on the Effective Date, Eligible Employees will become entitled to receive 55% of the equity and voting power of the Company through the Trust and the Supplemental Trust. The overall program will be accomplished by the allocation to individual Participant accounts over the Wage Investment Period of shares of Class 1 Non-Voting Preferred Stock, Class 2 Non-Voting Preferred Stock and Voting Preferred Stock under the Trust and Supplemental Trust (or equivalent fictional book-entry shares under the Supplemental Plan), which shares shall, in the aggregate, be convertible into shares of Common Stock in an amount that represents 55% of the Company's equity and voting power measured as of the Effective Date. In addition, as described under the paragraph entitled "Additional Shares" below, depending on the market price per share of the Common Stock during the one-year period commencing on the Effective Date, up to an additional 8% of the Company's equity and voting power may be allocated to Participants' accounts under the Plan and the Supplemental Plan, bringing the total up to 63% of the equity and voting power of the Company.
Of the overall Employee stake, 46.23% of the underlying shares, including the Additional Shares, if any, will be reserved for allocation to the ALPA Employee Group, 37.13% of the underlying shares will be reserved for allocation to the IAM Employee Group and 16.64 % of the underlying shares will be reserved for allocation to the Management and Salaried Employee Group.
If there were no Code limitations on compensation and allocations, all shares to be acquired under the overall program would be delivered solely under Part A and such shares would be allocated to Participants of the respective Employee Groups over the Wage Investment Period in accordance with the percentages set forth in the preceding paragraph. Because such Code limitations will, in fact, operate to limit the annual benefits available under Part A, only a portion (expected to be approximately 78.15% of the underlying shares of Preferred Stock) will be acquired by the Trust from time to time on and after the Effective Date and allocated to Participants under Part A. To maximize certain employee stock ownership plan-related tax benefits, the Employee Groups may receive less than their overall equity ownership interest under Part A, with the balance to be received under Part B and the Supplemental Plan. Most of the shares allocable under Part B and the Supplemental Plan will be allocable to the ALPA Employee Group. (The preceding does not refer to Voting Preferred Stock; it will be contributed and allocated for all Employee Groups as described below under the paragraph entitled "Part B: Voting Preferred Stock.")
Shares not acquired under Part A will be allocated to appropriate Participant Accounts under Part B, subject to Code limitations, including Code sections 401(a)(4), 401(a)(17) and 415. To the extent that shares cannot be allocated under Part B by reason of those Code limitations, such shares will be allocated to accounts of appropriate Participants in accordance with the provisions of the Supplemental Plan.
The combined effect of the allocations under the overall program (Part A, Part B and the Supplemental Plan) will be to put each Participant, to the extent possible, in the position such Participant would have been had all shares, including the Additional Shares, if any, been delivered to and allocated under Part A.
Part A
With respect to Part A, it is intended that, on the Effective Date and from time to time thereafter, the Trustee will enter into the Initial Acquisition Loan and Additional Acquisition Loans on behalf of the Trust and use the proceeds thereof to purchase shares of Preferred Stock, representing approximately 42.9825% of the equity of the Company (subject to increase due to any Additional Shares issued). The Preferred Stock purchased will be Class 1 Non-Voting Preferred Stock. The shares of Class 1 Non-Voting Preferred Stock will be allocated ratably, over the Wage Investment Period, to the Employee Groups in accordance with the following percentages:
ALPA Employee Group - 31.759437%
IAM Employee Group - 47.511196%
Management and Salaried Employee Group - 20.729367%
Part B: Class 2 Non-Voting Preferred Stock
With respect to Part B, it is intended that the Company will contribute (or will cause the trustee of the Supplemental Trust to transfer), during the Wage Investment Period, shares of Class 2 Non-Voting Preferred Stock (including Additional Shares, if any) to the Plan. Subject to certain Code limitations, Such shares will be allocated to Participants who receive less than their full entitlement under the overall program under Part A. In general, the formula for determining the amount of allocations under Part B to make up for the shortfall of Company Stock delivered under Part A is set forth in Section 5.4(c).
Part B: Voting Preferred Stock
With respect to Part B, it is also intended that the Company will contribute, during the Wage Investment Period, shares of Voting Preferred Stock to the Plan. The Voting Preferred Stock contributed will be comprised of three classes. A separate class of Voting Preferred Stock, representing 25.4265% of the voting power of the Company, will be reserved for allocation to Participants who are members of the ALPA Employee Group ("Class P"); a separate class of Voting Preferred Stock, representing 20.4215% of the voting power of the Company, will be reserved for allocation to Participants who are members of the IAM Employee Group ("Class M"); and a separate class of Voting Preferred Stock, representing 9.152% of the voting power of the Company, will be reserved for allocation to Participants who are members of the Management and Salaried Employee Group ("Class S"). (The shares reserved above include shares reserved for allocation to the respective Employee Groups under the Supplemental Plan and Supplemental Trust.) Such percentages shall be appropriately adjusted in the event the initial Employee ownership percentage is increased (up to 63% in the aggregate) as provided below. It is intended that the number of shares of Voting Preferred Stock to be allocated to each Participant's Account on each Valuation Date will equal the number of shares of Preferred Stock allocated to that Participant under Part A and Part B on such Valuation Date (taking into account the special Effective Date contribution and allocation described below). The terms of each class of Voting Preferred Stock provide that the shares outstanding at any particular time (in combination with any shares of Common Stock held by the Trustee or trustee under the Supplemental Trust allocable or allocated to the relevant Employee Group) will command the aggregate voting power reserved for such Employee Group. Thus, for example, if there are 100 shares of Class P outstanding, each such share will command 1% of the voting power reserved for the ALPA Employee Group (25.4265%, assuming 55% ownership by Employees). As additional shares of Class P are issued. the per share voting power will decrease proportionately.
As a special Employer Contribution, one share of each of Class P, Class M and Class S will be contributed by the Company to Part B on the Effective Date. These three shares will be allocated, per capita, to the Accounts of the appropriate Participants under Part B on the Effective Date.
Supplemental Plan and Supplemental Trust
To the extent that, in any Plan Year during the Wage Investment Period. shares of Company Stock cannot be allocated to a Participant's Account by reason of any Code limitations, including Code section 401(a)(17), Code section 415 and Code section 401(a)(4), appropriate credits will be made to the accounts of the affected Participants under the Supplemental Plan (attached hereto as Exhibit A) in accordance with the terms thereof and shares of Voting Preferred Stock (and in certain circumstances, Class 2 Non-Voting Preferred Stock) used to satisfy the relevant credits will be held in the Supplemental Trust (attached hereto as Exhibit B) in accordance with the terms thereof for the benefit of the affected Participants.
Part B: Flowback
During and after the Wage Investment Period, to the extent that the allocation of shares of Company Stock under the Plan for any Participant was limited in a prior Plan Year by reason of the limitations of Code section 401(a)(17), Code section 415 or Code section 401(a)(4) (with the result that the Participant received corresponding credits under the Supplemental Plan), it is intended that the Company will contribute (or the Company will cause the trustee of the Supplemental Trust to transfer) to such Participant's Account shares of Class 2 Non-Voting Preferred Stock and shares of Voting Preferred Stock, as the case may be, in a subsequent Plan Year, and that such shares will be allocated under this Plan to the Accounts of the affected Participants in accordance with the terms hereof, subject to any applicable Code limitations as applied to the subsequent Plan Year (and corresponding debits will be made under the Supplemental Plan).
Additional Shares:
Depending on the fair market value per share of the Common Stock during the one-year period commencing on the Effective Date, a number of additional shares determined in accordance with Section 1.6 and Section 1.10 of the Recapitalization Agreement will be allocated to Participants' Accounts under the Plan and participants' accounts under the Supplemental Plan over the remainder of the Wage Investment Period. Such number of shares of Company Stock will be allocated to the Employee Groups in accordance with the percentages specified in the paragraph above entitled "Transaction. "
In general, 78.15% of the Additional Shares which are Preferred Stock will be Class 1 Non-Voting Preferred Stock; provided, however, that the portion of the Additional Shares attributable to Preferred Stock allocated as of December 31, 1994 will be Class 2 Non-Voting Preferred Stock contributed to Part B or allocated as credits under the Supplemental Plan as of December 31, 1994. Except as described in the foregoing proviso, it is intended that such Additional Shares of Class 1 Non-Voting Preferred Stock will increase, on a pro rata basis, the number of such shares acquired pursuant to each Additional Acquisition Loan. Unless the parties agree otherwise, these Class 1 shares will be allocated over the remainder of the Wage Investment Period in accordance with the percentages set forth under Part A above.
Any Additional Shares not sold to the Trustee pursuant to Part A will be contributed by the Company to Part B or credited to the Supplemental Plan during the remainder of the Wage Investment Period. Subject to certain Code limitations, such shares will be allocated to Participants who receive less than their full entitlement, giving effect to the allocation of the Additional Shares, of shares of Class 1 Non-Voting Preferred Stock under Part A. To the extent possible, the formula in Section 5.4(c) will be applied by assuming all Additional Shares (other than the shares of Voting Preferred Stock) had been sold to the Trust under Part A on the Effective Date and allocated ratably over the following 69 months.
SECTION 1
Definitions
In this Plan (including the preamble), whenever the context so indicates, the singular or plural number and the masculine or feminine gender shall be deemed to include the other, the terms "he," "his," and "him" shall refer to a Participant or Beneficiary, as the case may be, and, except as otherwise provided, or unless the context otherwise requires, the capitalized terms shall have the following meanings:
(b) "Acquisition Loan" means a loan (or other extension of credit, including an installment obligation to a party in interest (as defined in ERISA section 3(14))) incurred by the Trustee in connection with the purchase of Company Stock.
(c) "Additional Acquisition Loans" means the Acquisition Loans entered into from time to time after the Effective Date between the Trustee and the Company as contemplated by Section 1.6 of the Recapitalization Agreement.
(d) "Additional Shares" means the number of additional shares, if any, of Company Stock to be issued by the Company in accordance with Section 1.10 of the Recapitalization Agreement. Any reference herein to additional shares shall only be applicable when, if and to the extent that additional shares are determined to be issuable in accordance with Section 1.10 of the Recapitalization Agreement.
(e) "Affiliate" means any corporation, trade or business, which, at the time of reference, is together with the Company, a member of a controlled group of corporations, a group of trades or businesses (whether or not incorporated) under common control or an affiliated service group, as described in Code sections 414(b), 414(c) and 414(m), respectively, or any other organization treated as a single employer under Code section 414(o); provided, however, that, where the context so requires, the ten-n "Affiliate" shall be construed to give full effect to the provisions of Code sections 409(1)(4) and 415(h).
(f) "ALPA" means the Air Line Pilots Association, International.
(g) "ALPA Employee Group" means Eligible Employees in classifications represented by ALPA under the Railway Labor Act who are either listed on the Pilots' System Seniority List or Second Officer Eligibility Seniority List.
(h) "Beneficiary" means the person or persons to whom a deceased Participant's benefits are payable under the Plan all as provided in Section 7.9.
(i) "Board of Directors" means the board of directors of the Company.
(j) "Class 1 Non-Voting Preferred Stock" means the shares of Class 1 ESOP Convertible Preferred Stock issued by the Company and allocated under Part A.
(k) "Class 2 Non-Voting Preferred Stock" means the shares of Class 2 ESOP Convertible Preferred Stock issued by the Company and allocated under Part B. Any reference to such shares credited under the Supplemental Plan shall be deemed to be a reference to fictional book-entry shares of Class 2 Non-Voting Preferred Stock credited under the Supplemental Plan.
(l) "Code" means the provisions of the Internal Revenue Code of 1986, as amended, and all successor laws thereto. Where the Plan refers to a particular section of the Code, such reference shall also apply to any successor to that section.
(m) "Common Stock" means common stock issued by the Company that meets the requirements of Code section 409(1), which on the Effective Date includes the common stock that may be received upon the conversion of the Preferred Stock and Voting Preferred Stock.
(n) "Company" means UAL Corporation and any successor corporation or entity to the Company by merger, consolidation or otherwise.
(o) "Company Stock" means Voting Preferred Stock, Common Stock and/or Preferred Stock, as the context so requires.
(p) "Compensation" means (i) the total cash compensation paid to the Participant, for services while a Participant and an Eligible Employee, during the Plan Year for services rendered to his Employer, including bonuses and overtime pay, plus (ii) elective deferrals under a plan meeting the requirements of Code section 401(k) or Code section 125 for such Plan Year, but excluding reimbursement of moving expenses, relocation allowances, housing allowances, reimbursement of membership costs and dues, other expense reimbursement payments and allowances, severance pay or other special payments relating to termination of employment by retirement or otherwise and cash payments in respect of stock appreciation rights. With respect to the Management and Salaried Employee Group only, Compensation shall not include pay received for vacation time that was accrued but not actually taken as vacation before termination of employment by retirement or otherwise. A Participant's Compensation shall not exceed $150,000 (as adjusted pursuant to Code section 401(a)(17)); provided, however, that with respect to Part A, Compensation of a Participant who is a member of the ALPA Employee Group shall be limited to an amount equal to four times the dollar limitation under Code section 415(c)(1)(A) (as adjusted pursuant to Code section 415). Compensation for services performed prior to July 13, 1994 or after the end of the Wage Investment Period shall not be taken into account under the Plan, except for purposes of applying any Code limitations.
(q) "Control Transaction" means (a) any tender offer or exchange offer for Company Stock or any other opportunity or series of opportunities for the Plan to dispose of (or convert in connection with a sale, exchange or disposition) at least 3% of its Company Stock (other than conversions or dispositions to effectuate distributions or diversification elections under the Plan), and (b) any transaction or series of related transactions pursuant to which any person or group (as defined in Rule 13d-3 under the Exchange Act) acquires or seeks to acquire, directly or indirectly, "control" (as defined in the Exchange Act) of the Company or of all or a substantial portion of the tangible or intangible assets of the Company and its subsidiaries, whether by merger, consolidation, share exchange, tender offer, exchange offer, sale, lease, exchange, conversion, voting trust, proxy or otherwise. For purposes of Plan provisions relating to a "Control Transaction," "person" means an individual, corporation, association, partnership, joint venture, limited liability company, trust, estate, unincorporated organization, governmental authority, judicial entity or other entity.
(r) "Effective Date" means July 12, 1994.
(s) "Eligible Employee" means any Employee of an Employer (other than any employee who is not a member of an Employee Group and any "leased employee" (as defined in Code section 414(n))), subject to the following:
(i) if an Employee is included in a unit of Employees covered by a collective bargaining agreement, he shall not be an Eligible Employee unless the applicable collective bargaining agreement expressly provides that he shall be eligible to participate in this Plan. On the Effective Date, members of the ALPA Employee Group, the IAM Employee Group, and, if the Transport Workers Union collective bargaining agreement so provides, the meteorologist Employees who are members of a group represented by the Transport Workers Union (these meteorologists are members of the Management and Salaried Employee Group) are Eligible Employees;
|(ii) an Employee shall not be an Eligible Employee if he is a non-resident alien with no earned income from U.S. sources;
|(iii) an Employee shall not be an Eligible Employee as of the date his Compensation no longer reflects all of the wage concessions contemplated as part of the recapitalization of UAL effective July 12, 1994; and
|(iv) with respect to an Employee who is a member of the Management and Salaried Employee Group, the Employer may provide in a resolution of its board of directors, additional limitations for participation with the consent of the Board of Directors; provided, however, that any such limitation shall not have the effect of reducing the amount of Company Stock intended to be allocated to the Management and Salaried Employee Group under Part A or affect the method or pace of allocations of Company Stock in a manner that would adversely affect the Plan's projected ability to meet the requirements of Code section 415(c)(6).
(t) "Employee" means any person, including an officer or director, who is actually performing services for the Company or any of its Affiliates in a common-law, employer-employee relationship and treated as an employee on the payroll records and any "leased employee" (within the meaning of Code section 414(n)).
(u) "Employee Group" means each of the ALPA Employee Group, the IAM Employee Group and the Management and Salaried Employee Group.
(v) "Employer" means the Company or any of its Affiliates (or a division or business unit thereof) that has adopted the Plan with the consent of the Board of Directors.
(w) "Employer Contribution" means the amount contributed, whether in cash or in kind, by each Employer pursuant to the provisions of Section 3.1.
(x) "Entry Date" means, with respect to each Eligible Employee employed on the Effective Date, the Effective Date, and with respect to each Eligible Employee employed after the Effective Date, (i) in the case of members of the ALPA Employee Group, the employment commencement date (or reemployment commencement date), (ii) in the case of members of the IAM, the first day of the first payroll period coincident with or next following the date the Eligible Employee becomes a member of the IAM Employee Group, and (iii) in the case of members of the Management and Salaried Employee Group, the first day of the first payroll period coincident with or next following the anniversary date of the Eligible Employee's employment commencement date (or reemployment commencement date); provided, however, that if such Eligible Employee's employment with the Employers terminates before he becomes a Participant and such Eligible Employee returns to the employ of an Employer within one year of such termination, the Entry Date shall be the first day of the first payroll period coincident with or next following the later of (i) the reemployment commencement date or (ii) the anniversary date of such Eligible Employee's employment commencement date. Any Participant whose employment with the Employers terminates and who returns to the employ of an Employer as an Eligible Employee shall become a Participant immediately.
(y) "ERISA" means the provisions of the Employee Retirement Income Security Act of 1974, as amended, and all successor laws thereto. Where the Plan refers to a particular section of ERISA, such reference shall also apply to any successor to that section.
(z) "ESOP Cash Account" means the account established and maintained in the name of each Participant or Beneficiary to reflect his share of the Trust Fund, other than Company Stock.
(aa) "ESOP Committee" means the committee appointed to administer the Plan pursuant to Section 11.
(bb) "ESOP Stock Account" means the account established and maintained in the name of each Participant or Beneficiary to reflect his share of Company Stock.
(cc) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(bb) "Financed Shares" means shares of Company Stock acquired by the Trustee with the proceeds of an Acquisition Loan, which shall constitute "qualifying employer securities" under Code section 409(1) and any shares of Company Stock received upon conversion or exchange of such shares.
(cc) "IAM" means the International Association of Machinists and Aerospace Workers.
(dd) "IAM Employee Group" means non-probationary regular Employees (other than Employees employed on a temporary basis) who are both (i) classified by the Company as Mechanic and Related Employees, Ramp and Stores Employees, Food Services Employees, Security Officers, Dispatchers, or Communications Employees and (ii) members of a group of employees represented by the International Association of Machinists and Aerospace Workers, AFL-CIO.
(ee) "Initial Acquisition Loan" means the Acquisition Loan or Acquisition Loans entered into on the Effective Date between the Trustee and the Company pursuant to the Preferred Stock Purchase Agreement.
(ff) "Loan Suspense Account" means the suspense account in the Trust to which Financed Shares are initially credited prior to release for allocation to Participants' ESOP Stock Accounts. Subaccounts shall be maintained to reflect Financed Shares acquired with the Initial Acquisition Loan and each applicable Additional Acquisition Loan.
(gg) "Management and Salaried Employee Group"
means Eligible Employees who perform the functions performed by the salaried
and managerial Employees on the Effective Date (including any functions
that such Employees will perform in the future).
(ii) "Part A" means the portion of the Plan under which benefits are provided for Participants through the purchase of shares of Class 1 Non- Voting Preferred Stock acquired with the proceeds of the Initial Acquisition Loan and Additional Acquisition Loans.
(jj) "Part B" means the portion of the Plan under which benefits are provided for Participants through the contribution of shares of Class 2 Non-Voting Preferred Stock and Voting Preferred Stock by the Company or through the transfer of any such shares from the Supplemental Trust.
(kk) "Participant" means any Eligible Employee who has become a Participant in accordance with Section 2 or any other person with an Account balance under the Plan.
(ll) "Plan" means the UAL Corporation Employee Stock Ownership Plan, consisting of Part A and Part B, as amended from time to time. The Trust created in connection with the Plan shall be incorporated in, and form a part of, the Plan.
(mm) "Plan Year" means the calendar year; provided, however, that the initial Plan Year shall commence on the Effective Date and end on December 31, 1994.
(nn) "Preferred Stock" means the Class 1 Non-Voting Preferred Stock and the Class 2 Non-Voting Preferred Stock.
(oo) "Preferred Stock Purchase Agreement" means either (i) the stock purchase agreement, dated as of March 25, 1994, as amended, effective July 12, 1994, by and between the Company and the Trustee pursuant to which shares of Class 1 Non-Voting Preferred Stock will be purchased by the Trustee for allocation under Part A and/or (ii) the stock purchase agreements by and between the Company and the Trustee pursuant to which Additional Shares of Class 1 Non-Voting Preferred Stock will be purchased by the Trustee in connection with Additional Acquisition Loans for allocation under Part A, as the context so requires.
(pp) "Supplemental Plan" means the UAL Corporation Supplemental ESOP, effective July 12, 1994.
(qq) "Supplemental Trust" means the UAL Corporation Supplemental ESOP Trust, effective July 12, 1994.
(rr) "Total Disability" means that, in the opinion of a physician selected by the ESOP Committee, the Participant is permanently incapable of performing services for his Employer or any of its Affiliates due to a disability; provided, however, that for any, member of the ALPA Employee Group, "Total Disability" shall have the meaning ascribed thereto in the United Air Lines, Inc. Pilots' Fixed Benefit Retirement Income Plan.
(ss) "Trust" means the UAL Corporation Employee Stock Ownership Plan Trust created in connection with the establishment of the Plan.
(tt) "Trust Agreement" means the trust agreement establishing the Trust.
(uu) "Trust Fund" means the assets held in the Trust for the benefit of the Participants and their Beneficiaries.
(vv) "Trustee" means the trustee or trustees from time to time in office under the Trust Agreement.
(ww) "Valuation Date" means the last day of each Plan Year, April 12, 2000 (except for Participants in the IAM Employee Group) and July 12, 2000 for Participants in the IAM Employee Group and any other date selected by the ESOP Committee as necessary for the equitable operation of the Plan.
(xx) "Voting Preferred Stock" means the shares of each class of ESOP Voting Junior Preferred Stock issued by the Company. Such preferred stock consists of Class P, Class M and Class S.
(yy) "Wage Investment" means, for a member of the IAM Employee Group, the sum of:
(i) The product of (A) the number of hours for which the Participant is compensated during a Plan Year, multiplied by (B) the difference between the "book rate of pay" as in effect immediately prior to the Effective Date and the "actual rate of pay" as in effect on the Effective Date for services rendered during a Plan Year; plus
(ii) the sum of the following:
(A) the amount determined under item (i) times 7.6% (which represents the
Employers' portion of the FICA tax), (B) the amount determined under item
(i) times .46% (which represents the Employers' portion of the FUTA tax),
(C) the amount determined under item (i) times .05% (which represents the
Employers' contribution for long term disability coverage), and (D) the
amount determined under item (i) times .4% (which represents the Employers'
contribution for life insurance coverage); provided, however, that in the
case of each of the items (A) through (D) above, the members of the ESOP
Committee appointed by the IAM may require the substitution of an alternative
percentage which they deem appropriate and which is uniformly applicable
to each member of the IAM Employee Group; plus
meal) periods multiplied by the number of days services are rendered during a Plan Year.
Plan Participation
2.1 Eligibility for Participation. Subject to the conditions and limitations of the Plan, each Eligible Employee of an Employer shall become a Participant on the applicable Entry Date.
2.2 Participation Not Guarantee of Employment. Participation in the Plan does not constitute a guarantee or contract of employment and will not give any Employee the right to be retained in the employ of his Employer or any of its Affiliates nor any right or claim to any benefit under the terms of the Plan unless such right or claim has specifically accrued under the terms of the Plan.
2.3 Transferred Participants. If a Participant transfers from one Employee Group to another Employee Group, the ESOP Committee shall maintain separate Accounts for such Participant, such Accounts reflecting such Participant's participation in the Plan as a member of the respective Employee Groups.
SECTION 3
Contributions
3.1 Employer Contributions. Subject to the conditions and limitations of the Plan, for each Plan Year, the Employers shall contribute to the Trust cash equal to, or Company Stock having an aggregate fair market value equal to, such amount, if any, as the respective boards of directors of the Employers shall determine by resolution; provided, however, that:
(i) The Company shall contribute to Part A an amount in cash equal to the amount required to enable the Trustee (together with dividends used to repay the Initial Acquisition Loan and the Additional Acquisition Loans in accordance with Section 10) to pay any principal and interest on the Initial Acquisition Loan and the Additional Acquisition Loans payable during the Plan Year. Of the contribution amount required to enable the Trustee to discharge the aggregate principal and interest on such indebtedness, 60% shall be made to the money purchase pension plan component of Part A of the Plan. The balance of the required contribution amount shall be made to the stock bonus plan component of Part A of the Plan. The Trustee shall apply such money purchase pension plan component contributions to repay the principal on each of the respective Acquisition Loans in proportion to the excess of the principal due on such Acquisition Loan for the Plan Year over the dividends available to repay the principal on such Acquisition Loan.
|(ii) In lieu of the foregoing, the Company may forgive an amount of indebtedness equal to the required Employer Contribution (or any portion thereof).
|(iii) On the Effective Date, the Company shall contribute an amount in cash equal to the aggregate par value of the Company Stock to be acquired under the Initial Acquisition Loan. In addition, the Company shall contribute an amount in cash equal to the aggregate par value of the Company Stock, if any, to be acquired under each Additional Acquisition Loan. Such contributions shall first be divided, pro rata, among the Employee Groups in accordance with Section 5.4(a)(i)(A), and then shall be allocated to the ESOP Cash Accounts of Participants as follows: (A) in the case of the ALPA Employee Group and the Management and Salaried Employee Group, according to the Compensation paid to such Participants in such Employee Group for the Plan Year, and (B) in the case of the IAM Employee Group, according to Wage Investments of such Participants for the Plan Year. Such contribution shall be used by the Trustee as partial consideration for the purchase of shares of Class 1 Non-Voting Preferred Stock under the applicable Preferred Stock Purchase Agreement, and the ESOP Cash Accounts of the Participants shall be charged accordingly. Shares of Class 1 Non-Voting Preferred Stock equal in value (based on the prices per share paid by the Trustee under the applicable Preferred Stock Purchase Agreement) to the amount of such contribution shall be allocated, as of the last day of the applicable Plan Year, from the shares purchased under the applicable Preferred Stock Purchase Agreement to the ESOP Stock Accounts of the Participants, pro rata, according to the allocations of such contribution above.
(b) Part B.
(i) On the Effective Date, the Company shall contribute to Part B, as a special Employer Contribution, one share of each of Class P, Class M and Class S.
|(ii) As soon as practicable after the end of each Plan Year, the Company shall contribute (or shall cause the trustee of the Supplemental Trust to transfer) to Part B shares of Class 2 Non-Voting Preferred Stock and shares of Voting Preferred Stock in accordance with Section 5.4(c)(vii); provided, however, that any shares of Company Stock transferred by the trustee of the Supplemental Trust in respect of such obligation shall satisfy, to the extent of such transfer, the Company's obligation under this Section 3.1(b). Such contributions may not be used to repay Acquisition Loan indebtedness and shall be made to the stock bonus plan component of the Plan.
|(iii)
If cash dividends have been paid to the holders of Common Stock during
any Plan Year and if dividends are applied to repay the Initial Acquisition
Loan or any Additional Acquisition Loan pursuant to Section 10 during that
Plan Year, the Company shall make an additional Employer Contribution to
Part B in the amount, if any, set forth in the next sentence as soon as
practicable after the last day for that Plan Year (and for the purpose
of this clause (iii), "Plan Year" shall be defined to include only the
period from the Effective Date to 12/31/94, the five 12-month periods ending
12/31/95 through 12/31/99, and the three-month period ending 3/31/2000).
The amount of such contribution shall equal the excess of A plus B over
C; where A equals the least of:
(II) the Fixed Dividends that have been paid on the Class 1 Non-Voting Preferred Stock during that Plan Year; and
(III) the amount of the cash dividends used
to repay the Initial Acquisition Loan and the Additional Acquisition Loans
pursuant to Section 10.1(a) during such Plan Year;
C equals the amount of cash contributions previously made pursuant to this clause (iii) with respect to such Plan Year.
3.2 Limitation on Contributions. In no event may any Employer Contributions under Section 3.1 for any Plan Year exceed the maximum amount deductible as an expense for federal income tax purposes under Code section 404; provided, however, that if Employer Contributions are so limited, appropriate arrangements will be made in accordance with Section 1.6(1) of the Recapitalization Agreement to protect the substantive rights of each Employee Group (hereinafter "Appropriate Arrangements").
3.3 Timing of Contributions. For each Plan Year, Employer Contributions shall be due no later than the time prescribed for filing the Employer's federal income tax return for that Plan Year, including any extensions of time; provided, however, that Employer Contributions shall be made at such times as to enable the Trustee to meet its repayment obligations under the documents governing the Initial Acquisition Loan, the Additional Acquisition Loans or as otherwise required by the terms of the Plan.
3.4 Participant Contributions. Contributions by Participants are neither required nor permitted.
SECTION 4
Investment of Trust Fund
4.1 Exclusive Benefit of Participants. All Employer Contributions, Company Stock acquired with Employer Contributions and with proceeds of Acquisition Loans, and dividends and distributions thereon, shall become a part of the Trust Fund and shall be held and disbursed by the Trustee in accordance with the provisions of the Plan and Trust Agreement. No person shall have any Interest in or right to assets held in the Trust Fund except as provided in the Plan and Trust Agreement. The Trust Fund shall be held for the exclusive benefit of the Participants and their Beneficiaries, and shall be used solely to pay benefits to such persons. The Trust Fund shall not revert to the benefit of the Company or any of its Affiliates, except as provided in Section 15.2.
4.2 Investment in Company Stock. The Trust Fund shall be invested exclusively in shares of Company Stock, subject to the Trustee's power to hold cash pending investment in Company Stock or pending distribution to Participants, and, accordingly, the Trustee may invest and hold up to 100% of the Trust Fund in Company Stock.
4.3 Acquisition Loans. In respect of Part A, the Trustee may incur the Initial Acquisition Loan and the Additional Acquisition Loans. In addition, the Trustee, with the consent of the Company, may incur other Acquisition Loans from time to time to finance the acquisition of Company Stock for the Trust or to repay a prior Acquisition Loan. Each Acquisition Loan shall meet all applicable legal requirements, including those set forth under Code section 4975 and ERISA section 408. Financed Shares shall initially be credited to the Loan Suspense Account and shall be released for allocation to the ESOP Stock Accounts of Participants only as payments of principal and interest, or principal, on the Acquisition Loan are made by the Trustee. The number of Financed Shares to be released from the Loan Suspense Account (or subaccount attributable to that Acquisition Loan) for allocation to Participants' ESOP Stock Accounts for each Plan Yea., shall be based upon either: (x) the ratio that the payments of principal made on the Acquisition Loan for that Plan Year bear to the sum of principal payments during that Plan Year, plus the projected payments of principal during the remainder of the Acquisition Loan repayment period, provided that the special conditions set forth under Treasury Regulation section 54.4975-7(b)(8)(ii) are satisfied, or (y) the ratio that the payments of principal and interest on the Acquisition Loan for that Plan Year, bear to the sum of principal and interest payments during that Plan Year, plus the projected payments of principal and interest during the remainder of the Acquisition Loan repayment period. A separate ratio will be calculated for each Acquisition Loan. The applicable loan documents will specify whether clause (x) and/or clause (y) shall apply. Shares released from the Loan Suspense Account in connection with the Initial Acquisition Loan and the Additional Acquisition Loans shall be released in accordance with clause (x) above.
4.4 Fiduciary Concerns. With respect to the exercise of any fiduciary responsibility with respect to the Plan or Trust, including, without limitation, the voting, sale, exchange, other disposition or conversion of Company Stock, the relevant fiduciary may, to the extent permitted by law, take into consideration any relevant economic factors affecting the interests of current and future Participants (and Beneficiaries), including, but not limited to, the prospect for continued Employee enfranchisement through the voting power of Company Stock held in the Plan, the prospect for future benefits under the Plan as a result of the prospective release and allocation of Company Stock held in the Loan Suspense Account and the prospect for future employment with the Company and its Affiliates.
SECTION 5
Plan Accounting
5.1 Accounting for Allocations. The ESOP Committee shall establish the Accounts (and sub-accounts, if deemed necessary) for each Participant, and the accounting procedures for the purpose of making the allocations to the Participants' Accounts provided for in this Section 5. The ESOP Committee shall maintain adequate records of the cost basis of shares of Company Stock allocated to each Participant's ESOP Stock Account. The ESOP Committee also shall keep separate records of Financed Shares attributable to each Acquisition Loan and of Employer Contributions (and of any earnings thereon) made for the purpose of enabling the Trust to repay any Acquisition Loan. From time to time, the ESOP Committee may modify its accounting procedures for the purposes of achieving equitable and nondiscriminatory allocations among the Accounts of Participants, in accordance with the provisions of this Section 5 and the applicable requirements of the Code and ERISA. In accordance with Section 11, the ESOP Committee may delegate the responsibility for maintaining Accounts and records.
5.2 Allocation and Crediting of Participants' ESOP Stock Accounts. As of each Valuation Date, the ESOP Committee shall:
(b) Next, credit to each Participant's ESOP Stock Account the shares of Company Stock, if any, that have been purchased with amounts from his ESOP Cash Account since the last preceding Valuation Date, and adjust such ESOP Cash Account in accordance with the provisions of Section 5.3; and
(c) Finally, allocate and credit to each Participant's ESOP Stock Account the shares of Company Stock representing Employer Contributions made in the form of Company Stock and the number of Financed Shares released under Section 4.3 that are to be allocated and credited as of that date in accordance with the provisions of Section 5.4.
(b) Next, if Company Stock is purchased with assets from a Participant's ESOP Cash Account, such shares shall be credited to the ESOP Stock Account of such Participant, and the Participant's ESOP Cash Account shall be charged accordingly;
(c) Next, subject to the dividend provisions of Section 10, the ESOP Committee shall also credit to the ESOP Cash Account of each Participant any cash dividends paid to the Trustee on shares of Company Stock held in that Participant's ESOP Stock Account (as of the record date for such cash dividends) and dividends paid on shares of Company Stock held in the Loan Suspense Account that have not been used to repay any Acquisition Loan. Cash dividends and any earnings that have not been used to repay any Acquisition Loan and have been credited to a Participant's ESOP Cash Account shall be applied by the Trustee to the purchase of shares of Common Stock, which shares shall then be credited to the ESOP Stock Account of such Participant. The Participant's ESOP Cash Account shall then be charged by the amount of cash used to purchase such Common Stock or used to repay any Acquisition Loan. In addition, any earnings (i) on ESOP Cash Accounts will be allocated to Participants' ESOP Cash Accounts, pro rata, based on such ESOP Cash Account balances and (ii) on the Loan Suspense Account, other than dividends used to repay the Acquisition Loan, will be allocated to Participants' Accounts, pro rata, based on their Account balances in Part A;
(d) Next, allocate and credit the Employer Contributions made for the purpose of repaying any Acquisition Loan in accordance with Section 5.4. Such amount shall then be used to repay any Acquisition Loan and such Participant's ESOP Cash Account shall be charged accordingly; and
(e) Finally, allocate and credit the Employer Contributions (other than amounts contributed to repay an Acquisition Loan) that are made in cash for the Plan Year to the ESOP Cash Account of each Participant (including Participants whose employment with the Company and its Affiliates terminated for any reason during the Plan Year) in accordance with Section 5.4(b).
(i) First, the Employer Contributions
made in cash used to repay each Acquisition Loan (or treated as cash due
to forgiveness of such Acquisition Loan indebtedness) shall be allocated
among the Employee Groups as follows:
(B) There shall be calculated for each Participant an allocation of shares of Class 1 Non-Voting Preferred Stock on account of dividends paid during the Plan Year on such Preferred Stock previously allocated to such Participant's ESOP Stock Account and applied in accordance with Sections 10.1(a) and 10.3. The foregoing allocations for each Participant shall be made out of the Class 1 Non-Voting Preferred Stock allocated to that Participant's Employee Group under subclause (A) above.
(C) Employer Contributions to be allocated in
accordance with this clause (i)(C) shall be allocated to each Employee
Group in the proportion that (x) shares of Class 1 Non-Voting Preferred
Stock allocated to that respective Employee Group pursuant to subclause
(A) reduced by the shares allocated to members of that Employee Group pursuant
to subclause (B), bears to (y) all shares of Class 1 Non-Voting Preferred
Stock released for the Plan Year reduced by all shares allocated pursuant
to subclause (B).
(iii) Third, there shall be tentatively allocated to the Accounts of each Participant in each Employee Group that portion of the resulting Employer Contributions which such Participant's Compensation (or, in the case of the [AM Employee Group, such Participant's Wage Investments) for the Plan Year bears to the aggregate Compensation (or, in the case of the IAM Employee Group. Wage Investments) for all such Participants for such Plan Year; provided that such Employer Contributions shall not be allocated to any Participant's Account to such extent the allocation would exceed the limitation of Code section 415(c). The amount, if any, by which the allocation to any such Participant's Account shall be reduced under the foregoing proviso shall be, subject to the Code section 415(c) limitation, tentatively allocated (and, if necessary, reallocated) to the Accounts of all other Participants in his Employee Group (x) for the Management and Salaried Employee Group, in proportion to their Compensation, (y) in the case of the IAM Employee Group, Wage Investments, and (z) in the case of the ALPA Employee Group, first in proportion to (but not more than) the amount of Class 2 Non-Voting Preferred Stock otherwise scheduled for contribution and allocation to each Participant's Account under Part B for the current Plan Year (absent this clause (iii)) and otherwise in proportion to Compensation.
|(iv) Fourth, if the total Employer Contributions tentatively allocated to "highly compensated employees" (as defined in Code section 414(q)) under clause (iii) do not exceed one-third of the total Employer Contributions tentatively allocated to the Accounts of all Participants under clause (iii), the tentative allocations of Employer Contributions to Participants shall become final. The foregoing limitation shall be applied by aggregating all Participants in all Employee Groups.
(v) Fifth, if the one-third limitation described in clause (iv) is exceeded, the amount of Employer Contributions allocated to Accounts of Participants in the ALPA Employee Group who are highly compensated employees shall be reduced, pro rata, based on Compensation and reallocated to Participants in the ALPA Employee Group who are not highly compensated employees, to the extent necessary to meet the one-third limitation described in clause (iv), subject, however, to Code section 415(c). The foregoing reallocations to each non-highly compensated employee shall be allocated in proportion to (but not more than) the number of shares of Class 2 Non-Voting Preferred Stock otherwise scheduled for contribution and allocation to his Account under Part B for the current Plan Year (absent this clause (v)). If and to the extent appropriate arrangements are made between the Company and ALPA to protect the interests of the ALPA Employee Group (which arrangements shall be consistent with Section 13.1 and which the Company agrees to do upon reasonable request and which shall not require IAM consent), contributions for the highly compensated ALPA Employee Group members may be reduced, pro rat.T, to meet the one- third limitation described in clause (iv).
(vi) Sixth, if, after the reallocation of Employer Contributions described in clause (v), the one-third limitation described in clause (iv) is still exceeded, then the computations described in foregoing clauses (i) through (v) shall be disregarded. In lieu thereof the allocation shall be made in accordance with clauses (i) through (iii), but clause (ii) shall be disregarded. If such allocations do not result in a violation of Code section 415(c) for all members of any Employee Group, the tentative allocations shall become final.
(vii) Seventh, if the allocation of Employer Contributions described in clause (vi) results in a violation of Code section 415(c) for all members of any Employee Group (after reallocating any excess allocations owing to members of such Employee Group), then clause (vi) shall be disregarded. The computations described in foregoing clauses (i) through (v) (including clause (ii)) shall be repeated, but, after applying clause (v), the amount of Employer Contributions allocated to Accounts of Participants who are members of the Management and Salaried Employee Group who are highly compensated employees shall be reduced, pro rata, based on Compensation, and reallocated to Participants in the Management and Salaried Employee Group who are not highly compensated employees, pro rata, based on Compensation, to the extent necessary to meet the one- third limitation described in clause (iv), subject, however, to Code section 415(c). In making the foregoing reallocations, no non-highly compensated employee shall be allocated more shares under this clause (vii) than the number of shares of Class 2 Non-Voting Preferred Stock otherwise scheduled for contribution and allocation to his Account under Part B for the current Plan Year (absent this clause (vii)). If and to the extent appropriate arrangements are made by the Company to protect the interests of the Management and Salaried Employee Group (which arrangements shall be consistent with Section 13.1 and which shall not require IAM consent, but which shall require ALPA consent. which consent shall not be unreasonably withheld), contributions for the highly compensated Management and Salaried Employee Group members may be reduced, pro rata, to meet the one-third limitation described in clause (iv).
(viii) Eighth, all shares of Class 1 Non-Voting Preferred Stock released from the Loan Suspense Account as of the Valuation Date shall be allocated first in respect of dividends paid on previously allocated shares of Class 1 Non-Voting Stock in accordance with Sections 10.1(a)(i) and 10.3 and then allocated in proportion to the percentage of the Employer Contributions allocated to each Participant's Account under clauses (i) through (vii) above.
(b) Special Contributions to Part B.
(i) The special Employer Contribution made by the Company on the Effective Date pursuant to Section 3.1(b)(i) shall be allocated, per capita, to the appropriate Participants' ESOP Stock Accounts under Part B on the Effective Date.
|(ii) Employer Contributions made in cash for the Plan Year under Section 3.1(b)(iii) shall be allocated under Part B and credited to the ESOP Cash Accounts of the appropriate Participants to which those cash contributions relate, as follows: to the extent that the calculation of the amount of such contributions refers to shares of Class 1 Non-Voting Preferred Stock held in the Loan Suspense Account or Class 1 Non-Voting Preferred Stock contemplated for further sale, divide such cash contributions among the Employee Groups in accordance with Section 5.4(a)(i)(A); to the extent it refers to shares of Class 1 Non-Voting Preferred Stock allocated to the Participants' ESOP Stock Accounts, apportion those contributions to the relevant Employee Group; then, allocate to the appropriate Participants' Accounts, pro rata, in the case of (i) the ALPA Employee Group and the Management and Salaried Employee Group, according to the Compensation paid to such Participants for the Plan Year, and (ii) the IAM Employee Group, according to Wage Investments made by such Participants for the Plan Year; subject, however, in all cases to Code section 415(c).
(c) Regular Contributions to Part B. Shares of Class 2 Non-Voting Preferred Stock and Voting Preferred Stock contributed to the Plan pursuant to Section 3.1(b) shall be allocated among and credited to the ESOP Stock Accounts of Participants for that Plan Year as set forth below, provided, however, that no allocations (other than allocations under clauses (i) and (viii) below) shall be made to Accounts of Participants who are members of the IAM Employee Group:
(i) First, subject to the applicable Code limitations, one share of Voting Preferred Stock shall be allocated to the Participant's Account for each share of Class 1 Non-Voting Preferred Stock allocated to that Participant under Part A on that Valuation Date. The shares of Voting Preferred Stock shall be allocated under Part B and shall be of the appropriate class for each such Participant. The special allocation under Section 5.4(b)(i) shall be credited against the allocation required pursuant to this clause (i) on the first Valuation Date.
(ii) Second, for each Participant, a "hypothetical share number" shall be calculated for the Valuation Date. Such number shall equal the number of shares that would have been allocated to the Participant under Part A on such Valuation Date if (A) all the shares of Class 1 and Class 2 Non-Voting Preferred Stock to be issued pursuant to the Recapitalization Agreement (including, with respect to Valuation Dates occurring on or after December 31, 1995 and after the allocation in subsection (viii) be low, any Additional Shares issued or to be issued) had been (I) purchased by the Trust under a single loan on the Effective Date and held under the Loan Suspense Account pursuant to Part A, and (II) in the case of such Class 2 shares, considered Class 1 Non-Voting Preferred Stock under Part A having the same fair market value as the Class 1 Non-Voting Preferred Stock; provided, however, that such Class 2 shares shall not, except as provided in subclause (E), bear any dividend; (B) the shares of Class 1 and Class 2 Non-Voting Preferred Stock were released under Part A ratably over the 69 months starting on the Effective Date; (C) Section 5.4(a)(i)(A) were applied by allocating the Class 1 Non-Voting Preferred Stock and the Class 2 Non-Voting Preferred Stock among the Employee Groups as follows: ALPA Employee Group - 46.23%; IAM Employee Group - 37.13%; and Management and Salaried Employee Group - 16.64%; (D) allocations under Part A were made as if: (I) the limitations of Code sections 401(a)(4), 401(a)(17) and 415 did not apply; (II) Compensation was based on "compensation" as defined in the Supplemental Plan and (III) clauses (ii), (iv), (v), (vi) and (vii) of Section 5.4(a) did not apply; and (E) each share of Class 2 Non-Voting Preferred Stock that was in fact allocated on a prior Valuation Date to a Participant's account under the Supplemental Plan or under Part B shall, after the date of such allocation, be considered Class 1 Non-Voting Preferred Stock held by Part A (bearing the same Fixed Dividend as the Class 1 Non-Voting Preferred Stock that was allocated under Part A (but not bearing any other dividend)). By way of illustration, assume a member of the ALPA Employee Group has a total of 130 shares of Class 2 Non-Voting Preferred Stock allocated to his account under the Supplemental Plan and 70 shares of Class 2 Non-Voting Preferred Stock allocated to his Account under Part B. Assume further that each share of Class 1 Non-Voting Preferred Stock under Part A has a value of $100, pays an $8 Fixed Dividend, no dividends are paid on Common Stock and that each share of Class 2 Non-Voting Preferred Stock has a $75 value. For purposes of making the allocations under this subclause (E), such individual shall be treated as having received a dividend of $1600 with respect to the shares of Class 2 Non-Voting Preferred Stock allocated under the Supplemental Plan and under Part B. For purposes of calculating the hypothetical share number, that individual shall receive an allocation of 16 shares of Class 2 Non-Voting Preferred Stock to make up for such dividend, notwithstanding the fact that the value of the shares of Class 2 Non-Voting Preferred Stock is S75 per share.
(iii) Third, for each ESOP Participant, the "actual share number" for a Valuation Date shall be the actual number of shares of Class 1 Non-Voting Preferred Stock that are allocated to such Participant under Part A on that Valuation Date.
(iv) Fourth, for each ESOP Participant, the excess of the hypothetical share number over the actual share number shall be referred to herein as the respective "tentative allocation." If the sum of the tentative allocations (ignoring negative tentative allocations) for all Participants in an Employee Group exceeds the number of shares of Class 2 Non-Voting Preferred Stock released from the "phantom suspense account" to all such Participants' accounts for that Employee Group under Section 2.2 of the Supplemental Plan, each such tentative allocation for Participants of that Employee Group shall be proportionately reduced.
(v) Fifth, on each Valuation Date, the number of shares of each of the Class 2 Non-Voting Preferred Stock and Voting Preferred Stock, if any, to be allocated to a Participant under Part B (excluding Voting Preferred Stock described in Section 5.4(c)(i) and 5.4(c)(vi)) shall be the same and shall equal the least of the following numbers: (A) the maximum number of shares of each of the Class 2 Non-Voting Preferred Stock and the Voting Preferred Stock that can be allocated to the Participant for the Valuation Date under Part B without violating Code section 415 or Code section 401(a)(4) (if applicable), (B) the tentative allocation and (C) the excess of the hypothetical share number (calculated for this purpose only by applying the Code section 401(a)(17) limitation) over the actual share number. The hypothetical share number described in this subclause (C) shall be determined by recalculating the allocations made on the current and all prior Valuation Dates by assuming the Participant's Compensation for each Plan Year had been limited to the amount then allowed und7er Code section 401(a)(17). Accordingly, for purposes of calculating the hypothetical share number under this subclause (C), the Participants' Compensation in the current Plan Year shall be limited to the amount provided by Code section 401(a)(17) and the amount of dividends allocated to each Participant's Account during the Plan Year shall be calculated by assuming the allocations of shares made on earlier Valuation Dates were also based on Compensation, as limited by Code section 401(a)(17) limitation then in effect. The excess of the tentative allocations over the amount allocated under clause (v) shall not be allocated under Part B, but shall be allocated in accordance with the terms of the Supplemental Plan.
(vi) Sixth, on the last Valuation
Date of each Plan Year, in addition to the shares of Class 2 Non-Voting
Preferred Stock and Voting Preferred Stock transferred to Part B under
clause (v) above, shares credited under the Supplemental Plan, in a prior
Plan Year, due to the limitations under Code section 401(a)(4), 401(a)(17)
or Code section 415, shall be allocated to Participants' Accounts under
Part B, subject to applicable Code limitations in accordance with the following
priorities:
(B) second, by the maximum number of shares of Class 2 NonVoting Preferred Stock and Voting Preferred Stock (such numbers to be the same) that may be contributed by the Company (or transferred from the Supplemental Trust) to Part B without disqualifying the Plan or any other qualified plan; provided, however, that the number of shares transferred may include any shares that were not previously contributed or transferred to Part B because of the limitations of Code section 401(a)(17); and
(C) third, by the maximum number of shares of Common Stock that may be transferred from the Supplemental Trust to Part B without disqualifying the Plan or any other qualified plan; provided, however, that the number of shares may include any shares that were not previously contributed or transferred to Part B because of the limitations of Code section 401(a)(17).
(vii) Seventh, the Company shall contribute (or, to the extent applicable, the Company shall direct the trustee of the Supplemental Trust to transfer) a number of shares of Voting Preferred Stock and Class 2 Non-Voting Preferred Stock and Common Stock equal to the sum of the number of such respective shares calculated for each Participant under clauses (i), (v) and (vi) above to Part B. Such shares shall be transferred as soon as practicable after the applicable Valuation Date.
(viii) Eighth, Prior to the December 31, 1995 Valuation Date, the aggregate hypothetical share numbers for all Participants for the 1994 Plan Year shall be retroactively increased by an additional number equal to X multiplied by Y, where X is the total number of shares of Preferred Stock to be issued as Additional Shares and Y is the release fraction (as defined in the Supplemental Plan) for December 31, 1994. Such shares shall be divided among the Employee Groups (including the IAM Employee Group) in accordance with Section 5.4(c)(ii)(C) and allocated to Participants based upon 1994 data (that is, 1994 Compensation and Wage Investments, as applicable.) The excess of such new hypothetical share number (including such numbers for the IAM Employee Group) for the 1994 Plan Year over the hypothetical share number previously determined for 1994 shall be allocated hereunder or credited under the Supplemental Plan in accordance with clause (v) above, provided that the number in (v)(A) shall be calculated and credited as if the contributions were attributable to 1995, rather than 1994, unless the additional shares calculated in clause (v) to be contributed to ESOP (Part B) are in fact contributed to the ESOP no later than September 15, 1995. The calculations required by this clause (viii) shall be performed prior to calculating the regular allocations for the 1995 year. The additional shares of Class 2 Non-Voting Preferred Stock credited pursuant to this clause (viii) shall, for all purposes, including Section 5.4(c)(ii)(E), be allocated as of December 31, 1994.
(d) Purpose. The purpose of the foregoing contribution and allocation provisions is to place each Participant, to the extent possible, in the same position such Participant would have been if (i) Code sections 401(a)(4), 401(a)(17) and 415 did not apply, (ii) all of the shares of Preferred Stock to be sold to Part A during the Wage Investment Period had instead been sold on the Effective Date, (iii) all of the shares (excluding shares of the Voting Preferred Stock) contributed to Part B or credited under the Supplemental Plan during the Wage Investment Period had instead been purchased by the Trust on the Effective Date pursuant to Part A as Class 1 Non-Voting Preferred Stock and (iv) the Preferred Stock and Voting Preferred Stock had been allocated ratably (over the 69 months beginning at the Effective Date) to Participants in their respective Employee Groups in accordance with the overall program ownership percentages, that is, the ALPA Employee Group - 46.23%, the IAM Employee Group - 37.13% and the Management and Salaried Employee Group - 16.64%. To the extent any interpretative issues arise in calculating contributions and allocations, such issues shall be resolved, if possible, by effectuating such purpose. To the extent that any shares of Company Stock are converted into shares of Common Stock prior to the end of the Wage Investment Period, an appropriate number of shares of Common Stock will be contributed (if applicable) and allocated hereunder in lieu of the shares of the Company Stock that would have been contributed and/or allocated hereunder and, if appropriate, the number of Class 1 and/or Class 2 Non-Voting Preferred Stock shares set forth in various places in this Plan shall be revised; provided, except to the extent the shares of Voting Preferred Stock are converted into shares of Common Stock, the calculation of the number of shares of Voting Preferred Stock to be contributed and allocated shall continue as if no shares of Company Stock had been converted.
(e) Special Allocation Provision. For purposes of making allocations under Section 5.4, the period from January 1, 2000 through April 12, 2000 shall be treated as a Plan Year (for the ALPA Employee Group and the Management and Salaried Employee Group) and the period from January 1, 2000 through July 12, 2000 shall be treated as a Plan Year (for the IAM Employee Group).
(b) Code Section 415 Compensation. For purposes of this Section 5.5, Compensation shall be adjusted to reflect the general rule of Treasury Regulation section 1.415-2(d).
(c) Limitation Year. The "limitation year" (within the meaning of Code section 415) shall be the calendar year.
(d) Multiple Defined Contribution Plans. In any case where a Participant also participates in another defined contribution plan of the Company or its Affiliates, the appropriate committee of such other plan shall first reduce the after-tax contributions under any such plan, shall then reduce any elective deferrals under any such plan subject to Code section 401(k), shall then reduce all other contributions under any other such plan and, if necessary, shall then reduce contributions under this Plan (Part B to be reduced before Part A); provided, however, in the case of any Participant who is a member of the ALPA Employee Group, contributions (excluding after-tax contributions and elective deferrals) under the United Air Lines, Inc. Pilots' Directed Account Retirement Income Plan shall be reduced last.
(e) Combined Plan Limitations. To the extent necessary to comply with the requirements of Code section 415(e), the appropriate committee shall first reduce the annual benefit payable under any defined benefit plan in which the Participant participates and, if necessary, the ESOP Committee shall thereafter reduce the contributions under the defined contribution plans in which such Participant participates in accordance with Section 5.5(d).
(f) Excess Allocations. If, after applying the allocation provisions under Section 5.4, allocations under Section 5.4 would otherwise result in a violation of Code section 415, the ESOP Committee shall reduce Employer Contributions for the next limitation year for the affected Participant or shall hold excess amounts in a suspense account for allocation in a subsequent Plan Year in accordance with Reg. section 1.415-6(b)(6)(ii). Such suspense account, if permitted, will be created before any reallocation of contributions for the affected individual. If the limits of Code section 415 would cause total allocations to each Participant in an Employee Group to exceed the permitted amount, appropriate arrangements will be made to protect the interests of that Employee Group, consistent with the principles of Section 3.2.
SECTION 6
Vesting
A Participant's Account shall be fully vested (nonforfeitable) at all times, and will be distributed to him or, in the event of his death, to his Beneficiary, in accordance with the applicable provisions of Section 7.
SECTION 7
Distributions
7.1 Pre-Retirement Diversification Rights.
(b) Amount. In the case of a Qualified Participant who has made one or more elections during the period, the extent to which a subsequent election exceeds the amount to which any prior election applies shall be (i) in the case of the Qualified Participant's ESOP Cash Account, (A) 25 % or 50 %, as the case may be, of the sum of the balance of such Account as of the Valuation Date of the Plan Year with respect to which the subsequent election is made and the amounts diversified pursuant to prior elections, less (B) the amounts diversified pursuant to prior elections; and (ii) in the case of the Qualified Participant's ESOP Stock Account, (A) 25% or 50%, as the case may be, of the sum of the number of shares of Company Stock in the Qualified Participant's ESOP Stock Account as of the Valuation Date of the Plan Year with respect to which the subsequent election is made and the number of shares of Company Stock diversified pursuant to prior elections, less (B) the number of shares of Company Stock diversified pursuant to prior elections. For the purposes of this Section 7, fractional shares for which a Qualified Participant might be entitled to receive shall be rounded down to the nearest whole share. The diversification of a Participant's Account under this Section 7.1 shall only be effected within 90 days following the 90-day period in which the Qualified Participant makes his request. Notwithstanding the foregoing, if the fair market value of the Company Stock allocated to the ESOP Stock Accounts of a Qualified Participant is $500 or less as of the Valuation Date immediately preceding the first day of an Election Period, such Qualified Participant shall not be entitled to an election under this Section 7.1 for that Election Period.
(c) Method. A Participant's diversification election pursuant to this Section 7.1 shall only be effected by having the ESOP Committee cause the Trustee to transfer the portion of the Account to be diversified to the Company's Code section 401(k) plan applicable to such Participant. An equal number of shares of Voting Preferred Stock and Preferred Stock shall be diversified.
7.3 Manner and Form of Distributions.
(i) By payment in a lump sum; or
(ii) By payment in a series
of five substantially equal annual installments (to consist of equal numbers
of Voting Preferred Stock and Preferred Stock).
(i) a Participant whose employment with the Company and its Affiliates terminates by reason of attainment of his Normal Retirement Date, death or Total Disability must be eligible to receive a distribution of his Account balance no later than the end of the Plan Year following the Plan Year in which such termination occurs; provided, however, that this provision shall not apply to the shares of Company Stock held in the Participant's Account acquired with the proceeds of an Acquisition Loan until the close of the Plan Year in which such Acquisition Loan has been repaid in full;
(ii) unless a Participant otherwise elects under Section 7.4(b), a Participant whose employment with the Company and its Affiliates terminates must commence to receive a distribution of his Account no later than 60 days following the close of the Plan Year in which the latest of the following occurs; (A) a Participant reaches his Normal Retirement Date, (B) the Participant's employment with the Company and its Affiliates terminates and (C) the 10th anniversary of the year in which the Participant commenced participation in the Plan;
(iii) a Participant's Account balance must commence to be distributed no later than the April 1 of the calendar year next following the calendar year in which such Participant attains age 70-1/2. Any amount distributed pursuant to this clause (iii) shall, in the case of a Participant who is an Employee, be and be limited to the minimum amount required to be distributed pursuant to Code section 401(a)(9);
(iv) If a Participant's employment with the Company and its Affiliates terminates by reason of death, or if a Participant dies after his employment terminates but before a distribution commences from the Plan, then, unless the Participant's spouse is the Beneficiary, all of the Participant's interest in the Plan must be completely distributed within five years after the date of his death unless distributions begin within one year after the Participant's death; and
(v) to the extent permitted by law, Code section 40 1 (a)(9) and any related transitional rule are incorporated by reference into the terms of the Plan.
(b) Deferred Distributions. A Participant (or a spousal Beneficiary) may elect to defer the commencement of his distribution to any date on or prior to the April I of the calendar year next following the calendar year in which such Participant attains age 70-1/2.
7.6 Facility of Payment.
(b) Minors. In the event any amount is payable under the Plan to a minor, payment shall not be made to the minor, but instead shall be paid (i) to that person's then living parent(s) to act as custodian, (ii) if that person's parents are then divorced, and one parent is the sole custodial parent, to such custodial parent, or (iii) if no parent of that person is then living, to a custodian selected by the ESOP Committee to hold the funds for the minor under the Uniform Transfers or Gifts to Minors Act in effect in the jurisdiction in which the minor resides. If no parent is living and the ESOP Committee decides not to select another custodian to hold the funds for the minor, payment shall be made to the duly appointed and currently acting guardian of the estate for the minor or, if no guardian of the estate for the minor is duly appointed and currently acting within 60 days after the date the amount becomes payable, payment shall be deposited with the court having jurisdiction over the estate of the minor.
(c) Discharge. Any payment made under this Section 7.6 shall fully discharge, to such extent, the obligation of the Trustee to pay benefits under the Plan with respect to such Participant, Beneficiary or minor.
7.8 Absence of Guaranty. The Trustee, the ESOP Committee and the Employers in no way guarantee the Trust Fund from loss or depreciation. Moreover, the Employers do not guarantee any payment to any person. The liability of the Trust to make any payment is limited to the available Trust Fund.
7.9 Designation of Beneficiary. In the event of the death of a married Participant, the Participant's Account balance will be paid to his surviving spouse, except as otherwise provided below. Each Participant from time to time, by signing a form furnished by the ESOP Committee, may designate any legal or natural person or persons (who may be designated contingently or successively) to whom his benefits are to be paid if he dies before he receives all of his benefits; provided, however, that if a married Participant designates a Beneficiary other than his spouse, his spouse must consent in writing to such designation and acknowledge in writing the effect of such designation, and such consent and acknowledgement must be witnessed by a notary public. Any designation by an unmarried Participant shall be rendered ineffective by any subsequent marriage and any consent of a spouse shall be effective only as to that spouse.
A Beneficiary designation form will be effective only when the signed form is filed with the ESOP Committee while the Participant is alive and will cancel all Beneficiary designation forms signed earlier. If a deceased Participant fails to designate a Beneficiary as provided above (or if the designated Beneficiary dies before the Participant or before receiving complete payment of the Participant's benefits), the ESOP Committee shall direct the Trustee to pay the Participant's benefits as follows:
(b) second, to the children (including any adopted children) of the Participant, per stirpes; and
(c) third, if the Participant leaves no surviving spouse or has no descendants pursuant to paragraph (b) above, to the estate of the last to die of the Participant or his designated Beneficiary.
7.10 Missing Participants or Beneficiaries. Each Participant and each Beneficiary must file with the ESOP Committee from time to time in writing his post office address and each change of post office address. Any communication, statement or notice addressed to a Participant or Beneficiary at his last post office address filed with the ESOP Committee, or if no address is filed with the ESOP Committee, then, in the case of a Participant, at his last post office address as shown on his Employer's records, will be binding on the Participant and his Beneficiary for all purposes of the Plan. The Employers, the ESOP Committee and the Trustee will not be required to search for or locate a Participant or his Beneficiary. In the event that all, or any portion, of the distribution payable to a Participant or his Beneficiary hereunder shall, at the expiration of five years after it shall become payable, remain unpaid solely by reason of the inability of the ESOP Committee, after sending a communication, statement or notice to the last post office address filed with the ESOP Committee, to ascertain the whereabouts of such Participant or his Beneficiary, the amount so distributable shall be reallocated in the same manner as a Company Stock contribution would be allocated under the provisions of Section 5.4. In the event a Participant or his Beneficiary is located subsequent to his benefit being reallocated, such benefit shall be restored first from Trust (including the Supplemental Trust) earnings and second from an Employer Contribution made solely for restoration purposes. The allocation and restoration referred to above shall be effected by giving effect to the class of Company Stock reallocated.
7.11 Qualified Domestic Relations Order. In addition to payments made under Section 7 on account of a Participant's termination of employment, payments may also be made to an Alternate Payee (as defined below) prior to, coincident with, or after a Participant's termination of employment if made pursuant to a "qualified domestic relations order" (as defined in Code section 414(p)). The ESOP Committee shall establish reasonable procedures to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders, including, in its sole discretion, the establishment of segregated accounts for Alternate Payees. The term "Alternate Payee" means any spouse, former spouse, child or other dependent of a Participant who is recognized by a Qualified Domestic Relations Order as having a right to receive all, or a portion of, the benefits payable under the Plan with respect to the Participant.
SECTION 8
Voting and Certain Dispositions of Company Stock
8.1 Voting.
(b) Unallocated and Uninstructed Shares.
(i) Part A. Each active Participant
(which shall be defined for purposes of Sections 8.1 and 8.2 to mean a
Participant who is an Employee) who directed the Trustee with respect to
shares allocated to his Account under Part A in accordance with Section
8.1(a) may, again as a named fiduciary, direct the Trustee with respect
to a portion of both the number of shares of Company Stock held in the
Loan Suspense Account and the number of such shares allocated to any Participant's
Account under Part A for which no instructions were timely, received by
the Trustee. Such portion shall be determined as follows:
(B) The number of shares of Company Stock determined
under clause (i)(A) shall be multiplied by a fraction, the numerator of
which is the number of shares of Company Stock allocable to Part A that
such Participant directed the Trustee in accordance with Section 8.1(a)
and the denominator of which is the aggregate number of shares allocable
to Part A that were directed by active Participants in the same Employee
Group in accordance with Section 8.1(a).
(ii) Part B. Each active Participant who directed the Trustee with respect to shares allocated to his Account under Part B in accordance with Section 8.1(a) may, again as a named fiduciary, direct the Trustee with respect to a portion of the number of such shares allocated to any Participant's Account under Part B for which no instructions were timely received by the Trustee. Such portion shall be determined as follows:
(B) The number of shares of Company Stock determined under clause (ii)(A) shall be multiplied by a fraction, the numerator of which is the number of shares of Company Stock allocable to Part B that such Participant directed the Trustee in accordance with Section 8.1(a) and the denominator of which is the aggregate number of shares allocable to Part B that were directed by active Participants in the same Employee Group in accordance with Section 8.1(a).
(C) Such Participant, as a named fiduciary,
shall be entitled to direct the Trustee, with respect to the number of
shares determined under clause (ii)(B).
(i) Allocated Shares. Each Participant (or Beneficiary) to whose ESOP Stock Account shares of Company Stock have been allocated may, as a named fiduciary within the meaning of ERISA section 403(a)(1), direct the Trustee with respect to the sale, exchange, transfer, conversion or other disposition of the shares of Company Stock allocated to his ESOP Stock Account, and the Trustee shall follow the directions of those Participants (and Beneficiaries) who provide timely instructions to the Trustee.
(ii) Unallocated and Uninstructed
Shares.
(II) The number of shares of Company Stock determined under clause (ii)(A)(I) shall be multiplied by a fraction, the numerator of which is the number of shares of Company Stock allocable to Part A that such Participant directed the Trustee in accordance with Section 8.2(a)(i) and the denominator of which is the aggregate number of shares allocable to Part A that were directed by active Participants in the same Employee Group in accordance with Section 8.2(a)(i).
(III) Such Participant, as a named fiduciary,
shall be entitled to direct the Trustee with respect to the number of shares
determined under clause (ii)(A)(11).
(II) The number of shares of Company Stock determined under clause (ii)(B)(1) shall be multiplied by a fraction, the numerator of which is the number of shares of Company Stock allocable to Part B that such Participant directed the Trustee in accordance with Section 8.2(a)(i) and the denominator of which is the aggregate number of shares allocable to Part B that were directed by active Participants in the same Employee Group in accordance with Section 8.2(a)(i).
(III) Such Participant, as a named fiduciary,
shall be entitled to direct the Trustee with respect to the number of shares
determined under clause (ii)(B)(II).
(c) Proceeds. For purposes of allocating the proceeds of any sale or exchange pursuant to a Control Transaction, the ESOP Committee or the independent record keeper, as the case may be, shall determine the portion, expressed as a percentage, of shares of each class tendered by the Trustee that were actually sold or exchanged (the "applicable percentage" for that class). For each class, the ESOP Committee or the independent record keeper, as the case may be, shall then treat as having been sold or exchanged from the portion of the Loan Suspense Account applicable to that Employee Group and each of the individual Accounts of Participants (and Beneficiaries) that number of shares (of that class) that is obtained by multiplying (i) the applicable percentage for that class, times (ii) the total number of shares in such Account of that class that were directed to be tendered, exchanged or sold in connection with the Control Transaction. The adjustments to individual Accounts shall be made by the ESOP Committee or the independent record keeper, as the case may be, on information supplied by the Company, the ESOP Committee or the Trustee.
(d) Actions To Be Taken Following a Control Transaction. Notwithstanding Section 4.2 or any other provision of this Plan or the Trust Agreement that requires that the Trust Fund be invested exclusively in shares of Company Stock, this Section 8.2(d) shall apply if a Control Transaction results in the sale or exchange or other disposition of any shares of Company Stock held in the Plan. If the consideration received by the Trust as a result of the Control Transaction consists solely of "appropriate securities" (as defined below), the terms of the Plan, all outstanding Acquisition Loans, and future sales under Additional Acquisition Loans, shall continue as if the Control Transaction had not occurred. If the consideration received includes cash, property or securities, other than appropriate securities, the Trustee shall invest the proceeds in appropriate securities to the extent possible; if the Trustee is able to reinvest all such proceeds in appropriate securities, the Plan, all outstanding Acquisition Loan and future sales under Additional Acquisition Loans, shall continue as if the Control Transaction had not occurred; if the Trustee is unable to reinvest all such proceeds in appropriate securities, then the Company shall make appropriate arrangements (which shall be reasonably satisfactory to ALPA and the IAM and shall take into account and recognize the position that ESOP Participants would have enjoyed had all of the shares of Class 1 Non-Voting Stock been sold to the ESOP on the Effective Date at a price per share equal to the purchase price with respect to the shares sold on the Effective Date) to protect the substantive interests of each Employee Group, provided, however, that it is not currently intended that such arrangements will consist of forgiveness of any portion of any Acquisition Loan. For purposes of this Section 8.2(d), "appropriate securities" shall mean stock (i) that is described in Code section 409(1), (ii) that is either common stock described in Code section 409 (1)(1) or preferred stock that converts into such common stock, and (iii) the issuer of which stock (A) has a Moody's senior long-term debt rating which is at least as good as the better of the Moody's senior long-term debt rating of the Company or United Airlines, Inc. at such time and (B) is a "public company" as defined in Article Fifth of the Articles of Incorporation of the Company.
(e) Special Funding Rules. (i) If (x) any person or persons commence (which, for purposes of this paragraph, shall mean-filing a tender offer statement on Schedule 14D-1 (or successor form) with the Securities and Exchange Commission or mailing appropriate solicitation materials to the shareholders) a bona fide tender offer or exchange offer for Company Stock which, if successful, would require the offeror (if a person other than the Company or any of its affiliates) to file a Form 13D (or successor form) with the Securities and Exchange Commission with respect thereto, or (y) the Board of Directors or shareholders approve a Control Transaction described in Section 1(q)(b), then all of the remaining shares of Class 1 Non-Voting Preferred Stock that are to be issued to the Plan pursuant to the Recapitalization Agreement shall be sold ("Top-Off Sale") by the Company to the Plan as soon as possible (and, in all circumstances, in adequate time to allow the Plan to respond to such event), pursuant to an Additional Acquisition Loan (conforming to the first sentence of Section 1.6(g) of the Recapitalization Agreement, provided that the consent of ALPA and the IAM required by that sentence shall not apply), unless and to the extent that ALPA and the IAM jointly request otherwise in writing. (All disputes between the Company and ALPA and the IAM as to whether any such tender offer or exchange offer is bona fide shall be made in accordance with the arbitration procedures described in Section 11.2(b)(ii)(G)-(J) hereof.) In the Company's sole discretion such Top-Off Sale may be made subject to a Condition that prevents, to the extent permitted by law, the consummation of such Top-Off Sale if the event in question does not result in the sale, exchange or other disposition of Company Stock, provided that such contingency does not materially interfere with the Plan's ability to so respond to the event in question. The purchase price of the shares of Class 1 Non-Voting Preferred Stock to be sold pursuant to this subsection (e) shall be the fair market value of such shares of Class 1 Non-Voting Preferred Stock.
(ii)(A) If a person or persons
make a bona fide offer to the Plan (not covered by paragraph (e)(i)) to
acquire, directly or indirectly, at least 5% of the Company Stock held
by the Plan (the "Offer"), such Offer shall be treated as if an event described
in (e)(i) and the resultant Top- Off Sale shall be effected in accordance
with (e)(i), subject, however, to the provisions of (e)(11)(B).
(C) Subject to the next sentence, the provisions
of (e)(ii)(B) shall not apply and the Top-Off Sale shall be made in accordance
with (e)(ii)(A) if following the (e)(ii)(B) procedures could reasonably
be expected to prevent a Top-Off Sale from being effected in adequate time
to allow the Plan to accept the Offer. Under the circumstances described
in this (e)(ii)(C), however, the Top-Off Sale shall be consummated immediately
before the consummation of the transaction contemplated by the Offer and
shall, to the extent legally permitted, be subject to the consummation
of the transaction contemplated by the Offer.
SECTION 9
Rights, Restrictions and Options on Company Stock
9.1 Right of First Refusal. If Company Stock distributed is not readily tradable on an established market (within the meaning of Code section 409(h)), any shares of Company Stock distributed by the Trustee shall be subject to a "Right of First Refusal." The Right of First Refusal shall provide that, prior to any subsequent transfer, such shares of Company Stock must first be offered in writing to the Trust and, if refused by the Trust, to the Company, at the greater of its independently appraised value as of the Valuation Date coinciding with or next preceding such offer, or the price stated in a bona fide written offer and on the same terms. The Trustee (on behalf of the Trust) and the Company, as the case may be, shall have a total of 14 days (from the date the Trust or the Company, as the case may be, receives the offer) to exercise the Right of First Refusal. The ESOP Committee shall determine whether a written offer from a prospective buyer has been made in good faith. A Participant (or Beneficiary) entitled to a distribution of Company Stock may be required to execute an appropriate stock transfer agreement (evidencing the Right of First Refusal) prior to receiving a certificate for Company Stock.
9.2 Put Option. If Company Stock distributed is not readily tradable on an established market (within the meaning of Code section 409(h)), the Company shall issue a "Put Option" to each Participant (or his Beneficiary) receiving a distribution of such Company Stock from the Plan. The Put Option shall permit the Participant (or his Beneficiary) to sell such Company Stock to the Company, at any time during two put option periods (described below), at the then fair market value, such fair market value to be determined at least annually as of the respective Valuation Date by an independent appraiser selected by the ESOP Committee. The first put option period shall be a period of at least 60 days beginning on the date of distribution of Company Stock to the Participant (or his Beneficiary). The second put option period shall be a period of at least 60 days beginning after the new determination of the fair market value of Company Stock is made by an independent appraiser (and notification is given to the Participant or his Beneficiary) in the next following Plan Year. The Company shall permit the Trustee, in its discretion, to purchase the Company Stock tendered to the Company under a Put Option. If the Company or the Trustee purchases Company Stock tendered under a Put Option and [he Company Stock was distributed to the Participant (or his Beneficiary) in the form of a lump sum, the payment, at the discretion of the Company or Trustee, may be made (a) in five substantially equal annual installments commencing not later than 30 days after the exercise of the Put Option- ' provided, however, that the purchaser provides adequate security and reasonable interest (as determined by the ESOP Committee) on unpaid installments, or (b) in a lump sum. If the Company or Trustee purchases Company Stock tendered under a Put Option and the Company Stock was distributed as part of an installment distribution, the payment, in the form of a lump sum, must be made not later than 30 days after the exercise of the Put Option. The Trustee. on behalf of the Trust, may offer to purchase any shares of Company Stock (which are not sold pursuant to a Put Option) from any former Participant or Beneficiary at any time in the future, at its then fair market value.
9.3 Share Legend. Shares of Company Stock held or distributed by the Trustee may include such legend restrictions on transferability as the Company may reasonably require in order to assure compliance with applicable federal and state securities laws. Except as otherwise provided in this Section 9, no shares of Company Stock held or distributed by the Trustee may be subject to a put, call or other option, or buy-sell or similar arrangement.
9.4 Nonterminable Rights. The provisions of this Section 9 shall continue to be applicable to Company Stock even if the Plan ceases to be an "employee stock ownership plan" (as defined under Code section 4975(e)(7)).
SECTION 10
Dividends
10.1 Class 1 Non-Voting Preferred Stock.
(i) Allocated Shares. Any cash dividends paid with respect to shares of Class 1 Non-Voting Preferred Stock allocated to the Participants' ESOP Stock Accounts which were acquired with the proceeds of a particular Acquisition Loan, but excluding dividends in excess of the Fixed Dividend paid on such Preferred Stock, shall be used by the Trustee to pay the principal balance of such Acquisition Loan.
(ii) Unallocated Shares. Any cash dividends paid with respect to shares of Class 1 Non-Voting Preferred Stock held in the Loan Suspense Account which were acquired with the proceeds of a particular Acquisition Loan, but excluding dividends in excess of the Fixed Dividend paid on such Preferred Stock, shall be used by the Trustee to pay the principal balance of such Acquisition Loan.
(iii) Any cash dividends described in clauses (i) or (ii) in excess of the principal balance of the Acquisition Loan which are attributable to prior fixed dividends that are not paid due to a lack of earnings and profits shall be used to pay interest on such Acquisition Loan if the Company made additional contributions to the Plan to make up for such unpaid fixed dividends.
(iv) Any cash dividends described in clauses (i) or (ii) above not used to repay the Acquisition Loan in accordance with clauses (i), (ii) or (iii) above shall be allocated pursuant to subsection (b) below as if they were dividends in excess of the Fixed Dividend.
(b) Application of Excess Dividend.
(i) Allocated Shares. Any cash dividends paid with respect to shares of Class 1 Non-Voting Preferred Stock allocated to the Participants' ESOP Stock Accounts in excess of the Fixed Dividend paid on such Preferred Stock shall be allocated to such Accounts, pro rata, according to the number of shares of such Preferred Stock held in such Accounts on the dividend record date; such amounts shall be used by the Trustee to purchase shares of Common Stock.
(ii) Unallocated Shares. Any cash dividends paid with respect to shares of Class 1 Non-Voting Preferred Stock held in the Loan Suspense Account in excess of the Fixed Dividend paid on such Preferred Stock shall be allocated among the Employee Groups in proportion to the allocation percentages set forth in Section 5.4(a)(i)(A). The amount allocated to each Employee Group shall then be allocated to the Participants from that Employee Group, pro rata, according to their Part A Account balances on the dividend record date; such amounts shall be used by the Trustee to purchase shares of Common Stock.
10.3 Special Allocated Share Rule. Any Financed Shares released from a Loan Suspense Account subaccount by reason of dividends paid with respect to Company Stock that was acquired with the proceeds of the Acquisition Loan applicable to that subaccount shall be allocated in the same manner as provided in Section 5.4(a) for Employer Contributions; provided, however, that prior to said allocation, Financed Shares so released from such subaccount with a fair market value (on the applicable dividend payment date) equal to the dividends allocated to Participants' ESOP Cash Accounts and applied to repay such particular Acquisition Loan as provided in Section 10.1 shall first be allocated among and credited to those ESOP Stock Accounts, pro rata, according to the amount of their dividends so applied. To the extent that the fair market value of the shares released from a subaccount is less than the dividends described in the foregoing proviso, Financed Shares released from other Loan Suspense Account subaccounts shall be used to make up the insufficiency (after first applying the foregoing proviso with respect to Financed Shares released from such other subaccount). Notwithstanding any provision of the Plan to the contrary, in any Plan Year the total dividends allocated to a Participant's ESOP Cash Account used to repay Acquisition Loan(s) shall not, to the extent required by law, exceed the fair market value of the Financed Shares released from the Loan Suspense Account and allocated to that Participant's Account.
SECTION 11
Administration
11.1 General. The Company shall be the administrator of the Plan and shall have the rights, duties and obligations of an "administrator" as that term is defined in ERISA section 3(16)(A) and of a "plan administrator" as that term is defined in Code section 414(g). Some administrative functions have been allocated to the ESOP Committee, which shall have the rights, duties and obligations set forth herein. The ESOP Committee shall be the "named fiduciary, " as described in ERISA section 402, with respect to its authority under the Plan, except to the extent provided in Section 8, for which each Participant (or Beneficiary) shall be the named fiduciary, and except with respect to the Initial Acquisition Loan and Additional Acquisition Loans and the use of the proceeds thereof to purchase Preferred Stock, for which the Trustee shall be the named fiduciary.
11.2 Membership and Authority.
(i) to adopt such rules of procedure and regulations for the proper and efficient administration of the Plan and as are consistent with the provisions of the Plan;
(ii) to enforce the Plan in accordance with its terms and with such applicable rules and regulations as may be adopted by the ESOP Committee-.
(iii) to determine all questions arising under the Plan, to resolve all ambiguities, to correct defects, to supply omissions, including the power to determine the rights or eligibility of Employees or Participants and their Beneficiaries and their respective benefits; provided, however, that the ESOP Committee will not have jurisdiction or power to add to or subtract from the Plan or any amendments thereto;
(iv) to give such directions to the Trustee with respect to the Trust Fund as may be provided in this Plan or in the Trust Agreement;
(v) to maintain and keep adequate books, records and other data as shall be necessary to administer the Plan, except those that are maintained by the Company or by the Trustee;
(vi) to direct all payments of benefits to Participants and Beneficiaries, consistent with the terms of the Plan and the Trust Agreement;
(vii) to establish an investment policy and objective for the Plan, except that it is understood that the Plan is designed to invest exclusively in Company Stock;
(viii) to elect a Chairman and to appoint a Secretary, who need not be a member of the ESOP Committee, who shall keep minutes of the proceedings and have custody of all records and documents pertaining to administration of the Plan;
(ix) to be agent for the service of legal process on behalf of the Plan;
(x) to authorize one or more of its members to execute any documents on behalf of the ESOP Committee, in which event the ESOP Committee shall notify the Trustee in writing of such action. The certificate of the Secretary or any authorized member of the ESOP Committee that the ESOP Committee has taken or authorized any action shall be conclusive in favor of any person relying on such certificate;
(xi) to obtain an independent appraisal of the fair market value of the Company Stock held by the Trust from an independent appraiser who meets the requirements of Code section 170(a)(1); and
(xii) perform any other acts, consistent with the Plan and Trust Agreement, necessary or appropriate to the administration of the Plan and the discharge of its duties.
(b) Special Provisions.
(i) If the ESOP Committee unanimously agrees that a matter affects members of only one Employee Group, the matter shall be considered by an ESOP Committee consisting solely of members who were appointed on behalf of such Employee Group, which appointees must act by a majority vote, and the provisions of this Section 11.2 shall be construed accordingly. If the ESOP Committee is unable to agree unanimously that the matter affects only members of one such Employee Group, the jurisdictional determination, that is, whether the matter affects only members of one such Employee Group, shall be made by a neutral arbitrator selected in accordance with clause (iii) below.
(ii) As set forth in Section
12.3, the ESOP Committee will have the exclusive power to hear and determine
all appeals of claims denied under Section 12.2 of the Plan pursuant to
the procedures hereinafter provided. With respect to such disputes, the
ESOP Committee will function as a System Board of Adjustment as provided
in Title 11 of the Railway Labor Act, as amended, and the following provisions
will govern:
(B) The ESOP Committee will establish rules of procedure for the conduct of appeals before it, which rules will not be inconsistent with the provisions of the Plan. Insofar as possible, such procedures will follow the procedure of the American Arbitration Association. The Chairman will promptly advise the Company, the IAM and ALPA of such rules of procedure.
(C) All appeals properly referred to the ESOP Committee for consideration will be addressed to the Chairman in the form of a submission as prescribed by the rules of procedure. Six copies of each submission, including all papers and exhibits in connection therewith, will be forwarded to the Chairman, who will promptly transmit one copy thereof to each member of the ESOP Committee. The submission in each dispute will include the question to be decided by the ESOP Committee, the provisions of the Plan involved in the dispute, the position of the petitioner and all asserted facts supporting such position.
(D) The submission will state the names of the parties to whom the petitioner sent copies of the submission. A copy of the submission will be served by the petitioner upon ALPA, the IAM and the Company.
(E) The submission will state whether or not the petitioner requests both a hearing on the facts and oral argument, or only oral argument. The answer of each party may request a hearing on the facts and oral argument or only oral argument. If neither the submission nor any answer requests a hearing, the ESOP Committee may waive a hearing and dispose of the dispute on the basis of the submission and answers.
(F) When a hearing has been requested in a dispute, the ESOP Committee will fix a date for such hearing as soon as reasonably possible after receipt of the submission. The date for the hearing will not be more than 60 days after receipt of the submission (unless circumstances require a longer period which can be no more than 60 days). If two or more members of the ESOP Committee consider the question involved in the dispute to be of sufficient urgency, the ESOP Committee may fix an earlier date, which will not be less than ten days after filing of the answer. If requested by the ESOP Committee or the Participant, a transcript of each proceeding will be made and retained in the files of the ESOP Committee. Such hearing will be heard at the Company's Executive Offices in Elk Grove Township, Illinois, unless the entire ESOP Committee, by a majority vote, otherwise determines.
(G) Appeals before the ESOP Committee shall be decided by a majority vote of the members of the ESOP Committee. However, a majority of the members of the ESOP Committee appointed on behalf of any Employee Group has the power to require that any submission (except for matters described in subsection (iv) below) be referred for decision to a neutral arbitrator. Furthermore, if the ESOP Committee deadlocks in the case of any vote, the matter shall be referred for decision to a neutral arbitrator. In any case in which a neutral arbitrator is to be appointed, the parties will, within 10 days after notice of the need to appoint a neutral arbitrator, agree upon a neutral arbitrator. If the parties fail to agree upon the selection of a mutually acceptable neutral arbitrator the parties will select an arbitrator by alternate striking from a panel of arbitrators supplied by the American Arbitration Association, preferably a panel with knowledge of employee stock ownership plans. When an neutral arbitrator is selected, the power to take further action with respect to the dispute shall rest with the neutral arbitrator until the final decision is made in the dispute,
(H) When a neutral arbitrator is selected, any party to a dispute may make a written request to the neutral arbitrator for a further hearing or oral argument provided it is made within 15 days after such selection. The neutral arbitrator will decide such requests. If no further hearing or argument is held, the neutral arbitrator will consider and review the prior record in the dispute. The decision of the neutral arbitrator will be rendered within 30 days after the close of any further hearing or argument. The neutral arbitrator shall decide the matter based upon the record before him and the terms of the Plan and shall not give weight to any previous votes of the ESOP Committee concerning the matter.
(I) The decision of the ESOP Committee, or neutral arbitrator, if any, will be final and binding upon the Company, ALPA, the [AM, a Participant or Beneficiary and any other person claiming under the Plan.
(J) Subject to Section 11.12, the expenses and
reasonable compensation of the neutral arbitrator selected as provided
herein shall be borne by the Company.
(iv) The ESOP Committee is the named fiduciary with respect to the management and disposition of assets held in the Trust Fund. The power of a majority of the members of the ESOP Committee appointed on behalf of any Employee Group to require that a matter be referred to a neutral arbitrator shall not apply to a matter if it concerns the exercise of authority respecting management or disposition of assets held in the Trust Fund. Notwithstanding the preceding sentence, the power of a majority of the members of the ESOP Committee appointed on behalf of any Employee Group to require that a matter be referred to a neutral arbitrator shall apply if (A) the matter does not involve a Control Transaction and (B) it is reasonably determined that the resolution of such matter might reasonably be expected to subject the Company to a material liability. Any dispute with respect to the application of this clause (iv) shall be resolved in accordance with the arbitration procedures described in Section 11.2(b)(ii)(G)-(J).
11.4 Information To Be Furnished to ESOP Committee. The Employers shall furnish the ESOP Committee such data and information as may be reasonably required to administer this Plan; provided, however, that the preceding phrase shall not in any case restrict the ability of ESOP Committee members to see individual Account data with respect to the Participants in the Employee Groups they represent and, provided, further, that individualized information shall be treated in a confidential manner. The ESOP Committee shall be entitled to rely on any information furnished by the Employers that is needed for calculation of benefits due under the Plan, or any matters relating to administration of the Plan. A Participant or Beneficiary entitled to benefits under the Plan must furnish to the ESOP Committee such evidence, data or information as the ESOP Committee considers desirable to carry out its obligations under the Plan. Any benefits under the Plan may be conditional upon the prompt submission of such information.
11.5 ESOP Committee's Decision Final. Except as otherwise provided herein, to the extent permitted by law, any interpretation of the Plan and any decision on any matter within the discretion of the ESOP Committee made by the ESOP Committee in good faith is binding on all persons. Except as provided in ERISA section 405, a dissenting member is not responsible for any action or failure to act if within a reasonable time he registers his dissent with the other members, the Company and the Trustee.
11.6 Remuneration and Expenses. No remuneration shall be paid to any ESOP Committee member who is an Employee of the Company or an Affiliate for services performed hereunder. However, subject to Section 11.12, the reasonable expenses of an ESOP Committee member incurred in the performance of an ESOP Committee function shall be reimbursed by the Employers. For purposes of the preceding sentence, flight pay loss and pay loss for each IAM member shall be treated as an expense.
11.7 Indemnification of the ESOP Committee. To the extent permitted by applicable law, the ESOP Committee and its members and any employee, director, or officer of the Company or its Affiliates, shall be indemnified by the Company against any and all liabilities, settlements, judgments, losses, costs, and expenses (including reasonable legal fees and expenses) of whatever kind and nature which may be imposed on, incurred by or asserted against them by reason of the performance or nonperformance of their duties in connection with the Plan if such action or inaction did not constitute gross negligence or willful misconduct. Furthermore, the Company agrees to indemnify any such persons against any liability imposed as a result of a claim asserted by any person or persons under federal or state law where such persons act in good faith or in reliance on a written direction or certification of the Company. The foregoing right of indemnification shall be in addition to other rights such persons may have by law or by reason of insurance coverage of any kind. The Company may, at its own expense, settle any claim asserted or proceeding brought against any such persons when such settlement appears to be in the best interests of the Company. If the Company obtains fiduciary liability insurance to protect the ESOP Committee or any of its members, the provisions of this Section 11.7 shall be applicable only to the extent that such insurance coverage is insufficient. The Company shall secure fidelity bonding for the fiduciaries of the Plan, as required by ERISA section 412 and shall secure insurance for ESOP Committee members coextensive with any ERISA insurance coverage provided to any member of the Board of Directors or, if more favorable, to any Employee.
11.8 Resignation or Removal of ESOP Committee Member. An ESOP Committee member may resign at any time by -delivering his written resignation to the Company. Each of the Company, ALPA and the IAM may remove its ESOP Committee members for any reason. In addition, the Company, at its discretion, may remove any ESOP Committee member for cause upon delivery of written notice to him. Except as provided in the preceding sentence, such resignation or removal, as the case may be, shall become effective only upon the appointment of a qualifying successor member being duly appointed in accordance with Section 11.9. For purposes hereof, "cause" shall be construed to mean an action permitting a member of the Board of Directors to be for cause.
11.9 Appointment of Successor ESOP Committee Members. ALPA, the IAM or the Company, as the case may be, shall, in accordance with the composition of the ESOP Committee described in Section 11.2, promptly fill any vacancy in the membership of the ESOP Committee and shall give prompt written notice thereof to the other ESOP Committee members, the Company and the Trustee.
11.10 Interested ESOP Committee Member. A member may not decide or determine a,ny matter or question concerning his own benefits under the Plan or as to how they are to be paid to him unless either such decision could be made by him under the Plan if he were not a member of the ESOP Committee, or such decision applies to all affected Participants similarly. If a member is disqualified to act, and the remaining members of the ESOP Committee cannot agree on a decision, ALPA, the IAM or the Company, as the case may be, may appoint a temporary member to exercise the powers of the interested member concerning the matter as to which he is disqualified.
11.11 Compliance with Laws. Notwithstanding anything in the Plan or the Trust Agreement to the contrary, every individual who is a fiduciary with respect to the Plan shall exercise his responsibilities with respect to the Plan in a manner consistent with ERISA and other applicable laws.
11.12 Expenses of the Plan and Trust. All reasonable expenses of administering the Plan and Trust shall be charged to and paid by the Employers; provided, however, that, in the case of a dispute between the Company and the Committee, the reasonableness of any expense shall be determined without regard to Sections 11.5 and 11.2(b)(ii)(1), and, provided, further, that in the event of any disagreement with respect to the reasonableness of an expense, neither a determination of the ESOP Committee that an expense is reasonable nor a determination by the Company that an expense is unreasonable shall be accorded any presumption of correctness. Unless the Company and ESOP Committee otherwise agree, such disagreement shall be resolved through the judicial process and the Company shall pay the reasonable expenses of litigation (and with regard to these expenses, the ESOP Committee's determination of reasonableness shall be conclusive). The reasonableness of any expense with respect to the Plan or Trust shall be determined by taking into account, inter alia, (a) the appropriateness and magnitude of the expense, (b) comparative reference to the types and amounts of expenses incurred by other very large employee stock ownership plans that own a significant portion of the employer's outstanding stock, (c) the complexity and size of this Plan and (d