Filed pursuant to Rule 424(b)(5)
Registration Number 33-46033
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED APRIL 28, 1995
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 28, 1995)
$
LOGO
PASS THROUGH CERTIFICATES, SERIES 1995-A
----------------
Each Pass Through Certificate offered hereby (collectively, the
"Certificates") will represent a fractional undivided interest in one of the
two United Airlines 1995-A Pass Through Trusts (the "1995-A1 Trust" and the
"1995-A2 Trust" and, collectively, the "Trusts") to be formed pursuant to two
separate trust supplements (the "Trust Supplements") between United Air Lines,
Inc. ("United") and First Security Bank of Utah, National Association (the
"Trustee"), as trustee under each Trust, which supplement the Pass Through
Trust Agreement dated as of February 1, 1992, as amended and restated as of May
1, 1995 (the "Basic Agreement"). Upon purchase of the related Equipment Notes,
including upon any delayed purchase thereof, the property of the Trusts will
consist of equipment notes (the "Equipment Notes") to be issued on a
nonrecourse basis by the trustees of separate owner trusts (each, an "Owner
Trustee") in connection with three separate leveraged lease transactions to
finance or refinance not more than 80% of the equipment cost to such Owner
Trustees of two Boeing 777-222 aircraft and one Boeing 747-422 aircraft
(collectively, the "Aircraft") which have been or will be leased to United.
The Equipment Notes in respect of each Aircraft will be issued in two series.
Each Trust will purchase one series of the Equipment Notes issued with respect
to each of the Aircraft such that, after the accretion of discount, if any, as
more particularly discussed below, all of the Equipment Notes held in each
Trust will have an interest rate corresponding to the interest rate applicable
to such Trust. The maturity dates of the Equipment Notes acquired by each Trust
will occur on or before the final distribution date applicable to the
Certificates issued by such Trust. The Equipment Notes issued with respect to
each Aircraft will be secured by a security interest in such Aircraft and an
assignment of the Lease relating thereto, including the right to receive
rentals payable with respect to such Aircraft by United. Although neither the
Certificates nor the Equipment Notes are direct obligations of, or guaranteed
by, United, the amounts unconditionally payable by United for lease of the
Aircraft will be sufficient to pay in full when due all payments required to be
made on the Equipment Notes held in the Trusts. The amounts payable by United
in connection with a delayed purchase of the Equipment Notes will be a general
obligation of United.
(Continued on next page)
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINAL
PASS THROUGH DISTRIBUTION PRINCIPAL INTEREST PRICE DISCOUNTS AND PROCEEDS TO THE
CERTIFICATES DATE AMOUNT RATE (1) TO PUBLIC (2) COMMISSIONS (3) TRUSTEES (2)(3)
- ---------------------------------------------------------------------------------------------------
1995-A1 $ % % % %
1995-A2
- ---------------------------------------------------------------------------------------------------
Total..... $ $ $ $
- ---------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1)Payable from and after October 19, 1995, as more particularly set forth
herein.
(2)Plus accrued interest, if any, at the applicable interest rate from the date
of issuance of the Certificates.
(3) United will initially pay the underwriting discounts and commissions and
the Owner Participants will reimburse United for such expenses. In
addition, certain other expenses estimated at $ will be paid (other
than certain expenses paid by United) by the Owner Participants.
----------------
The Certificates are offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
approval of certain legal matters by counsel for the Underwriters and to
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify the offer and to reject orders in whole or in part. It is
expected that delivery of the Certificates in book-entry form will be made on
or about May 15, 1995 through the facilities of The Depository Trust Company,
against payment therefor in immediately available funds.
----------------
MERRILL LYNCH & CO. LEHMAN BROTHERS
----------------
The date of this Prospectus Supplement is May , 1995.
(Continued from previous page)
The Equipment Notes held in each Trust will be purchased by such Trust either
at par or at varying discounts from par, and during the period commencing on
the date such Equipment Notes are purchased by the applicable Trustee to
October 19, 1995, will provide a return consisting of cash interest, if any,
and accretion of discount, if any, such that the yield to October 19, 1995 of
each Equipment Note held by each Trust will equal the interest rate per annum
applicable to such Trust.
Information relating to the Aircraft and the purchase price of the Equipment
Notes held in each Trust is as follows:
1995-A1 TRUST 1995-A2 TRUST
--------------------------- ---------------------------
PURCHASE PURCHASE
AIRCRAFT TYPE OF PRICE % OF PAR PRICE % OF PAR
NO. AIRCRAFT ------------ -------- ------------ --------
1 B777-222 $ % $ %
2 B777-222
3 B747-422
------------ --- ------------ ---
Total.............. $ % $ %
============ === ============ ===
Any cash interest on the Equipment Notes held in each Trust which is paid on
October 19, 1995, as described above, plus the amount, if any, to be paid by
United in connection with a delayed purchase of any Equipment Notes, will be
passed through to Certificateholders of such Trust on such date. From and after
October 19, 1995, all of the Equipment Notes held in each Trust will accrue
interest payable in cash at the applicable rate per annum for such Trust on
April 19 and October 19 of each year commencing on April 19, 1996, which will
be passed through to Certificateholders of such Trust on each such date.
Principal paid on the Equipment Notes held in each Trust will be passed
through to Certificateholders of such Trust in scheduled amounts on April 19 or
October 19, or both, in certain years, commencing on , in
the case of the 1995-A1 Trust, and , in the case of the
1995-A2 Trust, until the final distribution date for such Trust. The Price to
Public of the Certificates shown herein equals the sum of the prices at which
the Equipment Notes will be sold to the Trusts on the date such Equipment Notes
are purchased by the applicable Trustee as described above.
----------------
Like many other carriers, United overflies Cuba in order to serve other
destinations in Central and South America and the Caribbean and is required by
the Cuban government to pay fees for such overflight, which United does
pursuant to a license which it has obtained from the U.S. government. This
information is accurate as of the date of this Prospectus Supplement and
current information concerning business dealings of United with the government
of Cuba or with any person or affiliate located in Cuba may be obtained from
the Florida Department of Banking and Finance, Plaza Level, The Capitol,
Tallahassee, Florida 32399-0350, telephone number (904) 488-9530.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
PROSPECTUS SUPPLEMENT SUMMARY
The following summary does not purport to be complete and is qualified in its
entirety by the detailed information appearing elsewhere in this Prospectus
Supplement and the Prospectus accompanying this Prospectus Supplement (the
"Prospectus").
THE COMPANY
United is a wholly-owned subsidiary of UAL Corporation ("UAL"), accounting
for virtually all of UAL's revenues and expenses in 1994. United is one of the
world's largest airlines, as measured by operating revenues, revenue passengers
and revenue passenger miles flown. As of March 31, 1995, United served 143
airports in the United States and 30 foreign countries. During 1994, United
averaged 2,004 departures daily, flew a total of 108 billion revenue passenger
miles and carried an average of 202,900 passengers per day. As of March 31,
1995, United's fleet of aircraft totaled 548. United's major hub operations are
located at Chicago, Denver, San Francisco, Washington, D.C. and Tokyo.
THE OFFERING
Glossary.............. Included at the end of this Prospectus Supplement
as an Appendix is a Glossary of certain of the
significant defined terms used herein.
Trusts................ The 1995-A1 Trust and the 1995-A2 Trust are each to
be formed pursuant to a separate Trust Supplement
to the Basic Agreement. Each Trust will be a
separate entity.
Trust Property........ Except for periods prior to a delayed purchase of
any Equipment Notes, the property of each of the
Trusts will consist of Equipment Notes issued on a
nonrecourse basis by each of the Owner Trustees in
three separate leveraged lease transactions to
finance not more than 80% of the equipment cost to
the related Owner Trustee of two Boeing 777-222
aircraft to be leased by the related Owner Trustee
to United in May of 1995 (the "777 Aircraft") and
to refinance not more than 80% of the equipment
cost to the related Owner Trustee of one Boeing
747-422 aircraft delivered and leased by the
related Owner Trustee to United in 1993 (the "747
Aircraft"). The Equipment Notes with respect to
each of the three Aircraft will be issued in two
series. The maturity dates of the Equipment Notes
acquired by each Trust will occur on or before the
final distribution date applicable to the
Certificates issued by such Trust. Except for
periods prior to a delayed purchase of any
Equipment Notes, the aggregate principal amount of
the Equipment Notes to be held in each Trust will
be the same as the aggregate principal amount of
the Certificates issued by that Trust. See
"Description of the Certificates--Delayed Purchase"
in this Prospectus Supplement for a description of
the Trust Property prior to a delayed purchase of
any Equipment Notes.
Certificates Offered;
Book-Entry Each Certificate will represent a fractional
Registration....... undivided interest in the related Trust. The
Certificates of each Trust will be issued in fully
registered form only and will be registered in the
name of Cede & Co. ("Cede"), as the nominee of The
Depository Trust Company ("DTC"). No person
acquiring an interest in the Certificates will be
entitled to receive a definitive certificate
representing such person's interest in the Trust,
unless definitive certificates are issued, which
will only occur under limited circumstances. See
"Description of the Certificates--General" in this
Prospectus Supplement and "Description of the
Certificates--General", "--Book Entry Registration"
and "Definitive Certificates" in the Prospectus.
S-3
Denominations......... The Certificates of each Trust will be issued only
in integral multiples of $1,000. See "Description
of the Certificates--General" in this Prospectus
Supplement.
Regular Distribution April 19 and October 19.
Dates.................
Special Distribution Any Business Day on which a Special Payment is to
Dates................. be distributed.
Record Dates.......... The fifteenth day preceding a Regular Distribution
Date or a Special Distribution Date.
Distributions......... Payments of cash interest with respect to the
Equipment Notes held in each respective Trust will
be distributed by the Trustee to the
Certificateholders of such Trust on the Regular
Distribution Dates referred to above except in
certain circumstances. Payments of principal on the
Equipment Notes held in each respective Trust are
scheduled to be received in specified amounts by
the Trustee of such Trust on April 19 or October
19, or both, in one or more years, commencing on or
after October 19, 1995 and to be distributed to the
Certificateholders of such Trust on the
corresponding Regular Distribution Date. Payments
of principal, premium, if any, and interest
resulting from the early redemption or purchase, if
any, of the Equipment Notes held in any Trust will
be distributed on a Special Distribution Date after
not less than 20 days' notice from the Trustee to
the Certificateholders of such Trust. For a
discussion of distributions upon an Event of
Default, see "Description of the Certificates--
Events of Default and Certain Rights Upon an Event
of Default" in the Prospectus.
Method of Under the terms of the Basic Agreement, United and
Distribution.......... the Trustee will treat the persons in whose names
the Certificates are registered as the owners of
such Certificates for the purpose of receiving
payments of principal and interest on such
Certificates and for all other purposes whatsoever.
Therefore, neither United nor the Trustee has any
direct responsibility or liability for
distributions or payments to owners of beneficial
interests in the Certificates (the "Certificate
Owners"). So long as the Certificates are
registered in the name of Cede, as nominee of DTC,
distributions by the Trustee, including the final
distribution of principal with respect to the
Certificates of any Trust, will be made in same-day
funds to DTC. See "Description of Certificates--
Same-Day Settlement and Payment" in the Prospectus.
DTC will in turn make distributions in same-day
funds to those participants in DTC who are credited
with ownership of the Certificates ("DTC
Participants") in amounts proportionate to the
amount of each such DTC Participant's respective
holdings of beneficial interests in such
Certificates. Corresponding payments by the DTC
Participants to beneficial owners of the
Certificates will be the responsibility of such DTC
Participants and will be made in accordance with
customary industry practices. See "Description of
the Certificates--Book-Entry Registration" in the
Prospectus. At such time, if ever, as the
Certificates are issued in definitive form and not
registered in the name of Cede, as nominee for DTC,
distributions by the Trustee to Certificateholders,
other than the final distribution, will be made by
check mailed to each Certificateholder of record on
the applicable record date at its address appearing
on the register.
S-4
The final distribution with respect to the
Certificates of any Trust will be made only upon
surrender and presentation thereof at the office or
agency of the Trustee. See "Description of the
Certificates--Definitive Certificates" in the
Prospectus.
Interest.............. The Equipment Notes held in each Trust will be
purchased by such Trust either at par or at varying
discounts from par and, during the period
commencing on the date such Equipment Notes are
purchased by the applicable Trustee to October 19,
1995, will provide a return consisting of cash
interest, if any, and accretion of discount, if
any, such that the yield to October 19, 1995, of
each Equipment Note held by each Trust will equal
the interest rate per annum applicable to such
Trust. The actual amount of cash interest, if any,
on the Equipment Notes held in each Trust which is
paid on October 19, 1995, as described above, plus
the amount, if any, paid by United in connection
with a delayed purchase of any Equipment Notes,
will be passed through to Certificateholders of
such Trust on such date. From and after October 19,
1995, all of the Equipment Notes held in each Trust
will accrue interest payable in cash at the
applicable rate per annum for such Trust on April
19 and October 19 of each year commencing on April
19, 1996, and will be passed through to
Certificateholders of such Trust on each such date.
Interest is calculated on the basis of a 360-day
year consisting of twelve
30-day months. See "Description of the
Certificates--General",
"--Payments and Distributions" and "--Delayed
Purchase" in this Prospectus Supplement.
Principal............. Scheduled principal payments on the Equipment Notes
held in the 1995-A1 Trust and 1995-A2 Trust will be
passed through to the Certificateholders of each
such Trust on April 19 or October 19, or both, in
certain years, commencing on , in the case
of the 1995-A1 Trust, and , in the case
of the 1995-A2 Trust, in accordance with the
principal repayment schedule set forth below under
"Description of Equipment Notes--General". See
"Description of the Certificates-- Payments and
Distributions" in the Prospectus and this
Prospectus Supplement.
Equipment Notes:
Redemption......... (a) The Equipment Notes issued with respect to an
Aircraft will be redeemed in whole upon the
occurrence of an Event of Loss to such Aircraft if
such Aircraft is not replaced by United and will be
redeemed in part upon the occurrence of an Event of
Loss with respect to an Engine under certain
circumstances specified in the related Lease, in
each case at a price equal to the Redemption Price
(as defined in the Glossary), but without any
premium.
(b) If, with respect to an Aircraft, (i) one or
more Lease Events of Default (other than a Payment
Default (as defined in the Glossary)) shall have
occurred and be continuing for a period of one year
or more and the Equipment Notes issued with respect
to such Aircraft shall not have been accelerated,
(ii) a Payment Default shall have occurred and be
continuing for a period of 180 days or more and the
Equipment Notes issued with
S-5
respect to such Aircraft shall not have been
accelerated or (iii) the Equipment Notes with
respect to such Aircraft shall have been
accelerated, then in each case the Equipment Notes
issued with respect to such Aircraft may be
redeemed or purchased by the Owner Trustee on the
applicable redemption or purchase date at a price
equal to the Redemption Price, but without any
premium.
(c) The Equipment Notes may under certain
circumstances be redeemed or purchased on the
applicable redemption or purchase date on or after
May 15, 2000 at a price equal to the Redemption
Price, plus, if such redemption or purchase is made
prior to the respective dates set forth below, a
premium, if any:
PREMIUM
TRUST TERMINATION DATE
----- ----------------
1995-A1.................
1995-A2.................
See "Description of the Equipment Notes--
Redemption" in this Prospectus Supplement for a
description of the manner of computing such premium
and the circumstances under which the Equipment
Notes may be so redeemed or purchased.
Equipment Notes:
Security........... The Equipment Notes issued with respect to each
Aircraft will be secured by a security interest in
such Aircraft and an assignment to the related Loan
Trustee of certain of the related Owner Trustee's
rights under the Lease with respect to such
Aircraft, including the right to receive payments
of rent thereunder, with certain exceptions. The
Equipment Notes are not cross-collateralized and,
consequently, the Equipment Notes issued in respect
of any one Aircraft are not secured by either of
the other Aircraft or the Leases related thereto.
There are no cross-default provisions in the
Indentures and, consequently, events resulting in
an Indenture Default under any particular Indenture
will not necessarily result in an Indenture Default
occurring under any other Indenture. If the
Equipment Notes issued with respect to one or more
Aircraft are in default, the Equipment Notes issued
with respect to the remaining Aircraft may not be
in default and, if not in default, no remedies will
be exercisable under the Indentures with respect to
such remaining Aircraft. See "Description of the
Equipment Notes--Security" in the Prospectus and
"Description of the Equipment Notes--Indenture
Defaults, Notice and Waiver" in this Prospectus
Supplement.
Although the Equipment Notes are not obligations
of, or guaranteed by, United, the amounts
unconditionally payable by United for lease of the
Aircraft will be sufficient to pay in full when due
all payments required to be made on the Equipment
Notes. The amounts payable by United in connection
with a delayed purchase of any Equipment Notes will
be general obligations of United. See "Description
of the Equipment Notes-- General" in the Prospectus
and this Prospectus Supplement and "Description of
the Certificates--Delayed Purchase" in this
Prospectus Supplement.
S-6
Use of Proceeds....... The proceeds from the sale of the Certificates will
be used to purchase the Equipment Notes issued by
the related Owner Trustees in connection with the
financing or refinancing of not more than 80% of
the equipment cost to the Owner Trustees of each of
the Aircraft. The Equipment Notes will represent in
the aggregate the entire debt portion of the
leveraged lease transactions relating to the three
Aircraft. To the extent that all of the proceeds
from the sale of the Certificates are not used on
the date of issuance of such Certificates to
purchase the Equipment Notes contemplated to be
held in the related Trust, the Trustee will hold
such proceeds in an escrow account pending purchase
of such Equipment Notes at any time on or prior to
June 30, 1995. See "Use of Proceeds" in this
Prospectus Supplement.
Delayed Purchase
of Equipment It is anticipated that the Equipment Notes with
Notes.............. respect to one of the 777 Aircraft and the 747
Aircraft will be purchased by the Trustees on May
15, 1995 and the Equipment Notes with respect to
the second 777 Aircraft will be purchased by the
Trustees on May 24, 1995. Proceeds from the sale of
the Certificates not used on the date of issuance
of such Certificates will be invested, at the
direction and risk, and for the account, of United
in certain specified investments. United will pay
to the Trustee on demand any losses on such
investments in the escrow account, such that the
amount of proceeds held in the escrow account shall
be sufficient to purchase the Equipment Notes, and
United will pay to the Trustee on the first Regular
Distribution Date following the issuance of the
Certificates an amount equal to the interest that
would have accrued on such Equipment Notes from the
date of issuance of such Certificates to, but
excluding, the date of purchase of such Equipment
Notes by the Trustee. See "Description of the
Certificates--Delayed Purchase" in this Prospectus
Supplement.
Trustee............... First Security Bank of Utah, National Association
("First Security"), will act as Trustee and as
paying agent and registrar for the Certificates of
each Trust. First Security also acts as Loan
Trustee and as paying agent and registrar for each
series of Equipment Notes.
Federal Income Tax
Consequences....... Each Trust will be classified as a grantor trust
for federal income tax purposes and therefore each
Certificate Owner will be treated as the owner of a
pro rata undivided interest in each of the
Equipment Notes and any other property held by such
Trust and should report on its federal income tax
return its pro rata share of income from such
Equipment Notes and other property held by such
Trust in accordance with such Certificate Owner's
method of accounting. See "Federal Income Tax
Consequences" in the Prospectus. Certain of the
Equipment Notes may be issued with original issue
discount. See "Federal Income Tax Consequences--
Original Issue Discount" in this Prospectus
Supplement.
S-7
THE COMPANY
United is a wholly-owned subsidiary of UAL Corporation ("UAL"), accounting
for virtually all of UAL's revenues and expenses in 1994. United is one of the
world's largest airlines, as measured by operating revenues, revenue passengers
and revenue passenger miles flown. As of March 31, 1995, United served 143
airports in the United States and 30 foreign countries. During 1994, United
averaged 2,004 departures daily, flew a total of 108 billion revenue passenger
miles and carried an average of 202,900 passengers per day. As of March 31,
1995, United's fleet of aircraft totalled 548. United's major hub operations
are located at Chicago, Denver, San Francisco, Washington, D.C. and Tokyo.
The executive offices of United are located at 1200 East Algonquin Road, Elk
Grove Township, Illinois 60007. The mailing address of United is P.O. Box
66100, Chicago, Illinois 60666. The telephone number for United is (708) 952-
4000.
RECENT DEVELOPMENTS
On April 25, 1995, UAL reported 1995 first quarter net income of $3 million,
which included a $24 million one-time, after-tax gain reflecting the sale of 10
aircraft to Mesa Airlines. By comparison, in the first quarter of 1994, UAL
reported a net loss of $97 million, including $38 million of one-time, after-
tax charges related to the adoption of a new accounting standard and the then-
pending employee investment transaction. The 1995 first quarter operating
profit of $38 million represented a substantial improvement over last year's
first quarter operating loss of $36 million. After preferred dividend
requirements, the 1995 first quarter financial results represent a loss of
$1.05 per share compared with a loss of $4.37 per share in the first quarter of
1994.
UAL also reported, as supplemental disclosure, results on a pro forma, "fully
distributed" basis. This approach considers all ESOP shares (which will be
issued to employees over the course of the ESOP period) to be immediately
outstanding and thus fully distributed. Consistent with this method, the ESOP
compensation expense (which reflects the commitment of stock to employees) is
excluded from fully distributed expenses and ESOP convertible preferred stock
dividends have been excluded from earnings attributable to common stockholders.
On this basis, UAL first quarter net income would have been $59 million, or
$1.50 for each of the 30.3 million fully distributed shares, after preferred
dividend requirements. Fully distributed operating earnings for the quarter
were $127 million.
United's operating revenues increased 4.6% from $3.173 billion in the first
quarter of 1994 to $3.320 billion in the first quarter of 1995, and operating
expenses increased 2.0%, from $3.217 billion in the first quarter of 1994 to
$3.282 billion in the first quarter of 1995.
On February 13, 1995 and dates thereafter, United and six other airlines were
sued in various courts around the nation by travel agents and the American
Society of Travel Agents claiming as a class action that the carriers acted
collusively in violation of federal antitrust laws when they imposed a cap on
ticket sales commissions payable to travel agencies by the carriers. Most of
the suits are now consolidated before the federal court in Minneapolis. A
discovery and motion filing schedule has been established by this court, which
provides for a hearing July 7, 1995 on plaintiffs' motion for a preliminary
injunction and the carriers' motion for summary judgment. A multi-district
panel will decide on May 19, 1995 whether all the cases should be consolidated
in Minneapolis or, as requested by some plaintiffs, in Philadelphia. As relief,
the plaintiffs seek an order declaring the carriers commission cap action to be
illegal and the recovery of damages (trebled) to the travel agencies resulting
from that action.
On April 14, 1995, plaintiffs filed a class action complaint against UAL
Corporation's Employee Stock Ownership Plan and Supplemental Employee Stock
Ownership Plan (the "Plans") and their trustee, State Street Bank and Trust
Company, in the United States District Court for the Northern District of
Illinois.
S-8
The complaint is brought on behalf of a putative class of all participants or
beneficiaries of the Plans. Plaintiffs allege that the trustee breached various
fiduciary duties under ERISA in connection with the 1994 purchase of UAL
Corporation preferred stock by the Plans. The Plans are nominal defendants; no
relief is sought from them. The complaint seeks a declaration that the trustee
violated ERISA, restoration to the Plans by the trustee of the amount of an
alleged "overpayment" for the stock, and other relief. United is obligated,
subject to certain exceptions, to indemnify the trustee for part or all of an
adverse judgment and the trustee's defense costs.
SELECTED FINANCIAL AND OPERATING DATA
The following financial information should be read in conjunction with the
consolidated financial statements and related notes of United included in its
Annual Report on Form 10-K for the year ended December 31, 1994. The following
information for the five years ended December 31, 1994 has been derived from
United's consolidated financial statements, which statements have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports incorporated by reference herein. Reference is made to said reports for
the years 1994, 1993 and 1992 which include an explanatory paragraph with
respect to the changes in methods of accounting for income taxes and post-
retirement benefits other than pensions discussed in the notes to the
consolidated financial statements for such years. See "Incorporation of Certain
Documents by Reference" in the Prospectus.
YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(DOLLARS IN MILLIONS)
Statement of consolidated
operations data:
Operating revenues.............. $13,887 $13,168 $11,688 $10,703 $10,282
Earnings (loss) from operations. 513 295 (496) (491) (41)
Earnings (loss) before
extraordinary item and
cumulative effect of accounting
changes........................ 66 (17) (386) (335) 96
Net earnings (loss)............. 40 (36) (933) (335) 96
Statement of consolidated
financial position data (at end
of period):
Total assets.................... $11,952 $12,153 $12,067 $ 9,907 $ 8,001
Total long-term debt and capital
lease obligations, including
current maturities............. 4,015 3,614 3,628 2,531 1,326
Shareholder's equity............ (56) 674 738 1,613 1,769
Operating data:
Revenue passengers (millions)... 74 70 67 62 58
Average length of passenger trip
in miles....................... 1,459 1,450 1,390 1,327 1,322
Revenue passenger miles
(millions)..................... 108,299 101,258 92,690 82,290 76,137
Available seat miles (millions). 152,193 150,728 137,491 124,100 114,995
Passenger load factor........... 71.2% 67.2% 67.4% 66.3% 66.2%
Break even passenger load
factor......................... 68.2% 65.5% 70.6% 69.7% 66.5%
Revenue per passenger mile...... 11.3c 11.6c 11.3c 11.5c 11.8c
Cost per available seat mile.... 8.8c 8.5c 8.9c 9.0c 9.0c
Average price per gallon of jet
fuel........................... 58.8c 63.6c 66.4c 71.6c 80.4c
S-9
USE OF PROCEEDS
The Certificates are being issued in connection with the financing of the
debt portion of two separate leveraged lease transactions to be entered into by
United, as lessee, with respect to the 777 Aircraft and the refinancing of the
debt portion of a leveraged lease transaction entered into by United, as
lessee, with respect to the 747 Aircraft. The $ aggregate
principal amount of debt currently outstanding with respect to the 747 Aircraft
consists of variable interest rate loan certificates maturing during the year
2017. The proceeds from the sale of the Certificates are to be used by the
Trustees on behalf of the Trusts to purchase either at par or at varying
discounts from par $ aggregate principal amount of Equipment Notes
issued by the related Owner Trustees to finance or refinance not more than 80%
of the equipment cost to such Owner Trustees of the related Aircraft. A portion
of the proceeds are anticipated to be used by the Trustees on behalf of the
Trusts to purchase Equipment Notes on a delayed basis after the date of
issuance of the Certificates and the Trustees will hold such portion of the
proceeds in an escrow account pending purchase of such Equipment Notes. To the
extent that any amount of the proceeds held in such escrow account is not used
to purchase Equipment Notes on or prior to June 30, 1995, such amount will be
distributed by the applicable Trustee as a Special Payment on or prior to July
20, 1995. See "Description of the Certificates--Delayed Purchase" in this
Prospectus Supplement.
Each of the two 777 Aircraft will be delivered new to United and, within one
month, sold to the related Owner Trustee and simultaneously leased back to
United. It is anticipated that the two 777 Aircraft will be delivered to United
on May 15, 1995 and May 24, 1995, respectively. The 747 Aircraft was delivered
new to United in 1993 and, within one month, sold to the related Owner Trustee
and leased back to United.
The Equipment Notes will be issued under three separate Indentures between
First Security, as Loan Trustee thereunder, and State Street Bank and Trust
Company, not in its individual capacity but solely as Owner Trustee of a trust
for the benefit of an Owner Participant. Each Owner Participant has provided or
will provide from its own funds at least 20% of the equipment cost of the
related Aircraft and beneficially owns or will beneficially own the related
Aircraft. No Owner Participant, however, will be personally liable for any
amount payable under the related Indenture or the Equipment Notes issued
thereunder.
S-10
DIAGRAM OF PAYMENTS
The diagram below illustrates certain aspects of the payment flows among
United, the Owner Trustees, the Loan Trustees, the Trustees, the Owner
Participants and the Certificateholders with respect to the two Trusts and the
three related Aircraft.
United will lease the 777 Aircraft and has leased the 747 Aircraft each under
a separate Lease from the Owner Trustee for such Aircraft. The Equipment Notes
for each such Aircraft will be issued by such Owner Trustee in two series (each
series to be purchased by one of the Trusts) and will be secured by such
Aircraft and by an assignment of certain rights of the related Owner Trustee
under the related Lease, which assignment requires United to make rental
payments for each Aircraft directly to the related Loan Trustee. From these
rental payments such Loan Trustee will on behalf of the related Owner Trustee
first make payments to the Trustee for each of the Trusts on the Equipment
Notes held in such Trust and will pay the remaining balance to the respective
Owner Trustee for the benefit of the respective Owner Participant. The Trustee
for each of the Trusts will pass through to the Certificateholders payments
received with respect to the Equipment Notes held in such Trust. In the event
of a delayed purchase of the Equipment Notes with respect to any Aircraft,
United will pay directly to the Trustee for each of the Trusts an amount equal
to the interest that would have accrued on such Equipment Notes from the date
of issuance of the Certificates to, but excluding, the date of purchase of such
Equipment Notes by the Trusts. First Security will act as Trustee of each of
the two Trusts and as Loan Trustee under the three Indentures.
United Air Lines, Inc.
Lease Rental
Payments
Assigned by
Owner Trustees
^^ ^^ ^^
Loan Trustee Loan Trustee
Loan Trustee for for
------ for Aircraft No. Aircraft No.
Aircraft No. 2 3
1
Excess ------------------------------------------
Payments
1995-A
Equipment Note
Payments
^^ ^^ ^^
Pass Through Pass Through
Owner Trustee Trustee
Trustee for for
for Pass Through Pass Through
Aircraft No. Trust Trust
1* 1995-A1 1995-A2
1995-A
Excess Pass Through
Payments Certificate
Distributions
^^ ^^ ^^
Owner Holders of Holders of
Participant Pass Through Pass Through
for Certificates, Certificates,
Aircraft No. Series 1995-A1 Series 1995-A2
1*
- --------
*Excess payments in respect of Aircraft No. 2 and No. 3 will be distributed to
the respective Owner Trustees and Owner Participants in the manner shown for
Aircraft No. 1.
S-11
DESCRIPTION OF THE CERTIFICATES
The Certificates offered hereby will be issued pursuant to two separate Trust
Supplements to the Basic Agreement. The Prospectus provides for the issuance of
up to $1,035,000,000 aggregate principal amount of pass through certificates
(or such greater amount if issued at an original issue discount as shall result
in aggregate proceeds of $1,035,000,000) pursuant to the Basic Agreement, which
securities were registered with the Commission on April 27, 1992 and May 28,
1993. The following summary of the particular terms of the Certificates offered
hereby supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Certificates set forth
in the Prospectus under the heading "Description of the Certificates". The
statements under this caption are a summary and do not purport to be complete.
The summary makes use of terms defined in and is qualified in its entirety by
reference to all of the provisions of the Basic Agreement, a form of which has
been filed as an exhibit to the Registration Statement of which this Prospectus
Supplement is a part, and to all of the provisions of the Trust Supplements
which, together with the forms of the related Note Purchase Agreement,
Indentures, Leases, Trust Agreements and Participation Agreements, will be
filed as exhibits to a Current Report on Form 8-K to be filed by United with
the Commission in connection with this offering. Except as otherwise indicated,
the following summary relates to each of the Trusts and the Certificates issued
by each Trust. The terms and conditions governing each of the Trusts will be
substantially the same, except that the principal amount, the interest rate,
scheduled repayments of principal, and maturity date applicable to the
Equipment Notes held by each Trust and the final distribution date applicable
to each Trust will differ. Citations to the relevant sections of the Basic
Agreement appear below in parentheses unless otherwise indicated.
Certain provisions of the description of the Certificates in this Prospectus
Supplement do not necessarily apply to the Certificates of any Trust to the
extent that there is a delayed purchase of the Equipment Notes to be held by
such Trust.
GENERAL
The Certificates of each Trust will be issued in fully registered form only.
Each Certificate will represent a fractional undivided interest in the Trust
created by the Trust Supplement pursuant to which such Certificate is issued.
Except as otherwise provided in connection with a delayed purchase of the
Equipment Notes, the property of each Trust (the "Trust Property") will include
the Equipment Notes held in such Trust, all monies at any time paid thereon and
all monies due and to become due thereunder and funds from time to time
deposited with the Trustee in accounts relating to such Trust. Each Certificate
will represent a pro rata share of the Equipment Notes held in the related
Trust and will be issued only in integral multiples of $1,000. (Sections 2.01
and 3.01) The Certificates will be issued pursuant to a book-entry system and
will be registered in the name of Cede as the nominee of DTC. No Certificate
Owner will be entitled to receive a certificate representing such person's
interest in Certificates, except as set forth in the Prospectus under
"Definitive Certificates". Unless and until Definitive Certificates are issued
under the limited circumstances described in the Prospectus, all references to
actions by Certificateholders shall refer to actions taken by DTC upon
instructions from DTC Participants (as defined in the Prospectus), and all
references herein to distributions, notices, reports and statements to
Certificateholders shall refer, as the case may be, to distributions, notices,
reports and statements to DTC or Cede, as the registered holder of the
Certificates, or to DTC Participants for distribution to Certificate Owners in
accordance with DTC procedures. See "Description of the Certificates--Book-
Entry Registration", "--Definitive Certificates", and "--Same-Day Settlement
and Payment" in the Prospectus.
Any cash interest on the Equipment Notes held in each Trust which is paid on
October 19, 1995, will be passed through to Certificateholders of such Trust on
such date. From and after October 19, 1995 interest will be passed through to
Certificateholders of each Trust at the rate per annum set forth on the cover
page of this Prospectus Supplement, which is calculated on the basis of a 360-
day year of twelve 30-day months.
S-12
The Certificates represent interests in the respective Trusts and all
payments and distributions will be made only from the Trust Property. (Section
3.08) The Certificates do not represent an interest in or obligation of United,
the Trustees, any of the Loan Trustees or Owner Trustees in their individual
capacities, any Owner Participant, or any affiliate of any thereof.
PAYMENTS AND DISTRIBUTIONS
Payments of principal, premium, if any, and interest with respect to the
Equipment Notes held in each Trust will be distributed by the Trustee to
Certificateholders of such Trust on the date receipt of such payment is
confirmed, except in certain cases when some or all of such Equipment Notes are
in default. See "Description of Certificates--Events of Default and Certain
Rights Upon an Event of Default" in the Prospectus. The Equipment Notes held in
each Trust will be purchased by such Trust either at par or at varying
discounts from par, and during the period commencing on the date such Equipment
Notes are purchased by the applicable Trustee to October 19, 1995, will provide
a return consisting of cash interest and accretion of discount, if any, such
that the yield to October 19, 1995 of each Equipment Note held by each Trust
will equal the interest rate per annum applicable to such Trust. The actual
amount of cash interest, if any, on the Equipment Notes held in each Trust
which is payable and received on October 19, 1995, as described above, will be
passed through to Certificateholders of such Trust on such date. From and after
October 19, 1995, all of the Equipment Notes held in each Trust will accrue
interest payable in cash at the applicable rate per annum for such Trust on
April 19 and October 19 of each year commencing on April 19, 1996 and will be
passed through to Certificateholders of such Trust on each such date. Payments
of principal on the Equipment Notes held in the 1995-A1 Trust and 1995-A2 Trust
are scheduled to be received by the Trustee on April 19 or October 19, or both,
in certain years depending upon the terms of the Equipment Notes held in such
Trust commencing , in the case of the 1995-A1 Trust, and , in
the case of the 1995-A2 Trust (such scheduled payments of interest and
principal on the Equipment Notes are herein referred to as "Scheduled
Payments", and April 19 and October 19 of each year are herein referred to as
"Regular Distribution Dates"). See "Description of the Equipment Notes--
General" in this Prospectus Supplement. The Trustee of each Trust will
distribute on each Regular Distribution Date to the Certificateholders of such
Trust all Scheduled Payments, the receipt of which is confirmed by the Trustee
on such Regular Distribution Date. Each Certificateholder of each Trust will be
entitled to receive a pro rata share of any distribution in respect of
Scheduled Payments of principal and interest made on the Equipment Notes held
in the Trust. Each such distribution of Scheduled Payments will be made by the
Trustee to the Certificateholders of the applicable Trust of record on the
Record Date applicable to such Scheduled Payment subject to certain exceptions.
(Sections 4.01 and 4.02) If a Scheduled Payment is not received by the Trustee
on a Regular Distribution Date but is received within five days thereafter, it
will be distributed to such holders of record on the date received. If it is
received after such five-day period, it will be treated as a Special Payment
(as defined below) and distributed as described below.
Payments of principal, premium, if any, and interest received by the Trustee
on account of the early redemption, if any, of the Equipment Notes relating to
one or more Aircraft held in a Trust, and payments received by the Trustee
following a default in respect of Equipment Notes held in a Trust relating to
one or more Aircraft (including payments received by the Trustee on account of
the purchase by the related Owner Trustee of such Equipment Notes or payments
received on account of the sale of such Equipment Notes by the Trustee) and
payments of proceeds held by the Trustee in an escrow account in connection
with a delayed purchase of any Equipment Notes to the extent such proceeds are
not used to purchase such Equipment Notes on or prior to June 30, 1995 (each, a
"Special Payment") will be distributed on, in the case of an early redemption
or a purchase, the date of such early redemption or purchase (which shall be a
Business Day), and otherwise on the Business Day specified for distribution of
such Special Payment pursuant to a notice delivered by the Trustee as soon as
practicable after the Trustee has received funds for such Special Payment
(each, a "Special Distribution Date"). The Trustee will mail notice to the
Certificateholders of the applicable Trust not less than 20 days prior to the
Special Distribution Date on which any Special Payment is scheduled to be
distributed by the Trustee stating such anticipated Special Distribution Date.
(Section 4.02) Each
S-13
distribution of a Special Payment, other than a final distribution, on a
Special Distribution Date for any Trust will be made by the Trustee to the
Certificateholders of record of such Trust on the Record Date applicable to
such Special Payment. See "Description of the Equipment Notes--Redemption" in
this Prospectus Supplement and "Description of the Certificates--Events of
Default and Certain Rights Upon an Event of Default" in the Prospectus.
The Basic Agreement requires that the Trustee establish and maintain, for
each Trust and for the benefit of the Certificateholders of such Trust, one or
more accounts (the "Certificate Account") for the deposit of payments
representing Scheduled Payments on the Equipment Notes held in such Trust. The
Basic Agreement also requires that the Trustee establish and maintain, for each
Trust and for the benefit of the Certificateholders of such Trust, one or more
accounts (the "Special Payments Account") for the deposit of payments
representing Special Payments, which account shall be non-interest bearing
except in certain circumstances where the Trustee may invest amounts in such
account in certain permitted investments. Pursuant to the terms of the Basic
Agreement, the Trustee is required to deposit any Scheduled Payments relating
to the applicable Trust received by it in the Certificate Account of such Trust
and to deposit any Special Payments so received by it in the Special Payments
Account of such Trust. (Section 4.01) All amounts so deposited will be
distributed by the Trustee on a Regular Distribution Date or a Special
Distribution Date, as appropriate. (Section 4.02)
At such time, if any, as the Certificates are issued in the form of
Definitive Certificates and not to Cede, as nominee for DTC, distributions by
the Trustee from the Certificate Account or the Special Payments Account of
each Trust on a Regular Distribution Date or a Special Distribution Date will
be made by check mailed to each Certificateholder of record of such Trust on
the applicable Record Date at its address appearing on the register maintained
with respect to such Trust. (Section 4.02) The final distribution for each
Trust, however, will be made only upon presentation and surrender of the
Certificates for such Trust at the office or agency of the Trustee specified in
the notice given by the Trustee of such final distribution. The Trustee will
mail such notice of the final distribution to the Certificateholders of such
Trust, specifying the date set for such final distribution and the amount of
such distribution. (Section 11.01) See "Description of the Certificates--
Termination of the Trusts" in the Prospectus.
If any Regular Distribution Date or Special Distribution Date is not a
Business Day, distributions scheduled to be made on such Regular Distribution
Date or Special Distribution Date will be made on the next succeeding Business
Day without additional interest. (Section 12.10)
DELAYED PURCHASE
To the extent that all of the proceeds from the sale of any Certificates are
not used on the date of issuance of such Certificates to purchase the Equipment
Notes contemplated to be held in the related Trust, the Trustee may use such
funds for the purchase of such Equipment Notes at any time on or prior to June
30, 1995, and pending such purchase the Trustee will hold the proceeds from the
sale of such Certificates in an escrow account. Such proceeds will be invested,
at the direction and risk of, and for the account of, United, in certain
specified investments, which may include: (i) obligations of, or guaranteed by,
the United States government or agencies thereof, (ii) open market commercial
paper of any corporation incorporated under the laws of the United States of
America or any state thereof rated at least P-1 or its equivalent by Moody's
Investors Service, Inc. or at least A-1 or its equivalent by Standard & Poor's
Ratings Group, (iii) certificates of deposit issued by commercial banks
organized under the laws of the United States or of any political subdivision
thereof having a combined capital and surplus in excess of $500,000,000 which
banks or their holding companies have a rating of A or its equivalent by
Moody's Investors Service, Inc. or Standard & Poor's Ratings Group; provided,
however, that the aggregate amount at any one time so invested in certificates
of deposit issued by any one bank shall not exceed 5% of such bank's capital
and surplus, (iv) U.S. dollar denominated offshore certificates of deposit
issued by, or offshore time deposits with, any commercial bank described in
(iii) or any subsidiary thereof and (v) repurchase agreements with any
financial institution having combined capital and surplus of at least
$500,000,000 with any of the obligations described in (i) through (iv) as
collateral; provided that if all of the above investments are unavailable, the
entire
S-14
amounts to be invested may be used to purchase federal funds from an entity
described in clause (iii) above; and provided further that no investment shall
be eligible as a "specified investment" unless the final maturity date or date
of return of such investment is on or before July 20, 1995. Earnings on such
investments in the escrow account for each Trust will be paid to United
periodically, and United will be responsible for any losses and United will pay
to the Trustee on demand any such losses such that the amount of proceeds held
in the escrow account shall be sufficient to purchase the Equipment Notes. To
the extent that any amount of the proceeds held in the escrow account referred
to above is not used to purchase Equipment Notes on or prior to June 30, 1995,
an amount equal to the unused proceeds will be distributed by the Trustee to
the holders of record of the Certificates on a pro rata basis upon not less
than 20 days' prior notice to them as a Special Payment on a Special
Distribution Date not later than July 20, 1995, together with interest thereon
at a rate equal to the rate applicable to such Certificates, but without
premium, and United will pay to the Trustee on such date an amount equal to
such interest. (Sections 1.01 and 2.02(b))
On October 19, 1995, United will pay to the Trustee of each Trust an amount
equal to the interest that would have accrued on any Equipment Notes purchased
on a delayed basis by such Trust for the period from the date of the issuance
of the Certificates to, but excluding, the date of the purchase of such
Equipment Notes by the Trustee, which amount will be passed through to
Certificateholders of such Trust on such date, together with any cash interest
on the Equipment Notes held in such Trust. (Section 2.02(b))
POOL FACTORS
Unless there has been an early redemption, purchase, or a default in the
payment of principal or interest, in respect of one or more issues of the
Equipment Notes held in a Trust, as described in "Description of the Equipment
Notes--Redemption" in this Prospectus Supplement and "Description of
Certificates--Events of Default and Certain Rights Upon an Event of Default" in
the Prospectus, the Pool Factors with respect to the 1995-A1 Trust and 1995-A2
Trust will decline in proportion to the scheduled repayments of principal on
the Equipment Notes held in such Trusts as described below in "Description of
the Equipment Notes-- General." In the event of such redemption, purchase or
default, the Pool Factor and the Pool Balance of each Trust so affected will be
recomputed after giving effect thereto and notice thereof will be mailed to the
Certificateholders of such Trust. Each Trust will have a separate Pool Factor.
The "Pool Balance" for each Trust indicates, as of any date, the aggregate
unpaid principal amount (including any accretion of discount) of the Equipment
Notes held in such Trust on such date plus any amounts in respect of principal
on such Equipment Notes held by the Trustee and not yet distributed. The Pool
Balance for each Trust as of any Regular Distribution Date or Special
Distribution Date shall be computed after giving effect to the payment of
principal, if any, on the Equipment Notes held in such Trust and the
distribution thereof to be made on that date.
The "Pool Factor" for each Trust as of any Regular Distribution Date or
Special Distribution Date is the quotient (rounded to the seventh decimal
place) computed by dividing (i) the Pool Balance by (ii) the aggregate par
value of the Equipment Notes held in such Trust. The Pool Factor for each Trust
as of any Regular Distribution Date or Special Distribution Date shall be
computed after giving effect to the payment of principal, if any, on the
Equipment Notes held in such Trust and the distribution thereof to be made on
that date. Assuming that no early redemption or purchase, or default, in
respect of any Equipment Notes shall have occurred, the Pool Factor for each
Trust will be 1.0000000 on October 19, 1995; thereafter, the Pool Factor for
each Trust will decline as described herein to reflect reductions in the Pool
Balance of such Trust. The amount of a Certificateholder's pro rata share of
the Pool Balance of a Trust can be determined by multiplying the par value of
the holder's Certificate of such Trust by the Pool Factor for such Trust as of
the applicable Regular Distribution Date or Special Distribution Date. The Pool
Factor and the Pool Balance for each Trust will be mailed to Certificateholders
of such Trust on each Regular Distribution Date and Special Distribution Date.
S-15
As of the date of sale by the Trustee of the Certificates and assuming that
no early redemption or purchase, or default in the payment of principal, in
respect of any Equipment Notes shall occur, the Scheduled Payments of principal
on the Equipment Notes held in the 1995-A1 Trust and 1995-A2 Trust, and the
resulting Pool Factors for such Trusts after taking into account each Scheduled
Payment, are set forth below:
1995-A1 TRUST 1995-A2 TRUST
EQUIPMENT EQUIPMENT
NOTES NOTES
REGULAR SCHEDULED SCHEDULED
DISTRIBUTION PAYMENTS 1995-A1 TRUST PAYMENTS 1995-A2 TRUST
DATE OF PRINCIPAL POOL FACTOR OF PRINCIPAL POOL FACTOR
S-16
DESCRIPTION OF THE EQUIPMENT NOTES
The following summarizes the particular terms and provisions of the Equipment
Notes and supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Equipment Notes set
forth in the Prospectus under the heading "Description of the Equipment Notes."
The statements under this caption are summaries and do not purport to be
complete. The summaries make use of terms defined in and are qualified in their
entirety by reference to all of the provisions of the Equipment Notes, the Note
Purchase Agreement, the Indentures, the Leases, the Participation Agreements
and the Trust Agreements, the forms of which will be filed as exhibits to a
Current Report on Form 8-K to be filed by United with the Commission in
connection with this offering. Except as otherwise indicated, the following
summaries relate to the Equipment Notes, the Note Purchase Agreement, if any,
the Indenture, the Lease, the Participation Agreement and the Trust Agreement
relating to each Aircraft.
Certain provisions of the description of the Equipment Notes in this
Prospectus Supplement do not necessarily apply with respect to a delayed
purchase of some or all of the Equipment Notes. It is anticipated that the
Equipment Notes with respect to one of the 777 Aircraft and the 747 Aircraft
will be purchased on May 15, 1995 and the Equipment Notes with respect to the
second 777 Aircraft will be purchased on May 24, 1995. See "Description of the
Certificates--Delayed Purchase" in this Prospectus Supplement.
GENERAL
The Equipment Notes with respect to each Aircraft will be issued in two
series. The Equipment Notes with respect to each Aircraft are to be issued
under a separate Indenture between State Street Bank and Trust Company, as
Owner Trustee of a trust for the benefit of the Owner Participant which is the
beneficial owner of such Aircraft, and First Security, as Loan Trustee.
The Owner Trustee has leased or will lease each Aircraft to United pursuant
to a separate Lease between the related Owner Trustee and United with respect
to such Aircraft and has granted or will grant a security interest in such
Aircraft and the rentals and other amounts due under the related Lease to the
related Loan Trustee as security for the related Equipment Notes. The
applicable Owner Participant has the right to, from time to time, pledge
additional collateral to the applicable Loan Trustee as part of the indenture
estate. (Indentures, Section 9.12) United is obligated to make or cause to be
made rental and other payments to the related Loan Trustee on behalf of the
related Owner Trustee in amounts that will be at least sufficient to pay when
due all payments required to be made on the Equipment Notes issued with respect
to such Aircraft. The Equipment Notes are not, however, obligations of, or
guaranteed by, United. United's rental obligations under each Lease and
United's obligation to pay interest and certain other amounts in connection
with a delayed purchase of the Equipment Notes are general obligations of
United.
The Equipment Notes held in each Trust will be purchased by such Trust at par
or at varying discounts from par, and during the period commencing on the date
such Equipment Notes are purchased by the applicable Trustee to October 19,
1995, will provide a return consisting of cash interest and accretion of
discount, if any, such that the yield to October 19, 1995 of each Equipment
Note held by each Trust will equal the interest rate per annum applicable to
such Trust. The actual amount of cash interest on the Equipment Notes held in
each Trust which is paid on October 19, 1995, as described above, plus the
amount, if any, paid by United in connection with a delayed purchase of any
Equipment Notes, will be passed through to Certificateholders of such Trust on
such date. From and after October 19, 1995, all of the Equipment Notes held in
each Trust will accrue interest payable in cash at the applicable rate per
annum for such Trust on April 19 and October 19 of each year commencing on
April 19, 1996, which interest will be passed through to Certificateholders of
such Trust on each such date. Such interest will be computed on the basis of a
360-day year of twelve 30-day months.
S-17
The aggregate par value of the Equipment Notes to be issued with respect to
each Aircraft, as such Equipment Notes are to be held in each of the Trusts, is
as follows:
AIRCRAFT AIRCRAFT 1995-A1 TRUST 1995-A2 TRUST 1995-A
NO. TYPE % EQUIPMENT NOTES % EQUIPMENT NOTES TRUSTS TOTAL
1 B777-222 $ $ $
2 B777-222
3 B747-422
------------ ------------ ------------
$ $ $
============ ============ ============
The Scheduled Payments of principal on the Equipment Notes to be held in the
1995-A1 Trust and 1995-A2 Trust are as follows:
1995-A1 TRUST
% EQUIPMENT NOTES
REGULAR
DISTRIBUTION AIRCRAFT AIRCRAFT AIRCRAFT AGGREGATE
DATES NO. 1 NO. 2 NO. 3 TOTAL
$ $ $ $
------------ ------------ ------------ ------------
Total................. $ $ $ $
============ ============ ============ ============
S-18
1995-A2 TRUST
% EQUIPMENT NOTES
REGULAR
DISTRIBUTION AIRCRAFT AIRCRAFT AIRCRAFT AGGREGATE
DATES NO. 1 NO. 2 NO. 3 TOTAL
$ $ $ $
------------ ------------ ------------ ------------
Total................. $ $ $ $
============ ============ ============ ============
If any date scheduled for any payment of principal, premium, if any, or
interest with respect to the Equipment Notes is not a Business Day, such
payment will be made on the next succeeding Business Day without any additional
interest.
REDEMPTION
The Equipment Notes issued with respect to each Aircraft are separately
subject to redemption or purchase in whole prior to maturity, without the
consent of the Trustee, (i) on the Regular Distribution Dates occurring on or
after the date specified in the related Lease (the earliest of which for any
Aircraft is April 19, 2001) in connection with a voluntary termination by
United of the related Lease if such Aircraft has been declared by United to be
surplus to its requirements or economically obsolete to it, (ii) on certain
Regular Distribution Dates as specified in the related Lease (the earliest of
which is October 19, 2005) in connection with a purchase by United of such
Aircraft where United does not assume the obligations of the applicable Owner
Trustee under the related Indenture, (iii) on any Special Distribution Date
occurring on or after May 15, 2000 in connection with an optional redemption as
a part of a refunding or refinancing thereof or (iv) at the option of the
applicable Owner Trustee or Owner Participant at any time after one or more
Lease Events of Default under the related Lease shall have occurred and be
continuing for a period of 180 days or more but less than one year (or, in the
case of a Payment Default, a period of less than 180 days) during which period
such Equipment Notes shall not have been accelerated, on the Special
Distribution Date following notice by such Owner Trustee of its election to so
redeem or purchase such Equipment Notes. The price for the Equipment Notes
redeemed under the circumstances set forth above shall be equal to the
Redemption Price, plus a premium (as defined below), if any. If the sale of an
Aircraft contemplated to occur on a lease termination date is not completed,
the corresponding redemption will not take place and any notice of redemption
will be deemed revoked. (Indentures, Article 6 and Section 8.03; Leases,
Sections 9(b) and 19(b); Participation Agreements, Section 17)
S-19
The "premium," if any, with respect to the Equipment Notes to be redeemed or
purchased on any redemption or purchase date will be an amount which an
independent investment banking institution of national standing selected by
United (or, in certain circumstances, the applicable Owner Trustee) shall
determine to be equal to the excess, if any, of (i) the sum of the present
values of all the remaining Scheduled Payments of principal and interest from
such redemption date to maturity of such Equipment Notes, discounted
semiannually on each April 19 and October 19 at a rate equal to the Treasury
Yield (as defined below), based on a 360-day year of twelve 30-day months, over
(ii) the aggregate unpaid principal amount (including any accretion of
discount) of such Equipment Notes plus accrued but unpaid interest on such
Equipment Notes (but not any accrued interest in default), provided, however,
that, if such redemption or purchase occurs on or after in the
case of the Equipment Notes held in the 1995-A1 Trust or in the case
of Equipment Notes held in the 1995-A2 Trust, the premium shall be zero.
(Indentures, Section 6.01(b))
The "Treasury Yield" means, with respect to each Equipment Note to be
redeemed or purchased, (x) in the case of an Equipment Note having a maturity
less than one year after the applicable redemption or purchase date, the
average yield to stated maturity on a government bond equivalent basis of the
applicable United States Treasury Bill due the week of the maturity of such
Equipment Note or (y) in the case of an Equipment Note having a maturity of one
year or more after the applicable redemption or purchase date, the average
yield to stated maturity of the most comparable United States Treasury Notes or
Bonds as identified by an independent investment banker, corresponding in
maturity to the Remaining Weighted Average Life (as defined below) of such
Equipment Note (or, if there is no maturity corresponding to such Remaining
Weighted Average Life, an interpolation of maturities by such independent
investment banker), in each case under (x) and (y) above determined by such
independent investment banker based on the average of the yields to stated
maturity determined from the bid prices on the fourth Business Day preceding
the applicable redemption or purchase date.
The "Remaining Weighted Average Life" of such Equipment Note, at the
redemption or purchase date of such Equipment Note, shall be the number of
years obtained by dividing (a) the sum of the products obtained by multiplying
(i) the amount of each then remaining Scheduled Payment of principal, including
the payment due on the maturity date of such Equipment Note, by (ii) the number
of years (calculated to the nearest one-twelfth) which will elapse between the
redemption or purchase date and the Regular Distribution Dates of such
Scheduled Payments of principal; by (b) the then outstanding principal amount
(including accretion of discount) of such Equipment Note.
In addition, the Equipment Notes issued with respect to each Aircraft are
separately subject to redemption or purchase prior to maturity, without the
consent of the Trustee, at a price equal to the Redemption Price, but without
any premium (i) in whole at the option of the applicable Owner Trustee or Owner
Participant, at any time after the occurrence and continuation of one or more
Lease Events of Default (other than a Payment Default) under the related Lease
for a period of one year or more during which period such Equipment Notes shall
not have been accelerated, (ii) in whole at the option of the applicable Owner
Trustee or Owner Participant, at any time after the occurrence of a Payment
Default and the continuance of such Payment Default for a period of 180 days or
more during which period such Equipment Notes shall not have been accelerated,
(iii) in whole upon the acceleration of such Equipment Notes, (iv) in whole
upon an Event of Loss with respect to such Aircraft if United has elected not
to replace such Aircraft under the applicable Lease or (v) in part upon an
Event of Loss with respect to an Engine under certain circumstances set forth
in Section 10(b) of the applicable Lease. (Indentures, Sections 6.01, 6.02 and
8.03)
INDENTURE DEFAULTS, NOTICE AND WAIVER
Indenture Defaults include: (i) the occurrence of any Lease Event of Default
under the applicable Lease, other than the failure to make certain indemnity
and certain other payments to the related Owner Trustee or Owner Participant,
(ii) failure to pay any interest or principal or premium, if any, when due,
continued for
S-20
more than 10 days after such amount shall have become due and payable, (iii)
failure by the related Owner Trustee in its individual capacity or as Owner
Trustee, as the case may be, or the related Owner Participant to observe or
perform in any material respect certain covenants or obligations contained in
the applicable Indenture, in the applicable Participation Agreement or the
applicable Trust Agreement, or failure by the related Owner Trustee or Owner
Participant to perform any other covenant contained therein, which failure
shall have a material adverse effect on the rights and interests of the holders
of the Equipment Notes, and in either case, such failure is not remedied within
a period of 30 days after notice to the related Owner Trustee and Owner
Participant by the related Loan Trustee or by the holders of at least 25% in
unpaid principal amount of outstanding Equipment Notes issued under such
Indenture, (iv) any material representation or warranty made by the related
Owner Trustee or Owner Participant in the applicable Participation Agreement,
or in any document or certificate furnished to the related Loan Trustee
pursuant thereto being incorrect in any material respect as of the date made
and such incorrectness shall remain material and continue unremedied for a
period of 30 days after notice to such Owner Trustee and Owner Participant and
(v) the occurrence of certain events of bankruptcy, reorganization or
insolvency of the related Owner Participant or Owner Trustee or the property
subject to the related Indenture. (Indentures, Section 8.01)
There are no cross-default provisions in the Indentures and consequently an
Indenture Default under any particular Indenture will not in itself result in
an Indenture Default under any other Indenture.
In the event United fails to make any semiannual basic rent payment when due,
and as long as no other Indenture Defaults (except a Lease Event of Default not
involving the nonpayment of money) under the related Indenture shall have
occurred and be continuing, within the later of 10 days after notice thereof to
the related Owner Trustee or Owner Participant by the Loan Trustee and five
days after the expiration of the grace period for basic rent payments under
such Lease, the related Owner Participant or Owner Trustee may furnish to the
related Loan Trustee the amount of such basic rent payment, together with any
interest thereon on account of the delayed payment thereof, in which event such
Loan Trustee and the holders of outstanding Equipment Notes issued under such
Indenture may not exercise any remedies otherwise available under such
Indenture or such Lease as the result of such failure to make such rental
payment, unless United has failed to make a basic rent payment when due on the
three consecutive immediately preceding semiannual basic rent payment dates or
on any six or more previous semiannual basic rent payment dates. The related
Owner Participant or Owner Trustee may also cure any other default by United in
the performance of its obligations under the applicable Lease that can be cured
by the payment of money. (Indentures, Section 8.03(e)(i))
Each Indenture provides that the Loan Trustee thereunder shall, after the
occurrence of any event known to it to be an Indenture Default, promptly send
written notice thereof to United, the Owner Trustee and the applicable Owner
Participant, and within 90 days after the occurrence thereof, if such Indenture
Default remains uncured, mail notice thereof to the holders of outstanding
Equipment Notes issued under such Indenture, but such Loan Trustee may withhold
such notice, except in the case of a default in the payment of the principal,
interest or premium, if any, with respect to any such Equipment Notes, if it in
good faith determines that withholding such notice is in the interest of such
holders. (Indentures, Section 9.05)
The holders of at least a majority in principal amount (including any
accretion of discount) of the outstanding Equipment Notes issued with respect
to any Aircraft may, by notice to the Loan Trustee, waive on behalf of all of
the holders of such Equipment Notes any existing event of default or default
and its consequences under the Indenture with respect to such Aircraft, except
a default in the payment of the principal or interest on any such Equipment
Note or a default in respect of any covenant or provision of such Indenture
that cannot be modified or amended without the consent of each holder of an
Equipment Note affected thereby. (Indentures, Sections 8.05 and 11.02)
United is required to furnish annually to the Trustee a statement as to the
fulfillment of its covenants under the Basic Agreement and the Leases, and to
the Loan Trustees a statement as to the fulfillment of its covenants under the
Leases during the preceding year. (Basic Agreement, Section 8.04(d); Leases,
Section 16(c))
S-21
REMEDIES
If an Indenture Default shall occur and be continuing under an Indenture, the
Loan Trustee thereunder or the holders of not less than 25% in unpaid principal
amount of the Equipment Notes outstanding under such Indenture may declare the
principal of all such Equipment Notes issued thereunder immediately due and
payable. The holders of a majority in unpaid principal amount (including any
accretion of discount) of Equipment Notes outstanding under such Indenture may
annul any such declaration by such Loan Trustee or by the holders at any time
prior to the sale of the related Aircraft after such an Indenture Default if
(i) there has been paid to or deposited with such Loan Trustee an amount
sufficient to pay all overdue installments of principal and interest on any
such Equipment Notes that have become due otherwise than by such declaration of
acceleration and any interest thereon and overdue installments of interest and
certain expenses, (ii) such annulment would not conflict with any judgment or
decree and (iii) all other existing Indenture Defaults under such Indenture
have been cured or waived (other than nonpayment of principal of, or interest
on, the Equipment Notes that has become due solely because of such
acceleration). (Indentures, Section 8.02)
Each Indenture provides that if an Indenture Default has occurred and is
continuing, the Loan Trustee thereunder may exercise certain rights or remedies
available to it under applicable law, including (if a Lease Event of Default
under the related Lease has occurred and is continuing) one or more of the
remedies with respect to the related Aircraft afforded to the applicable Owner
Trustee by the related Lease for Lease Events of Default thereunder. Such Loan
Trustee's right to exercise remedies under such Indenture is subject, in
certain circumstances, to its having exercised or its concurrent exercise of
one or more remedies under Section 15(a) through (f) of the related Lease with
respect to the related Aircraft, provided that the requirement to exercise such
remedies under such Lease shall not apply in circumstances where such exercise
has been involuntarily stayed or prohibited by applicable law or court order
for a continuous period in excess of 60 days or such other period as may be
specified in section 1110(a)(1)(A) of the Bankruptcy Code (as defined below)
(plus an additional period, if any, resulting from (i) the trustee in such
proceeding assuming, or agreeing to perform its obligations under, such Lease
with the approval of the applicable court or such Loan Trustee's consent to an
extension of such period or (ii) such Loan Trustee's failure to give any
requisite notice or (iii) a judicial stay pending litigation concerning the
applicability of section 1110 of the Bankruptcy Code exists so long as there is
no Lease Event of Default other than one arising solely from United's
bankruptcy, provided that such additional period under clause (iii) shall not
exceed 60 days). See "The Leases--Events of Default" in this Prospectus
Supplement. Such remedies may be exercised by such Loan Trustee to the
exclusion of such Owner Trustee and, subject to the terms of such Lease,
United. Any Aircraft sold in the exercise of such remedies will be free and
clear of any rights of those parties, including the rights of United under the
related Lease; provided that no exercise of any remedies by a Loan Trustee may
affect the rights of United under the related Lease unless a Lease Event of
Default thereunder has occurred and is continuing. If the Loan Trustee shall
acquire the Aircraft pursuant to such a sale while such stay is still in effect
and consummates a resale of the Aircraft within six months of such acquisition,
the net proceeds from such resale in excess of the amounts owed to the holders
of the Equipment Notes will be paid to the related Owner Trustee. Each
Indenture provides that the limitation on the Owner Trustee's and the Owner
Participant's right to cure basic rent defaults will not prohibit such a cure
in the circumstances described above in clause (iii). (Indentures, Section
8.03)
Section 1110 of title 11 of the United States Code (the "Bankruptcy Code")
provides in part that the right of a lessor of, aircraft, aircraft engines,
propellers, appliances or spare parts, as defined in Section 40102 of the
Aviation Act, that are subject to a lease to an air carrier operating under an
air carrier operating certificate issued by the Secretary of Transportation
pursuant to Chapter 447 of the Aviation Act for aircraft capable of carrying 10
or more individuals or 6,000 pounds or more of cargo, to take possession of
such equipment in compliance with the provisions of such lease is not affected
by (i) the automatic stay provision of the Bankruptcy Code, which provision
enjoins repossessions by creditors for the duration of the reorganization
period, (ii) the provision of the Bankruptcy Code allowing the debtor in
possession and/or
S-22
the bankruptcy trustee to use property of the bankruptcy estate during the
bankruptcy case, (iii) the provision of the Bankruptcy Code allowing the
proponent of a plan of reorganization to confirm such plan by imposing the plan
upon a class of claims or interests that has not accepted or is impaired by
such plan and (iv) any power of the bankruptcy court to enjoin a repossession.
Section 1110 provides, however, that the right of a lessor to take possession
of an aircraft in the event of an event of default may not be exercised for 60
days following the date of the order for relief (unless specifically permitted
by the bankruptcy court) and may not be exercised at all if, within such 60-day
period, the debtor in possession and/or the bankruptcy trustee agrees to
perform the debtor's obligations that become due on or after such date and
cures all existing defaults (other than defaults resulting solely from the
financial condition, bankruptcy, insolvency or reorganization of the debtor).
United has been advised by its counsel, Vedder, Price, Kaufman & Kammholz,
that in its opinion each Owner Trustee, as lessor under the related Lease, and
the related Loan Trustee, as assignee of such Owner Trustee's rights under such
Lease pursuant to the related Indenture, would be entitled to the benefits of
section 1110 of the Bankruptcy Code with respect to the Aircraft initially
delivered under such Lease and subjected to the related Indenture.
The opinion of Vedder, Price, Kaufman & Kammholz does not address the
possible replacement of an Aircraft after an Event of Loss in the future, the
consummation of which is conditioned upon the contemporaneous delivery of an
opinion of counsel to the effect that the Loan Trustee shall continue to be
entitled to the benefits of section 1110 with respect to such replacement. See
"The Leases--Events of Loss" in this Prospectus Supplement.
The holders of a majority in principal amount (including any accretion of
discount) of the Equipment Notes outstanding under any Indenture may direct the
time, method and place of conducting any proceeding for any remedy available to
the related Loan Trustee or of exercising any trust or power conferred on such
Loan Trustee, but in such event such Loan Trustee shall be entitled to be
indemnified by the holders of such Equipment Notes before proceeding so to act
and such Loan Trustee may not be held liable for any such action taken in good
faith. The Loan Trustee may, in certain circumstances, refuse to follow such a
direction. (Indentures, Sections 8.06, 9.01 and 9.02)
The right of any holder of Equipment Notes to institute action for any remedy
under the Indenture pursuant to which such Equipment Notes are issued (except
the right to enforce payment of the principal, interest and premium, if any,
with respect to its Equipment Notes when due) is subject to certain conditions
precedent, including a request to the related Loan Trustee by the holders of
not less than 25% in principal amount (including any accretion of discount) of
such Equipment Notes outstanding to take action and an offer to such Loan
Trustee of satisfactory indemnification against liabilities incurred by it in
so doing. (Indentures, Sections 8.07 and 8.08)
If an Indenture Default occurs and is continuing, any sums held or received
by the related Loan Trustee may be applied to reimburse such Loan Trustee for
any tax, expense or other loss incurred by it and to pay any other amounts due
to such Loan Trustee prior to any payments to holders of the Equipment Notes
issued under such Indenture. (Indentures, Section 3.05)
In the event of insolvency proceedings involving an Owner Participant, the
related Aircraft, Lease and Equipment Notes might become part of such
insolvency proceeding. In such event, payments under such Lease or on such
Equipment Notes might be interrupted and the ability of the related Loan
Trustee to exercise its remedies under the applicable Indenture might be
restricted, although such Loan Trustee would retain its status as a secured
creditor in respect of such Lease and Aircraft.
S-23
MODIFICATION OF INDENTURES, LEASES AND PARTICIPATION AGREEMENTS
Without the consent of holders of a majority in principal amount (including
any accretion of discount) of the Equipment Notes outstanding under any
Indenture, the provisions of such Indenture and the Lease and the Participation
Agreement corresponding thereto may not be amended or modified, except to the
extent indicated below.
Certain provisions of any Indenture, and of the Lease, the Trust Agreement
and the Participation Agreement corresponding thereto, may be modified by the
parties thereto without the consent of any holders of the Equipment Notes
outstanding under such Indenture. In the case of each Lease, such provisions
include, among others, provisions relating to (i) rental payments and other
payments, except to the extent that any such modification would cause the
amount of such payments to be insufficient to pay the principal, interest and
premium, if any, with respect to the related Equipment Notes, (ii) the return
to the Owner Trustee thereunder of the related Aircraft at the end of the term
of such Lease and (iii) the renewal of such Lease and the option of United at
the end of the term of such Lease to purchase the related Aircraft.
(Indentures, Sections 11.01 and 11.06)
Without the consent of the holder of each Equipment Note outstanding under
any Indenture affected thereby, no amendment or modification of such Indenture
may (i) reduce the principal amount, premium, if any, or any payment of
interest due on any Equipment Note issued thereunder, (ii) change the date on
which any payment of principal, premium, if any, or interest is due or payable
on any Equipment Note issued thereunder, (iii) create any lien with respect to
the property subject to the lien of such Indenture ranking prior to or on a
parity with the lien created by such Indenture or deprive any holder of an
Equipment Note issued thereunder of the lien of such Indenture upon the
property subject thereto, (iv) reduce the percentage in principal amount of
outstanding Equipment Notes issued thereunder necessary to modify or amend any
provision of such Indenture or to waive compliance therewith or (v) modify any
of the provisions relating to the rights of holders in respect of the waiver of
defaults or events of default or receipt of payment. (Indentures, Section
11.02)
THE LEASES
Each Aircraft has been or will be leased by the related Owner Trustee under
the related Lease to United.
Term and Rentals. Each Aircraft has been or will be leased separately by the
related Owner Trustee to United for a term commencing on the delivery date
thereof to the related Owner Trustee and expiring on a date not earlier than
the latest maturity date of the related Equipment Notes, unless previously
terminated as permitted by the related Lease. The semiannual basic rent payment
under each Lease is payable by United on each April 19 and October 19,
commencing on October 19, 1995, in the case of the 747 Aircraft and April 19,
1996, in the case of the 777 Aircraft (or, if such day is not a Business Day,
on the next succeeding Business Day), and has been assigned by the Owner
Trustee under the corresponding Indenture to provide the funds necessary to
make payments of principal and interest due from the Owner Trustee on the
Equipment Notes issued under the Indenture corresponding to such Lease. In
certain cases, the semiannual basic rent payments under the Leases may be
adjusted, but each Lease provides that under no circumstances will rent
payments by United be less than the scheduled payments on the related Equipment
Notes. The balance of any such semiannual basic rent payment under the Leases,
after payment of amounts due on the Equipment Notes issued under the Indenture
corresponding to such Lease and any amounts due to the applicable Loan Trustee
as compensation or indemnification, will be paid over to the applicable Owner
Participant. United's obligation to pay rent and to cause other payments to be
made under the Leases is a general obligation of United. (Leases, Section 3;
Indentures, Section 3.03)
Net Lease. United's obligations in respect of each of the Aircraft are those
of a lessee under a "net lease". Accordingly, United is obligated, at its
expense, to cause each Aircraft to be duly registered in the name of the
applicable Owner Trustee, to pay all costs of operating each Aircraft and to
maintain, service, repair and
S-24
overhaul (or cause to be maintained, serviced, repaired and overhauled) each
Aircraft (i) so as to keep it in at least as good operating condition as when
delivered to United, ordinary wear and tear excepted, and in such condition as
may be necessary to enable the airworthiness certification thereof to be
maintained in good standing at all times (other than during temporary periods
of storage in accordance with applicable regulations) under the Aviation Act
except when all of United's aircraft of the same model as such Aircraft
registered in the United States have been grounded by the Federal Aviation
Administration or, if the Aircraft is registered in a foreign jurisdiction,
except when all United's aircraft of the same model as such Aircraft registered
in such foreign jurisdiction have been grounded by the aeronautical authority
in such jurisdiction and (ii) in substantially the same manner in which United,
or, in the event of a sublease, such sublessee, maintains, services, repairs or
overhauls similar aircraft operated by United (or such sublessee) in similar
circumstances and without in any way discriminating against such Aircraft,
whether by reason of its leased status or otherwise. (Leases, Section 7(a))
United will, at its expense, replace or cause to be replaced all parts (other
than certain severable parts added at the option of United and obsolete or
unsuitable parts that United is permitted to remove to the extent described
below) that may from time to time be incorporated or installed in or attached
to any Aircraft or which have been removed therefrom but where title remains
vested in the related Owner Trustee in accordance with the terms of the related
Lease and that may become worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair or rendered permanently unfit for use.
(Leases, Section 8(a)) United or any sublessee has the right, at its own
expense, to make such alterations, modifications and additions (including
removal of parts which United or any sublessee claims to be obsolete or no
longer suitable or appropriate for use) with respect to each Aircraft as United
or such sublessee deems desirable in the proper conduct of its business,
provided that no such alteration, modification, removal or addition shall
decrease the value or utility (or, with respect to the related airframe,
remaining useful life) of such Aircraft or impair the condition or
airworthiness thereof. In addition to the foregoing, the value (but not the
utility, condition or airworthiness (or, with respect to the related airframe,
remaining useful life)) of the Aircraft may be reduced by the value of parts
that United deems obsolete or no longer suitable or appropriate, provided that
the aggregate value of all such parts removed from any Aircraft and not
replaced shall not exceed $900,000. (Leases, Section 8(c))
Registration, Possession, Sublease and Transfer. United may, under certain
circumstances, after the date specified in the related Lease (the earliest of
which for any Aircraft is April 19, 2001) register an Aircraft in certain
jurisdictions outside the United States. United may, subject to certain
limitations, sublease an Aircraft to any United States certificated air carrier
or to certain foreign air carriers (such United States and foreign air carriers
being the "Permitted Air Carriers"), so long as the term of the sublease does
not extend beyond the end of the basic term or any renewal term then in effect
under the Lease to which such Aircraft is subject unless United shall have
irrevocably committed to purchase such Aircraft or renew such Lease in
accordance with the terms thereof at the end of the basic term or renewal term,
as the case may be, to a date beyond the term of the sublease. In addition,
subject to certain limitations, United may transfer possession of an Aircraft
other than by sublease, including transfers in connection with normal
interchange arrangements with Permitted Air Carriers or other carriers approved
by the Owner Trustee, "wet leases", pooling arrangements, transfers to the
United States of America or any instrumentality or agency thereof and transfers
in connection with maintenance or modifications. If an Aircraft is subleased or
the possession thereof is otherwise transferred, such Aircraft will remain
subject to the related Lease and to the lien of the related Indenture. (Leases,
Section 7(a) and 7(b)) An Aircraft may be operated by United or under sublease
or interchange arrangements or may be registered in countries that are not
parties to the Geneva Convention for the International Recognition of Rights in
Aircraft, and the extent to which the related Loan Trustee's security interest
would be recognized in such Aircraft if located in such countries is uncertain.
Liens. United will maintain each Aircraft free of any liens, other than the
rights of the applicable Owner Participant, Owner Trustee, Loan Trustee, the
holders of the related Equipment Notes and United arising under the Trust
Agreement, the Lease, the Indenture, the Participation Agreement or other
documents related thereto, and other than certain limited liens permitted under
such related Lease and related Indenture, including liens for taxes either not
yet due and payable or being contested in good faith by appropriate
S-25
proceedings so long as such proceedings do not involve any material risk of the
sale, forfeiture or loss of such Aircraft or any interest therein;
materialmen's, mechanics' and other similar liens arising in the ordinary
course of business securing obligations that are either not overdue for more
than 30 days or being contested in good faith by appropriate proceedings so
long as during such period there is not, nor do such proceedings involve, any
material risk of the sale, forfeiture or loss of such Aircraft or any interest
therein; judgment liens, unless there exists a material risk of the sale,
forfeiture or loss of such Aircraft or any interest therein, or unless the
judgment secured shall not, within 45 days after the entry thereof, have been
discharged, vacated, reversed or execution thereof stayed pending appeal; liens
with respect to which United or any sublessee shall have posted a bond or other
security; and certain liens required to be removed by the related Owner Trustee
or Owner Participant. (Leases, Section 6; Participation Agreements, Section
8(g))
Insurance. United will, at its or any sublessee's expense, maintain or cause
to be maintained all-risk aircraft hull insurance covering each Aircraft, fire
and extended coverage and, to the extent available at reasonable cost, all-risk
property damage insurance covering Engines and parts while temporarily removed
from an Aircraft and not replaced by similar components, at all times in an
amount not less than the stipulated loss value of such Aircraft (which will be
an amount at least equal to the aggregate unpaid principal of, and accreted
discount, if any, together with all unpaid interest accrued on, the outstanding
Equipment Notes related to such Aircraft). During any period when an Aircraft
is on the ground and not in operation, United may carry or cause to be carried
in lieu of the insurance required by the previous sentence, insurance otherwise
conforming with the provisions of said sentence except that the scope of the
risks covered and the type of insurance shall be the same as are from time to
time applicable to aircraft owned or leased by United of the same type as such
Aircraft similarly on the ground and not in operation, in an amount at least
equal to the stipulated loss value of such Aircraft. All policies covering loss
of or damage to an Aircraft shall be made payable to the applicable Loan
Trustee for any loss in excess of that certain amount specified in the
applicable Lease, the highest of which under any Lease is $5,000,000. United
may self-insure a portion of these risks, but in no case will the self-
insurance with respect to all of the aircraft in United's fleet (including the
Aircraft) exceed, for any calendar year, the lesser of 50% of the largest
replacement value of any single aircraft in United's fleet or 1 1/2% of the
average aggregate insurable value (during the preceding calendar year) of all
aircraft on which United carries insurance. In addition, United will, at its or
any sublessee's expense, carry or cause to be carried comprehensive airline
liability (including, without limitation, passenger, contractual, bodily injury
and property damage liability) insurance (exclusive of manufacturer's product
liability insurance) and cargo liability insurance with respect to each
Aircraft (i) in amounts that are not less than the greater of the comprehensive
airline liability insurance as is from time to time applicable to aircraft
owned or leased, and operated by United of the same type as such Aircraft, and
that certain amount specified in the applicable Lease, the lowest of which
under any Lease is $450,000,000 per occurrence and (ii) of the types and
covering the same risks as are from time to time applicable to aircraft owned
or leased, and operated, by United of the same type as such Aircraft and which
is maintained in effect with insurers of recognized reputation and
responsibility, provided that United need not maintain cargo liability
insurance, or may maintain such insurance in an amount less than that specified
above for the respective Aircraft as long as the amount of cargo liability
insurance, if any, maintained with respect to such Aircraft is the same as the
cargo liability insurance, if any, maintained for other aircraft of the same
model as such Aircraft owned or leased, and operated by United. During any
period when an Aircraft is on the ground and not in operation, United may carry
or cause to be carried in lieu of the insurance required by the previous
sentence, insurance otherwise conforming with the provisions of said sentence
except that the amounts of coverage shall not be required to exceed the amounts
of comprehensive airline liability insurance, and the scope of risks covered
and type of insurance shall be the same, as are from time to time in effect
with respect to aircraft owned or leased by United of the same type as such
Aircraft similarly on the ground and not in operation. United may also self-
insure a portion of these risks subject to the same limitations described above
for insurance for risks of loss of or damage to the Aircraft. The Trustee, each
related Loan Trustee, Owner Participant and Owner Trustee, in its individual
capacity and as owner of the Aircraft, and United will be named as insured
parties under all liability insurance policies required with respect to the
related Aircraft. In addition, the insurance policies maintained under the
Lease with respect to each Aircraft will provide that, in respect of the
respective
S-26
interests of the Trustee, the Loan Trustee, the Owner Participant and the Owner
Trustee relating to such Aircraft, the insurance shall not be invalidated by
any action or inaction of United and shall insure the respective interests of
the Trustee, the Loan Trustee, the Owner Participant and the Owner Trustee
relating to such Aircraft, as they appear, regardless of any breach or
violation of any warranty, declaration or condition contained in such policies
by United. Subject to certain limited exceptions, United may not operate or
permit any sublessee or any other Person to operate any Aircraft in any area
excluded from coverage by any insurance required by the related Lease unless
the United States government or any agency or instrumentality thereof provides
indemnification or insurance in lieu of such insurance coverage. (Leases,
Sections 11 and 7(a))
Termination. Unless one or more of certain defaults or Lease Events of
Default shall have occurred and be continuing, United may terminate the related
Lease on the third Business Day prior to the Regular Distribution Dates
occurring on or after the date specified in the related Lease (the earliest of
which is April 19, 2001) if it shall have determined that such Aircraft is
surplus to its requirements or economically obsolete to it. United is required
to give notice of its intention to exercise its right of termination described
in this paragraph at least 180 days prior to the proposed date of termination
(which notice may be withdrawn in certain circumstances up to 25 days prior to
such proposed date). In the event that the applicable Owner Trustee elects to
sell such Aircraft, United shall use reasonable efforts to sell such Aircraft
as an agent for such Owner Trustee; the applicable Owner Participant may submit
bids for such Aircraft. The applicable Owner Trustee shall sell such Aircraft
on the date of termination to the highest cash bidder; if such sale occurs, the
Equipment Notes related thereto will be redeemed as described herein. The net
proceeds of such sale shall be payable to the applicable Owner Trustee. If the
net proceeds to be received from such sale are less than the termination value
for such Aircraft, United shall pay to the applicable Owner Trustee an amount
equal to the difference between such net proceeds and termination value,
together with certain other amounts. All funds to be paid to or deposited with
the applicable Owner Trustee as described in this paragraph shall, so long as
the related Indenture shall not have been discharged, be deposited directly
with the applicable Loan Trustee. Upon receipt of the termination value for
such Aircraft, together with certain additional amounts and together with all
accrued and unpaid interest thereon to the date of the related redemption and
an amount equal to the premium, if any, payable on such date of redemption, the
lien of the related Indenture shall be released and the related Lease shall
terminate with respect to such Aircraft, and the obligation of United
thereafter to make scheduled rent payments with respect thereto shall cease.
However, certain payment obligations of United shall survive the termination of
the Lease. Amounts in excess of the aggregate payments to be made in connection
with the redemption of Equipment Notes issued with respect to such Aircraft
will be distributed by the Loan Trustee related thereto to the applicable Owner
Trustee for distribution in accordance with the terms of the related Lease,
Participation Agreement and Trust Agreement. In the event such Aircraft is not
sold by the proposed termination date, such Lease, including all of United's
obligations thereunder, shall continue in effect, and the Equipment Notes
related thereto will not be redeemed. (Leases, Section 9(b); Indentures,
Sections 3.02, 6.01(b) and 13.01)
The related Owner Trustee has the option in certain circumstances to retain
title to the related Aircraft in the event United has given a notice of
termination under the related Lease. In such event, such Owner Trustee shall
pay, or cause to be paid, to the applicable Loan Trustee funds in an amount
necessary to redeem the outstanding Equipment Notes issued with respect to such
Aircraft determined in accordance with the preceding paragraph (other than
unpaid basic rent and supplemental rent due on or prior to the proposed
redemption date (other than basic rent payable in advance on such redemption
date) and amounts payable in respect of any premium on such Equipment Notes,
which amounts shall be payable by United). In the event all such amounts are
not paid to such Loan Trustee, such Lease will not terminate, and the Equipment
Notes related thereto will not be redeemed. (Leases, Section 9)
Renewal and Purchase Options. At the end of the term of a Lease after final
maturity of the Equipment Notes issued with respect thereto, in the absence of
certain defaults or any Lease Event of Default thereunder, United will have
certain options to renew such Lease for additional limited periods. In
addition, United will
S-27
have the right at the end of the term of such Lease to purchase the Aircraft
subject thereto for an amount to be calculated in accordance with the terms of
such Lease. (Leases, Section 19)
United will also have the option, exercisable upon at least 90 days' written
notice, to purchase the Aircraft subject to such Lease on certain specified
dates, the earliest of which is October 19, 2005. In the event United exercises
such an option, the purchase price therefor shall be calculated in accordance
with the provisions of the Lease related thereto, but in any event shall be
sufficient to pay the redemption price of the related Equipment Notes and, upon
receipt by the related Loan Trustee of such redemption price, United shall
acquire the Aircraft free of the lien of such Indenture, unless United chooses
to assume on a full recourse basis all of such Owner Trustee's obligations in
respect of the related Equipment Notes and acquires the Aircraft subject to the
lien of the related Indenture. See "Assumption of Obligations by United" in
this Prospectus Supplement. (Leases, Section 19; Indentures, Section 7.03;
Participation Agreements, Section 8(r))
Events of Loss. If an Event of Loss occurs with respect to an Aircraft,
United shall either pay to the applicable Owner Trustee the stipulated loss
value of such Aircraft, together with certain additional amounts, or, unless
certain defaults or any Lease Event of Default shall have occurred and be
continuing, replace such Aircraft. In the event United elects to replace such
Aircraft, it must do so on or before the Business Day next succeeding the 100th
day following the date of occurrence of such Event of Loss with an aircraft of
the same make and model or an improved model, having a value, utility and
remaining useful life at least equal to, and in as good operating condition as,
the Aircraft subject to the Event of Loss, assuming for this purpose that such
Aircraft had been maintained in accordance with the related Lease immediately
prior to the occurrence of the Event of Loss. If United pays the stipulated
loss value for such Aircraft, together with certain additional amounts, which
in all circumstances will be at least sufficient to pay in full as of the date
of payment thereof the redemption price of the related Equipment Notes, the
lien of the Indenture and the Lease relating to such Aircraft shall terminate
with respect to such Aircraft and the obligation of United thereafter to make
the scheduled rent payments with respect thereto shall cease. The stipulated
loss value and other payments made by United shall be deposited with the
applicable Loan Trustee. Amounts in excess of the redemption price of the
Equipment Notes issued with respect to such Aircraft will be distributed by
such Loan Trustee to the applicable Owner Trustee in accordance with the terms
of the applicable Lease, Trust Agreement and Participation Agreement. (Leases,
Section 10(a); Indentures, Sections 3.02 and 6.01)
If an Event of Loss occurs with respect to an Engine alone, United shall,
within 45 days after the occurrence of such Event of Loss, replace such Engine
with another engine of the same or another manufacturer and suitable for
installation and use on the Aircraft, and having a value and utility at least
equal to, and in as good operating condition as and having been maintained in
the same manner as, the engine subject to the Event of Loss, assuming for this
purpose that such Engine had been maintained in accordance with the related
Lease immediately prior to the occurrence of such Event of Loss; provided that,
under certain circumstances, Lessee shall pay stipulated loss value with
respect to such Engine, together with certain additional amounts, which in all
circumstances will be at least sufficient to pay in full the redemption price
with respect to that portion of the Equipment Notes relating to such Engine
and, in such event, the lien of the Indenture and the Lease relating to such
Engine shall terminate with respect to such Engine and United shall only be
obligated to return the related Aircraft with any Engine for which United has
not paid the stipulated loss value described above. (Leases, Section 10(b);
Indentures, Section 6.01)
An Event of Loss with respect to an Aircraft or any Engine relating thereto
means any of the following events with respect to such property: (i) loss of
such property or the use thereof due to destruction of or damage to such
property which renders repair uneconomic or which renders such property
permanently unfit for normal use by United for any reason whatsoever; (ii) any
damage to such property which results in an insurance settlement with respect
to such property on the basis of a total loss or a constructive or compromised
total loss; (iii) the theft or disappearance of such property, or the
condemnation, confiscation or seizure of, or requisition or taking of title to,
or use of, such property by any governmental or purported governmental
authority (other than a requisition for use by certain permitted governments or
any agency or
S-28
instrumentality thereof), which in the case of any event referred to in this
clause (iii) shall have resulted in a loss of title to, or possession of, such
property by United for a period in excess of 90 consecutive days; (iv) as a
result of any law, rule, regulation, order or other action by the Federal
Aviation Administration or other governmental body of the government of
registry of such Aircraft having jurisdiction, use of such property in the
normal course of the business of air transportation shall have been prohibited
for a period in excess of 180 consecutive days or, if earlier, until the end of
the term of the Lease in effect with respect to such Aircraft unless (a)
United, prior to the expiration of such period, shall have undertaken and shall
be diligently carrying forward all steps which are necessary or desirable to
permit the normal use of such property by United, (b) such prohibition is
applicable to United's entire fleet of aircraft of the same model as the
Aircraft registered in the same country and (c) United, within one year from
the time of such prohibition, shall have conformed at least one such aircraft
in its fleet to the requirements of such law, rule, regulation, order or other
action and commenced regular commercial use of the same in such jurisdiction;
(v) the requisition of such property for use by the United States government or
any government of registry of the Aircraft or any agency or instrumentality
thereof, which shall have occurred during the term of the Lease in effect with
respect to such property and, with respect to a requisition by the United
States government or any agency or instrumentality thereof, shall have
continued beyond the term of the Lease in effect with respect to such property
or, with respect to any government of registry other than the United States or
any agency or instrumentality thereof, shall have continued for more than two
years, and the related Owner Trustee shall not have furnished the written
notice specified in such Lease; (vi) the operation of or location of the
Aircraft, while under requisition for use by any government, in any area
excluded from coverage by any insurance policy in effect with respect to the
Aircraft required by the terms of the applicable Lease, unless in the case of a
requisition by certain permitted governments or any agency or instrumentality
thereof, Lessee shall have obtained an indemnity in lieu thereof from such
government; or (vii) any divestiture of title to an engine treated as an Event
of Loss pursuant to the Lease in effect with respect to such Aircraft. (Leases,
Section 1)
Events of Default. Events of Default under the Leases (each a "Lease Event of
Default") include, among other things: (i) failure by United to make any
payment of basic rent, termination value, stipulated loss value or premium, and
certain other amounts, within 10 days after the same shall have become due;
(ii) failure by United to make any payment of supplemental rent not specified
in clause (i) after the same shall have become due and such failure shall
continue for 15 days after receipt of written demand therefor; (iii) failure by
United to carry and maintain or cause to be carried or maintained insurance or,
in certain instances, government indemnities, on or with respect to the
Aircraft subject to such Lease in accordance with the provisions of the
applicable Lease; (iv) failure by United to perform or observe (or cause to be
performed or observed) in any material respect any other covenant or agreement
to be performed or observed by it under such Lease or the related Participation
Agreement or Indenture, and such failure shall continue for a period of 30 days
after written notice by the applicable Owner Trustee or Loan Trustee, provided,
however, that if United shall have undertaken to cure such failure and,
notwithstanding the reasonable diligence of United in attempting to cure such
failure, such failure is not cured within said 30-day period but is curable
with future due diligence, there shall exist no Lease Event of Default so long
as United is proceeding with due diligence to cure such failure and such
failure is in fact cured within 180 days; (v) any representation or warranty
made by United in such Lease or the related Participation Agreement or in any
document or certificate furnished by United in connection therewith or pursuant
thereto shall be incorrect in any material respect at the time made and shall
remain material at the time in question and shall continue uncured for a period
of 30 days after receipt by Lessee of written notice from the applicable Owner
Trustee or Loan Trustee; and (vi) the occurrence of certain events of
bankruptcy, reorganization or insolvency of United. (Leases, Section 14)
If a Lease Event of Default has occurred and is continuing, and the
applicable Lease has been declared to be in default, the applicable Loan
Trustee may, subject to the terms of the applicable Indenture, exercise one or
more of the remedies provided in such Lease with respect to the related
Aircraft. These remedies include the right to repossess and use or operate such
Aircraft, to sell or re-lease such Aircraft free and clear of United's rights
and retain the proceeds and to require United to pay as liquidated damages any
unpaid basic rent plus an amount equal to the excess of the stipulated loss
value of such Aircraft over, at such Loan
S-29
Trustee's option, any of (i) the fair market sales value thereof, (ii) the
discounted fair market rental value thereof for the remainder of the term of
the Lease relating to such Aircraft or (iii) if such Aircraft has been sold,
the net sales proceeds. (Leases, Section 15; Indentures, Section 8.03)
Notwithstanding that a Lease Event of Default has occurred and is continuing,
the applicable Loan Trustee may not, without the consent of the related Owner
Trustee, enter into any amendment of the provisions of such Lease relating to,
among other things, the timing and amount of payments by United under such
Lease, defaults under such Lease or maintenance of insurance on, modifications
or additions to, or sublease, registration, maintenance, operation, return,
inspection or purchase of, such Aircraft. (Indentures, Section 11.06)
THE PARTICIPATION AGREEMENTS
Each Participation Agreement provides that United is required to indemnify
the respective Loan Trustee, Owner Participant and Owner Trustee for certain
losses and claims and for certain other matters. (Participation Agreements,
Section 7(c)) Each Owner Participant is required to indemnify the trust estate
in which such Owner Participant has an interest for certain losses that may be
suffered as a result of the failure of such Owner Participant to discharge
certain liens or claims on or against the assets subject to the lien of the
Indenture with respect to such Aircraft. (Participation Agreements, 8(g))
Subject to certain restrictions, each Owner Participant may transfer its
interest in the related Aircraft. (Participation Agreements, Section 8(l))
DEFEASANCE OF THE INDENTURES AND THE EQUIPMENT NOTES IN CERTAIN CIRCUMSTANCES
Each Indenture provides that the obligations thereunder of the related Loan
Trustee and Owner Trustee shall be deemed to have been discharged and paid in
full (except for certain obligations, including the obligations to register the
transfer or exchange of Equipment Notes, to replace stolen, lost, destroyed or
mutilated Equipment Notes and to maintain paying agencies and hold money for
payment in trust) on the 91st day after the date of irrevocable deposit with
the related Loan Trustee of money or certain obligations of the United States
or any agency or instrumentality thereof the payment of which is backed by the
full faith and credit of the United States which, through the payment of
principal and interest in respect thereof in accordance with their terms, will
provide money in an amount sufficient to pay when due (including as a
consequence of redemption (in respect of which no premium is payable) in
respect of which irrevocable notice is given on or prior to the date of such
deposit) principal and interest with respect to all Equipment Notes issued
thereunder in accordance with the terms of such Indenture. Such discharge may
occur only if, among other things, there has been published by the Internal
Revenue Service a ruling to the effect that holders of such Equipment Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such deposit, defeasance and discharge and will be subject to federal
income tax on the same amount and in the same manner and at the same time as
would have been the case if such deposit, defeasance and discharge had not
occurred. (Indentures, Sections 10.01 and 10.02)
Upon such a defeasance, or upon payment in full of the principal, interest
and premium, if any, with respect to all Equipment Notes issued under such
Indenture or deposit with the applicable Loan Trustee of money sufficient
therefor no earlier than one year prior to the maturity or redemption thereof,
the holders of such Equipment Notes will have no beneficial interest in or
other rights with respect to the related Aircraft or other assets subject to
the lien of the Indenture and such lien shall terminate. (Indentures, Sections
10.01 and 13.01)
ASSUMPTION OF OBLIGATIONS BY UNITED
Upon the voluntary termination of a Lease in connection with the exercise by
United of any of its purchase options prior to the end of the term of such
Lease, United may assume on a full recourse basis all of the obligations of the
Owner Trustee (other than its obligations in its individual capacity) under the
related
S-30
Indenture, including the obligations to make payments with respect to the
Equipment Notes. In such event, certain relevant provisions of the Lease,
including (among others) provisions relating to maintenance, possession and use
of the related Aircraft, liens, insurance and events of default will be
incorporated into such Indenture, and the Equipment Notes issued under such
Indenture will not be redeemed and will continue to be secured by such
Aircraft. In addition, in certain circumstances United may pay in installments
the portion of the purchase price for such Aircraft which is distributable to
the Owner Participant and United's obligations to pay such installments may be
secured by a lien on such Aircraft, which lien will be subject to the prior
rights of the holders of the related Equipment Notes as provided in the
Participation Agreement. It is a condition to such assumption that an opinion
of counsel be delivered at the time of such assumption substantially to the
effect that the Loan Trustee under such Indenture would, immediately following
such assumption, be entitled to the benefits of section 1110 of the Bankruptcy
Code with respect to such Aircraft (including the Engines related thereto), but
such opinion need not be delivered with respect to an Aircraft to the extent
that the benefits of such section 1110 are not available to the Loan Trustee
with respect to such Aircraft or any Engine related thereto immediately prior
to such assumption. (Leases, Section 19(b); Indentures, Section 7.03;
Participation Agreements, Section 8(r)).
FEDERAL INCOME TAX CONSEQUENCES
ORIGINAL ISSUE DISCOUNT
Certain of the Equipment Notes may be issued with original issue discount
("OID"). With respect to Equipment Notes issued with OID that is in excess of a
prescribed de minimis amount, Certificateholders who use the cash method of
accounting for federal income taxes will, in effect, be required to report
interest income in advance of the receipt or accrual of the stated interest on
such Equipment Notes. Generally, a holder of a debt instrument issued with OID
that is not de minimis must include such OID in income for federal income tax
purposes as it accrues, in advance of the receipt of cash attributable to such
income, under a method that takes into account the compounding of interest.
Consequently, Certificateholders who use the accrual method of accounting
should not be materially impacted by the application of the OID rules to the
Equipment Notes. Certificateholders should consult their own tax advisors as to
the applicability of the OID rules to the Equipment Notes and the amount and
treatment of OID, if any.
CERTAIN UTAH TAXES
Ray, Quinney & Nebeker, counsel to the Trustee, has advised United that, in
its opinion, under currently applicable law, assuming that the Trusts will not
be taxable as corporations, but, rather, will be classified as grantor trusts
under subpart E, Part I of Subchapter J of the Code, (i) the Trusts will not be
subject to any tax (including, without limitation, net or gross income,
tangible or intangible property, net worth, capital, franchise or doing
business tax), fee or other governmental charge under the laws of the State of
Utah or any political subdivision thereof and (ii) Certificate Owners that are
not residents of or otherwise subject to tax in the State of Utah will not be
subject to any tax (including, without limitation, net or gross income,
tangible or intangible property, net worth, capital, franchise or doing
business tax), fee or other governmental charge under the laws of the State of
Utah or any political subdivision thereof as a result of purchasing, holding
(including receiving payments with respect to) or selling a Certificate.
Neither the Trusts nor the Certificate Owners will be indemnified for any state
or local taxes imposed on them, and the imposition of any such taxes on a Trust
could result in a reduction in the amounts available for distribution to the
Certificate Owners of such Trust. In general, should a Certificate Owner or a
Trust be subject to any state or local tax which would not be imposed if the
Trustee were located in a different jurisdiction in the United States, the
Trustee will resign and a new Trustee in such other jurisdiction will be
appointed.
ERISA CONSIDERATIONS
Employee benefit plans subject to Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), individual retirement accounts and
employee benefit plans subject to Section 4975 of the Internal Revenue Code of
1986, as amended (hereinafter referred to as "ERISA Plans" or "Plans") may
S-31
purchase Certificates issued by the Trusts, subject to certain legal
restrictions. Under ERISA, any person who exercises any authority or control
relating to management or disposition of the assets of an ERISA Plan is
considered to be a fiduciary of such Plan. ERISA requires that fiduciaries of
Plans cause the assets of such Plans to be invested prudently, for the
exclusive benefit of participants and in a manner that does not result in a
non-exempt "prohibited transaction" (as defined in ERISA or the Code). A
fiduciary of a Plan contemplating the purchase of a Certificate should
carefully consider how the purchase of a Certificate will relate to the Plan's
investment portfolio and whether a prohibited transaction will result from such
purchase. Governmental plans and certain church plans are not subject to the
fiduciary responsibility and prohibited transaction provisions of ERISA;
however, such plans contemplating purchase of a Certificate should carefully
consider how any state laws or other Code provisions may relate to such
purchase.
UNDERWRITING
The Underwriters named below have severally agreed, subject to the terms and
conditions of the Purchase Agreement with United, to purchase from the Trustees
the Certificates of each Trust in the aggregate principal amount set forth
below opposite their respective names. The Underwriters are committed to
purchase all of the Certificates if any are purchased.
PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OF
1995-A1 CERTIFICATES 1995-A2 CERTIFICATES
-------------------- --------------------
UNDERWRITERS
------------
Merrill Lynch, Pierce, Fenner &
Smith
Incorporated.......... $ $
Lehman Brothers Inc............
------------ ------------
Total..................... $ $
============ ============
The Underwriters have advised United that they propose initially to offer the
Certificates to the public at the public offering prices per Certificate set
forth on the cover page of this Prospectus Supplement and to certain dealers at
such prices less a concession not in excess of the amounts for the respective
designations of Certificates set forth below. The Underwriters may allow, and
such dealers may reallow, a discount to certain other dealers not in excess of
the amounts for the respective designations of Certificates set forth below.
After the initial public offering, the public offering prices and such
concessions and discounts may be changed.
CONCESSION
TO DEALERS REALLOWANCE
---------- -----------
1995-A1............................................ % %
1995-A2............................................
All secondary trading in the Certificates will settle in immediately
available funds. See "Description of the Certificates--Same-Day Settlement and
Payment" in the Prospectus.
United has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act of 1933, as
amended.
United does not intend to apply for listing of the Certificates on a national
securities exchange, but has been advised by the Underwriters that they
presently intend to make a market in the Certificates, as permitted by
applicable laws and regulations. No Underwriter is obligated, however, to make
a market in the Certificates and any such market making may be discontinued at
any time at the sole discretion of such Underwriter. Accordingly, no assurance
can be given as to the liquidity of, or trading markets for, the Certificates.
S-32
APPENDIX
GLOSSARY OF CERTAIN TERMS
The following is a glossary of certain terms used in this Prospectus
Supplement. The definitions of terms used in this glossary that are also used
in the Basic Agreement, Trust Supplements, Indentures, Leases, Participation
Agreements, the Note Purchase Agreement or Trust Agreements are qualified in
their entirety by reference to the definitions of such terms contained therein.
"Aircraft" means each of the two 777 Aircraft and one 747 Aircraft.
"Aviation Act" means the provisions of Title 49 of the United States Code
relating to aviation, as amended, and the applicable regulations thereunder.
"Basic Agreement" means the Pass Through Trust Agreement dated as of February
1, 1992, as amended and restated as of May 1, 1995, in each case entered into
between United and State Street Bank and Trust Company of Connecticut, National
Association pursuant to which Pass Through Trust Agreement, as supplemented by
the Trust Supplements, the Trusts will be formed.
"Business Day" means any day other than a Saturday or a Sunday or a day on
which commercial banks are required or authorized to close in New York, New
York, Chicago, Illinois or the city and state in which the Trustee, an Owner
Trustee, an Owner Participant or the Loan Trustee maintains its principal place
of business or the city and state in which the Loan Trustee receives and/or
disburses funds.
"Cede" means Cede & Co.
"Certificate" means each of the Certificates of the two Trusts to be issued
by the related Trustee pursuant to the Basic Agreement and the applicable Trust
Supplement.
"Certificate Account" means the one or more non-interest bearing accounts
established and maintained by the Trustee pursuant to the Basic Agreement on
behalf of the Certificateholders of the Trust created by the related Trust
Supplement for the deposit of payments representing Scheduled Payments on the
Equipment Notes held in such Trust.
"Certificate Owner" means a person having a beneficial interest in a
Certificate.
"Certificateholder" means the person in whose name a Certificate is
registered.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"DTC" means The Depository Trust Company.
"Engine" means, with respect to each of the two 777 Aircraft, each of the two
Pratt & Whitney model PW4084 engines relating to such aircraft, and, with
respect to the one 747 Aircraft, each of the four Pratt & Whitney model PW4056
engines relating to such aircraft, in each case as specified in the related
Lease.
"Equipment Notes" means the certificates issued on a nonrecourse basis by the
Owner Trustees under the Indentures.
"Event of Default" means, with respect to the Basic Agreement, the occurrence
and continuance of an Indenture Default under one or more of the related
Indentures.
A-1
"Event of Loss" means each of the events designated as such in a Lease. Upon
the occurrence of an Event of Loss with respect to an Aircraft, unless such
Aircraft is replaced, the related Lease will be terminated and the related
Equipment Notes will be redeemed. Upon the occurrence of an Event of Loss with
respect to an Engine, such Engine will be replaced unless, pursuant to the
terms of the related Lease, United pays certain specified amounts and such
Lease is terminated with respect to such Engine and the related Equipment Notes
are partially redeemed. For a description of certain events constituting an
Event of Loss, see "Description of the Equipment Notes--The Leases--Events of
Loss" in this Prospectus Supplement.
"Indenture" means each of the three separate Trust Indenture and Mortgages
entered into with respect to an Aircraft between an Owner Trustee and the Loan
Trustee and pursuant to which such Owner Trustee will issue the Equipment Notes
with respect to such Aircraft, as such Trust Indenture and Mortgage may from
time to time be amended or supplemented.
"Indenture Default" means each of the events designated as an event of
default in an Indenture. For a description of certain events constituting
Indenture Defaults, see "Description of the Equipment Notes-- Indenture
Defaults, Notice and Waiver" in this Prospectus Supplement.
"Lease" means each of the three separate Lease Agreements entered into with
respect to an Aircraft between an Owner Trustee and United, as each such Lease
Agreement may from time to time be amended or supplemented.
"Lease Event of Default" means each of the events designated as an event of
default in a Lease. For a description of certain events constituting Lease
Events of Default, see "Description of the Equipment Notes--The Leases--Events
of Default" in this Prospectus Supplement.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease, exercise
of rights, security interest or claim.
"Loan Trustee" means First Security Bank of Utah, National Association, a
national banking association, in its capacity as indenture trustee under each
Indenture, and any successor thereunder.
"Note Purchase Agreement" means the Redemption and Refinancing Agreement
entered into with respect to the 747 Aircraft among the Trustee, United, a Loan
Trustee, an Owner Participant, an Owner Trustee and a loan participant.
"Owner Participant" means each of the owner participants for whose benefit an
Owner Trustee owns an Aircraft leased to United pursuant to a Lease, and its
permitted successors and assigns.
"Owner Trustee" means State Street Bank and Trust Company, a Massachusetts
trust company, not in its individual capacity but solely as trustee of each of
the three separate owner trusts for the benefit of each of the Owner
Participants, and its successors and assigns.
"Participation Agreement" means each of the three separate Participation
Agreements entered into with respect to an Aircraft among United, an Owner
Participant, an Owner Trustee, the Loan Trustee and the Trustee, as such
Participation Agreement may from time to time be amended or supplemented.
"Payment Default" means the failure by the Company to pay within the
applicable grace period under the relevant Lease basic rent, stipulated loss
value, termination value or premium or certain other amounts which constitutes
a Lease Event of Default pursuant to Section 14(a) of such Lease.
"Pool Balance" means, for each Trust, as of any date, the aggregate unpaid
principal amount (including accretion of discount) of the Equipment Notes held
in such Trust on such date plus any amounts in respect of principal on such
Equipment Notes held by the Trustee and not yet distributed. The Pool Balance
A-2
for each Trust as of any Regular Distribution Date or Special Distribution Date
shall be computed after giving effect to the payment of principal, if any, on
the Equipment Notes held in such Trust and distribution thereof to be made on
that date.
"Pool Factor" means, for each Trust, as of any date, the quotient (rounded to
the seventh decimal place) computed by dividing (i) the Pool Balance by (ii)
the par value of the Equipment Notes held in such Trust. The Pool Factor for
each Trust as of any Regular Distribution Date or Special Distribution Date
shall be computed after giving effect to the payment of principal, if any, on
the Equipment Notes held in such Trust and distribution thereof to be made on
that date.
"Record Date" means, with respect to a distribution of Scheduled Payments or
Special Payments, the 15th day (whether or not a Business Day) preceding the
applicable Regular Distribution Date or Special Distribution Date, as the case
may be.
"Redemption Price" means, as to any Equipment Note on the applicable
redemption or purchase date therefor, the outstanding principal amount thereof
(or, in the case of an Event of Loss with respect to an Engine, the portion of
the outstanding principal amount thereof), together with accrued interest
thereon to such redemption or purchase date, provided however that, with
respect to a redemption or purchase date prior to October 19, 1995 in respect
of an Equipment Note, if any, purchased at a discount, the Redemption Price
shall be its original issue price (or, in the case of an Event of Loss with
respect to an Engine, the portion thereof relating thereto) plus the value
accreted thereon to such redemption or purchase date plus the portion of the
cash interest, if any, payable thereon on October 19, 1995 which corresponds to
the period from the date of issuance thereof to such redemption or purchase
date.
"Regular Distribution Date" means April 19 and October 19 of each year,
commencing on or after October 19, 1995, until payment of all the Scheduled
Payments to be made under the Equipment Notes has been made.
"Scheduled Payment" means each payment of interest or principal on an
Equipment Note scheduled to be received by the Trustee on April 19 or October
19 of each year, commencing on or after October 19, 1995, until the final
distribution date for the relevant Trust.
"747 Aircraft" means the one Boeing 747-422 aircraft, together with the
Engines relating thereto, leased by an Owner Trustee to United pursuant to one
of the three separate Leases.
"777 Aircraft" means each of the two Boeing 777-222 aircraft, together with
the Engines relating thereto, to be leased by an Owner Trustee to United
pursuant to one of the three separate Leases.
"Special Distribution Date" means any Business Day on which a Special Payment
will be distributed.
"Special Payment" means (i) any payment of principal, premium, if any, and
interest resulting from the redemption of an Equipment Note held in a Trust,
(ii) any payment of principal and interest (including any interest accruing
upon default) on or any other amount in respect of an Equipment Note upon an
Indenture Default in respect of, or upon acceleration relating to, an Equipment
Note held in a Trust, (iii) any payment of principal, premium, if any, and
interest on an Equipment Note which is not in fact paid within five days of a
Regular Distribution Date or the applicable Special Distribution Date, (iv) any
proceeds from the sale of any Equipment Note upon an Event of Default or (v)
any proceeds held by the Trustee in an escrow account in connection with a
delayed purchase of any Equipment Notes to the extent such proceeds are not
used to purchase such Equipment Notes on or prior to June 30, 1995.
"Special Payments Account" means the one or more accounts established and
maintained by the Trustee pursuant to the Basic Agreement on behalf of the
Certificateholders of the Trust created by the related Trust Supplement for the
deposit of payments representing Special Payments.
"Trust" means each of the two separate United Airlines 1995-A Pass Through
Trusts, to be formed pursuant to the Basic Agreement and a related Trust
Supplement.
A-3
"Trust Agreement" means each of the three separate Trust Agreements entered
into with respect to an Aircraft between an Owner Participant and an Owner
Trustee, as such Trust Agreement may from time to time be amended or
supplemented.
"Trust Supplement" means each of the two separate Trust Supplements to the
Basic Agreement entered into between United and the Trustee pursuant to which
the two separate Trusts will be formed.
"Trustee" means First Security Bank of Utah, National Association, a national
banking association, in its capacity as Trustee under the Basic Agreement, as
supplemented by each of the Trust Supplements, and each other person which may
from time to time act as successor Trustee under the Basic Agreement, as
supplemented by each of the Trust Supplements.
A-4
PROSPECTUS
LOGO
PASS THROUGH CERTIFICATES
Up to $1,035,000,000 aggregate principal amount of Pass Through Certificates
(the "Certificates") (or such greater amount if Certificates are issued at an
original issue discount, as shall result in aggregate proceeds of
$1,035,000,000) may be offered for sale from time to time pursuant to this
Prospectus and related Prospectus Supplements (as defined below). Certificates
may be issued in one or more series in amounts, at prices and on terms to be
determined at the time of the offering. In respect of each offering of
Certificates, a separate United Airlines Pass Through Trust for each series of
Certificates being offered (each, a "Trust") will be formed pursuant to the
Pass Through Trust Agreement dated as of February 1, 1992, as amended and
restated as of May 1, 1995, between United Air Lines, Inc. ("United") and State
Street Bank and Trust Company of Connecticut, National Association (the "Basic
Agreement") and the supplement thereto (a "Trust Supplement") relating to such
Trust between United and the trustee named in such Trust Supplement (the
"Trustee"), as trustee under such Trust. Each Certificate in a series will
represent a fractional undivided interest in the related Trust and will have no
rights, benefits or interests in respect of any other Trust. The property of
the Trusts will consist of equipment notes issued (a) on a nonrecourse basis by
one or more owner trustees pursuant to separate leveraged lease transactions
(the "Leased Aircraft Notes") to finance or refinance a portion of the
equipment cost of aircraft, including engines (each, a "Leased Aircraft" and
collectively, the "Leased Aircraft"), which have been or will be leased to
United, or (b) with recourse to United (the "Owned Aircraft Notes" and,
together with any Leased Aircraft Notes, the "Equipment Notes") to finance all
or a portion of the equipment cost of, or to purchase all or a portion of the
outstanding debt with respect to, aircraft, including engines (each, an "Owned
Aircraft" and collectively, the "Owned Aircraft" and, together with Leased
Aircraft, the "Aircraft"), which have been or will be purchased and owned by
United.
Certain specific terms of the particular Certificates in respect of which
this Prospectus is being delivered are set forth in the accompanying Prospectus
Supplement (the "Prospectus Supplement"), including, where applicable, the
specific designation, form, aggregate principal amount, initial public offering
price and distribution dates relating to such Certificates, the Trust or Trusts
relating to such Certificates, the Trustee with respect to such Certificates,
the Equipment Notes to be purchased by such Trust or Trusts, the Aircraft
relating to such Equipment Notes, the terms of any guarantee by UAL
Corporation, the leveraged lease transactions or other financing arrangements,
as the case may be, relating to such Equipment Notes and other special terms
relating to such Certificates and the net proceeds from the offering of such
Certificates. The Certificates shall be issued in registered form only and may,
if so specified in the applicable Prospectus Supplement, be issued in
accordance with a book-entry system.
Equipment Notes may be issued in respect of an Aircraft in one or more
series, each series having its own interest rate and final maturity date. A
separate Trust will purchase all of the series of the Equipment Notes relating
to the respective Aircraft and having an interest rate equal to the interest
rate applicable to the Certificates issued by such Trust and maturity dates
occurring on or before the final distribution date applicable to such
Certificates. Interest paid on the Equipment Notes held in each Trust will be
passed through to the holders of the Certificates relating to such Trust on the
dates and at the rate per annum set forth in the Prospectus Supplement relating
to such Certificates until the final distribution date for such Trust.
Principal paid on the Equipment Notes held in each Trust will be passed through
to the holders of the Certificates relating to such Trust in scheduled amounts
on the dates set forth in the Prospectus Supplement relating to such
Certificates until the final distribution date for such Trust.
The Equipment Notes issued with respect to each Aircraft will be secured by a
security interest in such Aircraft and, in the case of the Leased Aircraft, by
an assignment of the lease relating thereto, including the right to receive
rentals payable in respect of such Leased Aircraft by United. Although neither
the Certificates nor the Leased Aircraft Notes will be direct obligations of,
or guaranteed by, United, the amounts unconditionally payable by United for
lease of Leased Aircraft will be sufficient to pay in full when due all
payments required to be made on the corresponding Leased Aircraft Notes.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS-SION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------------
The Certificates may be sold to or through underwriters, through dealers or
agents or directly to purchasers. See "Plan of Distribution". The accompanying
Prospectus Supplement sets forth the names of any underwriters, dealers or
agents involved in the sale of the Certificates in respect of which this
Prospectus is being delivered and any applicable fee, commission or discount
arrangements with them. See "Plan of Distribution" for information concerning
secondary trading of the Certificates.
This Prospectus may not be used to consummate sales of Certificates unless
accompanied by a Prospectus Supplement.
The date of this Prospectus is April 28, 1995.
AVAILABLE INFORMATION
Each of United Air Lines, Inc. ("United") and UAL Corporation ("UAL") is
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information concerning United and UAL can
be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
Room 1024; Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661,
Suite 1400; and Seven World Trade Center, New York, New York 10048, 13th Floor.
Copies of such material can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, such material filed by UAL may be inspected and copied at
the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005, the Chicago Stock Exchange Incorporated, 440 South LaSalle
Street, Chicago, Illinois 60605 and the Pacific Stock Exchange, Incorporated,
301 Pine Street, San Francisco, California 94104.
This Prospectus constitutes a part of a registration statement on Form S-3
(together with all amendments and exhibits, the "Registration Statement") filed
by United and UAL with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"). This Prospectus does not contain all of the
information included in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Reference is made to such Registration Statement and to the exhibits relating
thereto for further information with respect to United, UAL and the
Certificates offered hereby.
So long as United is subject to such periodic reporting requirements, it will
continue to furnish the information required thereby to the Commission and will
furnish copies of such reports and other information to the holders of the
Certificates. United's obligation to file periodic reports with the Commission
will be suspended if each class of United's securities is held of record by
fewer than 300 holders at the beginning of any fiscal year of United other than
a fiscal year in which a registration statement with respect to any such
securities becomes effective. Accordingly, in such case, United may cease to
file reports with the Commission in respect of such fiscal year. In the event
United ceases to file periodic reports with the Commission, United is obligated
pursuant to the Basic Agreement to distribute to the holders of the
Certificates annual reports containing audited consolidated financial
statements and a report thereon by United's independent public accountants and
quarterly reports for the first three quarters of each fiscal year containing
unaudited condensed consolidated financial information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission pursuant to the
Exchange Act and are incorporated into this Prospectus by reference and made a
part hereof:
1. Each of United's and UAL's Annual Reports on Form 10-K for the fiscal
year ended December 31, 1994, filed with the Commission on March 8, 1995.
2. UAL's Current Reports on Form 8-K, dated February 28, 1995 and March
21, 1995 (filed with the Commission on the same dates).
All documents filed by United or UAL pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Certificates offered hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated herein by reference, or
contained in this Prospectus, shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or
2
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
United and UAL will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all documents incorporated herein by reference, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into such documents). Requests for such copies should be directed
to the Secretary's Office, United Air Lines, Inc., P.O. Box 66100, Chicago,
Illinois 60666, telephone (708) 952-4000.
UNITED AND UAL
United is one of the world's largest airlines, as measured by operating
revenues, revenue passengers and revenue passenger miles flown. As of March 31,
1995, United served 143 airports in the United States and 30 foreign countries.
During 1994, United averaged 2,004 departures daily, flew a total of 108
billion revenue passenger miles and carried an average of 202,900 passengers
per day. As of March 31, 1995, United's fleet of aircraft totaled 548. United's
major hub operations are located at Chicago, Denver, San Francisco, Washington,
D.C. and Tokyo.
The executive offices of United and UAL are located at 1200 East Algonquin
Road, Elk Grove Township, Illinois 60007. The mailing address of United and UAL
is P.O. Box 66100, Chicago, Illinois 60666. The telephone number for United and
UAL is (708) 952-4000.
FORMATION OF THE TRUSTS
In respect of each offering of Certificates, one or more Trusts will be
formed, and the related Certificates issued, pursuant to separate Trust
Supplements to be entered into between the applicable Trustee and United in
accordance with the terms of the Basic Agreement. Concurrently with the
execution and delivery of each Trust Supplement, the applicable Trustee, on
behalf of the Trust formed thereby, will enter into a separate financing,
refinancing or purchase agreement (each such financing, refinancing or purchase
agreement being herein referred to as a "Note Purchase Agreement") relating to
one or more of the Aircraft described in the applicable Prospectus Supplement.
Pursuant to the applicable Note Purchase Agreement or Note Purchase Agreements,
the applicable Trustee, on behalf of such Trust, will purchase all of the
series of Equipment Notes relating to the respective Aircraft and having an
interest rate equal to the interest rate payable by such Trust. The maturity
dates of the Equipment Notes acquired by each Trust will occur on or before the
final distribution date applicable to the Certificates that will be issued by
such Trust. The applicable Trustee will distribute the amount of payments of
principal, premium, if any, and interest received by it as holder of the
Equipment Notes to the Certificateholders of the Trust in which such Equipment
Notes are held. See "Description of the Certificates" and "Description of the
Equipment Notes".
USE OF PROCEEDS
The Certificates offered pursuant to any Prospectus Supplement will be issued
in order to facilitate (a) the financing or refinancing of the debt portion
and, in certain cases, the refinancing of some of the equity portion of one or
more separate leveraged lease transactions entered into by United, as lessee,
with respect to the Leased Aircraft as described in the applicable Prospectus
Supplement, and (b) the financing of the aggregate principal amount of debt to
be issued, or the purchase of the aggregate principal amount of the debt
previously issued, by United in respect of the Owned Aircraft as described in
the applicable Prospectus Supplement. The proceeds from the sale of the
Certificates offered pursuant to any Prospectus Supplement will be used by the
Trustee on behalf of the applicable Trust or Trusts to purchase either (a)
Leased Aircraft Notes issued by the respective Owner Trustee or Owner Trustees
to finance or refinance a portion (as specified
3
in the applicable Prospectus Supplement) of the equipment cost of the related
Leased Aircraft or (b) Owned Aircraft Notes issued by United to finance all or
a portion (as specified in the applicable Prospectus Supplement) of the
equipment cost of the related Owned Aircraft. Any portion of the proceeds from
the sale of Certificates not used by the applicable Trustee to purchase
Equipment Notes on or prior to the date specified therefor in the applicable
Prospectus Supplement will be distributed on a Special Distribution Date (as
hereinafter defined) to the applicable Certificateholders, together with
interest, but without premium. See "Description of Certificates--Special
Distribution Upon Unavailability of Aircraft".
The Leased Aircraft Notes will be issued under separate Trust Indenture and
Security Agreements (the "Leased Aircraft Indentures") between an institution
specified in the related Prospectus Supplement acting as loan trustee
thereunder (in such capacity, herein referred to as the "Loan Trustee"), and an
institution specified in the related Prospectus Supplement acting, not in its
individual capacity, but solely as owner trustee (an "Owner Trustee") of a
separate trust for the benefit of one or more institutional investors (each, an
"Owner Participant"). With respect to each Leased Aircraft, the related Owner
Participant will have provided or will provide from sources other than the
Leased Aircraft Notes a portion (as specified in the applicable Prospectus
Supplement) of the equipment cost of the related Leased Aircraft. No Owner
Participant, however, will be personally liable for any amount payable under
the related Leased Aircraft Indenture or the Leased Aircraft Notes issued
thereunder. Simultaneously with the acquisition of each Leased Aircraft, the
related Owner Trustee leased or will lease such Aircraft to United pursuant to
a separate lease agreement (each such lease agreement being herein referred to
as a "Lease"). The Owned Aircraft Notes will be issued under separate Trust
Indenture and Security Agreements (the "Owned Aircraft Indentures" and
collectively, with any Leased Aircraft Indentures, the "Indentures") between
the applicable Loan Trustee and United.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
each of United and UAL for the periods indicated. Earnings represent earnings
before income taxes and fixed charges (excluding interest capitalized). Fixed
charges consist of interest and the portion of rental expenses deemed
representative of the interest factor.
YEAR ENDED DECEMBER 31,
------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
United........................................... 1.11 (a) (a) (a) 1.16
UAL.............................................. 1.12 (b) (b) (b) 1.16
- --------
(a) Earnings were inadequate to cover fixed charges by $77 million in 1993,
$694 million in 1992 and $604 million in 1991.
(b) Earnings were inadequate to cover fixed charges by $98 million in 1993,
$748 million in 1992 and $599 million in 1991.
4
DESCRIPTION OF THE CERTIFICATES
In connection with each offering of Certificates, one or more separate trusts
will be formed and one or more series of Certificates will be issued pursuant
to the Basic Agreement and one or more separate Trust Supplements to be entered
into between United and the applicable Trustee. The statements made under this
caption are summaries and reference is made to the detailed provisions of the
Basic Agreement, which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The summaries relate to the Basic
Agreement and each of the Trust Supplements, the Trusts to be formed thereby
and the Certificates to be issued by each Trust except to the extent, if any,
described in the applicable Prospectus Supplement. The Prospectus Supplement
that accompanies this Prospectus contains a glossary of the material terms used
with respect to the specific series of Certificates being offered thereby. The
Trust Supplement relating to each series of Certificates and the forms of the
related Note Purchase Agreement and Indenture and, if the Certificates relate
to Leased Aircraft, the related Lease, Trust Agreement and Participation
Agreement will be filed as exhibits to a Current Report on Form 8-K, Quarterly
Report on Form 10-Q, or Annual Report on Form 10-K, to be filed by United with
the Commission following the issuance of such series of Certificates. Citations
to the relevant sections of the Basic Agreement appear below in parentheses
unless otherwise indicated.
In the event that UAL elects in connection with the offering of Certificates
of any series hereunder to guarantee (i) the related Owned Aircraft Notes or
(ii) United's rental obligations with respect to the related Leased Aircraft
Notes, UAL will be a party to the applicable Trust Supplement and the terms of
such Guarantee will be set forth therein. See "UAL Guarantees".
The Certificates offered pursuant to this Prospectus will be limited to
$1,035,000,000 aggregate principal amount (or such greater amount if
Certificates are issued at an original issue discount, as shall result in
aggregate proceeds of $1,035,000,000).
Certain provisions of the description of the Certificates in this Prospectus
do not necessarily apply to one Certificate of each Trust which may be issued
in a denomination of less than $1,000 or to the Certificates of any Trust in
the event of a delayed purchase of the Equipment Notes to be held by such
Trust.
GENERAL
Each Certificate will represent a fractional undivided interest in the Trust
created by the Trust Supplement pursuant to which such Certificate was issued
and all payments and distributions shall be made only from the related Trust
Property (as defined below). The property of each Trust (the "Trust Property")
will include the Equipment Notes held in such Trust, all monies at any time
paid thereon and all monies due and to become due thereunder and funds from
time to time deposited with the applicable Trustee in accounts relating to such
Trust. Each Certificate will represent a pro rata share of the outstanding
principal amount of the Equipment Notes held in the related Trust and, unless
otherwise specified in the applicable Prospectus Supplement, will be issued in
minimum denominations of $1,000 or any integral multiple thereof. (Sections
2.01 and 3.01) The Certificates do not represent an interest in or obligation
of United, any Trustee, any of the Loan Trustees or Owner Trustees in their
individual capacities, any Owner Participant, or any affiliate of any thereof.
Reference is made to the Prospectus Supplement that accompanies this
Prospectus for a description of the specific series of Certificates being
offered thereby, including: (1) the specific designation and title of such
Certificates; (2) the Regular Distribution Dates (as hereinafter defined) and
Special Distribution Dates (as hereinafter defined) applicable to such
Certificates; (3) the specific form of such Certificates, including whether or
not such Certificates are to be issued in accordance with a book-entry system;
(4) a description of the Equipment Notes to be purchased by such Trust,
including the period or periods within which, the price or prices at which, and
the terms and conditions upon which such Certificates may or must be redeemed
in whole or in part, by United or, with respect to Leased Aircraft Notes, the
Owner Trustee; (5) a description
5
of the related Aircraft, including whether the Aircraft is a Leased Aircraft or
an Owned Aircraft; (6) a description of the related Note Purchase Agreement and
Indenture, including a description of the events of default under the related
Indentures, the remedies exercisable upon the occurrence of such events of
default and any limitations on the exercise of such remedies with respect to
such Equipment Notes; (7) if such Certificates relate to Leased Aircraft, a
description of the related Lease, Trust Agreement and Participation Agreement,
including (a) the names of the related Owner Trustees and Loan Trustees, (b) a
description of the events of default under the related Leases, the remedies
exercisable upon the occurrence of such events of default and any limitations
on the exercise of such remedies with respect to such Leased Aircraft Notes,
and (c) the rights of the related Owner Trustee, if any, and/or Owner
Participant, if any, to cure failures of United to pay rent under the related
Lease; (8) the extent, if any, to which the provisions of the operative
documents applicable to such Equipment Notes may be amended by the parties
thereto without the consent of the holders of, or only upon the consent of the
holders of a specified percentage of aggregate principal amount of, such
Equipment Notes; (9) if applicable, the terms of any Guarantee; (10) the name
of the Trustee with respect to such Certificates; and (11) any other special
terms pertaining to such Certificates.
BOOK-ENTRY REGISTRATION
The Certificates of each Trust will be issued in fully registered form only
and may be issued pursuant to a book-entry system. In the event that the
Certificates of any series are issued pursuant to a book-entry system, such
Certificates will be registered in the name of Cede & Co. ("Cede") as the
nominee of The Depository Trust Company ("DTC"). No person acquiring an
interest in such Certificates ("Certificate Owner") will be entitled to receive
a certificate representing such person's interest in such Certificates, except
as set forth below under "Definitive Certificates". Unless and until Definitive
Certificates are issued under the limited circumstances described herein, all
references to actions by Certificateholders shall refer to actions taken by DTC
upon instructions from DTC Participants (as defined below), and all references
herein to distributions, notices, reports and statements to Certificateholders
shall refer, as the case may be, to distributions, notices, reports and
statements to DTC or Cede, as the registered holder of such Certificates, or to
DTC Participants for distribution to Certificate Owners in accordance with DTC
procedures. (Section 3.09)
United has been advised that DTC is a limited purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code and a "clearing agency" registered pursuant to section 17A of
the Exchange Act. DTC was created to hold securities for its participants ("DTC
Participants") and to facilitate the clearance and settlement of securities
transactions between DTC Participants through electronic book-entries, thereby
eliminating the need for physical transfer of certificates. DTC Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations. Indirect access to the DTC system also is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a DTC Participant either directly or
indirectly ("Indirect Participants").
Certificate Owners that are not DTC Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, the Certificates may do so only through DTC Participants and Indirect
Participants. In addition, Certificate Owners will receive all distributions of
principal and interest from the applicable Trustee through DTC Participants or
Indirect Participants, as the case may be. Under a book-entry format,
Certificate Owners may experience some delay in their receipt of payments,
since such payments will be forwarded by the applicable Trustee to Cede, as
nominee for DTC. DTC will forward such payments in same-day funds to DTC
Participants who are credited with ownership of the Certificates in amounts
proportionate to the principal amount of each such DTC Participant's respective
holdings of beneficial interests in the Certificates. DTC Participants will
thereafter forward payments to Indirect Participants or Certificate Owners, as
the case may be, in accordance with customary industry practices. The
forwarding of such distributions to the Certificate Owners will be the
responsibility of such DTC Participants. Unless and until the Definitive
Certificates are issued under the limited circumstances
6
described herein, the only "Certificateholder" will be Cede, as nominee of DTC.
Certificate Owners will not be recognized by the applicable Trustee as
Certificateholders, as such term is used in the Basic Agreement, and
Certificate Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and DTC Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
the Certificates among DTC Participants on whose behalf it acts with respect to
the Certificates and to receive and transmit distributions of principal,
premium, if any, and interest with respect to the Certificates. DTC
Participants and Indirect Participants with which Certificate Owners have
accounts with respect to the Certificates similarly are required to make book-
entry transfers and receive and transmit such payments on behalf of their
respective customers. Accordingly, although Certificate Owners will not possess
the Certificates, the Rules provide a mechanism by which Certificate Owners
will receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect Participants, the ability of a Certificate Owner to pledge
the Certificates to persons or entities that do not participate in the DTC
system, or to otherwise act with respect to such Certificates, may be limited
due to the lack of a physical certificate for such Certificates.
DTC has advised United that it will take any action permitted to be taken by
a Certificateholder under the Basic Agreement only at the direction of one or
more DTC Participants to whose accounts with DTC the Certificates are credited.
Additionally, DTC has advised United that in the event any action requires
approval by Certificateholders of a certain percentage of beneficial interest
in each Trust, DTC will take such action only at the direction of and on behalf
of DTC Participants whose holders include undivided interests that satisfy any
such percentage. DTC may take conflicting actions with respect to other
undivided interests to the extent that such actions are taken on behalf of DTC
Participants whose holders include such undivided interests.
Neither United nor the applicable Trustee will have any liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Certificates held by Cede, as nominee for DTC, or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
DEFINITIVE CERTIFICATES
Certificates will be issued in certificated form ("Definitive Certificates")
to Certificate Owners or their nominees, rather than to DTC or its nominee,
only if (i) United advises the applicable Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to such Certificates and United is unable to locate a qualified
successor, (ii) United, at its option, elects to terminate the book-entry
system through DTC or (iii) after the occurrence of an Event of Default (as
hereinafter defined), and Certificate Owners with fractional undivided
interests aggregating not less than a majority in interest in such Trust advise
the related Trustee, United and DTC through DTC Participants in writing that
the continuation of a book-entry system through DTC (or a successor thereto) is
no longer in the Certificate Owners' best interest. (Section 3.09)
Upon the occurrence of any event described in the immediately preceding
paragraph, the applicable Trustee will be required to notify all Certificate
Owners through DTC Participants of the availability of Definitive Certificates.
Upon surrender by DTC of the certificates representing the Certificates and
receipt of instructions for re-registration, the applicable Trustee will
reissue the Certificates as Definitive Certificates to Certificate Owners.
(Section 3.09)
7
Distributions of principal, premium, if any, and interest with respect to
Certificates will thereafter be made by the applicable Trustee directly in
accordance with the procedures set forth in the Basic Agreement and the
applicable Trust Supplements, to holders in whose names the Definitive
Certificates were registered at the close of business on the applicable record
date. Such distributions will be made by check mailed to the address of such
holder as it appears on the register maintained by the applicable Trustee. The
final payment on any Certificate, however, will be made only upon presentation
and surrender of such Certificate at the office or agency specified in the
notice of final distribution to Certificateholders. (Sections 4.02 and 11.01)
Definitive Certificates will be freely transferable and exchangeable at the
office of the applicable Trustee upon compliance with the requirements set
forth in the Basic Agreement and the applicable Trust Supplements. No service
charge will be imposed for any registration of transfer or exchange, but
payment of a sum sufficient to cover any tax or other governmental charge shall
be required. (Section 3.04)
SAME-DAY SETTLEMENT AND PAYMENT
So long as the Certificates are registered in the name of Cede, as nominee
for DTC, all payments made by United to the applicable Loan Trustee under any
Lease or any Owned Aircraft Indentures will be in immediately available funds.
Such payments, including the final distribution of principal with respect to
the Certificates of any Trust, will be passed through to DTC in immediately
available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing-house or next-day funds. In contrast, secondary
trading in pass through certificates is generally settled in immediately
available or same-day funds. Any Certificates registered in the name of Cede,
as nominee for DTC, will trade in DTC's Same-Day Funds Settlement System until
maturity, and secondary market trading activity in the Certificates will
therefore be required by DTC to settle in immediately available funds. No
assurance can be given as to the effect, if any, of settlement in same-day
funds on trading activity in the Certificates.
PAYMENTS AND DISTRIBUTIONS
Payments of principal, premium, if any, and interest with respect to the
Equipment Notes held in each Trust will be distributed by the applicable
Trustee to Certificateholders of such Trust on the dates specified in the
applicable Prospectus Supplement, except in certain cases when some or all of
such Equipment Notes are in default. See "Events of Default and Certain Rights
Upon an Event of Default". Payments of principal of, and interest on, the
unpaid principal amount of the Equipment Notes held in each Trust will be
scheduled to be received by the applicable Trustee on the dates specified in
the applicable Prospectus Supplement (such scheduled payments of interest and
principal on the Equipment Notes are herein referred to as "Scheduled
Payments", and the dates specified in the applicable Prospectus Supplement are
herein referred to as "Regular Distribution Dates"). See "Description of the
Equipment Notes--General". Each Certificateholder of each Trust will be
entitled to receive a pro rata share of any distribution in respect of
Scheduled Payments of principal and interest made on the Equipment Notes held
in the Trust.
Payments of principal, premium, if any, and interest received by the
applicable Trustee on account of the early redemption, if any, of the Equipment
Notes relating to one or more Aircraft held in a Trust, and payments, other
than Scheduled Payments received on a Regular Distribution Date, received by
such Trustee following a default in respect of Equipment Notes held in a Trust
relating to one or more Aircraft ("Special Payments") will be distributed on
the date determined pursuant to the applicable Prospectus Supplement (a
"Special Distribution Date"). The applicable Trustee will mail notice to the
Certificateholders of record of the applicable Trust as soon as practicable
prior to the Special Distribution Date on which any Special Payment is
scheduled to be distributed by such Trustee stating such anticipated Special
Distribution Date. (Section 4.02)
8
POOL FACTORS
Unless there has been an early redemption, a purchase of an issue of
Equipment Notes by the related Owner Trustee after an Indenture Default (as
defined below) or a default in the payment of principal or interest, in respect
of one or more issues of the Equipment Notes held in a Trust, as described in
the applicable Prospectus Supplement or below in "Events of Default and Certain
Rights Upon an Event of Default", the Pool Factor (as defined below) for the
Trusts will decline in proportion to the scheduled repayments of principal on
the Equipment Notes held in such Trust as described in the applicable
Prospectus Supplement. In the event of such redemption, purchase or default,
the Pool Factor and the Pool Balance (as defined below) of each Trust so
affected will be recomputed after giving effect thereto and notice thereof will
be mailed to the Certificateholders of such Trust. Each Trust will have a
separate Pool Factor.
The "Pool Balance" for each Trust indicates, as of any date, the aggregate
unpaid principal amount of the Equipment Notes held in such Trust on such date
plus any amounts in respect of principal on such Equipment Notes held by the
applicable Trustee and not yet distributed. The Pool Balance for each Trust as
of any Regular Distribution Date or Special Distribution Date shall be computed
after giving effect to the payment of principal, if any, on the Equipment Notes
held in such Trust and distribution thereof to be made on that date.
The "Pool Factor" for each Trust as of any Regular Distribution Date or
Special Distribution Date is the quotient (rounded to the seventh decimal
place) computed by dividing (i) the Pool Balance by (ii) the aggregate original
principal amount of the Equipment Notes held in such Trust. The Pool Factor for
each Trust as of any Regular Distribution Date or Special Distribution Date
shall be computed after giving effect to the payment of principal, if any, on
the Equipment Notes held in such Trust and distribution thereof to be made on
that date. The Pool Factor for each Trust will initially be 1.0000000;
thereafter, the Pool Factor for each Trust will decline as described above to
reflect reductions in the Pool Balance of such Trust. The amount of a
Certificateholder's pro rata share of the Pool Balance of a Trust can be
determined by multiplying the original denomination of the holder's Certificate
of such Trust by the Pool Factor for such Trust as of the applicable Regular
Distribution Date or Special Distribution Date. The Pool Factor and the Pool
Balance for each Trust will be mailed to Certificateholders of such Trust on
each Regular Distribution Date and Special Distribution Date.
REPORTS TO CERTIFICATEHOLDERS
On each Regular Distribution Date and Special Distribution Date, the
applicable Trustee will include with each distribution of a Scheduled Payment
or Special Payment to Certificateholders of the related Trust a statement,
giving effect to such distribution to be made on such Regular Distribution Date
or Special Distribution Date, setting forth the following information (per
$1,000 aggregate principal amount of Certificate for such Trust, as to (i) and
(ii) below):
(i) the amount of such distribution allocable to principal and the amount
allocable to premium, if any;
(ii) the amount of such distribution allocable to interest; and
(iii) the Pool Balance and the Pool Factor for such Trust. (Section
4.03(a))
So long as the Certificates are registered in the name of Cede, as nominee
for DTC, on the record date prior to each Regular Distribution Date and Special
Distribution Date, the applicable Trustee will request from DTC a Securities
Position Listing setting forth the names of all DTC Participants reflected on
DTC's books as holding interests in the Certificates on such record date. On
each Regular Distribution Date and Special Distribution Date, the applicable
Trustee will mail to each such DTC Participant the statement described above
and will make available additional copies as requested by such DTC Participant
for forwarding to Certificate Owners.
9
In addition, after the end of each calendar year, the applicable Trustee will
prepare for each Certificateholder of each Trust at any time during the
preceding calendar year a report containing the sum of the amounts determined
pursuant to clauses (i) and (ii) above with respect to the Trust for such
calendar year or, in the event such person was a Certificateholder during only
a portion of such calendar year, for the applicable portion of such calendar
year, and such other items as are readily available to such Trustee and which a
Certificateholder shall reasonably request as necessary for the purpose of such
Certificateholder's preparation of its federal income tax returns. (Section
4.03(b)) Such report and such other items shall be prepared on the basis of
information supplied to the applicable Trustee by the DTC Participants and
shall be delivered by such Trustee to such DTC Participants to be available for
forwarding by such DTC Participants to Certificate Owners in the manner
described above.
At such time, if any, as the Certificates are issued in the form of
Definitive Certificates, the applicable Trustee will prepare and deliver the
information described above to each Certificateholder of record of each Trust
as the name and period of beneficial ownership of such Certificateholder
appears on the records of the registrar of the Certificates.
VOTING OF EQUIPMENT NOTES
The applicable Trustee, as holder of the Equipment Notes held in each Trust,
has the right to vote and give consents and waivers with respect to such
Equipment Notes under the related Indentures. The Basic Agreement sets forth
the circumstances in which the applicable Trustee at its own discretion shall
direct any action or cast any vote as the holder of the Equipment Notes held in
the applicable Trust and the circumstances in which the Trustee shall seek
instructions from the Certificateholders of such Trust. Prior to an Event of
Default (as defined below) with respect to any Trust, the principal amount of
the Equipment Notes held in such Trust directing any action or being voted for
or against any proposal shall be in proportion to the principal amount of
Certificates held by the Certificateholders of such Trust taking the
corresponding position. (Sections 6.01 and 10.01)
EVENTS OF DEFAULT AND CERTAIN RIGHTS UPON AN EVENT OF DEFAULT
An event of default under the Basic Agreement (an "Event of Default") is
defined as the occurrence and continuance of an event of default under one or
more of the Indentures (an "Indenture Default"). The Indenture Defaults under
an Indenture will be described in the applicable Prospectus Supplement and,
with respect to the Leased Aircraft, will include an event of default under the
related Lease (a "Lease Event of Default"). Since the Equipment Notes issued
under an Indenture may be held in more than one Trust, a continuing Indenture
Default under such Indenture would result in an Event of Default under each
such Trust. There will be, however, no cross-default provisions in the
Indentures, and events resulting in an Indenture Default under any particular
Indenture will not necessarily result in an Indenture Default occurring under
any other Indenture. If an Indenture Default occurs in fewer than all of the
Indentures, notwithstanding the treatment of Equipment Notes issued under any
Indenture under which an Indenture Default has occurred, payments of principal
and interest on the Equipment Notes issued pursuant to Indentures with respect
to which an Indenture Default has not occurred will continue to be distributed
to the holders of the Certificates as originally scheduled.
With respect to each Leased Aircraft, the applicable Owner Trustee and Owner
Participant will, under the related Indenture, have the right under certain
circumstances to cure Indenture Defaults that result from the occurrence of a
Lease Event of Default under the related Lease. If the Owner Trustee or the
Owner Participant exercises such cure right, the Indenture Default and
consequently the Event of Default with respect to the related Trust or Trusts
will be deemed to have been cured.
The Basic Agreement provides that, as long as an Indenture Default under any
Indenture relating to the Equipment Notes held in a Trust shall have occurred
and be continuing, the Trustee of such Trust may vote all of the Equipment
Notes issued under such Indenture in such Trust and, upon the direction of the
holders
10
of Certificates evidencing fractional undivided interests aggregating not less
than a majority in interest of such Trust, shall vote a corresponding majority
of such Equipment Notes in favor of directing the applicable Loan Trustee to
declare the unpaid principal amount of all Equipment Notes issued under such
Indenture and any accrued and unpaid interest thereon to be due and payable.
The Basic Agreement also provides that, if an Indenture Default under any
Indenture relating to the Equipment Notes held in a Trust shall have occurred
and be continuing, the Trustee of such Trust may, and upon the direction of the
holders of Certificates evidencing fractional undivided interests aggregating
not less than a majority in interest of such Trust shall, vote all of the
Equipment Notes issued under such Indenture that are held in such Trust in
favor of directing the applicable Loan Trustee as to the time, method and place
of conducting any proceeding for any remedy available to such Loan Trustee or
of exercising any trust or power conferred on such Loan Trustee under such
Indenture. (Sections 6.01 and 6.04)
The ability of the holders of the Certificates issued with respect to any one
Trust to cause the Loan Trustee with respect to any Equipment Notes held in
such Trust to accelerate the Equipment Notes under the related Indenture or to
direct the exercise of remedies by such Loan Trustee under the related
Indenture will depend, in part, upon the proportion between the aggregate
principal amount of the Equipment Notes outstanding under such Indenture and
held in such Trust and the aggregate principal amount of all Equipment Notes
outstanding under such Indenture. Each Trust will hold Equipment Notes with
different terms from the Equipment Notes held in the other Trusts and therefore
the Certificateholders of a Trust may have divergent or conflicting interests
from those of the Certificateholders of the other Trusts holding Equipment
Notes relating to the same Aircraft. In addition, in the event that the same
institution acts as Trustee of multiple Trusts, in the absence of instructions
from the Certificateholders of any such Trust, such Trustee could for the same
reason be faced with a potential conflict of interest upon an Indenture
Default. In such event, such Trustee has indicated that it would resign as
trustee of one or all such Trusts, and a successor trustee would be appointed
in accordance with the terms of the applicable Basic Agreement.
As an additional remedy, if an Indenture Default shall have occurred and be
continuing, the Basic Agreement provides that the Trustee of the Trust holding
Equipment Notes issued under such Indenture may, and upon the direction of the
holders of the Certificates evidencing fractional undivided interests
aggregating not less than a majority in interest of such Trust shall, sell for
cash to any person all or part of such Equipment Notes. (Section 6.01) Any
proceeds received by the applicable Trustee upon any such sale shall be
deposited in an account established by the Trustee for the benefit of the
Certificateholders of such Trust for the deposit of such Special Payments (the
"Special Payments Account") and shall be distributed to the Certificateholders
of such Trust on a Special Distribution Date. (Sections 4.01, 4.02 and 6.02)
The market for Equipment Notes in default may be very limited, and there can be
no assurance that they could be sold for a reasonable price. Furthermore, in
the event that the same institution acts as Trustee of multiple Trusts, it may
be faced with a conflict in deciding from which Trust to sell Equipment Notes
to available buyers. If such Trustee sells any such Equipment Notes with
respect to which an Indenture Default exists for less than their outstanding
principal amount, the Certificateholders of such Trust will receive a smaller
amount of principal distributions than anticipated and will not have any claim
for the shortfall against United, any Owner Trustee or such Trustee.
Furthermore, neither the Trustee nor the Certificateholders of such Trust could
take any action with respect to any remaining Equipment Notes held in such
Trust so long as no Indenture Defaults exist with respect thereto.
Any amount, other than Scheduled Payments received on a Regular Distribution
Date, distributed to the Trustee of any Trust by the applicable Loan Trustee
under any Indenture on account of the Equipment Notes held in such Trust
following an Indenture Default under such Indenture shall be deposited in the
Special Payments Account for such Trust and shall be distributed to the
Certificateholders of such Trust on a Special Distribution Date. In addition,
if, following an Indenture Default under any Indenture relating to a Leased
Aircraft the applicable Owner Trustee exercises its option to redeem or
purchase the outstanding Equipment Notes issued under such Indenture as
described in the related Prospectus Supplement, the price paid by such Owner
Trustee to the Trustee of any Trust for the Equipment Notes issued under such
Indenture
11
and held in such Trust shall be deposited in the Special Payments Account for
such Trust and shall be distributed to the Certificateholders of such Trust on
a Special Distribution Date. (Sections 4.01, 4.02 and 6.02)
Any funds representing payments received with respect to any Equipment Notes
held in a Trust in default, or the proceeds from the sale by the applicable
Trustee of any such Equipment Notes, held by such Trustee in the Special
Payments Account for such Trust shall, to the extent practicable, be invested
and reinvested by such Trustee in Permitted Investments pending the
distribution of such funds on a Special Distribution Date. Permitted
Investments are defined as obligations of the United States or agencies or
instrumentalities thereof the payment of which is backed by the full faith and
credit of the United States and which mature in not more than 60 days or such
lesser time as is required for the distribution of any such funds on a Special
Distribution Date. (Sections 1.01 and 4.04)
The Basic Agreement provides that the Trustee of each Trust shall, within 90
days after the occurrence of a default in respect of such Trust, give to the
Certificateholders of such Trust notice, transmitted by mail, of all uncured or
unwaived defaults with respect to such Trust known to it, provided that, except
in the case of default in the payment of principal, premium, if any, or
interest on any of the Equipment Notes held in such Trust, the applicable
Trustee shall be protected in withholding such notice if it in good faith
determines that the withholding of such notice is in the interests of such
Certificateholders. (Section 7.01)
The Basic Agreement contains a provision entitling the Trustee of each Trust,
subject to the duty of the Trustee during a default to act with the required
standard of care, to be offered reasonable security or indemnity by the holders
of the Certificates of such Trust before proceeding to exercise any right or
power under the Basic Agreement at the request of such Certificateholders.
(Section 7.02)
In certain cases, the holders of the Certificates of a Trust evidencing
fractional undivided interests aggregating not less than a majority in interest
of such Trust may on behalf of the holders of all the Certificates of such
Trust waive, or may instruct the applicable Loan Trustee to waive, any past
default or Event of Default with respect to such Trust and thereby annul any
direction given by such holders to such Loan Trustee with respect thereto,
except (i) a default in the deposit of any Scheduled Payment or Special Payment
or in the distribution thereof, (ii) a default in payment of the principal,
premium, if any, or interest with respect to any of the Equipment Notes held in
such Trust and (iii) a default in respect of any covenant or provision of the
Basic Agreement or the related Trust Supplement that cannot be modified or
amended without the consent of each Certificateholder of such Trust affected
thereby. (Section 6.05) Each Indenture will provide that, with certain
exceptions, the holders of a majority in aggregate unpaid principal amount of
the Equipment Notes issued thereunder may on behalf of all such holders waive
any past default or Indenture Default thereunder. In the event of a waiver with
respect to a Trust as described above, the principal amount of the Equipment
Notes issued under the related Indenture held in such Trust shall be counted as
waived in the determination of the majority in aggregate unpaid principal
amount of Equipment Notes required to waive a default or an Indenture Default.
Therefore, if the Certificateholders of a Trust or Trusts waive a past default
or Event of Default such that the principal amount of the Equipment Notes held
either individually in such Trust or in the aggregate in such Trusts
constitutes the required majority in aggregate unpaid principal amount under
the applicable Indenture, such past default or Indenture Default shall be
waived.
MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
United will be prohibited from consolidating with or merging into any other
corporation or transferring substantially all of its assets as an entirety to
any other corporation unless (i) the surviving successor or transferee
corporation shall (a) be a "citizen of the United States" as defined in Section
40102(a)(15) of Title 49 of the United States Code, as amended, relating to
aviation (the "Aviation Act"), (b) be a United States certificated air carrier
and (c) expressly assume all of the obligations of United contained in the
Basic Agreement, the Note Purchase Agreements and the Indentures and, with
respect to the Leased Aircraft Notes, the Participation Agreements and the
Leases, and any other operative documents; (ii) immediately
12
after giving effect to such transaction, no Indenture Default (with respect to
the Owned Aircraft Notes) or Lease Event of Default (with respect to the Leased
Aircraft Notes) shall have occurred and be continuing; and (iii) United shall
have delivered a certificate and an opinion or opinions of counsel indicating
that such transaction, in effect, complies with such conditions. (Section
5.02(a))
The Basic Agreement does not and, except as otherwise described in the
applicable Prospectus Supplement, the Indentures will not contain any covenants
or provisions which may afford the applicable Trustee or Certificateholders
protection in the event of a highly leveraged transaction, including
transactions effected by management or affiliates, which may or may not result
in a change in control of United. No instrument or agreement currently
evidencing other indebtedness of United contains covenants or provisions
affording holders of such indebtedness protection in the event of a change in
control of United.
MODIFICATIONS OF THE BASIC AGREEMENT
The Basic Agreement contains provisions permitting United and the Trustee of
each Trust to enter into a supplemental trust agreement, without the consent of
the holders of any of the Certificates of such Trust, (i) to provide for the
formation of such Trust and the issuance of a series of Certificates, (ii) to
evidence the succession of another corporation to United and the assumption by
such corporation of United's obligations under the Basic Agreement and the
applicable Trust Supplement, (iii) to add to the covenants of United for the
benefit of holders of such Certificates or to surrender any right or power in
the Basic Agreement conferred upon United, (iv) to correct or supplement any
defective or inconsistent provision of the Basic Agreement or the applicable
Trust Supplement or to modify any other provisions with respect to matters or
questions arising thereunder, provided such action shall not adversely affect
the interests of the holders of such Certificates, or to cure any ambiguity or
correct any mistake, (v) to modify, eliminate or add to the provisions of the
Basic Agreement to the extent as shall be necessary to continue the
qualification of the Basic Agreement (including any supplemental agreement)
under the Trust Indenture Act and to add to the Basic Agreement such other
provisions as may be expressly permitted by the Trust Indenture Act, (vi) to
specify the applicable Trustee with respect to any Trust and to provide for a
successor Trustee or to add to or change any provision of the Basic Agreement
as shall be necessary to facilitate the administration of the Trusts thereunder
by more than one Trustee, and (vii) to make any other amendments or
modifications to the Basic Agreement, provided such amendments or modifications
shall only apply to Certificates issued thereafter. (Section 9.01)
The Basic Agreement also contains provisions permitting United and the
Trustee of each Trust, with the consent of the holders of the Certificates of
such Trust evidencing fractional undivided interests aggregating not less than
a majority in interest of such Trust, and, with respect to any Leased Aircraft,
with the consent of the applicable Owner Trustee (such consent not to be
unreasonably withheld), to execute supplemental trust agreements adding any
provisions to or changing or eliminating any of the provisions of the Basic
Agreement, to the extent relating to such Trust, and the applicable Trust
Supplement, or modifying the rights of the Certificateholders, except that no
such supplemental trust agreement may, without the consent of the holder of
each Certificate so affected thereby, (a) reduce in any manner the amount of,
or delay the timing of, any receipt by the applicable Trustee of payments on
the Equipment Notes held in such Trust or distributions in respect of any
Certificate related to such Trust, or change the date or place of any payment
in respect of any Certificate, or make distributions payable in coin or
currency other than that provided for in such Certificates, or impair the right
of any Certificateholder of such Trust to institute suit for the enforcement of
any such payment when due, (b) permit the disposition of any Equipment Note
held in such Trust, except as provided in the Basic Agreement or the applicable
Trust Supplement, or otherwise deprive any Certificateholder of the benefit of
the ownership of the applicable Equipment Notes, (c) reduce the percentage of
the aggregate fractional undivided interests of the Trust provided for in the
Basic Agreement or the applicable Trust Supplement, the consent of the holders
of which is required for any such supplemental trust agreement or for any
waiver provided for in the Basic Agreement or such Trust Supplement or (d)
modify any of the provisions relating to the rights of the Certificateholders
in respect of the waiver of Events of Default or receipt of payment. (Section
9.02)
13
MODIFICATION OF INDENTURE AND RELATED AGREEMENTS
In the event that the Trustee, as the holder of any Equipment Notes held in a
Trust, receives a request for its consent to any amendment, modification or
waiver under the Indenture or other documents relating to such Equipment Notes
(including any Lease with respect to Leased Aircraft Notes), such Trustee shall
send a notice of such proposed amendment, modification or waiver to each
Certificateholder of such Trust of record as of the date of such notice. The
applicable Trustee shall request instructions from the Certificateholders of
such Trust as to whether or not to consent to such amendment, modification or
waiver. The applicable Trustee shall vote or consent with respect to such
Equipment Notes in such Trust in the same proportion as the Certificates of
such Trust were actually voted by the holders thereof by a certain date.
Notwithstanding the foregoing, if an Event of Default in respect of such Trust
shall have occurred and be continuing, the applicable Trustee may, in the
absence of instructions from Certificateholders holding a majority in interest
of such Trust, in its own discretion consent to such amendment, modification or
waiver and may so notify the applicable Loan Trustee. (Section 10.01)
TERMINATION OF THE TRUSTS
The obligations of United and the applicable Trustee with respect to a Trust
will terminate upon the distribution to Certificateholders of such Trust of all
amounts required to be distributed to them pursuant to the Basic Agreement and
the applicable Trust Supplement and the disposition of all property held in
such Trust. The applicable Trustee will send to each Certificateholder of
record of such Trust notice of the termination of such Trust, the amount of the
proposed final payment and the proposed date for the distribution of such final
payment for such Trust. The final distribution to any Certificateholder of such
Trust will be made only upon surrender of such Certificateholder's Certificates
at the office or agency of the applicable Trustee specified in such notice of
termination. (Section 11.01)
DELAYED PURCHASE
In the event that, on the delivery date of any Certificates, all or a portion
of the proceeds from the sale of such Certificates are not used to purchase the
Equipment Notes contemplated to be held in the related Trust, such Equipment
Notes may be purchased by the applicable Trustee at any time on or prior to the
date specified in the applicable Prospectus Supplement. In such event, the
applicable Trustee will hold the proceeds from the sale of such Certificates
not used to purchase Equipment Notes in an escrow account pending the purchase
of the Equipment Notes not so purchased. Such proceeds will be invested at the
direction and risk of, and for the account of, United in certain specified
investments, which may include: (i) obligations of, or guaranteed by, the
United States Government or agencies thereof, (ii) open market commercial paper
of any corporation incorporated under the laws of the United States of America
or any State thereof rated at least P-1 or its equivalent by Moody's Investors
Service, Inc. or at least A-1 or its equivalent by Standard & Poor's Ratings
Group, (iii) certificates of deposit issued by commercial banks organized under
the laws of the United States or of any political subdivision thereof having a
combined capital and surplus in excess of $500,000,000 which banks or their
holding companies have a rating of A or its equivalent by Moody's Investors
Service, Inc. or Standard & Poor's Ratings Group; provided, however, that the
aggregate amount at any one time so invested in certificates of deposit issued
by any one bank shall not exceed 5% of such bank's capital and surplus, (iv)
U.S. dollar denominated offshore certificates of deposit issued by, or offshore
time deposits with, any commercial bank described in (iii) or any subsidiary
thereof and (v) repurchase agreements with any financial institution having
combined capital and surplus of at least $500,000,000 with any of the
obligations described in (i) through (iv) as collateral; provided that if all
of the above investments are unavailable, the entire amounts to be invested may
be used to purchase federal funds from an entity described in clause (iii)
above; and provided further that no investment shall be eligible as a
"specified investment" unless the final maturity date or date of return of such
investment is on or before (x) the scheduled date for the purchase of such
Equipment Notes, or (y) if no date has been scheduled for the purchase of such
Equipment Notes, the next Business Day, or (z) if United has given notice that
such Equipment Notes will not be purchased, the next applicable Special
Distribution Date. Earnings on such investments in the escrow account for each
Trust will be paid to United periodically, and United will be responsible for
any losses. (Sections 1.01 and 2.02(b))
14
On the first Regular Distribution Date specified in the applicable Prospectus
Supplement, United will pay to the applicable Trustee an amount equal to the
interest that would have accrued on any Equipment Notes purchased after the
date of the issuance of such Certificates from the date of the issuance of such
Certificates to, but excluding, the date of the purchase of such Equipment
Notes by such Trustee. (Section 2.02(b))
SPECIAL DISTRIBUTION UPON UNAVAILABILITY OF AIRCRAFT
To the extent, due to a casualty to, or other event causing the
unavailability of, one or more Aircraft, that the full amount of the proceeds
from the sale of any Certificates held in the escrow account referred to above
is not used to purchase Equipment Notes on or prior to the date specified in
the applicable Prospectus Supplement, an amount equal to the unused proceeds
will be distributed by the applicable Trustee to the holders of record of such
Certificates on a pro rata basis upon not less than 20 days' prior notice to
them as a Special Payment together with interest thereon at a rate equal to the
rate applicable to such Certificates, but without premium, and United will pay
to such Trustee on such date an amount equal to such interest. (Section
2.02(b))
UAL GUARANTEES
UAL may, at its option, unconditionally guarantee to the holders from time to
time of specified series of Certificates (i) with respect to related Owned
Aircraft Notes, the full and prompt payment of principal, premium, if any, and
interest thereon when and as the same shall become due and payable, whether at
maturity, upon redemption or otherwise and (ii) with respect to related Leased
Aircraft Notes, the full and prompt payment of all amounts payable by United
under the related Lease when and as the same shall become due and payable. The
terms of any such guarantees (each a "Guarantee") will be set forth in the
applicable Trust Supplement. Any such Guarantee will be an unsecured obligation
of UAL.
If a Guarantee is applicable to Certificates offered hereby, reference is
made to the related Trust Supplement and the accompanying Prospectus Supplement
for a description of the specific terms of such Guarantee, including events of
default relating thereto and, where applicable, covenants of UAL. Unless
otherwise specified in the applicable Prospectus Supplement, the Owned Aircraft
Notes and United's rental obligations with respect to the Leased Aircraft Notes
will not be guaranteed by UAL.
The consolidated financial statements of UAL are incorporated by reference
herein. See "Incorporation of Certain Documents by Reference".
THE TRUSTEES
The Trustee for each series of Certificates will be specified in the
applicable Prospectus Supplement and will also be the Loan Trustee for each of
the related Indentures under which the Equipment Notes are issued. In addition,
the Trustee for any series of Certificates may serve as indenture trustee in
numerous other aircraft financing transactions involving United. It is possible
that a different Trustee could be designated with respect to each Trust.
With certain exceptions, the Trustees make no representations as to the
validity or sufficiency of the Basic Agreement, the Trust Supplements, the
Certificates, the Equipment Notes, the Indentures, the Leases or other related
documents. The Trustees shall not be liable, with respect to any series of
Certificates, for any action taken or omitted to be taken by it in good faith
in accordance with the direction of the holders of a majority in principal
amount of outstanding Certificates of such series issued under the Basic
Agreement. Subject to such provisions, such Trustee shall be under no
obligation to exercise any of its rights or powers under the Basic Agreement at
the request of any holders of Certificates issued thereunder unless they shall
have offered to the Trustee indemnity satisfactory to it. The Basic Agreement
provides that the Indenture Trustee in its individual or any other capacity may
acquire and hold Certificates issued thereunder and,
15
subject to certain conditions, may otherwise deal with United and, with respect
to the Leased Aircraft, with any Owner Trustee with the same rights it would
have if it were not the Trustee. (Sections 7.02, 7.03 and 7.04)
Any Trustee may resign with respect to any or all of the applicable Trusts at
any time, in which event United will be obligated to appoint a successor
trustee. If any Trustee ceases to be eligible to continue as Trustee with
respect to a Trust or becomes incapable of acting as Trustee or becomes
insolvent, United may remove such Trustee, or any holder of the Certificates of
such Trust for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
removal of such Trustee and the appointment of a successor trustee. Any
resignation or removal of the Trustee with respect to a Trust and appointment
of a successor trustee for such Trust does not become effective until
acceptance of the appointment by the successor trustee. (Section 7.08)
The Basic Agreement provides that United will pay the applicable Trustee's
fees and expenses. (Section 7.06)
DESCRIPTION OF THE EQUIPMENT NOTES
The statements made under this caption are summaries and reference is made to
the entire Prospectus and detailed information appearing in the applicable
Prospectus Supplement. Where no distinction is made between the Leased Aircraft
Notes and the Owned Aircraft Notes or between their respective Indentures, such
statements refer to any Equipment Notes and any Indenture.
GENERAL
Each Equipment Note issued under the same Indenture will relate to a single
Aircraft. The Equipment Notes with respect to each Aircraft will be issued
under a separate Indenture either (a) between the related Owner Trustee of a
trust for the benefit of the Owner Participant who is the beneficial owner of
such Aircraft, and the related Loan Trustee, or (b) between United and the
related Loan Trustee.
With respect to each Leased Aircraft, the related Owner Trustee has acquired
or will acquire such Aircraft from United or the manufacturer of such Aircraft,
as the case may be, has granted or will grant a security interest in such
Aircraft to the related Loan Trustee as security for the payments of the
related Leased Aircraft Notes, and has leased or will lease such Aircraft to
United pursuant to the related Lease which has been or will be assigned to the
related Loan Trustee. Pursuant to each such Lease, United will be obligated to
make or cause to be made rental and other payments to the related Loan Trustee
on behalf of the related Owner Trustee in amounts that will be sufficient to
make payments of the principal, interest and premium, if any, required to be
made in respect of such Leased Aircraft Notes when and as due and payable.
The rental obligations of United under each Lease and the obligations of
United under each Owned Aircraft Indenture and under the Owned Aircraft Notes
will be general obligations of United. Except in certain circumstances
involving United's purchase of a Leased Aircraft and the assumption of the
Leased Aircraft Notes related thereto, the Leased Aircraft Notes are not
obligations of, or guaranteed by, United.
PRINCIPAL AND INTEREST PAYMENTS
Interest paid on the Equipment Notes held in each Trust will be passed
through to the Certificateholders of such Trust on the dates and at the rate
per annum set forth in the applicable Prospectus Supplement until the final
distribution for such Trust. Principal paid on the Equipment Notes held in each
Trust will be passed through to the Certificateholders of such Trust in
scheduled amounts on the dates set forth in the applicable Prospectus
Supplement until the final distribution date for such Trust.
If any date scheduled for any payment of principal, premium, if any, or
interest with respect to the Equipment Notes is not a Business Day, such
payment will be made on the next succeeding Business Day without any additional
interest.
16
SECURITY
The Leased Aircraft Notes will be secured by (i) an assignment by the related
Owner Trustee to the related Loan Trustee of such Owner Trustee's rights
(except for certain rights, including those described below) under the Lease
with respect to such Aircraft, including the right to receive payments of rent
thereunder, (ii) a mortgage granted to such Loan Trustee of such Aircraft,
subject to the rights of United under such Lease and (iii) an assignment to
such Loan Trustee of certain of such Owner Trustee's rights with respect to
such Aircraft under the purchase agreement between United and the related
manufacturer. Under the terms of each Lease, United's obligations in respect of
each Leased Aircraft will be those of a lessee under a "net lease".
Accordingly, United will be obligated, among other things and at its expense,
to cause each Leased Aircraft to be duly registered, to pay all costs of
operating such Aircraft and to maintain, service, repair and overhaul (or cause
to be maintained, serviced, repaired and overhauled) such Aircraft.
The Owned Aircraft Notes will be secured by a mortgage granted to the related
Loan Trustee of all of United's right, title and interest in and to such Owned
Aircraft and an assignment to such Loan Trustee of certain of United's rights
with respect to such Aircraft under the purchase agreement between United and
the related manufacturer. Under the terms of each Owned Aircraft Indenture,
United will be obligated, among other things and at its expense, to cause each
Owned Aircraft to be duly registered, to pay all costs of operating such
Aircraft and to maintain, service, repair and overhaul (or cause to be
maintained, serviced, repaired and overhauled) such Aircraft.
United will be required, except under certain circumstances, to keep each
Aircraft registered under the Aviation Act, and to record the Indenture and the
Lease, if any, among other documents, with respect to each Aircraft under the
Aviation Act. Such recordation of the Indenture, the Lease, if any, and other
documents with respect to each Aircraft will give the related Loan Trustee a
first priority perfected security interest in the related Aircraft whenever it
is located in the United States or any of its territories and possessions; the
Convention on the International Recognition of Rights in Aircraft (the
"Convention") provides that such security will also be recognized, with certain
limited exceptions, in those jurisdictions that have ratified or adhere to the
Convention. Although United has no current intention to do so, United will have
the right, subject to certain conditions, at its own expense to register each
Aircraft in countries other than the United States. Unless otherwise specified
in the applicable Prospectus Supplement, prior to any such change in the
jurisdiction of registry, the related Loan Trustee shall have received an
opinion of United's counsel that, among other things, confirms the perfected
status of the lien of the related Indenture and, in the case of Leased
Aircraft, confirms the validity and enforceability of the related Lease in such
jurisdiction, in each case subject, in certain cases, to certain filings,
recordations or other actions. Each Aircraft may also be operated by United or
under lease, sublease or interchange arrangements in countries that are not
parties to the Convention. The extent to which the related Loan Trustee's
security interest would be recognized in an Aircraft located in a country that
is not a party to the Convention, and the extent to which such security
interest would be recognized in a jurisdiction adhering to the Convention if
the Aircraft is registered in a jurisdiction not a party to the Convention, is
uncertain. Moreover, in the case of an Indenture Default, the ability of the
related Loan Trustee to realize upon its security interest in an Aircraft could
be adversely affected as a legal or practical matter if such Aircraft were
registered or located outside the United States.
The Equipment Notes are not cross-collateralized and consequently the
Equipment Notes issued in respect of any one Aircraft will not be secured by
any other Aircraft or, in the case of Leased Aircraft Notes, the Lease related
thereto. Unless and until an Indenture Default with respect to a Leased
Aircraft has occurred and is continuing, the related Loan Trustee may not
exercise any of the rights of the related Owner Trustee under the related
Lease. With respect to the Leased Aircraft, the assignment by the related Owner
Trustee to the related Loan Trustee of its rights under the related Lease will
exclude, among other things, rights of such Owner Trustee and the related Owner
Participant relating to indemnification by United for certain matters,
insurance proceeds payable to such Owner Trustee in its individual capacity and
to such Owner Participant under liability insurance maintained by United
pursuant to such Lease or by such Owner Trustee or such Owner Participant,
insurance proceeds payable to such Owner Trustee in its individual
17
capacity or to such Owner Participant under certain casualty insurance
maintained by such Owner Trustee or such Owner Participant pursuant to such
Lease and any rights of such Owner Participant or such Owner Trustee to enforce
payment of the foregoing amounts and their respective rights to the proceeds of
the foregoing.
Unless otherwise specified in the applicable Prospectus Supplement, United
will, at its expense, maintain or cause to be maintained all-risk aircraft hull
insurance covering each Aircraft, fire and extended coverage and, to the extent
available at reasonable cost, all-risk property damage insurance covering
engines and parts while temporarily removed from an Aircraft and not replaced
by similar components, at all times in an amount not less than, with respect to
any Leased Aircraft, the applicable stipulated loss value (which will be an
amount at least equal to the aggregate unpaid principal of, together with all
unpaid interest accrued on, the outstanding Equipment Notes related to such
Aircraft) or, with respect to any Owned Aircraft, the aggregate unpaid
principal of, together with all unpaid interest accrued on, the applicable
Equipment Notes. Unless otherwise specified in the applicable Prospectus
Supplement, during any period when an Aircraft is on the ground and not in
operation United may carry or cause to be carried, in lieu of the insurance
required by the previous sentence, insurance otherwise conforming with the
provisions of said sentence except that the scope of the risks covered and the
type of insurance shall be the same as are from time to time applicable to
aircraft owned or leased by United of the same type as such Aircraft similarly
on the ground and not in operation, in an amount at least equal to, with
respect to any Leased Aircraft, the applicable stipulated loss value or, with
respect to any Owned Aircraft, the aggregate unpaid principal of, together with
the accrued interest on, the applicable Equipment Notes. All policies covering
loss of or damage to an Aircraft shall be made payable to the applicable Loan
Trustee for any loss in excess of that certain amount specified in the
applicable Prospectus Supplement. United may self-insure a portion of these
risks, but in no case will the self-insurance with respect to all of the
aircraft in United's fleet (including the Aircraft) exceed the lesser of 50% of
the largest replacement value of any single aircraft in United's fleet or 1
1/2% of the average aggregate insurable value (during the preceding calendar
year) of all aircraft on which United carries insurance. In addition, unless
otherwise specified in the applicable Prospectus Supplement, United will, at
its expense, maintain or cause to be maintained comprehensive airline liability
(including, without limitation, passenger, contractual, bodily injury and
property damage liability) insurance (exclusive of manufacturer's product
liability insurance) and cargo liability insurance with respect to each
Aircraft (i) in amounts that are not less than the greater of the comprehensive
airline liability insurance as is from time to time applicable to aircraft
owned and operated by United of the same type as such Aircraft, and an amount
specified in the applicable Prospectus Supplement, and (ii) of the types and
covering the same risks as are from time to time applicable to aircraft owned
or operated by United of the same type as such Aircraft and which is maintained
in effect with insurers of recognized responsibility, provided that United need
not maintain cargo liability insurance, or may maintain such insurance in an
amount less than that specified above for the respective Aircraft as long as
the amount of cargo liability insurance, if any, maintained with respect to
such Aircraft is the same as the cargo liability insurance, if any, maintained
for other aircraft of the same model as such Aircraft owned or operated by
United. Unless otherwise specified in the applicable Prospectus Supplement,
during any period when an Aircraft is on the ground and not in operation United
may carry or cause to be carried, in lieu of the insurance required by the
previous sentence, insurance otherwise conforming with the provisions of said
sentence except that the amounts of coverage shall not be required to exceed
the amounts of comprehensive airline liability insurance, and the scope of
risks covered and type of insurance shall be the same, as are from time to time
in effect with respect to aircraft owned or leased by United of the same type
as such Aircraft similarly on the ground and not in operation. United may also
self-insure a portion of these risks subject to the same limitations described
above for insurance for risks of loss of or damage to the Aircraft. The
applicable Trustee, the applicable Loan Trustee, any applicable Owner
Participant and any applicable Owner Trustee, in its individual capacity and as
owner of the Aircraft, and United will each be named as insured parties under
all liability insurance policies required with respect to the related Aircraft.
In addition, the insurance policies maintained under the Lease (with respect to
any Leased Aircraft) or the Indenture (with respect to any Owned Aircraft), as
the case may be, will provide that, in respect of the respective interests of
the applicable Trustee, the applicable Loan Trustee, any applicable Owner
Participant, and any Owner
18
Trustee, relating to such Aircraft, the insurance shall not be invalidated by
any action or inaction of United and shall insure the respective interests of
the applicable Trustee, such Loan Trustee, Owner Participant or Owner Trustee,
as they appear, regardless of any breach or violation of any warranty,
declaration or condition contained in such policies by United.
Funds, if any, held from time to time by the Loan Trustee with respect to any
Aircraft, prior to the distribution thereof, will be invested and reinvested by
such Loan Trustee. Such investment and reinvestment will be at the direction of
United (except, with respect to a Leased Aircraft, in the case of a Lease Event
of Default under the applicable Lease or, with respect to an Owned Aircraft, in
the case of an Indenture Default under the applicable Indenture), in certain
investments described in the related Indenture. The net amount of any loss
resulting from any such investments will be paid by United.
Section 1110 of title 11 of the United States Code (the "Bankruptcy Code")
provides that the right of a secured party with a security interest in, or of a
lessor or conditional vendor of, aircraft, aircraft engines, propellers,
appliances or spare parts, as defined in Section 40102 of the Aviation Act,
that are subject to a security interest granted by, leased to, or conditionally
sold to, an air carrier operating under an air carrier operating certificate
issued by the Secretary of Transportation pursuant to Chapter 447 of the
Aviation Act for aircraft capable of carrying 10 or more individuals or 6,000
pounds or more of cargo, to take possession of such equipment in compliance
with the provisions of a security agreement, lease, or conditional sale
contract, as the case may be, is not affected by (i) the automatic stay
provision of the Bankruptcy Code, which provision enjoins repossessions by
creditors for the duration of the reorganization period, (ii) the provision of
the Bankruptcy Code allowing the debtor in possession and/or the bankruptcy
trustee to use property of the bankruptcy estate during the bankruptcy case,
(iii) the provision of the Bankruptcy Code allowing the proponent of a plan of
reorganization to confirm such plan by imposing the plan upon a class of claims
or interests that has not accepted or is impaired by such plan and (iv) any
power of the bankruptcy court to enjoin a repossession. Section 1110 provides,
however, that the right of a lessor, conditional vendor or holder of a security
interest to take possession of an aircraft in the event of an event of default
may not be exercised for 60 days following the date of the order of relief
(unless specifically permitted by the bankruptcy court) and may not be
exercised at all if, within such 60-day period, the debtor in possession and/or
the bankruptcy trustee agrees to perform the debtor's obligations that become
due on or after such date and cures all existing defaults (other than defaults
resulting solely from the financial condition, bankruptcy, insolvency or
reorganization of the debtor). In the case of a security interest in Owned
Aircraft first placed in service on or prior to October 22, 1994, such security
interest must be a purchase money equipment security interest for section 1110
to provide the secured party with the rights specified above.
In connection with any issuance of Certificates under this Prospectus and the
applicable Prospectus Supplement, United shall have received an opinion from
its counsel to the effect that (i) with respect to any Leased Aircraft, the
related Owner Trustee, as lessor under the related Lease, and the related Loan
Trustee, as assignee of such Owner Trustee's rights under such Lease pursuant
to the related Indenture, would be entitled to the benefits of Section 1110 of
the Bankruptcy Code with respect to the Aircraft initially delivered under such
Lease and subjected to the related Indenture or (ii) with respect to any Owned
Aircraft, the related Loan Trustee under the related Indenture would be
entitled to the benefits of Section 1110 of the Bankruptcy Code with respect to
the Aircraft initially subjected to the related Indenture. Such opinions will
not address the possible replacement of an Aircraft after an Event of Loss in
the future.
PAYMENTS AND LIMITATION OF LIABILITY
Each Leased Aircraft will be leased separately by the related Owner Trustee
to United for a term commencing on the delivery date thereof to such Owner
Trustee and expiring on a date not earlier than the latest maturity date of the
Leased Aircraft Notes, unless previously terminated as permitted by the terms
of the related Lease. The basic rent and other payments under each such Lease
will be payable by United in accordance with the terms specified in the
applicable Prospectus Supplement, and will be assigned by the related Owner
Trustee under the related Indenture to provide the funds necessary to pay
principal of, premium, if any, and interest due from such Owner Trustee on the
Leased Aircraft Notes issued under such
19
Indenture. In certain cases, the basic rent payments under a Lease may be
adjusted, but each Lease will provide that under no circumstances will rent
payments by United be less than the scheduled payments on the related Leased
Aircraft Notes. The balance of any basic rent payment under each Lease, after
payment of amounts due on the Leased Aircraft Notes issued under the Indenture
corresponding to such Lease, will be paid over to the applicable Owner
Participant. United's obligation to pay rent and to cause other payments to be
made under each Lease will be general obligations of United.
With respect to the Leased Aircraft Notes, except in certain circumstances
involving United's purchase of a Leased Aircraft and the assumption of the
Leased Aircraft Notes related thereto, the Leased Aircraft Notes will not be
obligations of, or guaranteed by, United. With respect to the Leased Aircraft
Notes, none of the Owner Trustees, the Owner Participants or the Loan Trustees
shall be personally liable to any holder of such Leased Aircraft Notes for
amounts payable under such Leased Aircraft Notes, or, except as provided in the
Indentures relating thereto in the case of the Owner Trustees and the Loan
Trustees, for any liability under such Indentures. Except in the circumstances
referred to above, all amounts payable under any Leased Aircraft Notes (other
than payments made in connection with an optional redemption or purchase by the
related Owner Trustee or the related Owner Participant) will be made only from
the assets subject to the lien of the related Indenture with respect to such
Aircraft or the income and proceeds received by the related Loan Trustee
therefrom (including rent payable by United under the related Lease).
With respect to the Leased Aircraft Notes, except as otherwise provided in
the related Indentures, no Owner Trustee shall be personally liable for any
amount payable or for any statements, representations, warranties, agreements
or obligations under such Indentures or under such Leased Aircraft Notes except
for its own willful misconduct or gross negligence. None of the Owner
Participants shall have any duty or responsibility under the Leased Aircraft
Indentures or under such Leased Aircraft Notes to the related Loan Trustee or
to any holder of any such Leased Aircraft Note.
United's obligations under each Owned Aircraft Indenture and under the Owned
Aircraft Notes will be general obligations of United.
DEFEASANCE OF THE INDENTURES AND THE EQUIPMENT NOTES IN CERTAIN CIRCUMSTANCES
Unless otherwise specified in the applicable Prospectus Supplement, the
applicable Indenture provides that the obligations of the related Loan Trustee
and, with respect to any Leased Aircraft Notes, the related Owner Trustee or,
with respect to any Owned Aircraft Notes, United under the applicable Indenture
shall be deemed to have been discharged and paid in full (except for certain
obligations, including the obligations to register the transfer or exchange of
Equipment Notes, to replace stolen, lost, destroyed or mutilated Equipment
Notes and to maintain paying agencies and hold money for payment in trust) on
the 91st day after the date of irrevocable deposit with the related Loan
Trustee of money or certain obligations of the United States or any agency or
instrumentality thereof the payment of which is backed by the full faith and
credit of the United States which, through the payment of principal and
interest in respect thereof in accordance with their terms, will provide money
in an aggregate amount sufficient to pay when due (including as a consequence
of redemption in respect of which notice is given on or prior to the date of
such deposit) principal of, premium, if any, and interest on all Equipment
Notes issued thereunder in accordance with the terms of such Indenture. Such
discharge may occur only if, among other things, there has been published by
the Internal Revenue Service a ruling to the effect that holders of such
Equipment Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit, defeasance and discharge and will be
subject to federal income tax on the same amount and in the same manner and at
the same time as would have been the case if such deposit, defeasance and
discharge had not occurred.
Upon such defeasance, or upon payment in full of the principal of, premium,
if any, and interest on all Equipment Notes issued under any Indenture on the
maturity date therefor or deposit with the applicable Loan Trustee of money
sufficient therefor no earlier than one year prior to the date of such
maturity, the holders of such Equipment Notes will have no beneficial interest
in or other rights with respect to the related Aircraft or other assets subject
to the lien of such Indenture and such lien shall terminate.
20
ASSUMPTION OF OBLIGATIONS BY UNITED
Unless otherwise specified in the applicable Prospectus Supplement with
respect to Leased Aircraft, upon the exercise by United of any purchase options
it may have under the related Lease prior to the end of the term of such Lease,
United may assume on a full recourse basis all of the obligations of the Owner
Trustee (other than its obligations in its individual capacity) under the
Indenture with respect to such Aircraft, including the obligations to make
payments in respect of the related Leased Aircraft Notes. In such event,
certain relevant provisions of the related Lease, including (among others)
provisions relating to maintenance, possession and use of the related Aircraft,
liens, insurance and events of default will be incorporated into such
Indenture, and the Leased Aircraft Notes issued under such Indenture will not
be redeemed and will continue to be secured by such Aircraft. It is a condition
to such assumption that, if such Aircraft is registered under the laws of the
United States, an opinion of counsel be delivered at the time of such
assumption substantially to the effect that the related Loan Trustee under such
Indenture should, immediately following such assumption, be entitled to the
benefits of Section 1110 of the Bankruptcy Code with respect to such Aircraft
(including the engines related thereto), but such opinion need not be delivered
to the extent that the benefits of such Section 1110 are not available to the
Loan Trustee with respect to such Aircraft or any engine related thereto
immediately prior to such assumption.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated material United
States federal income tax consequences of the purchase, ownership and
disposition of the Certificates to the original purchaser thereof and should be
read in conjunction with any additional discussion of federal income tax
consequences included in the applicable Prospectus Supplement. The discussion
is based on laws, regulations, rulings and decisions, all as in effect on the
date of this Prospectus and all of which are subject to change or different
interpretations. The discussion below does not purport to address all of the
federal income tax consequences that may be applicable to particular categories
of investors, some of which (for example, insurance companies and foreign
investors) may be subject to special rules. The statements of law and legal
conclusions set forth herein are based upon the opinion of Vedder, Price,
Kaufman & Kammholz, counsel to United. Investors should consult their own tax
advisors in determining the federal, state, local and any other tax
consequences to them of the purchase, ownership and disposition of the
Certificates, including the advisability of making any election discussed
below. The Trusts are not indemnified for any federal income taxes that may be
imposed upon them, and the imposition of any such taxes could result in a
reduction in the amounts available for distribution to the Certificate Owners
of the affected Trust.
GENERAL
Based upon an interpretation of analogous authorities under currently
applicable law, the Trusts would not be classified as associations taxable as
corporations, but, rather, each would be classified as a grantor trust under
subpart E, Part I of Subchapter J of the Internal Revenue Code of 1986, as
amended (the "Code"), and each Certificate Owner of each Trust should be
treated as the owner of a pro rata undivided interest in each of the Equipment
Notes or any other property held by such Trust.
Each Certificate Owner should be required to report on its federal income tax
return its pro rata share of the entire income from the Equipment Notes or any
other property held by the related Trust, in accordance with such Certificate
Owner's method of accounting. A Certificate Owner using the cash method of
accounting must take into account its pro rata share of income as and when
received (or deemed received) by the applicable Trustee. A Certificate Owner
using an accrual method of accounting must take into account its pro rata share
of income as it accrues or is received by the applicable Trustee, whichever is
earlier.
A purchaser of a Certificate should be treated as purchasing an interest in
each Equipment Note and any other property in the related Trust at a price
determined by allocating the purchase price paid for the
21
Certificate among such Equipment Notes and other property in proportion to
their fair market values at the time of purchase of the Certificate. Unless
otherwise indicated in a Prospectus Supplement, it is believed that when all
the Equipment Notes have been acquired by the related Trust the purchase price
paid for a Certificate by an original purchaser of a Certificate should be
allocated among the Equipment Notes in the related Trust in proportion to their
respective principal amounts.
SALES OF CERTIFICATES
A Certificate Owner that sells a Certificate should recognize gain or loss
(in the aggregate) equal to the difference between its adjusted tax basis in
the Certificate and the amount realized on the sale (except to the extent
attributable to accrued interest, which should be taxable as ordinary income).
Any such gain or loss will be capital gain or loss if the Certificate was held
as a capital asset and will be long-term capital gain or loss if the
Certificate was held for more than one year. Net capital gain (the excess of
net long-term capital gain over net short-term capital loss) of individuals is,
under certain circumstances, taxed at lower rates than items of ordinary
income. Net capital loss of individuals is subject to limitations on
deductibility.
ORIGINAL ISSUE DISCOUNT
The Equipment Notes may be issued with original issue discount ("OID"), which
may require Certificate Owners to include such OID in gross income in advance
of the receipt or accrual of the stated interest on such Equipment Notes. The
Prospectus Supplement will state whether any Equipment Notes to be held by the
related Trust will be issued with OID. Generally, a holder of a debt instrument
issued with original issue discount that is not de minimis must include such
original issue discount in income for federal income tax purposes as it
accrues, in advance of the receipt of the cash attributable to such income,
under a method that takes into account the compounding of interest.
BACKUP WITHHOLDING
Payments made on the Certificates, and proceeds from the sale of the
Certificates to or through certain brokers, may be subject to a "backup"
withholding tax of 31% unless the Certificate Owner complies with certain
reporting procedures or is exempt from such requirements under section 3406 of
the Code. Any such withheld amounts are allowed as a credit against the
Certificate Owner's federal income tax.
INFORMATION REPORTING
Information reports will be made by the applicable Trustee to the Internal
Revenue Service, and to Certificate Owners that are not exempt from the
reporting requirements, annually or as otherwise required with respect to
interest paid (or OID accrued, if any) on the Certificates.
CERTAIN STATE TAXES
As set forth in the applicable Prospectus Supplement, counsel to the
applicable Trustee will advise United that, in its opinion, under then
currently applicable law, assuming that the Trusts will not be taxable as
corporations, but, rather, will be classified as grantor trusts under subpart
E, Part I of Subchapter J of the Code, (i) the Trusts will not be subject to
any tax (including, without limitation, net or gross income, tangible or
intangible property, net worth, capital, franchise or doing business tax), fee
or other governmental charge under the laws of the State in which such Trustee
is located or any political subdivision thereof and (ii) Certificate Owners
that are not residents of or otherwise subject to tax in such State will not be
subject to any tax (including, without limitation, net or gross income,
tangible or intangible property, net worth, capital, franchise or doing
business tax), fee or other governmental charge under the laws of such State or
any political subdivision thereof as a result of purchasing, holding (including
receiving payments with respect to) or selling a Certificate. Neither the
Trusts nor the Certificate Owners will be indemnified for any state or local
taxes
22
imposed on them, and the imposition of any such taxes on a Trust could result
in a reduction in the amounts available for distribution to the Certificate
Owners of such Trust. In general, should a Certificate Owner or a Trust be
subject to any state or local tax which would not be imposed if the Trustee
were located in a different jurisdiction in the United States, the Trustee will
resign and a new Trustee in such other jurisdiction will be appointed.
ERISA CONSIDERATIONS
Unless otherwise indicated in the applicable Prospectus Supplement, the
Certificates may, subject to certain legal restrictions, be purchased and held
by an employee benefit plan (a "Plan") subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or an individual
retirement account or an employee benefit plan subject to section 4975 of the
Code. A fiduciary of a Plan must determine that the purchase and holding of a
Certificate is consistent with its fiduciary duties under ERISA and does not
result in a non-exempt prohibited transaction as defined in section 406 of
ERISA or section 4975 of the Code. Employee benefit plans which are
governmental plans (as defined in section 3(32) of ERISA) and certain church
plans (as defined in section 3(33) of ERISA) are not subject to Title I of
ERISA or section 4975 of the Code. The Certificates may, subject to certain
legal restrictions, be purchased and held by such plans.
INFORMATION TO BE PROVIDED BY PROSPECTUS SUPPLEMENT
The Prospectus Supplement which accompanies this Prospectus provides (i) more
detailed information on use of proceeds (including the interest rate and
maturity date of debt to be repaid, if any, with the proceeds of securities
offered by such Prospectus Supplement), (ii) the amount of debt ranking senior
to or in parity with the securities being offered by such Prospectus Supplement
and (iii) the anticipated market for the securities being offered by such
Prospectus Supplement. The Prospectus Supplement also provides a diagram
illustrating the transactions pursuant to which the specific series of
Certificates are being offered.
PLAN OF DISTRIBUTION
The Certificates being offered hereby may be sold in any one or more of the
following ways from time to time: (i) through agents; (ii) to or through
underwriters; (iii) through dealers; and (iv) directly to other purchasers.
The distribution of the Certificates may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
Offers to purchase the Certificates may be solicited by agents designated by
United from time to time. Any such agent involved in the offer or sale of the
Certificates in respect of which this Prospectus is delivered will be named,
and any commissions payable by United to such agent will be set forth, in the
applicable Prospectus Supplement. Unless otherwise indicated in such Prospectus
Supplement, any such agent will be acting on a best efforts basis for the
period of its appointment. Any such agent may be deemed to be an underwriter,
as that term is defined in the Securities Act, of the Certificates so offered
and sold.
If the Certificates are sold by means of an underwritten offering, United
will execute an underwriting agreement with an underwriter or underwriters at
the time an agreement for such sale is reached, and the names of the specific
managing underwriter or underwriters, as well as any other underwriters, and
the terms of the transaction, including commissions, discounts and any other
compensation of the underwriters and dealers, if any, will be set forth in the
Prospectus Supplement which will be used by the underwriters to make
23
offers and sales of the Certificates in respect of which this Prospectus is
delivered to the public. If underwriters are utilized in the sale of the
Certificates in respect of which this Prospectus is delivered, the Certificates
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices determined
by the underwriters at the time of sale. The Certificates may be offered to the
public either through underwriting syndicates represented by managing
underwriters or directly by the managing underwriters. If any underwriter or
underwriters are utilized in the sale of the Certificates, unless otherwise
indicated in the Prospectus Supplement, the underwriting agreement will provide
that the obligations of the underwriters are subject to certain conditions
precedent and that the underwriters with respect to a sale of the Certificates
will be obligated to purchase all such Certificates if any are purchased.
United does not intend to apply for listing of the Certificates on a national
securities exchange. If the Certificates are sold by means of an underwritten
offering, the underwriters may make a market in the Certificates as permitted
by applicable laws and regulations. No underwriter would be obligated, however,
to make a market in the Certificates and any such market making could be
discontinued at any time at the sole discretion of such underwriter.
Accordingly, no assurance can be given as to the liquidity of, or trading
markets for, the Certificates.
If a dealer is utilized in the sale of the Certificates in respect of which
this Prospectus is delivered, such Certificates will be sold to the dealer as
principal. The dealer may then resell such Certificates to the public at
varying prices to be determined by such dealer at the time of resale. Any such
dealer may be deemed to be an underwriter, as such term is defined in the
Securities Act, of the Certificates so offered and sold. The name of the dealer
and the terms of the transaction will be set forth in the Prospectus Supplement
relating thereto.
Offers to purchase the Certificates may be solicited directly and the sale
thereof may be made directly to institutional investors or others, who may be
deemed to be underwriters within the meaning of the Securities Act with respect
to any resale thereof. The terms of any such sales will be described in the
Prospectus Supplement relating thereto.
Agents, underwriters and dealers may be entitled under relevant agreements to
indemnification or contribution by United against certain liabilities,
including liabilities under the Securities Act.
Agents, underwriters and dealers may engage in transactions with, or perform
services for, UAL, United and UAL's other subsidiaries in the ordinary course
of business.
If so indicated in the applicable Prospectus Supplement, agents, underwriters
or dealers may be authorized to solicit offers by certain institutions to
purchase the Certificates at the public offering prices set forth in the
applicable Prospectus Supplement pursuant to delayed delivery contracts
("Contracts") providing for payment and delivery on a specified date or dates.
A commission indicated in the applicable Prospectus Supplement will be paid to
agents, underwriters and dealers soliciting purchases of the Certificates
pursuant to Contracts accepted by United.
LEGAL OPINIONS
Unless otherwise indicated in the applicable Prospectus Supplement, the
validity of the Certificates and the Guarantees, if any, offered hereby will be
passed upon for United by Vedder, Price, Kaufman & Kammholz, 222 North LaSalle
Street, Chicago, Illinois 60601, and for any agents or underwriters by Shearman
& Sterling, 599 Lexington Avenue, New York, New York 10022. Unless otherwise
indicated in the applicable Prospectus Supplement, both Vedder, Price, Kaufman
& Kammholz and Shearman & Sterling will rely on the opinion of counsel for the
applicable Trustee for the Certificates of each Trust, as to certain matters
relating to the authorization, execution and delivery of such Certificates by,
and the valid and binding effect thereof on, such Trustee.
24
EXPERTS
The consolidated financial statements of United and subsidiary companies as
of December 31, 1994 and 1993 and for each of the three years in the period
ended December 31, 1994 and the consolidated financial statements of UAL and
subsidiary companies as of December 31, 1994 and 1993 and for each of the three
years in the period ended December 31, 1994, incorporated by reference in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said reports.
Reference is made to said reports which include an explanatory paragraph with
respect to the changes in methods of accounting for income taxes and
postretirement benefits other than pensions as discussed in the notes to the
respective consolidated financial statements.
25
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS SUP-
PLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PRO-
SPECTUS SUPPLEMENT OR THE PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY UNITED OR
THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS DOES NOT CONSTI-
TUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE CERTIFICATES
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS OR IN THE AF-
FAIRS OF UNITED SINCE THE DATE HEREOF.
----------------
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary.............................................. S-3
The Company................................................................ S-8
Recent Developments........................................................ S-8
Selected Financial and Operating Data...................................... S-9
Use of Proceeds............................................................ S-10
Diagram of Payments........................................................ S-11
Description of the Certificates............................................ S-12
Description of the Equipment Notes......................................... S-17
Federal Income Tax Consequences............................................ S-31
Certain Utah Taxes......................................................... S-31
ERISA Considerations....................................................... S-31
Underwriting............................................................... S-32
Glossary of Certain Terms.................................................. A-1
PROSPECTUS
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
United and UAL............................................................. 3
Formation of the Trusts.................................................... 3
Use of Proceeds............................................................ 3
Ratios of Earnings to Fixed Charges........................................ 4
Description of the Certificates............................................ 5
Description of the Equipment Notes......................................... 16
Federal Income Tax Consequences............................................ 21
Certain State Taxes........................................................ 22
ERISA Considerations....................................................... 23
Information to be provided by Prospectus Supplement........................ 23
Plan of Distribution....................................................... 23
Legal Opinions............................................................. 24
Experts.................................................................... 25
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$
LOGO
PASS THROUGH CERTIFICATES,
SERIES 1995-A
----------------
PROSPECTUS SUPPLEMENT
----------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS
MAY , 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
