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PROSPECTUS
UAL CORPORATION CAPITAL TRUST I
OFFER TO EXCHANGE ITS
13 1/4% TRUST ORIGINATED PREFERRED SECURITIES(SM)("TOPRS(SM)")
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY AND
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY UAL CORPORATION)
FOR ANY AND ALL OUTSTANDING DEPOSITARY SHARES,
EACH REPRESENTING 1/1,000 OF A SHARE OF
12 1/4% SERIES B PREFERRED STOCK
OF
UAL CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS
WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME,
ON FRIDAY, DECEMBER 20, 1996, UNLESS THE OFFER IS EXTENDED.
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UAL Corporation Capital Trust I, a Delaware statutory business trust (the
"Trust"), hereby offers, upon the terms and subject to the conditions set forth
in this Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal" which, together with this Prospectus, constitutes the "Offer"), to
exchange its 13 1/4% Trust Originated Preferred Securities(SM) ("TOPrS(SM)"),
representing preferred undivided beneficial interests in the assets of the Trust
(the "Preferred Securities"), for any and all Depositary Shares ("Depositary
Shares"), each representing 1/1,000 of a share of 12 1/4% Series B Preferred
Stock (the "Series B Preferred") of UAL Corporation, a Delaware corporation
("UAL"), not owned by UAL. Exchanges will be made on the basis of one Preferred
Security for each Depositary Share validly tendered and accepted for exchange in
the Offer. As of the date of this Prospectus, there are 6,266,781 Depositary
Shares not owned by UAL. An aggregate of 16,416,000 Depositary Shares were
issued to investors in a public offering on July 12, 1994, of which UAL has
repurchased 10,149,219 Depositary Shares. Concurrent with the issuance of
Preferred Securities in exchange for Depositary Shares validly tendered in the
Offer, UAL will deposit in the Trust as trust assets its 13 1/4% Junior
Subordinated Debentures due 2026 (the "Junior Subordinated Debentures"), having
an aggregate principal amount equal to the aggregate stated liquidation amount
of the Preferred Securities and the proceeds received upon issuance of the
Common Securities to be issued by the Trust.
(cover page continues)
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SEE "RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO THE OFFER" STARTING ON
PAGE 19 FOR A DISCUSSION OF CERTAIN FACTORS RELATING TO THE PREFERRED
SECURITIES THAT SHOULD BE CONSIDERED BY INVESTORS, INCLUDING THE
PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS ON THE
JUNIOR SUBORDINATED DEBENTURES AND THE PREFERRED SECURITIES
MAY BE DEFERRED AND THE RELATED FEDERAL INCOME TAX
CONSEQUENCES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Merrill Lynch & Co. and Smith Barney Inc. have been retained as Dealer
Managers to solicit exchanges of Depositary Shares for Preferred Securities. See
"The Offer -- Dealer Managers; Soliciting Dealers." The Bank of New York has
been retained as Exchange Agent in connection with the Offer. Georgeson &
Company Inc. has been retained to act as Information Agent to assist in
connection with the Offer.
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The Dealer Managers for the Offer are:
MERRILL LYNCH & CO. SMITH BARNEY INC.
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The date of this Prospectus is November 21, 1996.
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(SM)"Trust Originated Preferred Securities" and "TOPrS" are service marks of
Merrill Lynch & Co.
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NONE OF THE BOARD OF DIRECTORS OF UAL, UAL, THE TRUSTEES OR THE TRUST MAKES
ANY RECOMMENDATION TO HOLDERS OF DEPOSITARY SHARES AS TO WHETHER TO TENDER OR
REFRAIN FROM TENDERING IN THE OFFER. HOLDERS OF DEPOSITARY SHARES ARE URGED TO
CONSULT THEIR FINANCIAL AND TAX ADVISORS IN MAKING THEIR DECISIONS ON WHAT
ACTION TO TAKE IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES.
IN ORDER TO PARTICIPATE IN THE OFFER, HOLDERS (AS DEFINED HEREIN) OF
DEPOSITARY SHARES MUST SUBMIT A LETTER OF TRANSMITTAL AND COMPLY WITH THE OTHER
PROCEDURES FOR TENDERING IN ACCORDANCE WITH THE INSTRUCTIONS CONTAINED HEREIN
AND IN THE LETTER OF TRANSMITTAL PRIOR TO THE EXPIRATION DATE (AS DEFINED
HEREIN). SEE "THE OFFER -- PROCEDURES FOR TENDERING."
For a description of the other terms of the Offer, see "The Offer -- Terms
of the Offer," "-- Expiration Date; Extensions; Amendments; Termination,"
"-- Withdrawal of Tenders" and "-- Acceptance of Shares." The Preferred
Securities have been approved for listing on the New York Stock Exchange (the
"NYSE") subject to official notice of issuance. In order to satisfy the NYSE
listing requirements, acceptance of Depositary Shares validly tendered in the
Offer is subject to the condition that as of the Expiration Date there be at
least 400 record or beneficial holders of at least 1,000,000 Preferred
Securities to be issued in exchange for such Depositary Shares (the "Minimum
Distribution Condition"), which condition may not be waived. See "The
Offer -- Expiration Date; Extensions; Amendments; Termination" and
"-- Conditions to the Offer."
The Trust expressly reserves the right, in its sole discretion, subject to
applicable law, to (i) terminate the Offer, not accept for exchange any
Depositary Shares and promptly return all Depositary Shares upon the failure of
any of the conditions specified above or in "The Offer -- Conditions to the
Offer," (ii) waive any condition to the Offer (other than the Minimum
Distribution Condition) and accept all Depositary Shares previously tendered
pursuant to the Offer, (iii) extend the Expiration Date (as defined herein) of
the Offer and retain all Depositary Shares tendered pursuant to the Offer until
the Expiration Date, subject, however, to all withdrawal rights of holders, see
"The Offer -- Withdrawal of Tenders," (iv) amend the terms of the Offer, (v)
modify the form of the consideration to be paid pursuant to the Offer or (vi)
not accept for exchange Depositary Shares at any time on or prior to the
Expiration Date, for any reason, including, without limitation, if fewer than
100,000 Depositary Shares would remain outstanding upon acceptance of those
tendered (which condition may be waived by the Trust). Any amendment applicable
to the Offer will apply to all Depositary Shares tendered pursuant to the Offer.
The minimum period during which the Offer must remain open following material
changes in the terms of the Offer or the information concerning the Offer, other
than a change in the percentage of securities sought or the price, depends upon
the facts and circumstances, including the relative materiality of such terms or
information. See "The Offer -- Expiration Date; Extensions; Amendments;
Termination."
UAL will own directly or indirectly all of the securities representing
common undivided beneficial interests in the assets of the Trust (the "Common
Securities" and, together with the Preferred Securities, the "Trust
Securities"). The Trust exists for the purpose of (a) issuing (i) its Preferred
Securities in exchange for Depositary Shares validly tendered in the Offer and
delivering such Depositary Shares to UAL in consideration for the deposit by UAL
of Junior Subordinated Debentures, having an aggregate stated principal amount
equal to the aggregate stated liquidation amount of such Preferred Securities,
in the Trust as trust assets and (ii) its Common Securities to UAL in exchange
for cash and investing the proceeds thereof in an equivalent amount of Junior
Subordinated Debentures and (b) engaging in such other activities as are
necessary and incidental thereto. The Preferred Securities and the Common
Securities will rank pari passu with each other and will have equivalent terms;
provided that (i) if an Event of Default (as defined herein) under the
Declaration (as defined herein) occurs and is continuing, the holders of
Preferred Securities will have a priority over holders of the Common Securities
with respect to payments in respect of distributions and payments upon
liquidation, redemption or otherwise and (ii) holders of Common Securities have
the exclusive right (subject to the terms of the Declaration) to appoint,
replace or remove Trustees and to increase or
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decrease the number of Trustees upon the occurrence of certain events described
herein. See "Prospectus Summary -- Description of Preferred Securities and
Junior Subordinated Debentures."
Cash distributions on the Preferred Securities will be cumulative from the
first day following the Expiration Date (the "Accrual Date") at an annual rate
of 13 1/4% of the liquidation amount of $25 per Preferred Security, and will be
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year, commencing on December 31, 1996, and at final maturity of the
Junior Subordinated Debentures ("distributions"), subject to any Extension
Periods (as defined herein). Cash distributions in arrears will bear interest
thereon at the rate per annum of 13 1/4%, compounded quarterly to the extent
permitted by applicable law. The term "distributions" as used herein includes
such cash distributions and any such interest payable unless otherwise stated.
In addition, holders of the Preferred Securities will be entitled to an
additional cash distribution at the rate of 12 1/4% per annum of the liquidation
amount thereof from November 1, 1996 through the Expiration Date ("Pre-Issuance
Accrued Distribution") in lieu of dividends accumulating and unpaid after
November 1, 1996 on their Depositary Shares accepted for exchange, such
additional distribution to be made on December 31, 1996 to holders of the
Preferred Securities on the record date for such distribution. The distribution
rate and the distribution and other payment dates for the Preferred Securities
will correspond to the interest rate and the interest and other payment dates on
the Junior Subordinated Debentures deposited in the Trust as trust assets. As a
result, if principal or interest is not paid on the Junior Subordinated
Debentures, including as a result of UAL's election to extend the interest
payment period on the Junior Subordinated Debentures as described below, the
Trust will not make payments on the Trust Securities. The Junior Subordinated
Debentures provide that, so long as UAL shall not be in default in the payment
of interest on the Junior Subordinated Debentures, UAL shall have the right to
defer payments of interest on the Junior Subordinated Debentures by extending
the interest payment period from time to time for a period not exceeding 20
consecutive quarterly interest periods (each, an "Extension Period"). No
interest shall be due and payable during an Extension Period and, as a
consequence, distributions on the Trust Securities will also be deferred, but on
the next distribution payment date following such Extension Period UAL shall pay
all interest then accrued and unpaid on the Junior Subordinated Debentures,
together with interest thereon at the rate specified for the Junior Subordinated
Debentures, compounded quarterly to the extent permitted by applicable law
("Compounded Interest"), and corresponding distributions will be paid by the
Trust on the Trust Securities. All references herein to interest shall include
Compounded Interest unless otherwise stated. There could be multiple Extension
Periods of varying lengths up to six Extension Periods of 20 consecutive
quarterly interest periods each or more numerous shorter Extension Periods
throughout the term of the Junior Subordinated Debentures, provided that no
Extension Period may extend beyond the maturity of the Junior Subordinated
Debentures. During any such Extension Period, UAL may not declare or pay
dividends on, or redeem, purchase, acquire or make a distribution or liquidation
payment with respect to, any of its common stock or preferred stock or any other
securities not senior to the Preferred Securities or the Junior Subordinated
Debentures or make any guarantee payments with respect thereto. Any Extension
Period with respect to payment of interest on the Junior Subordinated
Debentures, other debt securities of UAL under the Indenture or any similar
securities will apply to all such securities and will also apply to
distributions with respect to the Preferred Securities and all other securities
with similar terms. See "Risk Factors and Special Considerations Relating to the
Offer," "Description of the Preferred Securities -- Distributions" and
"Description of the Junior Subordinated Debentures -- Interest" and "-- Option
to Extend Interest Payment Period."
The obligations of UAL under the Junior Subordinated Debentures are
unsecured obligations of UAL and will be subordinate and junior in right of
payment, to the extent set forth herein, to all Senior Indebtedness (as defined
herein) of UAL, except obligations and securities made pari passu or subordinate
by their terms, but senior to all capital stock now existing or hereafter issued
by UAL and to any guarantee now or hereafter entered into by UAL in respect of
its capital stock. Because UAL is a holding company that conducts business
through its subsidiaries, the Junior Subordinated Debentures are effectively
subordinated to all existing and future obligations of UAL's subsidiaries,
including United. As of September 30, 1996, UAL had Senior Indebtedness (on a
consolidated basis) of approximately $13.1 billion and no indebtedness
outstanding that would rank pari passu with the Junior Subordinated Debentures.
UAL's obligations under the Preferred Securities Guarantee (as defined herein)
are unsecured and will rank (i) subordinate and junior
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in right of payment to all Senior Indebtedness of UAL, and (ii) senior to all
capital stock now or hereafter issued by UAL and to any guarantee now or
hereafter entered into by UAL in respect of its capital stock.
The payment of distributions out of moneys held by the Trust and payments
on liquidation of the Trust and the redemption of Preferred Securities, as set
forth below, are guaranteed by UAL on a subordinated basis as and to the extent
not paid by the Trust if, and to the extent that, UAL has made a payment to the
Institutional Trustee (as defined herein) of interest or principal on the Junior
Subordinated Debentures deposited in the Trust as trust assets (the "Preferred
Securities Guarantee"). See "Description of the Preferred Securities Guarantee."
The Preferred Securities Guarantee, when taken together with UAL's obligation
under the Junior Subordinated Debentures and the Indenture and its obligations
under the Declaration, including its obligation to pay costs, expenses and
certain liabilities of the Trust, constitutes a full and unconditional guarantee
of amounts due on the Preferred Securities.
For a description of redemption rights with respect to the Preferred
Securities, the possible dissolution of the Trust and distribution of Junior
Subordinated Debentures held by the Trust to holders of the Trust Securities and
the liquidation amount on the Preferred Securities, see "Risk Factors and
Special Considerations Relating to the Offer," "Description of the Preferred
Securities -- Special Event Redemption or Distribution" and "-- Liquidation
Distribution Upon Dissolution" and "Description of the Junior Subordinated
Debentures."
The Depositary Shares are listed and principally traded on the NYSE under
the symbol "UAL Pr B." On October 15, 1996, the last full day of trading prior
to the filing of the Registration Statement relating to the Offer, the closing
sales price of the Depositary Shares on the NYSE as reported on the Composite
Tape was $33.75 per share. The closing sales price of the Depositary Shares on
the NYSE on November 20, 1996 was $34.13 per share. HOLDERS ARE URGED TO OBTAIN
CURRENT MARKET QUOTATIONS FOR THE DEPOSITARY SHARES. To the extent that
Depositary Shares are tendered and accepted in the Offer, the terms on which
untendered Depositary Shares could subsequently be sold could be adversely
affected. To the extent that the aggregate market value of the Depositary Shares
tendered and accepted in the Offer results in the number of holders of
outstanding Depositary Shares being less than 100,000, UAL would be required to
delist the Depositary Shares from the NYSE pursuant to NYSE rules and
regulations and the trading market for untendered Depositary Shares could be
adversely affected. See "Listing and Trading of Preferred Securities and
Depositary Shares."
UAL will pay to Soliciting Dealers (as defined herein) designated by the
record or beneficial owner, as appropriate, of Depositary Shares a solicitation
fee of $0.50 per Depositary Share ($0.25 per Depositary Share with respect to
the solicitation of beneficial holders of 10,000 or more shares) validly
tendered and accepted for exchange pursuant to the Offer, subject to certain
conditions. Soliciting Dealers are not entitled to a solicitation fee for
Depositary Shares beneficially owned by such Soliciting Dealer. See "The
Offer -- Dealer Managers; Soliciting Dealers."
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY UAL, THE TRUST, THE TRUSTEES OR THE
DEALER MANAGERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF UAL OR THE TRUST SINCE THE RESPECTIVE DATES AS
OF WHICH INFORMATION IS GIVEN HEREIN. THE OFFER IS NOT BEING MADE TO (NOR WILL
TENDERS BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS OF DEPOSITARY SHARES IN ANY
JURISDICTION IN WHICH THE MAKING OF THE OFFER OR THE ACCEPTANCE THEREOF WOULD
NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. HOWEVER, UAL AND THE
TRUST MAY, AT THEIR DISCRETION, TAKE SUCH ACTION AS THEY MAY DEEM NECESSARY TO
MAKE THE
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OFFER IN ANY SUCH JURISDICTION AND EXTEND THE OFFER TO HOLDERS OF DEPOSITARY
SHARES IN SUCH JURISDICTION. IN ANY JURISDICTION THE SECURITIES LAWS OR BLUE SKY
LAWS OF WHICH REQUIRE THE OFFER TO BE MADE BY A LICENSED BROKER OR DEALER, THE
OFFER IS BEING MADE ON BEHALF OF THE TRUST BY THE DEALER MANAGERS OR ONE OR MORE
REGISTERED BROKERS OR DEALERS WHICH ARE LICENSED UNDER THE LAWS OF SUCH
JURISDICTION.
AVAILABLE INFORMATION
UAL is subject to the information requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). As used herein, "UAL" refers to UAL Corporation and its
subsidiaries unless the context otherwise requires. Such reports and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the following Regional Offices of the Commission: 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates and from the Commission's worldwide
web site at http://www.sec.gov. Such material can also be inspected and copied
at the offices of the NYSE, 20 Broad Street, New York, New York 10005; the
Chicago Stock Exchange, 440 South LaSalle Street, Chicago, Illinois 60605; and
the Pacific Stock Exchange, 301 Pine Street, San Francisco, California 94104 or
618 South Spring Street, Los Angeles, California 90014.
This Prospectus constitutes a part of a registration statement on Form S-4
(together with all amendments and exhibits, the "Registration Statement") filed
by UAL and the Trust with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"). This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. The
information so omitted may be obtained from the Commission's principal office in
Washington, D.C. upon payment of the fees prescribed by the Commission and from
the Commission's worldwide web site. Statements contained herein concerning the
provisions of any document provide a description of the material terms of the
copy of such document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission. Each such statement is subject to and
qualified in its entirety by such reference. Reference is made to such
Registration Statement and to the exhibits relating thereto for further
information with respect to UAL, the Trust and the securities offered hereby.
No separate financial statements of the Trust have been included or
incorporated by reference herein. UAL and the Trust do not consider that such
financial statements would be material to holders of Preferred Securities
because the Trust is a newly-formed special purpose entity, has no operating
history, has no independent operations and is not engaged in, and does not
propose to engage in, any activity other than its holding as trust assets the
Junior Subordinated Debentures of UAL and its issuance of Trust Securities. The
Trust anticipates that it will not be required to file with the Commission and
it does not intend to distribute to holders of Preferred Securities periodic
reports regarding the Trust. See "UAL Corporation Capital Trust I," "Description
of the Preferred Securities," "Description of the Preferred Securities
Guarantee" and "Description of the Junior Subordinated Debentures." The Trust is
a statutory business trust formed under the laws of the State of Delaware. UAL,
as of the date hereof, beneficially owns all of the beneficial interests in the
Trust.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
UAL's Annual Report on Form 10-K for the year ended December 31, 1995
("UAL's 1995 10-K Report"), UAL's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1996, June 30, 1996 (as amended) and September 30, 1996
("UAL's 10-Q Reports") and UAL's Current Reports on Form 8-K dated January 23,
1996, January 29, 1996, March 19, 1996, July 23, 1996, and September 16, 1996
have been filed with the Commission and are incorporated herein by reference.
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All documents filed by 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
Expiration Date shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated
herein by reference shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified and
superseded, to constitute a part of this Prospectus.
UAL undertakes to provide without charge to each person to whom a copy of
this Prospectus has been delivered, on the written or oral request of any such
person, a copy of any or all of the documents referred to above which have been
or may be incorporated by reference in this Prospectus, other than exhibits to
such documents. Written or telephonic requests for such documents should be
directed to UAL Corporation, P.O. Box 66919, Chicago, Illinois 60666, Attention:
Francesca M. Maher, Corporate Secretary (telephone number 847-700-4000). In
order to assure timely delivery of the documents, any request should be made not
later than five business days prior to the Expiration Date.
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TABLE OF CONTENTS
PAGE
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Available Information.................................................................. 5
Incorporation of Certain Documents by Reference........................................ 5
Prospectus Summary..................................................................... 8
Certain Potential Benefits and Risks to Investors...................................... 9
The Offer.............................................................................. 12
Risk Factors and Special Considerations Relating to the Offer.......................... 19
Comparison of Preferred Securities and Depositary Shares............................... 23
Capitalization......................................................................... 27
Selected Consolidated Financial and Operating Information.............................. 28
UAL Corporation........................................................................ 30
Recent Developments.................................................................... 30
UAL Corporation Capital Trust I........................................................ 31
The Offer.............................................................................. 34
Listing and Trading of Preferred Securities and Depositary Shares...................... 41
Transactions and Arrangements Concerning the Offer..................................... 42
Fees and Expenses; Transfer Taxes...................................................... 42
Price Range of Depositary Shares....................................................... 42
Description of the Preferred Securities................................................ 43
Description of the Preferred Securities Guarantee...................................... 55
Description of the Junior Subordinated Debentures...................................... 56
Description of the Series B Preferred and Depositary Shares............................ 66
Relationship Between the Preferred Securities, the Junior Subordinated Debentures and
the Preferred Securities Guarantee................................................... 71
Taxation............................................................................... 72
Legal Matters.......................................................................... 77
Experts................................................................................ 77
ERISA Considerations................................................................... 77
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PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified in
its entirety by the detailed information contained elsewhere in, or incorporated
by reference in, this Prospectus.
UAL CORPORATION
UAL, a Delaware corporation ("UAL"), is a holding company and its primary
subsidiary is United Air Lines, Inc., a Delaware corporation ("United"), which
is wholly-owned. United is one of the world's largest airlines as measured by
revenue passenger miles and primarily serves the North American, Pacific, Latin
American and European markets. At the end of 1995, United served 144 airports in
the United States and 30 foreign countries. During 1995, United averaged 2,172
departures daily, flew a total of 112 billion revenue passenger miles and
carried an average of 215,521 passengers per day. At the end of 1995, United's
fleet of aircraft totaled 558. United's major hub operations are located at
Chicago, Denver, Los Angeles, San Francisco, Washington, D.C. and Tokyo.
UAL CORPORATION CAPITAL TRUST I
UAL Corporation Capital Trust I is a statutory business trust that was
created under the Delaware Business Trust Act (the "Business Trust Act") on
October 15, 1996. The Trust's original declaration of trust will be amended and
restated in its entirety as of the date the Trust accepts Depositary Shares in
the Offer (as so amended and restated, the "Declaration") substantially in the
form filed as an exhibit to the Registration Statement of which this Prospectus
forms a part. See "The Offer -- Terms of the Offer" and "-- Acceptance of
Shares" for information regarding the Trust's acceptance of Depositary Shares in
the Offer. The Declaration will be qualified under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). Upon issuance of the Preferred
Securities, the holders thereof will own all the issued and outstanding
Preferred Securities. UAL has agreed to acquire Common Securities in an amount
equal to at least 3% of the total capital of the Trust and will own, directly or
indirectly, all the issued and outstanding Common Securities. The Preferred
Securities and the Common Securities will have equivalent terms; provided that
(i) if an Event of Default under the Declaration occurs and is continuing, the
holders of Preferred Securities will have a priority over the holders of the
Common Securities with respect to payments of distributions and payments upon
liquidation, redemption or otherwise and (ii) holders of Common Securities have
the exclusive right (subject to the terms of the Declaration) to appoint,
replace or remove Trustees and to increase or decrease the number of Trustees.
The number of trustees (the "Trustees") of the Trust shall initially be
five. Three of the Trustees (the "Regular Trustees") are individuals who are
employees or officers of UAL. The fourth trustee is The First National Bank of
Chicago (the "Institutional Trustee"), which will act as the indenture trustee
under the Declaration for purposes of the Trust Indenture Act and will serve as
the Indenture Trustee (as defined herein) under the Indenture (as defined
herein) for the Junior Subordinated Debentures and the Guarantee Trustee (as
defined herein) under the Preferred Securities Guarantee. The fifth trustee is
First Chicago Delaware Inc. (the "Delaware Trustee"), which has its principal
place of business in the State of Delaware. Pursuant to the Declaration, the
Institutional Trustee will have the power to exercise all rights, powers and
privileges under the Indenture pursuant to which the Junior Subordinated
Debentures will be issued. The Institutional Trustee, acting on behalf of the
Trust, will promptly make distributions to the holders of the Trust Securities
out of funds in the Trust. The Preferred Securities Guarantee, which will be
separately qualified under the Trust Indenture Act, will be held by The First
National Bank of Chicago, acting in its separate capacity as indenture trustee
with respect to the Preferred Securities Guarantee, for the benefit of the
holders of the Preferred Securities. As used in this Prospectus, the term
"Institutional Trustee" refers to The First National Bank of Chicago acting
either in its capacity as the trustee under the Declaration or in its capacity
as indenture trustee under, and the holder of, the Preferred Securities
Guarantee, as the context may require.
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The Trust exists for the purpose of (a) issuing (i) its Preferred
Securities in exchange for Depositary Shares validly tendered in the Offer and
delivering such Depositary Shares to UAL in consideration for the deposit by UAL
of Junior Subordinated Debentures, having an aggregate stated principal amount
equal to the aggregate stated liquidation amount of such Preferred Securities,
in the Trust as trust assets, and (ii) its Common Securities to UAL in exchange
for cash and investing the proceeds thereof in an equivalent amount of Junior
Subordinated Debentures and (b) engaging in such other activities as are
necessary and incidental thereto. The rights of the holders of the Trust
Securities, including economic rights, rights to information and voting rights,
are as set forth in the Declaration, the Business Trust Act and the Trust
Indenture Act. See "UAL Corporation Capital Trust I" and "Description of the
Preferred Securities." The Declaration does not permit the incurrence by the
Trust of any indebtedness for borrowed money or the making of any investment
other than in the Junior Subordinated Debentures. In the Declaration, UAL has
agreed to pay for all debts and obligations (other than with respect to the
Trust Securities) and all costs and expenses of the Trust, including the fees
and expenses of the Trustees and any income taxes, duties and other governmental
charges, and all costs and expenses with respect thereto, to which the Trust may
become subject, except for United States withholding taxes. See "Risk Factors
and Special Considerations Relating to the Offer," "UAL Corporation Capital
Trust I" and "Description of the Preferred Securities."
CERTAIN POTENTIAL BENEFITS AND RISKS TO INVESTORS
Prospective investors should carefully review the information contained
elsewhere in this Prospectus prior to making a decision regarding the Offer and
should particularly consider the following matters:
POTENTIAL BENEFITS TO EXCHANGING HOLDERS
- The cash distribution rate on the Preferred Securities will be 100 basis
points greater than the dividend rate on the Depositary Shares. See
"Comparison of Preferred Securities and Depositary Shares."
- Although the obligations of UAL under the Junior Subordinated Debentures
and the Preferred Securities Guarantee are unsecured and will be
subordinated and junior in right of payment to all Senior Indebtedness of
UAL, they will be senior to all capital stock of UAL now or hereafter
issued by UAL (including the Series B Preferred underlying the Depositary
Shares).
- While no dividends are required to be paid with respect to the Depositary
Shares, interest payments on the Junior Subordinated Debentures and
therefore distributions on the Preferred Securities may not be deferred
for more than 20 consecutive quarterly interest periods. Any Extension
Period with respect to payment of interest on the Junior Subordinated
Debentures will also apply to distributions with respect to the Preferred
Securities and all other securities with similar terms. Moreover, UAL may
defer interest payments on the Junior Subordinated Debentures only if it
does not declare or pay dividends on, or redeem, purchase, acquire or
make a distribution or liquidation payment with respect to, any of its
common stock or preferred stock (except under certain circumstances). See
"Description of the Preferred Securities." However, to date, UAL has made
each quarterly dividend payment with respect to the Depositary Shares on
the scheduled dividend payment date, and dividends on the Series B
Preferred accrue whether or not such dividends are declared. See
"Description of the Series B Preferred and Depositary Shares -- Series B
Preferred -- Dividends."
- The Offer will allow UAL to achieve certain tax efficiencies because, in
contrast to dividend payments with respect to the Depositary Shares which
are not deductible by UAL, UAL will be able to deduct interest payments
on the Junior Subordinated Debentures for United States federal income
tax purposes. Such tax efficiencies may give rise to incremental cash
flow to UAL. See "The Offer -- Purpose of the Offer."
- So long as payments of interest and other payments are made when due on
the Junior Subordinated Debentures, such payments will be sufficient to
cover cash distributions and other payments made on the Preferred
Securities (and the Common Securities) because (i) the aggregate
principal amount of Junior Subordinated Debentures deposited as trust
assets will be equal to the sum of (x) the aggregate
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stated liquidation amount of the Preferred Securities issued by the Trust
in exchange for the Depositary Shares accepted in the Offer and (y) the
amount of proceeds received by the Trust from the issuance of the Common
Securities to UAL, which proceeds will be used by the Trust to purchase
an equal principal amount of Junior Subordinated Debentures, (ii) the
interest rate and interest and other payment dates on the Junior
Subordinated Debentures will match the distribution rate and distribution
and other payment dates for the Trust Securities, (iii) the Declaration
provides that UAL shall pay for all debts and obligations (other than
with respect to the Trust Securities) and all costs and expenses of the
Trust, and (iv) the Declaration further provides that the Trustees shall
not permit the Trust to, among other things, engage in any activity that
is not consistent with the purposes of the Trust. See "UAL Corporation
Capital Trust I," "Description of the Preferred Securities," "Description
of the Junior Subordinated Debentures" and "Relationship Between the
Preferred Securities, the Junior Subordinated Debentures and the
Preferred Securities Guarantee."
- The Trust will have no independent operations and will exist for the sole
purpose of effecting the Offer and issuing the Trust Securities as
described herein and owning and holding the Junior Subordinated
Debentures. See "UAL Corporation Capital Trust I."
- The Institutional Trustee will have the power to exercise all rights,
powers and privileges under the Indenture with respect to the Junior
Subordinated Debentures, including its rights to enforce UAL's
obligations under the Junior Subordinated Debentures upon the occurrence
of an Indenture Event of Default, and will also have the right to enforce
the Preferred Securities Guarantee on behalf of the holders of the
Preferred Securities. In addition, the holders of the Preferred
Securities will have certain rights to direct the Institutional Trustee
with respect to certain matters under the Declaration and the Preferred
Securities Guarantee. Under certain circumstances, holders of Preferred
Securities may institute a legal proceeding against UAL to enforce its
payment obligations pursuant to the Junior Subordinated Debentures and to
enforce the Preferred Securities Guarantee. See "Description of the
Preferred Securities" and "Description of the Preferred Securities
Guarantee."
POTENTIAL RISKS TO EXCHANGING HOLDERS
- Participation in the Offer will be a taxable event for holders of
Depositary Shares. See "Risk Factors and Special Considerations Relating
to the Offer -- Exchange of Depositary Shares for Preferred Securities is
a Taxable Event."
- The obligations of UAL under the Junior Subordinated Debentures, the
Preferred Securities Guarantee and the Depositary Shares are subordinate
in right of payment to all Senior Indebtedness of UAL, except obligations
or securities made pari passu or subordinate by their terms. See "Risk
Factors and Special Considerations Relating to the Offer -- Ranking of
Subordinated Obligations under Preferred Securities Guarantee and Junior
Subordinated Debentures" and "-- Trust Distributions Dependent on UAL's
Payments on Junior Subordinated Debentures."
- If UAL were to default in its obligation to pay amounts payable on the
Junior Subordinated Debentures, the Trust would lack available funds for
the payment of distributions or amounts payable on redemption of the
Preferred Securities or otherwise. In addition, the interest payment
period on the Junior Subordinated Debentures may be extended from time to
time under certain circumstances by UAL, in its sole discretion, for up
to 20 consecutive quarterly interest periods. See "Risk Factors and
Special Considerations Relating to the Offer -- Ranking of Subordinated
Obligations under Preferred Securities Guarantee and Junior Subordinated
Debentures," "-- Trust Distributions Dependent on UAL's Payments on
Junior Subordinated Debentures," "-- UAL May Defer Interest Payments on
Junior Subordinated Debentures," "-- Tax Consequences of Extension of
Interest Payment Periods," and "-- Potential Market Volatility During
Extension Period."
- Should UAL not make interest or other payments on the Junior Subordinated
Debentures for any reason, including as a result of UAL's election to
defer payments of interest on the Junior Subordinated Debentures by
extending the interest payment period on the Junior Subordinated
Debentures, the Trust will not make distributions or other payments on
the Trust Securities. In such an
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event, holders of the Preferred Securities would not be able to rely on
the Preferred Securities Guarantee since the Preferred Securities
Guarantee covers distributions and other payments on the Preferred
Securities only if and to the extent that UAL has made a payment to
the Trust of interest or principal on the Junior Subordinated Debentures
deposited in the Trust as trust assets. See "Risk Factors and Special
Considerations Relating to the Offer -- Trust Distributions Dependent on
UAL's Payments on Junior Subordinated Debentures."
- If UAL elects to defer payments of interest on the Junior Subordinated
Debentures by extending the interest period on the Junior Subordinated
Debentures, distributions on the Preferred Securities would also be
deferred but the Trust would continue to accrue interest income (as
original issue discount) in respect of such Junior Subordinated
Debentures which would be taxable to beneficial owners of Preferred
Securities. As a result, beneficial owners of Preferred Securities during
an Extension Period would include their pro rata share of the interest in
gross income in advance of the receipt of cash. See "Risk Factors and
Special Considerations Relating to the Offer -- Tax Consequences of
Extension of Interest Payment Periods."
- Holders of Preferred Securities will have limited voting rights and will
not be able to appoint, remove or replace, or to increase or decrease the
number of, Trustees, which rights are vested exclusively in the Common
Securities. See "Risk Factors and Special Considerations Relating to the
Offer -- Limited Voting Rights" and "Description of the Preferred
Securities -- Voting Rights." Holders of Depositary Shares also have
limited voting rights. However, with certain exceptions, in the event
that dividends on the Series B Preferred are in arrears and unpaid for
six quarterly dividend periods, whether or not consecutive, the Board of
Directors of UAL is required to be increased by two directors and the
holders of Series B Preferred, together with the holders of all other
series of preferred stock then entitled to vote thereon, would be
entitled to elect two directors of the expanded board of directors. See
"Description of the Series B Preferred and Depositary Shares -- Series B
Preferred -- Voting Rights."
- Under the General Corporation Law of the State of Delaware (the "GCL"),
the directors and officers of UAL, in exercising the powers and
responsibilities of managing UAL, owe UAL and the holders of Depositary
Shares a duty of care, a duty of loyalty and a duty of candor. The
directors and officers of UAL are not, however, liable for errors in
judgment or other acts or omissions made in good faith unless their
actions are found to be grossly negligent. Similarly, under Delaware law,
the trustees of a business trust (such as the Trust) are fiduciaries who
are obligated to act with fidelity and good faith to the trust and the
beneficial owners of the trust. The Business Trust Act does not delineate
the fiduciary duties of trustees of a Delaware business trust but
provides that, to the extent a trustee has fiduciary or other duties to a
business trust or to a beneficial owner, the trustee shall not be liable
for his good faith reliance on provisions of the business trust's
governing instrument, even though the act or omission may be contrary to
a duty or liability that has otherwise been imposed on the trustee at law
or in equity. Thus, the Trustees' duties and liabilities may be expanded
or restricted by the Declaration, although not completely eliminated.
Under the Declaration, the Regular Trustees have duties that are
substantially similar to directors of UAL. In contrast, under the
Declaration, the Institutional Trustee's duties are different from those
of directors of UAL. Under the Declaration, subject to certain
exceptions, the Institutional Trustee is liable for its own negligent
action, its own negligent failure to act and its own willful misconduct.
The Institutional Trustee is also subject to duties imposed by the Trust
Indenture Act. The Delaware Trustee has very limited duties and
obligations under the Declaration. Finally, subject to the Declaration
and the Trust Indenture Act, the Trustees may engage or possess an
interest in other business ventures.
Under the GCL, so long as UAL is solvent, directors of UAL owe duties
only to the holders of Depositary Shares and other shareholders of UAL.
Thus, as long as UAL is solvent, directors of UAL will not owe fiduciary
duties either to the Trust or the holders of Preferred Securities. Under
the GCL, if UAL is clearly insolvent, the directors of UAL will owe
duties to holders of Depositary Shares and the other shareholders of UAL
as well as creditors of UAL. Thus, if UAL becomes clearly insolvent,
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the directors of UAL will owe duties to the Trust as the sole holder of
the Junior Subordinated Debentures.
- The Depositary Shares are redeemable at the option of UAL on or after
July 12, 2004, in whole or in part. The Preferred Securities are
redeemable at the option of UAL on or after July 12, 2004, in whole or in
part.
- While the Depositary Shares are not redeemable prior to July 12, 2004,
the Junior Subordinated Debentures (and thus the Preferred Securities) in
certain circumstances will be redeemable prior to that date upon the
occurrence of a Tax Event (as defined herein). See "Risk Factors and
Special Considerations Relating to the Offer -- Special Event Redemption
or Distribution."
- While dividends with respect to Depositary Shares are eligible for the
dividends received deduction for corporate holders, distributions on the
Preferred Securities are not eligible for the dividends received
deduction for corporate holders.
- While the Preferred Securities have been approved for listing on the NYSE
subject to official notice of issuance, the Preferred Securities are a
new issue of securities with no established trading market. In addition,
liquidity of the Preferred Securities will be affected by the number of
Depositary Shares exchanged in the Offer. See "Risk Factors and Special
Considerations Relating to the Offer -- Lack of Established Trading
Market for Preferred Securities" and "-- Reduced Trading Market for
Depositary Shares."
- Under certain circumstances, the Trust would be dissolved and the Junior
Subordinated Debentures could be distributed to holders of Trust
Securities. In such event, the holders would become holders of Junior
Subordinated Debentures. While UAL will use its best efforts in such a
situation to have the Junior Subordinated Debentures listed on the NYSE,
there is no guarantee that such listing will take place or that a market
will exist for such Junior Subordinated Debentures. See "Risk Factors and
Special Considerations Relating to the Offer -- Special Event Redemption
or Distribution."
POTENTIAL RISKS TO NON-EXCHANGING HOLDERS
- The liquidity and trading market for untendered Depositary Shares could
be adversely affected to the extent Depositary Shares are tendered and
accepted in the Offer. See "Risk Factors and Special Considerations
Relating to the Offer -- Reduced Trading Market for Depositary Shares."
- The Junior Subordinated Debentures and the Preferred Securities Guarantee
will rank senior in right of payment to the untendered Depositary Shares.
See "Risk Factors and Special Considerations Relating to the
Offer -- Ranking of Subordinated Obligations Under Preferred Securities
Guarantee and Junior Subordinated Debentures."
THE OFFER
PURPOSE OF THE OFFER
The purpose of the Offer is to refinance the Depositary Shares with the
Preferred Securities to achieve certain tax efficiencies while preserving UAL's
flexibility with respect to future financings. This refinancing will permit UAL
to deduct interest payable on the Junior Subordinated Debentures for United
States federal income tax purposes; dividends payable on the Depositary Shares
are not deductible. See "The Offer -- Purpose of the Offer."
TERMS OF THE OFFER
Upon the terms and subject to the conditions set forth herein and in the
Letter of Transmittal, the Trust hereby offers to exchange its Preferred
Securities for any and all of the Depositary Shares of UAL not owned by UAL.
Exchanges will be made on the basis of one Preferred Security for each
Depositary Share validly tendered and accepted for exchange in the Offer. See
"The Offer -- Terms of the Offer."
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EXPIRATION DATE; WITHDRAWALS
Upon the terms and conditions of the Offer, the Trust will accept for
exchange any and all Depositary Shares validly tendered and not withdrawn prior
to 12:00 midnight, New York City time, on Friday, December 20, 1996, or, if the
Offer is extended by the Trust, in its sole discretion, the latest date and time
to which the Offer has been extended (the "Expiration Date"). Tenders of
Depositary Shares pursuant to the Offer may be withdrawn at any time prior to
the Expiration Date and, unless accepted for exchange by the Trust, may be
withdrawn at any time after 40 Business Days (as defined herein) after the date
of this Prospectus. A "Business Day" shall mean each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions are
authorized or obligated by law or executive order to close in the place of
payment under the Indenture. See "The Offer -- Expiration Date; Extensions;
Amendments; Termination," "-- Withdrawal of Tenders" and "-- Acceptance of
Shares." Tenders must be made to the Exchange Agent in order to be valid.
CONDITIONS TO THE OFFER; EXTENSIONS; AMENDMENTS; TERMINATION
Consummation of the Offer is conditioned on, among other things, tenders by
a sufficient number of holders of Depositary Shares to meet the Minimum
Distribution Condition, which condition may not be waived. See "The
Offer -- Conditions to the Offer" and "-- Expiration Date; Extensions;
Amendments; Termination."
The Trust expressly reserves the right, in its sole discretion, subject to
applicable law, to (i) terminate the Offer, and not accept for exchange any
Depositary Shares and promptly return all Depositary Shares, upon the failure of
any condition specified above or under "The Offer -- Conditions to the Offer,"
(ii) waive any condition to the Offer (other than the Minimum Distribution
Condition) and accept all Depositary Shares previously tendered pursuant to the
Offer, (iii) extend the Expiration Date of the Offer and retain all Depositary
Shares tendered pursuant to the Offer until the Expiration Date, subject,
however, to all withdrawal rights of holders, see "The Offer -- Withdrawal of
Tenders," (iv) amend the terms of the Offer, (v) modify the form of the
consideration to be paid pursuant to the Offer, or (vi) not accept for exchange
Depositary Shares at any time on or prior to the Expiration Date, for any
reason, including, without limitation, if fewer than 100,000 Depositary Shares
would remain outstanding upon acceptance of those tendered (which condition may
be waived by the Trust). Any amendment applicable to the Offer will apply to all
Depositary Shares tendered pursuant to the Offer. The minimum period during
which the Offer must remain open following material changes in the terms of the
Offer or the information concerning the Offer, other than a change in the
percentage of securities sought or the price, depends upon the facts and
circumstances, including the relative materiality of such terms or information.
See "The Offer -- Conditions to the Offer" and "-- Expiration Date; Extensions;
Amendments; Termination."
PROCEDURES FOR TENDERING
Each Holder of Depositary Shares wishing to participate in the Offer must
(i) properly complete and sign the Letter of Transmittal (or where appropriate
an Agent's Message (as defined herein)) or a facsimile thereof (all references
in this Prospectus to the Letter of Transmittal shall be deemed to include a
facsimile thereof) in accordance with the instructions contained herein and in
the Letter of Transmittal, together with any required signature guarantees, and
deliver the same to The Bank of New York, as Exchange Agent, at one of its
addresses set forth on the back cover page hereof, prior to the Expiration Date
and either (a) certificates for the Depositary Shares must be received by the
Exchange Agent at such address or (b) such Depositary Shares must be transferred
pursuant to the procedures for book-entry transfer described herein and a
confirmation of such book-entry transfer must be received by the Exchange Agent,
in each case prior to the Expiration Date, or (ii) comply with the guaranteed
delivery procedures described herein. See "The Offer -- Procedures for
Tendering."
IN ORDER TO PARTICIPATE IN THE OFFER, HOLDERS OF DEPOSITARY SHARES MUST
SUBMIT A LETTER OF TRANSMITTAL AND COMPLY WITH THE OTHER PROCEDURES FOR
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TENDERING IN ACCORDANCE WITH THE INSTRUCTIONS CONTAINED HEREIN AND IN THE LETTER
OF TRANSMITTAL PRIOR TO THE EXPIRATION DATE.
LETTERS OF TRANSMITTAL, DEPOSITARY SHARES AND ANY OTHER REQUIRED DOCUMENTS
SHOULD BE SENT ONLY TO THE EXCHANGE AGENT -- NOT TO UAL, THE TRUST, THE DEALER
MANAGERS OR THE INFORMATION AGENT.
SPECIAL PROCEDURE FOR BENEFICIAL OWNERS
Any beneficial owner whose Depositary Shares are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender such Depositary Shares should contact such registered Holder promptly
and instruct such registered Holder to tender on such beneficial owner's behalf.
If such beneficial owner wishes to tender on its own behalf, such owner must,
prior to completing and executing a Letter of Transmittal and delivering its
Depositary Shares, either make appropriate arrangements to register ownership of
the Depositary Shares in such owner's name or obtain a properly completed stock
power from the registered Holder. The transfer of registered ownership may take
considerable time and may not be able to be completed prior to the Expiration
Date. See "The Offer -- Procedures for Tendering -- Special Procedure for
Beneficial Owners."
GUARANTEED DELIVERY PROCEDURES
If a Holder desires to accept the Offer and time will not permit a Letter
of Transmittal or Depositary Shares to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected in accordance with the guaranteed
delivery procedures set forth in "The Offer -- Procedures for
Tendering -- Guaranteed Delivery."
ACCEPTANCE OF SHARES
Upon the terms and subject to the conditions of the Offer, including the
Minimum Distribution Condition, the Trust will accept for exchange any and all
Depositary Shares validly tendered and not withdrawn prior to the Expiration
Date.
The Trust expressly reserves the right, in its sole discretion, to delay
acceptance for exchange of Depositary Shares tendered under the Offer and the
delivery of the Preferred Securities with respect to the Depositary Shares
accepted for exchange (subject to Rules 13e-4 and 14e-1 under the Exchange Act,
which require that the Company consummate the Offer or return the Depositary
Shares deposited by or on behalf of the Holders thereof promptly after the
termination or withdrawal of the Offer), or to amend, withdraw or terminate the
Offer, at any time prior to the Expiration Date for any of the reasons set forth
in "The Offer -- Conditions to the Offer" and "-- Expiration Date; Extensions;
Amendments; Termination."
If the Trust decides, in its sole discretion, to decrease the number of
Depositary Shares sought in the Offer or to increase or decrease the
consideration offered to holders of Depositary Shares, and if the Offer is
scheduled to expire less than ten Business Days from and including the date that
notice of such increase or decrease is first published, sent or given in the
manner specified in "The Offer -- Terms of the Offer" and "-- Expiration Date;
Extensions; Amendments; Termination," then the Offer will remain open for a
minimum of ten Business Days from and including the date of such notice.
All Depositary Shares not accepted pursuant to the Offer will be returned
to the tendering Holders at the Trust's expense as promptly as practicable
following the Expiration Date.
DELIVERY OF PREFERRED SECURITIES
Subject to the terms and conditions of the Offer, the delivery of the
Preferred Securities to be issued pursuant to the Offer will occur as promptly
as practicable following the Expiration Date. See "The Offer -- Terms of the
Offer" and "-- Expiration Date; Extensions; Amendments; Termination."
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DESCRIPTION OF PREFERRED SECURITIES AND JUNIOR SUBORDINATED DEBENTURES
The Preferred Securities evidence preferred undivided beneficial interests
in the assets of the Trust and will have terms equivalent to the Common
Securities; provided that (i) if an Event of Default under the Declaration
occurs and is continuing, the holders of Preferred Securities will have a
priority over holders of the Common Securities with respect to payments in
respect of distributions and payments upon liquidation, redemption or otherwise
and (ii) holders of Common Securities have the exclusive right (subject to the
terms of the Declaration) to appoint, remove and replace Trustees and to
increase or decrease the number of Trustees. The Declaration does not permit the
issuance by the Trust of any securities or beneficial interests in the assets of
the Trust other than the Preferred Securities and the Common Securities, the
incurrence of any indebtedness for borrowed money by the Trust or the making of
any investments other than in the Junior Subordinated Debentures. The
Declaration defines an event of default with respect to the Trust Securities (an
"Event of Default") as the occurrence and continuance of an "event of default"
under the Indenture with respect to the Junior Subordinated Debentures (an
"Indenture Event of Default").
Periodic cash distributions on each Preferred Security will be fixed at a
rate per annum of 13 1/4% of the stated liquidation amount of $25 per Preferred
Security. Distributions in arrears will bear interest thereon at the rate per
annum of 13 1/4%, compounded quarterly to the extent permitted by applicable
law. Distributions on the Preferred Securities will be cumulative, will accrue
from the Accrual Date and, except as otherwise described herein, will be made
quarterly in arrears, on March 31, June 30, September 30 and December 31 of each
year, commencing on December 31, 1996, and at final maturity of the Junior
Subordinated Debentures, but only if and to the extent that interest payments
are made in respect of the Junior Subordinated Debentures held by the Trust. In
addition, holders of Preferred Securities will be entitled to an additional cash
distribution at the rate of 12 1/4% per annum of the liquidation amount thereof
from November 1, 1996 through the Expiration Date in lieu of dividends
accumulating and unpaid after November 1, 1996 on their Depositary Shares
accepted for exchange, such additional distribution to be made on December 31,
1996 to holders of the Preferred Securities on the record date for such
distribution.
The distribution rate and the distribution and other payment dates for the
Preferred Securities will correspond to the interest rate and the interest and
other payment dates on the Junior Subordinated Debentures deposited in the Trust
as trust assets. As a result, if principal or interest is not paid on the Junior
Subordinated Debentures, including as a result of UAL's election to extend the
interest payment period on the Junior Subordinated Debentures as described
below, the Trust will not make payments on the Trust Securities. The Junior
Subordinated Debentures provide that, so long as UAL shall not be in default in
the payment of interest on the Junior Subordinated Debentures, UAL has the right
under the Indenture to defer payments of interest on the Junior Subordinated
Debentures by extending the interest payment period from time to time on the
Junior Subordinated Debentures for an Extension Period and, as a consequence,
quarterly distributions on the Preferred Securities would not be made (but would
continue to accrue with interest thereon at the rate of 13 1/4% per annum,
compounded quarterly to the extent permitted by applicable law) by the Trust
during any such Extension Period. During an Extension Period, UAL may not
declare or pay dividends on, or redeem, purchase, acquire or make a distribution
or liquidation payment with respect to, any of its common stock or preferred
stock or any other securities similar to the Preferred Securities or the Junior
Subordinated Debentures or make any guarantee payments with respect thereto. Any
Extension Period with respect to payment of interest on the Junior Subordinated
Debentures will also apply to distributions with respect to the Preferred
Securities and all other securities with similar terms. Prior to the termination
of any such Extension Period, UAL may further extend such Extension Period;
provided that such Extension Period together with all such previous and further
extensions thereof may not exceed 20 consecutive quarterly interest periods and
provided further that no Extension Period may extend beyond the maturity of the
Junior Subordinated Debentures. Upon the termination of any Extension Period and
the payment of all amounts then due, UAL may commence a new Extension Period,
subject to the above requirements. Consequently, there could be multiple
Extension Periods of varying lengths (up to six Extension Periods of 20
consecutive quarterly interest periods each or more numerous shorter Extension
Periods) throughout the term of the Junior Subordinated Debentures, provided
that no Extension Period may extend beyond the maturity of the Junior
Subordinated Debentures. See "Risk Factors and Special Considerations Relating
to the Offer,"
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"-- Trust Distributions Dependent on UAL's Payments on Junior Subordinated
Debentures" and "-- UAL May Defer Interest Payments on Junior Subordinated
Debentures" and "Description of the Junior Subordinated Debentures -- Interest"
and "-- Option to Extend Interest Payment Period."
UAL shall give the Institutional Trustee notice of its selection of such
Extension Period ten Business Days prior to the earlier of (i) the date the
distributions on the Preferred Securities are payable or (ii) the date the Trust
is required to give notice to the NYSE or other applicable self-regulatory
organization or to holders of the Preferred Securities of the record date or the
date such distribution is payable, but in any event not less than one Business
Day prior to such record date. The Trust shall give notice of UAL's selection of
such Extension Period to the holders of the Preferred Securities. See
"Description of the Junior Subordinated Debentures -- Option to Extend Interest
Payment Period."
There will be deposited in the Trust as trust assets (i) Junior
Subordinated Debentures having an aggregate principal amount equal to the
aggregate stated liquidation amount of the Preferred Securities issued by the
Trust in exchange for the Depositary Shares accepted in the Offer and (ii)
Junior Subordinated Debentures having an aggregate principal amount equal to the
amount of proceeds received by the Trust from the sale of the Common Securities
to UAL. Under the Declaration, if and to the extent UAL does make interest
payments on the Junior Subordinated Debentures deposited in the Trust as trust
assets, the Institutional Trustee is obligated to make distributions promptly on
the Preferred Securities. The payment of distributions on the Preferred
Securities and payments on liquidation of the Trust and the redemption of
Preferred Securities, as set forth below, in each case out of moneys held by the
Trust, are guaranteed by UAL on a subordinated basis as and to the extent set
forth under "Description of the Preferred Securities Guarantee." The Preferred
Securities Guarantee covers distributions and other payments on the Preferred
Securities only if and to the extent that UAL has made a payment to the Trust of
interest or principal on the Junior Subordinated Debentures deposited in the
Trust as trust assets. The Preferred Securities Guarantee, when taken together
with UAL's obligations under the Junior Subordinated Debentures and the
Indenture and its obligations under the Declaration, including its obligation to
pay costs, expenses and certain liabilities of the Trust, constitutes a full and
unconditional guarantee of amounts due on the Preferred Securities.
The Preferred Securities and Common Securities are redeemable on a Pro Rata
Basis (as defined below) from time to time, in whole or in part, to the same
extent as the Junior Subordinated Debentures are redeemed by UAL, at any time on
or after July 12, 2004, upon not less than 10 nor more than 60 days' notice, at
$25 per Preferred Security plus accrued and unpaid distributions thereon to the
date of redemption (the "Redemption Price"), including distributions accrued as
a result of UAL's election to defer payments of interest on the Junior
Subordinated Debentures, payable in cash. The Preferred Securities will be
redeemed upon the maturity or earlier redemption of the Junior Subordinated
Debentures. See "Description of the Preferred Securities -- Mandatory
Redemption." As used in this Prospectus, the term "Pro Rata Basis" shall mean
pro rata to each holder of Trust Securities according to the aggregate
liquidation amount of the Trust Securities held by the relevant holder in
relation to the aggregate liquidation amount of all Trust Securities outstanding
unless, in relation to a payment, an Event of Default under the Declaration has
occurred and is continuing, in which case any funds available to make such
payment shall be paid first to each holder of the Preferred Securities pro rata
according to the aggregate liquidation amount of the Preferred Securities held
by the relevant holder in relation to the aggregate liquidation amount of all
Preferred Securities outstanding, and, only after satisfaction of all amounts
owed to the holders of the Preferred Securities, to each holder of Common
Securities pro rata according to the aggregate liquidation amount of the Common
Securities held by the relevant holder in relation to the aggregate liquidation
amount of all the Common Securities outstanding.
In addition, upon the occurrence and during the continuation of a Tax Event
or an Investment Company Event (each as hereinafter defined) arising from a
change in law or a change in legal interpretation or other specified
circumstances, the Trust shall, unless the Junior Subordinated Debentures are
redeemed in the limited circumstances described below and subject to certain
other limited exceptions, be dissolved, with the result that the Junior
Subordinated Debentures will be distributed to the holders of the Preferred
Securities and the Common Securities on a Pro Rata Basis, in lieu of any cash
distribution. In the case of a Tax Event, UAL will have the right in certain
circumstances to redeem the Junior Subordinated Debentures at any time, in which
event the Trust will redeem the Trust Securities on a Pro Rata Basis to the same
extent as the Junior
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Subordinated Debentures are redeemed. If the Junior Subordinated Debentures are
distributed to the holders of the Trust Securities, UAL will use its best
efforts to have the Junior Subordinated Debentures listed on the NYSE or on such
other exchange as the Preferred Securities are then listed. See "Description of
the Preferred Securities -- Special Event Redemption or Distribution."
The Junior Subordinated Debentures will be issued pursuant to an indenture,
to be dated as of December 20, 1996 (the "Indenture"), between UAL and The First
National Bank of Chicago as trustee (the "Indenture Trustee"). See "Description
of the Junior Subordinated Debentures." The Junior Subordinated Debentures will
mature on December 15, 2026 and will bear interest at an annual rate of 13 1/4%
from the Accrual Date. Interest will be payable quarterly in arrears on March
31, June 30, September 30 and December 31 of each year, commencing on December
31, 1996, and at final maturity; provided that, as described above, so long as
UAL shall not be in default in the payment of interest on the Junior
Subordinated Debentures, UAL shall have the right to extend the interest payment
period from time to time for a period not exceeding 20 consecutive quarterly
interest periods. UAL has no current intention of exercising its right to extend
an interest payment period. However, should UAL determine to exercise such right
in the future, the market price of the Preferred Securities is likely to be
affected. See "Risk Factors and Special Considerations Relating to the Offer"
and "Description of the Junior Subordinated Debentures -- Option to Extend
Interest Payment Period."
The Junior Subordinated Debentures will also accrue interest at the rate of
12 1/4% per annum of the principal amount thereof from November 1, 1996 through
the Expiration Date, payable at the time of the first interest payment on the
Junior Subordinated Debentures to holders of the Junior Subordinated Debentures
on the record date for such distribution. No extension of interest will be
permitted with respect to interest accruing from November 1, 1996 through the
Expiration Date.
UAL shall have the right to redeem the Junior Subordinated Debentures, in
whole or in part, from time to time, on or after July 12, 2004, upon not less
than 10 nor more than 60 days' notice, at a redemption price equal to 100% of
the principal amount to be redeemed, plus any accrued and unpaid interest to the
redemption date, including interest accrued as a result of UAL's election to
defer payments of interest on the Junior Subordinated Debentures, payable in
cash. In addition, upon the occurrence of a Tax Event, UAL will also have the
right if certain conditions are met to redeem the Junior Subordinated Debentures
at any time. If UAL redeems the Junior Subordinated Debentures, then the Trust
will redeem the Trust Securities on a Pro Rata Basis to the same extent as the
Junior Subordinated Debentures are redeemed.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The exchange of Depositary Shares for Preferred Securities pursuant to the
Offer will be a taxable event. Gain or loss generally will be recognized in an
amount equal to the difference between the fair market value on the Expiration
Date of the holder's pro rata share of the Junior Subordinated Debentures
represented by the Preferred Securities received in the exchange and the
exchanging Holder's tax basis in the Depositary Shares surrendered. For this
purpose, the fair market value of the Junior Subordinated Debentures deemed
issued in exchange for Depositary Shares on the Expiration Date will equal the
fair market value of the Preferred Securities on that date. See
"Taxation -- Exchange of Depositary Shares for Preferred Securities."
The Junior Subordinated Debentures will be treated as issued with "original
issue discount" for United States federal income tax purposes. Holders of
Preferred Securities (each a "Securityholder") will be required to include their
pro rata share of original issue discount in gross income as it accrues on the
Junior Subordinated Debentures in advance of the receipt of cash. Generally, all
of a Securityholder's taxable interest income with respect to the Junior
Subordinated Debentures will be accounted for as "original issue discount" and
actual distributions of stated interest will not be separately reported as
taxable income. See "Taxation -- Accrual of Original Issue Discount and Premium"
and "-- Potential Extension of Payment Period on the Junior Subordinated
Debentures."
While dividends on the Series B Preferred are eligible for the dividends
received deduction for corporate holders, dividends on the Preferred Securities
are not eligible for the dividends received deduction for corporate holders.
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The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying Junior
Subordinated Debentures. A Securityholder who disposes of his Preferred
Securities and does not receive a payment of interest from the Trust for the
period in which the disposition occurs will nevertheless be required to include
accrued but unpaid interest on the Junior Subordinated Debentures through the
date of disposition in income as ordinary income, and to add such amount to the
adjusted tax basis in his pro rata share of the underlying Junior Subordinated
Debentures deemed disposed of. Accordingly, such a Securityholder will recognize
a capital loss to the extent the selling price (which may not fully reflect the
value of accrued but unpaid interest) is less than the Securityholder's adjusted
tax basis (which will include accrued but unpaid interest). Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes.
ACCOUNTING FOR EXCHANGE
The refinancing of the Series B Preferred with the Preferred Securities
will decrease UAL's stockholders' equity and may increase or decrease earnings
applicable to common stockholders during the period of the Offer depending upon
the difference between the fair market value of the Series B Preferred
represented by the Depositary Shares and the liquidation price of the Series B
Preferred at the time of the exchange. The financial statements of the Trust
will be included in the consolidated financial statements of UAL. The Preferred
Securities will be disclosed separately in UAL's consolidated balance sheet
between the liabilities and stockholders' equity sections, and supplemented by
certain disclosures in UAL's notes to the financial statements.
UNTENDERED SHARES
Holders of Depositary Shares who do not tender their Depositary Shares in
the Offer or whose Depositary Shares are not accepted for exchange will continue
to hold such Depositary Shares and will be entitled to all the rights and
preferences, and will be subject to all of the limitations, applicable thereto.
To the extent that Depositary Shares are tendered and accepted in the
Offer, the terms on which untendered Depositary Shares could subsequently be
sold could be adversely affected. See "Risk Factors and Special Considerations
Relating to the Offer -- Reduced Trading Market for Depositary Shares."
EXCHANGE AGENT AND INFORMATION AGENT
The Bank of New York has been appointed as Exchange Agent in connection
with the Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notices of Guaranteed Delivery should be directed to Georgeson & Company, Inc.
which has been retained by UAL and the Trust to act as Information Agent for the
Offer. The addresses and telephone numbers of the Exchange Agent and the
Information Agent are set forth in "The Offer -- Exchange Agent and Information
Agent" and on the outside back cover of this Prospectus.
DEALER MANAGERS
Merrill Lynch & Co. and Smith Barney Inc. have been retained as Dealer
Managers in connection with the Offer. For information regarding fees payable to
the Dealer Managers and Soliciting Dealers (as defined herein), see "The
Offer -- Dealer Managers; Soliciting Dealers."
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RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO THE OFFER
Prospective exchanging holders of Depositary Shares who plan to participate
in the Offer should carefully consider, in addition to the other information set
forth elsewhere in this Prospectus, the following:
EXCHANGE OF DEPOSITARY SHARES FOR PREFERRED SECURITIES IS A TAXABLE EVENT
The exchange of Depositary Shares for Preferred Securities pursuant to the
Offer will be a taxable event. Generally, gain or loss will be recognized in an
amount equal to the difference between the fair market value on the Expiration
Date of the holder's pro rata share of the Junior Subordinated Debentures
represented by the Preferred Securities received in the exchange and the
exchanging Holder's tax basis in the Depositary Shares exchanged therefor. See
"Taxation -- Exchange of Depositary Shares for Preferred Securities." All
Holders of Depositary Shares are advised to consult their tax advisors regarding
the United States federal, state, local and foreign tax consequences of the
exchange of Depositary Shares and the issuance of Preferred Securities. See
"Price Range of Depositary Shares."
CORPORATE HOLDERS OF PREFERRED SECURITIES NOT ENTITLED TO DIVIDENDS RECEIVED
DEDUCTION
While dividends with respect to the Depositary Shares are eligible for the
dividends received deduction for corporate holders, distributions on the
Preferred Securities are not eligible for the dividends received deduction for
corporate holders.
RANKING OF SUBORDINATED OBLIGATIONS UNDER PREFERRED SECURITIES GUARANTEE AND
JUNIOR SUBORDINATED
DEBENTURES
The obligations of UAL under the Junior Subordinated Debentures are
unsecured obligations of UAL and will be subordinate and junior in right of
payment, to the extent set forth herein, to all Senior Indebtedness of UAL,
except obligations and securities made pari passu or subordinate by their terms,
but senior to all capital stock now or hereafter issued by UAL and to any
guarantee now or hereafter entered into by UAL in respect of its capital stock.
UAL's obligations under the Preferred Securities Guarantee are unsecured and
will rank (i) subordinate and junior in right of payment to all Senior
Indebtedness of UAL and (ii) senior to all capital stock now or hereafter issued
by UAL and to any guarantee now or hereafter entered into by UAL in respect of
its capital stock. At September 30, 1996, Senior Indebtedness of UAL on a
consolidated basis aggregated approximately $13.1 billion and there was no
indebtedness outstanding that would rank pari passu with the Junior Subordinated
Debentures. The terms of the Preferred Securities, the Junior Subordinated
Debentures or the Preferred Securities Guarantee do not limit the ability of UAL
to incur additional indebtedness or other liabilities, including indebtedness
that ranks senior to or pari passu with the Junior Subordinated Debentures and
the Preferred Securities Guarantee, or the ability of its subsidiaries to incur
additional indebtedness or other liabilities. See "Description of the Preferred
Securities Guarantee -- Status of the Preferred Securities Guarantee" and
"Description of the Junior Subordinated Debentures -- Subordination."
Because UAL is a holding company that conducts business through its
subsidiaries, the Junior Subordinated Debentures are effectively subordinated to
all existing and future obligations of UAL's subsidiaries, including United. Any
right of UAL to participate in any distribution of the assets of any of UAL's
subsidiaries, including United, upon the liquidation, reorganization or
insolvency of such subsidiary (and the consequent right of the holders of the
Junior Subordinated Debentures to participate in those assets) will be subject
to the claims of the creditors (including trade creditors) and preferred
stockholders of such subsidiary, except to the extent that claims of UAL itself
as a creditor of such subsidiary may be recognized, in which case the claims of
UAL would still be subordinate to any security interest in the assets of such
subsidiary and any indebtedness of such subsidiary senior to that held by UAL.
TRUST DISTRIBUTIONS DEPENDENT ON UAL'S PAYMENTS ON JUNIOR SUBORDINATED
DEBENTURES
The Trust's ability to make distributions and other payments on the
Preferred Securities is solely dependent upon UAL making interest and other
payments on the Junior Subordinated Debentures deposited as trust assets as and
when required. If UAL were not to make distributions or other payments on the
Junior Subordinated Debentures for any reason, including as a result of UAL's
election to defer the payment of
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interest on the Junior Subordinated Debentures by extending the interest period
on the Junior Subordinated Debentures, the Trust will not make payments on the
Trust Securities. In such an event, holders of the Preferred Securities would
not be able to rely on the Preferred Securities Guarantee since distributions
and other payments on the Preferred Securities are subject to such Guarantee
only if and to the extent that UAL has made a payment to the Trust of interest
or principal on the Junior Subordinated Debentures deposited in the Trust as
trust assets. Instead, holders of Preferred Securities would rely on the
enforcement by the Institutional Trustee of its rights against UAL pursuant to
the terms of the Indenture and on their right to bring a direct action to
enforce the payment provisions thereof. However, if the Trust's failure to make
distributions on the Preferred Securities is a consequence of UAL's exercise of
its right to extend the interest payment period for the Junior Subordinated
Debentures, the Institutional Trustee will have no right to enforce the payment
of distributions on the Preferred Securities until an Event of Default under the
Declaration shall have occurred.
The Declaration provides that UAL shall pay for all debts and obligations
(other than with respect to the Trust Securities) and all costs and expenses of
the Trust, including any taxes and all costs and expenses with respect thereto,
to which the Trust may become subject, except for United States withholding
taxes.
For a discussion of the ranking of the Junior Subordinated Debentures, see
"-- Ranking of Subordinated Obligations Under Preferred Securities Guarantee and
Junior Subordinated Debentures."
UAL MAY DEFER INTEREST PAYMENTS ON JUNIOR SUBORDINATED DEBENTURES
So long as UAL shall not be in default in the payment of interest on the
Junior Subordinated Debentures, UAL has the right under the Indenture to defer
payments of interest on the Junior Subordinated Debentures by extending the
interest payment period from time to time on the Junior Subordinated Debentures
for an Extension Period not exceeding 20 consecutive quarterly interest periods,
during which no interest shall be due and payable, provided that no Extension
Period may extend beyond the maturity of the Junior Subordinated Debentures. In
such an event, quarterly distributions on the Preferred Securities would not be
made (but would continue to accrue with interest thereon at the rate of 13 1/4%
per annum, compounded quarterly to the extent permitted by applicable law) by
the Trust during any such Extension Period. If UAL exercises the right to extend
an interest payment period, UAL may not during such Extension Period declare or
pay dividends on, or redeem, purchase, acquire or make a distribution or
liquidation payment with respect to, any of its common stock or preferred stock
or any other securities similar to the Preferred Securities or the Junior
Subordinated Debentures or make any guarantee payments with respect thereto,
provided, however, that UAL may pay cash in lieu of fractional shares upon the
conversion of any of its preferred stock in accordance with the terms of such
stock. Any Extension Period with respect to payment of interest on the Junior
Subordinated Debentures, other debt securities of UAL under the Indenture or on
any similar securities will apply to all such securities and will also apply to
distributions with respect to the Preferred Securities and all other securities
with similar terms.
Prior to the termination of any Extension Period, UAL may further extend
such Extension Period; provided that such Extension Period together with all
such previous and further extensions thereof may not exceed 20 consecutive
quarterly interest periods. Upon the termination of any Extension Period and the
payment of all amounts then due, UAL may commence a new Extension Period,
subject to the above requirements. Consequently, there could be multiple
Extension Periods of varying lengths (up to six Extension Periods of 20
consecutive quarterly interest periods each or more numerous shorter Extension
Periods) throughout the term of the Junior Subordinated Debentures. See
"Description of the Preferred Securities -- Distributions" and "Description of
the Junior Subordinated Debentures -- Option to Extend Interest Payment Period."
TAX CONSEQUENCES OF EXTENSION OF INTEREST PAYMENT PERIODS
Because UAL has the right to extend the interest payment period up to 20
consecutive quarterly interest periods on various occasions, the Junior
Subordinated Debentures will be treated as issued with "original issue discount"
for United States federal income tax purposes. As a result, holders of Preferred
Securities will be required to include their pro rata share of original issue
discount in gross income as it accrues for United States federal income tax
purposes in advance of the receipt of cash. Generally, all of a Securityholder's
taxable interest income with respect to the Junior Subordinated Debentures will
be accounted for as "original
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issue discount" and actual distributions of stated interest will not be
separately reported as taxable income. See "Taxation -- Accrual of Original
Issue Discount and Premium" and "-- Potential Extension of Payment Period on the
Junior Subordinated Debentures."
PROPOSED TAX LEGISLATION
On March 19, 1996, President Clinton proposed certain tax law changes (the
"Proposed Legislation") that would, among other things, generally deny corporate
issuers a deduction for interest in respect of certain debt obligations, such as
the Junior Subordinated Debentures, issued on or after December 7, 1995. On
March 29, 1996, Senate Finance Committee Chairman William V. Roth, Jr. and House
Ways and Means Committee Chairman Bill Archer issued a joint statement (the
"Joint Statement") indicating their intent that the Proposed Legislation, if
adopted by either of the tax-writing committees of Congress, would have an
effective date that is no earlier than the date of "appropriate Congressional
action." In addition, subsequent to the publication of the Joint Statement,
Senator Daniel Patrick Moynihan and Representatives Sam M. Gibbons and Charles
B. Rangel wrote letters to Treasury Department officials concurring with the
view expressed in the Joint Statement (the "Democrat Letters"). If the
principles contained in the Joint Statement and the Democrat Letters were
followed and the Proposed Legislation were enacted, such legislation would not
apply to the Junior Subordinated Debentures. There can be no assurance, however,
that the effective date guidance contained in the Joint Statement will be
incorporated into the Proposed Legislation, if enacted, or that other
legislation enacted after the date hereof will not otherwise adversely affect
the ability of UAL to deduct the interest payable on the Junior Subordinated
Debentures. Accordingly, there can be no assurance that a Tax Event will not
occur. The occurrence of a Tax Event may, among other things, result in a
dissolution of the Trust in which holders of the Preferred Securities may
receive cash, which would be a taxable event to such holders. See "-- Special
Event Redemption or Distribution," "Description of the Preferred
Securities -- Special Event Redemption or Distribution," and
"Taxation -- Disposition of the Preferred Securities."
POTENTIAL MARKET VOLATILITY DURING EXTENSION PERIOD
As described above, UAL has the right to extend an interest payment period
on the Junior Subordinated Debentures from time to time for periods not
exceeding 20 consecutive quarterly interest periods. If UAL determines to extend
an interest payment period, or if UAL thereafter extends an Extension Period,
the market price of the Preferred Securities is likely to be adversely affected.
In addition, as a result of such rights, the market price of the Preferred
Securities (which represent an undivided interest in Junior Subordinated
Debentures) may be more volatile than other securities on which original issue
discount accrues that do not have such rights. A holder that disposes of its
Preferred Securities during an Extension Period, therefore, may not receive the
same return on its investment as a holder that continues to hold its Preferred
Securities. See "Description of the Junior Subordinated Debentures -- Option to
Extend Interest Payment Period."
LACK OF ESTABLISHED TRADING MARKET FOR PREFERRED SECURITIES
The Preferred Securities constitute a new issue of securities of the Trust
with no established trading market. While the Preferred Securities have been
approved for listing on the NYSE subject to official notice of issuance, there
can be no assurance that an active market for the Preferred Securities will
develop or be sustained in the future on such exchange. Although the Dealer
Managers have indicated to UAL and the Trust that they intend to make a market
in the Preferred Securities following the Expiration Date, as permitted by
applicable laws and regulations prior to the commencement of trading on the
NYSE, they are not obligated to do so and may discontinue any such market-making
at any time without notice. Accordingly, no assurance can be given as to the
liquidity of, or trading markets for, the Preferred Securities. In order to
satisfy the NYSE listing requirements, acceptance of Depositary Shares validly
tendered in the Offer is subject to the Minimum Distribution Condition, which
condition may not be waived by UAL or the Trust. See "Listing and Trading of
Preferred Securities and Depositary Shares."
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REDUCED TRADING MARKET FOR DEPOSITARY SHARES
To the extent Depositary Shares are tendered and accepted in the Offer, the
liquidity and trading market for the Depositary Shares to be outstanding
following the Offer, and the terms upon which such Depositary Shares could be
sold, could be adversely affected. In addition, if the Offer is substantially
subscribed, there would be a significant risk that round lot holdings of
Depositary Shares outstanding following the Offer would be limited. See "Listing
and Trading of Preferred Securities and Depositary Shares."
Under the rules of the NYSE, preferred securities such as the Depositary
Shares are subject to delisting if (i) the aggregate value of publicly-held
shares is less than $2 million and (ii) the number of publicly-held shares is
less than 100,000. There can be no assurance that the Depositary Shares will
continue to meet the NYSE listing standards following the Offer.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
Upon the occurrence and during the continuation of a Tax Event or
Investment Company Event (each as defined herein), which may occur at any time,
the Trust shall, unless the Junior Subordinated Debentures are redeemed in the
limited circumstances described below, be dissolved, with the result that, after
satisfaction of creditors and in the manner described in "Description of the
Preferred Securities -- Liquidation Distribution Upon Dissolution," Junior
Subordinated Debentures having an aggregate principal amount equal to the
aggregate stated liquidation amount of, and bearing accrued and unpaid interest
equal to accrued and unpaid distributions on, the Preferred Securities and
Common Securities would be distributed on a Pro Rata Basis to the holders of the
Preferred Securities and Common Securities in liquidation of the Trust. In the
case of a Tax Event, in certain circumstances, UAL shall have the right to
redeem at any time the Junior Subordinated Debentures, in whole or in part, in
which event the Trust will redeem Preferred Securities and Common Securities on
a Pro Rata Basis to the same extent as the Junior Subordinated Debentures are
redeemed. There can be no assurance as to the market prices for Preferred
Securities or the Junior Subordinated Debentures which may be distributed in
exchange for Preferred Securities if a dissolution and liquidation of the Trust
were to occur. Accordingly, the Junior Subordinated Debentures which the
investor may receive on dissolution and liquidation of the Trust may trade at a
discount to the price of the Depositary Shares exchanged. See "Description of
the Preferred Securities -- Special Event Redemption or Distribution" and
"Description of the Junior Subordinated Debentures -- General."
Under current United States federal income tax law, a distribution of the
Junior Subordinated Debentures upon a Tax Event or Investment Company Event
would not be a taxable event to holders of the Preferred Securities. See
"Taxation -- Distribution of Junior Subordinated Debentures to Holders of
Preferred Securities."
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have limited voting rights and will
not be able to appoint, remove or replace, or to increase or decrease the number
of, Trustees, which rights are vested exclusively in the Common Securities. See
"Description of the Preferred Securities -- Voting Rights."
Holders of Depositary Shares also have limited voting rights. However, in
the event that dividends on the Series B Preferred are in arrears and unpaid for
six quarterly dividend periods, whether or not consecutive, the Board of
Directors is required to be increased by two directors and the holders of Series
B Preferred, together with the holders of all other series of preferred stock
then entitled to vote thereon, would be entitled to elect two directors of the
expanded Board of Directors with certain exceptions. See "Description of the
Series B Preferred and Depositary Shares -- Series B Preferred -- Voting
Rights."
The Indenture contains no provisions which would afford the holders of
Junior Subordinated Debentures protection in the event of a highly leveraged
transaction involving UAL or a change of control of UAL.
Under the GCL, the directors and officers of UAL, in exercising the powers
and responsibilities of managing UAL, owe UAL and the holders of Depositary
Shares a duty of care, a duty of loyalty and a duty of candor. The directors and
officers of UAL are not, however, liable for errors in judgment or other acts or
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omissions made in good faith unless their actions are found to be grossly
negligent. Similarly, under Delaware law, the trustees of a business trust (such
as the Trust) are fiduciaries who are obligated to act with fidelity and good
faith to the trust and the beneficial owners of the trust. The Business Trust
Act does not delineate the fiduciary duties of trustees of a Delaware business
trust but provides that, to the extent a trustee has fiduciary or other duties
to a business trust or to a beneficial owner, the trustee shall not be liable
for his good faith reliance on provisions of the business trust's governing
instrument, even though the act or omission may be contrary to a duty or
liability that has otherwise been imposed on the trustee at law or in equity.
Thus, the Trustees' duties and liabilities may be expanded or restricted by the
Declaration, although not completely eliminated. Under the Declaration, the
Regular Trustees have duties that are substantially similar to directors of UAL.
In contrast, under the Declaration, the Institutional Trustee's duties are
different from those of directors of UAL. Under the Declaration, subject to
certain exceptions, the Institutional Trustee is liable for its own negligent
action, its own negligent failure to act and its own willful misconduct. The
Institutional Trustee is also subject to duties imposed by the Trust Indenture
Act. The Delaware Trustee has very limited duties and obligations under the
Declaration. Finally, subject to the Declaration and the Trust Indenture Act,
the Trustees may engage or possess an interest in other business ventures.
Under the GCL, so long as UAL is solvent, directors of UAL owe duties only
to the holders of Depositary Shares and other shareholders of UAL. Thus, as long
as UAL is solvent, directors of UAL will not owe fiduciary duties either to the
Trust or the holders of Preferred Securities. Under the GCL, if UAL is clearly
insolvent, the directors of UAL will owe duties to holders of Depositary Shares
and the other shareholders of UAL as well as creditors of UAL. Thus, if UAL
becomes clearly insolvent, the directors of UAL will owe duties to the Trust as
the sole holder of the Junior Subordinated Debentures.
COMPARISON OF PREFERRED SECURITIES AND DEPOSITARY SHARES
The following is a brief summary of certain terms of the Preferred
Securities and the Depositary Shares. For a more complete description of the
Preferred Securities, see "Description of the Preferred Securities." For a
description of the Junior Subordinated Debentures which will be deposited in the
Trust as trust assets and will represent the sole source for the payment of
distributions and other payments on the Preferred Securities, see "Description
of the Junior Subordinated Debentures." For a description of Depositary Shares,
see "Description of the Series B Preferred and Depositary Shares."
DEPOSITARY SHARES/SERIES B
PREFERRED SECURITIES PREFERRED
------------------------------ ------------------------------
Issuer........................ The Trust. Payment of UAL.
distributions and on
liquidation or redemption is
guaranteed on a subordinated
basis, as and to the extent
described herein, by UAL.
Distribution/Dividend Rate.... 13 1/4% per annum distribution 12 1/4% per annum dividend
payable quarterly in arrears payable on the Series B
on March 31, June 30, Preferred on the first
September 30 and December 31 business day of February, May,
of each year, commencing August and November of each
December 31, 1996, and at year, out of funds legally
final maturity of the Junior available therefor, when, as
Subordinated Debentures, from and if declared by UAL's Board
and including the Accrual of Directors. Dividends are
Date, but only if and to the cumulative. Dividends accrue
extent that, interest payments whether or not UAL has
are made in respect of the earnings, whether or not there
Junior Subordinated Deben- are funds legally available
tures held by the Trust. for the payment of such
dividends and whether or not
such dividends are declared.
UAL has made each quarterly
dividend payment with respect
to the Depositary Shares on
the scheduled dividend payment
date.
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DEPOSITARY SHARES/SERIES B
PREFERRED SECURITIES PREFERRED
------------------------------ ------------------------------
Interest Accrual.............. During any Extension Period on Accrued but unpaid dividends
the Junior Subordinated do not bear interest.
Debentures, distribution
payments on the Preferred
Securities will not be made
but would continue to accrue,
and, in the case of
distributions in arrears,
would bear interest at the
rate of 13 1/4% per annum,
compounded quarterly to the
extent permitted by applicable
law.
Maturity/Mandatory and
Optional Redemption......... The Preferred Securities will No maturity or mandatory
be redeemed upon the maturity redemption. The Depositary
or earlier redemption of the Shares are redeemable at the
Junior Subordinated option of UAL on and after
Debentures, at a redemption July 12, 2004, in whole or in
price equal to $25 per part, at a redemption price
Preferred Security to be equivalent to $25 per
redeemed, plus any accrued and Depositary Share to be
unpaid distributions to the redeemed, plus accrued and
redemption date, including unpaid dividends thereon, to
distributions accrued as a the date fixed for redemption.
result of UAL's election to Holders of Depositary Shares
defer payments of interest on have no right to require UAL
the Junior Subordinated to redeem the Depositary
Debentures. The Junior Shares at the option of the
Subordinated Debentures are holders.
redeemable at the option of
UAL, in whole or in part, on
or after July 12, 2004, at a
redemption price equivalent to
$25 per Junior Subordinated
Debenture to be redeemed, plus
accrued and unpaid interest
thereon, to the redemption
date. In the event that the
Junior Subordinated Debentures
are redeemed, upon the
repayment of the Junior
Subordinated Debentures, upon
maturity, upon redemption or
otherwise, the proceeds
thereof will be promptly
applied to redeem the
Preferred Securities and the
Common Securities. The Junior
Subordinated Debentures have a
final maturity of December 15,
2026. See "Description of the
Preferred
Securities -- Special Event
Redemption or Distribution"
and "-- Mandatory Redemption."
Holders of Preferred
Securities have no right to
require UAL to redeem the
Preferred Securities at the
option of the holders.
Subordination................. Subordinated to claims of Subordinated to claims of
creditors of the Trust, if creditors of UAL, including
any. The Preferred Securities the Junior Subordinated
and the Common Securities will Debentures, but senior to all
have equivalent terms; pro- other shares of capital stock
vided that (i) if an Event of of UAL.
Default under the Declaration
occurs and is
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DEPOSITARY SHARES/SERIES B
PREFERRED SECURITIES PREFERRED
------------------------------ ------------------------------
continuing, the holders of
Preferred Securities will have
a priority over holders of the
Common Securities with respect
to payments in respect of
distributions and payments
upon liquidation, redemption
or otherwise and (ii) holders
of Common Securities have the
exclusive right (subject to
the terms of the Declaration)
to appoint, remove or replace
Trustees and to increase or
decrease the number of
Trustees.
The Trust is not permitted to
incur any indebtedness for
borrowed money. The
Declaration provides that UAL
shall pay for all debts and
obligations (other than with
respect to the Trust
Securities) and all costs and
expenses of the Trust,
including any income taxes,
duties and other governmental
charges, and all costs and
expenses with respect thereto,
to which the Trust
may become subject, except for
United States withholding
taxes.
The Junior Subordinated Deben-
tures will rank subordinate
and junior to all Senior
Indebtedness of UAL, except
obligations and securities
made pari passu or subordinate
by their terms, and senior to
all capital stock now or here-
after issued by UAL and to any
guarantee now or hereafter
entered into by UAL in respect
of any of its capital stock
(including the Depositary
Shares). UAL's obligations
under the Preferred Securities
Guarantee will rank
subordinate and junior to all
Senior Indebtedness of UAL,
except obligations and
securities made pari passu or
subordinate by their terms,
and senior to all capital
stock now or hereafter issued
by UAL and to any guarantee
now or hereafter entered into
by UAL in respect of any of
its capital stock.
As of September 30, 1996, UAL
had Senior Indebtedness (on a
consolidated basis) of
approximately $13.1 billion
and no indebtedness
outstanding that would rank
pari passu with the Junior
Subordinated Debentures.
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26
DEPOSITARY SHARES/SERIES B
PREFERRED SECURITIES PREFERRED
------------------------------ ------------------------------
Listing....................... The Preferred Securities have The Depositary Shares are
been approved for listing on listed on the NYSE under the
the NYSE under the symbol "UAL symbol "UAL Pr B."
Pr T," subject to official
notice of issuance. In order
to satisfy the NYSE listing
requirements, acceptance of
Depositary Shares validly
tendered in the Offer is
subject to the Minimum
Distribution Condition, which
condition may not be waived.
Dividends Received
Deduction................... Distributions on the Preferred Dividends are eligible for the
Securities are not eligible dividends received deduction
for the dividends received for corporate holders.
deduction for corporate
holders.
Voting Rights/Enforcement..... Holders of Preferred If dividends shall be in
Securities have no voting arrears for six quarterly
rights other than as provided dividend periods, whether or
under the Business Trust Act not consecutive, UAL's Board
or the Trust Indenture Act, of Directors shall be in-
except in the limited creased by two directors and
circumstances discussed below. holders have the right
The Institutional Trustee has (together with other classes
the power to exercise all of preferred stock ranking on
rights under the Indenture a parity with the Series B
with respect to the Junior Preferred either as to
Subordinated Debentures and is dividends or on the
also authorized to enforce the distribution of assets upon
Preferred Securities Guarantee liquidation) to elect two
on behalf of holders of the directors.
Preferred Securities. If the
Trust's failure to make
distributions is a consequence
of UAL's exercise of its right
to extend the interest payment
period for the Junior Sub-
ordinated Debentures as
described under
"Distribution/Dividend Rate,"
the Institutional Trustee will
have no right to enforce the
payment of distributions until
an Event of Default under the
Declaration shall have
occurred. The holders of at
least a majority in
liquidation amount of the
Preferred Securities will have
the right to direct the
Institutional Trustee with
respect to certain matters
under the Declaration and the
Preferred Securities
Guarantee. Under certain
circumstances, holders of
Preferred Securities may
institute a legal proceeding
against UAL to enforce the
Preferred Securities Guarantee
and the payment provisions of
the Indenture. See
"Description of the Preferred
Securities" and "Description
of the Preferred Securities
Guarantee."
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27
CAPITALIZATION
The following table sets forth the consolidated capitalization of UAL at
September 30, 1996 and as adjusted to give effect to the Offer (assuming that
the minimum of 1,000,000 shares and the maximum of all of the shares of the
Depositary Shares not owned by UAL are exchanged).
SEPTEMBER 30, 1996
-------------------------------
AS ADJUSTED
--------------------
ASSUMING ASSUMING
MINIMUM MAXIMUM
ACTUAL EXCHANGE EXCHANGE
------ ------- --------
(DOLLARS IN MILLIONS)
Short-term borrowings, long-term debt maturing within one year and current
obligations under capital leases................................................ $ 198 $ 198 $ 198
------ ------ ------
Long-term debt, excluding portion due within one year:
Secured notes................................................................... 894 894 894
Debentures...................................................................... 942 942 942
Convertible debentures.......................................................... 25 25 25
Promissory notes................................................................ 38 38 38
Unamortized discount on debt.................................................... (9) (9) (9)
------ ------ ------
1,890 1,890 1,890
Long-term obligations under capital leases...................................... 1,354 1,354 1,354
------ ------ ------
Total long-term debt and capital lease obligations........................ 3,244 3,244 3,244
------ ------ ------
Class 2 ESOP Preferred Stock, $.01 par value(a)................................... 97 97 97
------ ------ ------
UAL obligated mandatorily redeemable 13 1/4% preferred securities of subsidiary
trust, the sole assets of which are the Junior Subordinated Debentures of UAL
with a final maturity of December 15, 2026(b)................................... -- 34 210
------ ------ ------
Shareholders' equity:
Series B Preferred Stock, $.01 stated value..................................... -- -- --
Class 1 ESOP Preferred Stock, $.01 par value.................................... -- -- --
Class 2 ESOP Preferred Stock, $.01 par value.................................... -- -- --
Class P, M and S Voting Preferred Stock, $.01 par value......................... -- -- --
Class I, Pilot MEC, IAM and SAM Preferred Stock, $.01
par value..................................................................... -- -- --
Common Stock, $.01 par value.................................................... 1 1 1
Additional capital invested(b).................................................. 2,221 2,187 2,011
Accumulated deficit............................................................. (572) (572) (572)
Unearned ESOP Preferred Stock................................................... (327) (327) (327)
Stock held in treasury.......................................................... (385) (385) (385)
Other........................................................................... (90) (90) (90)
------ ------ ------
Total shareholders' equity................................................ 848 814 638
------ ------ ------
Total capitalization(c)...................................................$4,387 $4,387 $4,387
====== ====== ======
- ---------------
(a) The Class 2 ESOP Preferred Stock committed to be contributed to the
Supplemental ESOP is reported outside of equity because the employees can
elect to receive their "book entry" shares from the Company in cash upon
termination of employment.
(b) Assuming the minimum exchange (1,000,000 Depositary Shares), the Preferred
Securities that will be issued are expected to have an aggregate liquidation
value of $25 million and an aggregate fair market value of $34 million as of
the date of exchange. Assuming the maximum exchange (all of the Depositary
Shares not owned by UAL), the Preferred Securities that will be issued are
expected to have an aggregate liquidation value of $157 million and an
aggregate fair market value of $210 million as of the date of exchange.
The Preferred Securities will be recorded at their fair market value with a
corresponding reduction in Additional Capital Invested. To the extent the
actual aggregate fair market value of the Preferred Securities at the date
of exchange differs from the expected amounts, the balances of the Preferred
Securities and Additional Capital Invested will change accordingly.
In accordance with Generally Accepted Accounting Principles ("GAAP"), the
Series B Preferred stated value and Additional Capital Invested are reduced
by an aggregate amount equal to the fair market value of the Preferred
Securities issued in exchange for the Company's outstanding Series B
Preferred, as represented by the Depositary Shares. At September 30, 1996,
there were outstanding 6,266,781 Depositary Shares representing 6,266.8
shares of Series B Preferred.
(c) As part of the exchange, UAL will purchase all of the Common Securities of
the Trust. Additionally, UAL will incur an obligation for Junior
Subordinated Debentures having an aggregate principal amount equal to (i)
the aggregate stated liquidation amount of the Preferred Securities issued
by the Trust, plus (ii) the amount of proceeds received by the Trust from
the sale of the Common Securities to UAL. The Trust's Common Securities and
UAL's Junior Subordinated Debentures are not presented in the above table
since they are eliminated in consolidation.
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28
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
The following should be read in conjunction with UAL's Consolidated
Financial Statements and the related notes thereto. The financial information
for each of the years in the three-year period ended December 31, 1995 has been
derived from the consolidated financial statements of UAL previously filed with
the Commission which have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports. Reference is made to said
reports for the years 1994 and 1993 which include an explanatory paragraph with
respect to the changes in methods of accounting for income taxes and
postretirement benefits other than pensions as discussed in the notes to the
consolidated financial statements for such years. See "Incorporation of Certain
Documents by Reference."
The financial information for each of the nine-month periods ended
September 30, 1996 and 1995 has been derived from UAL's unaudited consolidated
financial statements incorporated by reference herein. The information for
interim periods is unaudited, but, in the opinion of management, reflects all
adjustments (which, except for the effects of the employee investment
transaction, include only normal recurring adjustments) necessary for a fair
presentation of the results of operations for such periods. Results for interim
periods should not be considered as indicative of results for any other periods
or for the year. See "Incorporation of Certain Documents by Reference."
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
AND OPERATING DATA)
STATEMENT OF OPERATIONS DATA:
Operating revenues(a)...................... $ 12,386 $ 11,276 $ 14,943 $ 13,950 $ 13,325
Earnings from operations................... 1,070 807 829 521 263
Earnings (loss) before extraordinary item
and cumulative effect of accounting
changes................................. 580 397 378 77 (31)
Net earnings (loss)........................ 514 397 349 51 (50)
Earnings (loss) per common share before
extraordinary item and cumulative effect
of accounting changes(b)(e)............. 6.20 5.96 5.19 0.19 (0.66)
Net earnings (loss) per common
share(b)(e)............................. 5.40 5.96 4.78 (0.15) (0.85)
STATEMENT OF FINANCIAL POSITION DATA (at end
of period):
Total assets............................... 12,282 12,070 11,641 11,764 12,840
Total long-term debt and capital lease
obligations, including current
portion................................. 3,442 4,314 4,102 4,077 3,735
Shareholders' equity....................... 848 (144) (239) (316) 1,203
Book value per common share(c)(e).......... 11.81 (9.09) (9.06) (24.99) 6.14
OTHER DATA:
Ratio of earnings to fixed charges......... 2.02 1.64 1.44 1.10 (d)
Ratio of earnings to fixed charges and
preferred stock dividends............... 1.94 1.60 1.41 1.09 (d)
UNITED OPERATING DATA:
Revenue passengers (millions).............. 62 59 79 74 70
Average length of a passenger trip in
miles................................... 1,426 1,423 1,419 1,459 1,450
Revenue passenger miles (millions)......... 88,352 84,462 111,811 108,299 101,258
Available seat miles (millions)............ 121,898 118,929 158,569 152,193 150,728
Passenger load factor...................... 72.5% 71.0% 70.5% 71.2% 67.2%
Break even passenger load factor........... 65.3% 65.3% 66.1% 68.2% 65.5%
Revenue per passenger mile................. 12.4cents 11.8cents 11.8cents 11.3cents 11.6cents
Cost per available seat mile............... 9.3cents 8.8cents 8.9cents 8.8cents 8.5cents
Average price per gallon of jet fuel....... 69.6cents 58.0cents 59.5cents 58.8cents 63.6cents
28
29
- ---------------
(a) In the first quarter of 1994, United began recording certain air
transportation price adjustments, which were previously recorded as
commission expense, as adjustments to revenues. Operating revenues and
certain operating statistics for periods prior to 1994 have been adjusted
to conform with the current presentation.
(b) In connection with a recapitalization that occurred in July, 1994, each old
common share was exchanged for one-half share of new common stock. As
required under generally accepted accounting principles for transactions of
this type, the historical weighted average shares outstanding were not
restated (except as discussed in note (e)). Additionally, the 1995 and 1996
periods include the average number of ESOP Preferred Shares considered
outstanding during each respective period. Thus, direct comparisons between
earnings per share amounts are not meaningful.
(c) Book value per common share represents total equity, less the aggregate
liquidation value of preferred stock, divided by actual common shares
outstanding.
(d) Earnings were insufficient to cover both fixed charges and fixed charges and
preferred stock dividends by $98 million in 1993.
(e) On May 6, 1996, UAL effected a four-for-one split in its common stock in the
form of a 300% stock dividend. All share and per share data have been
retroactively restated to give effect to this stock split.
29
30
UAL CORPORATION
UAL is a holding company and its primary subsidiary is United Air Lines,
Inc., a Delaware corporation ("United"), which is wholly owned. United is one of
the world's largest airlines as measured by revenue passenger miles and
primarily serves the North American, Pacific, Latin American and European
markets. At the end of 1995, United served 144 airports in the United States and
30 foreign countries. During 1995, United averaged 2,172 departures daily, flew
a total of 112 billion revenue passenger miles and carried an average of 215,521
passengers per day. At the end of 1995, United's fleet of aircraft totaled 558.
United's major hub operations are located at Chicago, Denver, Los Angeles, San
Francisco, Washington, D.C. and Tokyo.
RECENT DEVELOPMENTS
On October 23, 1996, UAL reported unaudited net earnings of $514 million
for the nine months ended September 30, 1996. Earnings were $580 million before
an after-tax $66 million extraordinary loss on early extinguishment of debt.
Earnings per share were $5.40 on a fully diluted basis including the
extraordinary loss, or $6.20 per share before the loss. For the first nine
months of 1995, UAL reported net earnings of $397 million. Operating earnings
for the 1996 nine-month period were $1,070 million on operating revenues of
$12,386 million. Operating earnings were $807 million for the 1995 nine-month
period on operating revenues of $11,276 million.
UAL also reported that on a pro forma, fully distributed basis (see below
for further explanation of the methodology), net earnings for the nine months
ended September 30, 1996 were $819 million ($5.98 per share), or $885 million
($6.48 per share) before the extraordinary loss. Fully distributed operating
earnings were $1,558 million for the nine-month period. UAL reported that
available seat miles grew 2.5% in 1996 to 121.9 billion from 118.9 billion in
1995. Traffic increased by 4.6% reflecting growth in revenue passenger miles to
88.4 billion from 84.5 billion in 1995. The resulting passenger load factor
increased 1.5 points to 72.5% from 71.0%, while the break-even passenger load
factor (excluding ESOP charges) decreased 0.8 points to 62.1% from 62.9%. Yield
(revenue per passenger mile) increased by 4.8% to 12.38 cents, up from 11.81
cents in 1995.
UAL reported third quarter net earnings of $347 million before an
extraordinary item associated with the early retirement of debt; operating
earnings for the period were $610 million. For the third quarter of 1995, net
earnings were $243 million on operating earnings of $467 million. After
preferred dividends, the 1996 third quarter fully diluted earnings per share
were $3.85 before the extraordinary item, compared to earnings per share of
$3.22 last year.
On a fully distributed basis, UAL third quarter net earnings were $444
million before the extraordinary item compared to $334 million in the prior
year. Fully distributed operating earnings for the quarter were $767 million
versus $606 million in 1995. After preferred dividends, fully distributed
earnings per share were $3.34 before the extraordinary item, compared to 1995's
earnings per share of $2.53.
In addition to reviewing financial statements reported under GAAP, UAL
believes a more complete understanding of its results can be gained by viewing
them on a pro forma, fully distributed basis. This presentation 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 presentation, 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 not been deducted from
earnings attributable to common shareholders.
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31
UAL CORPORATION CAPITAL TRUST I
The Trust is a statutory business trust that was created under the Business
Trust Act on October 15, 1996 pursuant to a declaration of trust dated October
15, 1996 among the Institutional Trustee, the Delaware Trustee and UAL and the
filing of a certificate of trust with the Secretary of State of Delaware. Such
declaration of trust will be amended and restated in its entirety as of the date
the Trust accepts Depositary Shares in the Offer (see "The Offer -- Terms of the
Offer") substantially in the form filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The Declaration is qualified
under the Trust Indenture Act. Upon issuance of the Preferred Securities, the
holders thereof will own all of the issued and outstanding Preferred Securities.
UAL has agreed to acquire Common Securities in an amount equal to at least 3% of
the total capital of the Trust and will own, directly or indirectly, all of the
issued and outstanding Common Securities. The Preferred Securities and the
Common Securities will have equivalent terms; provided that (i) if an Event of
Default under the Declaration occurs and is continuing, the holders of Preferred
Securities will have a priority over holders of the Common Securities with
respect to payments in respect of distributions and payments upon liquidation,
redemption or otherwise and (ii) holders of Common Securities have the exclusive
right (subject to the terms of the Declaration) to appoint, remove or replace
Trustees and to increase or decrease the number of Trustees.
The number of Trustees of the Trust shall initially be five. Three of the
Trustees will be the Regular Trustees. The fourth trustee is The First National
Bank of Chicago which will act as the Indenture Trustee for purposes of the
Trust Indenture Act. The fifth trustee is First Chicago Delaware Inc. which will
serve as the Delaware Trustee. Pursuant to the Declaration, the Institutional
Trustee will have the power to exercise all rights, powers and privileges under
the Indenture with respect to the Junior Subordinated Debentures. The
Institutional Trustee will promptly make distributions to the holders of the
Trust Securities out of any funds in the Trust. The Preferred Securities
Guarantee will be separately qualified under the Trust Indenture Act and will be
held by The First National Bank of Chicago, acting in its separate capacity as
indenture trustee with respect to the Preferred Securities Guarantee for the
benefit of the holders of the Preferred Securities.
The Trust exists for the purpose of (a) issuing (i) its Preferred
Securities in exchange for Depositary Shares validly tendered in the Offer and
delivering such Depositary Shares to UAL in consideration of the deposit by UAL
as Trust assets of Junior Subordinated Debentures having an aggregate stated
principal amount equal to the aggregate stated liquidation amount of such
Preferred Securities, and (ii) its Common Securities to UAL in exchange for cash
and investing the proceeds thereof in an equivalent amount of Junior
Subordinated Debentures and (b) engaging in such other activities as are
necessary or incidental thereto. The rights of the holders of the Preferred
Securities, including economic rights, rights to information and voting rights,
are set forth in the Declaration, the Business Trust Act and the Trust Indenture
Act.
Under the Declaration, the Trust shall not, and the Trustees (including the
Institutional Trustee) shall cause the Trust not to, engage in any activity
other than in connection with the purposes of the Trust or other than as
required or authorized by the Declaration. In particular, the Trust shall not
and the Trustees (including the Institutional Trustee) shall not (a) invest any
proceeds received by the Trust from holding the Junior Subordinated Debentures
but shall promptly distribute all such proceeds to holders of Trust Securities
pursuant to the terms of the Declaration and of the Trust Securities; (b)
acquire any assets other than as expressly provided in the Declaration; (c)
possess Trust property for other than a Trust purpose; (d) make any investments,
other than investments represented by the Junior Subordinated Debentures; (e)
possess any power or otherwise act in such a way as to vary the Trust assets or
the terms of the Trust Securities in any way whatsoever; (f) issue any
securities or other evidences of beneficial ownership of, or beneficial
interests in, the Trust other than the Trust Securities; (g) incur any
indebtedness for borrowed money; or (h)(1) direct the time, method and place of
exercising any trust or power conferred upon the Indenture Trustee with respect
to the Junior Subordinated Debentures, (2) waive any past default that is
waivable under Section 5.7 of the Indenture, (3) exercise any right to rescind
or annul any declaration that the principal of all of the Junior Subordinated
Debentures shall be due and payable or (4) consent to any amendment,
modification or termination of the Indenture or the Junior Subordinated
Debentures or the Declaration, in each case where such consent shall be
required, if in the case of this clause (h) such action would cause the Trust to
be
31
32
classified for United States federal income tax purposes as other than a grantor
trust or would cause the Trust to be deemed an "investment company" which is
required to be registered under the 1940 Act.
The books and records of the Trust will be maintained at the principal
office of the Trust and will be open for inspection by a holder of Preferred
Securities or the duly authorized representative of such holder for any purpose
reasonably related to its interest in the Trust during normal business hours.
The Trust anticipates that it will not be required to file with the Commission
or distribute to holders of Preferred Securities periodic reports regarding the
Trust.
Except as provided below or under the Business Trust Act and the Trust
Indenture Act, holders of Preferred Securities will have no voting rights. See
"Description of the Preferred Securities -- Voting Rights."
The Institutional Trustee, for the benefit of the holders of the Trust
Securities, is authorized under the Declaration to exercise all rights under the
Indenture with respect to the Junior Subordinated Debentures and to enforce
UAL's obligations under the Junior Subordinated Debentures upon the occurrence
of an Indenture Event of Default. The Institutional Trustee, as the Guarantee
Trustee, shall also be authorized to enforce the rights of holders of Preferred
Securities under the Preferred Securities Guarantee. If the Trust's failure to
make distributions on the Preferred Securities is a consequence of UAL's
exercise of its right to extend the interest payment period for the Junior
Subordinated Debentures, the Institutional Trustee will have no right to enforce
the payment of distributions on the Preferred Securities until an Event of
Default shall have occurred. Holders of at least a majority in liquidation
amount of the Preferred Securities will have the right to direct the
Institutional Trustee with respect to certain matters under the Declaration and
the Preferred Securities Guarantee. Under certain circumstances, holders of
Preferred Securities may institute a legal proceeding against UAL to enforce the
Preferred Securities Guarantee and the payment obligations under the Indenture.
See "Description of the Preferred Securities -- Voting Rights."
If an Indenture Event of Default occurs and is continuing with respect to
Junior Subordinated Debentures, an Event of Default under the Declaration will
occur and be continuing with respect to the Trust Securities. In such event, the
Declaration provides that the holders of Common Securities will be deemed to
have waived any such Event of Default with respect to the Common Securities
until all Events of Default with respect to the Preferred Securities have been
cured or waived. Until all such Events of Default with respect to the Preferred
Securities have been so cured or waived, the Institutional Trustee will be
deemed to be acting solely on behalf of the holders of the Preferred Securities
and only the holders of the Preferred Securities will have the right to direct
the Institutional Trustee with respect to certain matters under the Declaration
and consequently under the Indenture. If any Event of Default with respect to
the Preferred Securities is waived by the holders of the Preferred Securities as
provided in the Declaration, the holders of Common Securities pursuant to the
Declaration have agreed that such waiver also constitutes a waiver of such Event
of Default with respect to the Common Securities for all purposes under the
Declaration without any further act, vote or consent of the holders of the
Common Securities. See "Description of the Preferred Securities."
The Declaration provides that the Trustees may treat the person in whose
name a Preferred Security is registered on the books and records of the Trust as
the sole holder thereof and of the Preferred Securities represented thereby for
purposes of receiving distributions and for all other purposes and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such certificate or in the Preferred Securities represented thereby on the part
of any person, whether or not the Trust shall have actual or other notice
thereof. Preferred Securities will be issued in fully registered form. Investors
may elect to hold their Preferred Securities directly or, subject to the rules
and procedures of The Depository Trust Company and Philadelphia Depository Trust
Company (the "Depository Institutions") described under "Description of the
Preferred Securities -- Book-Entry; Delivery and Form," hold interests in a
global certificate registered on the books and records of the Trust in the name
of a Depository Institution or its nominee. Under the Declaration:
(i) the Trust and the Trustees shall be entitled to deal with a
Depository Institution (or any successor depositary) for all purposes,
including the payment of distributions and receiving approvals, or consents
under the Declaration, and except as set forth in the Declaration, shall
have no obligation to persons owning Preferred Securities ("Preferred
Security Beneficial Owners") registered in the name of and held by a
Depository Institution or its nominee; and
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33
(ii) the rights of Preferred Security Beneficial Owners shall be
exercised only through a Depository Institution (or any successor
depository) and shall be limited to those established by law and agreements
between such Preferred Security Beneficial Owners and a Depository
Institution and/or its participants. See "Description of the Preferred
Securities -- Book-Entry; Delivery and Form." With respect to Preferred
Securities registered in the name of and held by a Depository Institution
or its nominee, all notices and other communications required under the
Declaration shall be given to, and all distributions on such Preferred
Securities shall be given or made to, a Depository Institution (or its
successor).
In the Declaration, UAL has agreed to pay for all debts and obligations
(other than with respect to the Trust Securities) and all costs and expenses of
the Trust, including the fees and expenses of the Trustees and any taxes and all
costs and expenses with respect thereto, to which the Trust may become subject,
except for United States withholding taxes. See "Risk Factors and Special
Considerations Relating to the Offer -- Trust Distributions Dependent on UAL's
Payments on Junior Subordinated Debentures." The foregoing obligations of UAL
under the Declaration are for the benefit of, and shall be enforceable by, any
person to whom any such debts, obligations, costs, expenses and taxes are owed
(a "Creditor") whether or not such Creditor has received notice thereof. Any
such Creditor may enforce such obligations of UAL directly against UAL and UAL
has irrevocably waived any right or remedy to require that any such Creditor
take any action against the Trust or any other person before proceeding against
UAL. UAL has agreed in the Declaration to execute such additional agreements as
may be necessary or desirable in order to give full effect to the foregoing.
THE FOREGOING SUMMARY OF CERTAIN PROVISIONS OF THE DECLARATION IS A
DISCUSSION OF ALL MATERIAL TERMS OF THE DECLARATION WHICH HAS BEEN FILED AS AN
EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
The business address of the Trust is c/o UAL Corporation, 1200 East
Algonquin Road, Elk Grove Township, Illinois 60007, telephone number (847)
700-4000.
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34
THE OFFER
PURPOSE OF THE OFFER
The purpose of the Offer is to refinance the Depositary Shares with the
Preferred Securities and to achieve certain tax efficiencies while preserving
UAL's flexibility with respect to future financings. This refinancing will
permit UAL to deduct interest payable on the Junior Subordinated Debentures for
United States federal income tax purposes; dividends payable with regard to the
Depositary Shares are not deductible.
GENERAL
PARTICIPATION IN THE OFFER IS VOLUNTARY AND HOLDERS OF DEPOSITARY SHARES
SHOULD CAREFULLY CONSIDER WHETHER TO ACCEPT. NONE OF THE BOARD OF DIRECTORS OF
UAL, UAL, THE TRUSTEES OR THE TRUST MAKES ANY RECOMMENDATION TO HOLDERS AS TO
WHETHER TO TENDER OR REFRAIN FROM TENDERING IN THE OFFER. HOLDERS OF DEPOSITARY
SHARES ARE URGED TO CONSULT THEIR FINANCIAL AND TAX ADVISORS IN MAKING THEIR
DECISIONS ON WHAT ACTION TO TAKE IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES.
SEE "PRICE RANGE OF DEPOSITARY SHARES."
Unless the context requires otherwise, the term "Holder" with respect to
the Offer means (i) any person in whose name any Depositary Shares are
registered on the books of UAL, (ii) any other person who has obtained a
properly completed stock power from the registered holder, or (iii) any person
whose Depositary Shares are held of record by a Depository Institution.
TERMS OF THE OFFER
Upon the terms and subject to the conditions set forth herein and in the
Letter of Transmittal, the Trust will exchange its Preferred Securities for any
and all of the Depositary Shares not owned by UAL. The Offer will be effected on
a basis of one Preferred Security for each Depositary Share validly tendered and
accepted for exchange. See "-- Procedures for Tendering." Upon the terms and
subject to the conditions set forth herein and in the Letter of Transmittal, the
Trust will accept Depositary Shares validly tendered and not withdrawn prior to
the Expiration Date and, unless the Offer has been withdrawn or terminated, will
deliver Preferred Securities in exchange therefor to tendering Holders of
Depositary Shares as promptly as practicable following the Expiration Date. The
Trust expressly reserves the right, in its sole discretion, to delay acceptance
for exchange of Depositary Shares tendered under the Offer and the delivery of
the Preferred Securities with respect to the Depositary Shares accepted for
exchange (subject to Rules 13e-4 and 14e-1 under the Exchange Act, which require
that the Trust consummate the Offer or return the Depositary Shares deposited by
or on behalf of the Holders thereof promptly after the termination or withdrawal
of the Offer), or to amend, withdraw or terminate the Offer at any time prior to
the Expiration Date for any of the reasons set forth in "-- Conditions to the
Offer" and "-- Expiration Date; Extensions; Amendments; Termination."
In all cases, except to the extent waived by the Trust, delivery of
Preferred Securities issued with respect to the Depositary Shares accepted for
exchange pursuant to the Offer will be made only after timely receipt by the
Exchange Agent of Depositary Shares (or confirmation of book-entry transfer
thereof), a properly completed and duly executed Letter of Transmittal and any
other documents required thereby.
As of the date of this Prospectus, there are 6,266,781 Depositary Shares
not owned by UAL. This Prospectus, together with the Letter of Transmittal, is
being sent to all registered Holders commencing on or about the date of this
Prospectus.
The Trust shall be deemed to have accepted validly tendered Depositary
Shares (or defectively tendered Depositary Shares with respect to which the
Trust has waived such defect) when, as and if the Trust has given oral or
written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering Holders for the purpose of receiving Depositary Shares
from, and remitting Preferred Securities to, tendering Holders who are
participating in the Offer. Upon the terms and subject to the conditions of the
Offer, delivery
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of Preferred Securities to tendering Holders will be made as promptly as
practicable following the Expiration Date.
If any tendered Depositary Shares are not accepted for exchange because of
an invalid tender, the occurrence of certain other events set forth herein or
otherwise, unless otherwise requested by the Holder under "Special Delivery
Instructions" in the Letter of Transmittal, such Depositary Shares will be
returned, without expense, to the tendering Holder thereof (or in the case of
Depositary Shares tendered by book-entry transfer into the Exchange Agent's
account at a Depository Institution, such Depositary Shares will be credited to
an account maintained at the Depository Institution designated by the
participant therein who so delivered such Depositary Shares), as promptly as
practicable after the Expiration Date or the withdrawal or termination of the
Offer.
Holders of Depositary Shares will not have any appraisal or dissenters'
rights under the Delaware General Corporation Law in connection with the Offer.
The Trust intends to conduct the Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder.
Holders who tender Depositary Shares in the Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Depositary Shares
pursuant to the Offer. See "Fees and Expenses; Transfer Taxes."
Holders tendering Depositary Shares held in global form shall receive
Preferred Securities in global form and holders tendering Depositary Shares held
directly in certificated form shall receive Preferred Securities in certificated
form, in each case unless otherwise specified in the Letter of Transmittal. See
"-- Procedures for Tendering."
CONDITIONS TO THE OFFER
Notwithstanding any other provisions of the Offer, or any extension of the
Offer, the Trust will not be required to deliver Preferred Securities in respect
of any properly tendered Depositary Shares and may terminate the Offer by oral
or written notice to the Exchange Agent and the holders of Depositary Shares,
or, at its option, may modify or otherwise amend the Offer (other than with
respect to the Minimum Distribution Condition) with respect to such Depositary
Shares, if any of the following conditions are not satisfied at or prior to the
Expiration Date in the case of clause (a) below or if any of the events
specified in clauses (b) through (d) occurs at or prior to the exchange date for
the Depositary Shares:
(a) tenders by a sufficient number of holders of Depositary Shares to
satisfy the Minimum Distribution Condition;
(b) any action has been taken or threatened, or any statute, rule,
regulation, judgment, order, stay, decree or injunction has been
promulgated, enacted, entered, enforced or deemed applicable to the Offer,
by or before any court or governmental regulatory or administrative agency
or authority or tribunal, domestic or foreign, which (i) challenges the
making of the Offer, or might directly or indirectly prohibit, prevent,
restrict or delay consummation of the Offer, or otherwise and adversely
affect in any material manner the Offer or (ii) could materially adversely
affect the business, condition (financial or otherwise), income,
operations, properties, assets, liabilities or prospects of UAL and its
subsidiaries, taken as a whole, or materially impair the contemplated
benefits of the Offer to UAL;
(c) any event has occurred or is likely to occur affecting the
business or financial affairs of UAL that would or might prohibit, prevent,
restrict or delay consummation of the Offer or that will, or is reasonably
likely to, materially impair the contemplated benefits of the Offer or
might be material to holders of Depositary Shares in deciding whether to
accept the Offer; and
(d) any of the following events shall have occurred: (i) any general
suspension of or limitation on trading in securities on the NYSE or in the
over-the-counter market (whether or not mandatory), (ii) any significant
adverse change in the price of the Depositary Shares or in the United
States securities or financial markets, (iii) a material impairment in the
trading market for debt or equity securities, (iv) a declaration of a
banking moratorium or any suspension of payments in respect of banks by
federal or state
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authorities in the United States (whether or not mandatory), (v) a
commencement of a war, armed hostilities or other national or international
crisis directly or indirectly relating to the United States, (vi) any
limitation (whether or not mandatory) by any governmental authority on, or
other event having a reasonable likelihood of affecting, the extension of
credit by banks or other lending institutions in the United States, or
(vii) any significant adverse change in United States securities or
financial markets generally or in the case of any of the foregoing existing
at the time of the commencement of the Offer, a material acceleration or
worsening thereof.
The foregoing conditions are for the sole benefit of the Trust and UAL and,
except for the Minimum Distribution Condition, may be waived by the Trust and
UAL, in whole or in part, in their sole discretion. Any determination made by
UAL or the Trust concerning an event, development or circumstance described or
referred to above will be final and binding on all parties.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The Offer will expire on the Expiration Date. The Trust expressly reserves
the right, in its sole discretion, subject to applicable law, to (i) terminate
the Offer, and not accept for exchange any Depositary Shares and promptly return
all Depositary Shares upon the failure of any of the conditions specified above
in "-- Conditions to the Offer," (ii) waive any condition to the Offer (other
than the Minimum Distribution Condition) and accept all Depositary Shares
previously tendered pursuant to the Offer, (iii) extend the Expiration Date of
the Offer and retain all Depositary Shares tendered pursuant to the Offer until
the Expiration Date, subject, however, to all withdrawal rights of holders, see
"-- Withdrawal of Tenders," (iv) amend the terms of the Offer, (v) modify the
form of the consideration to be paid pursuant to the Offer, or (vi) not accept
for exchange Depositary Shares at any time on or prior to the Expiration Date,
for any reason, including, without limitation, if fewer than 100,000 Depositary
Shares would remain outstanding upon acceptance of those tendered (which
condition may be waived by the Trust). Any amendment applicable to the Offer
will apply to all Depositary Shares tendered pursuant to the Offer. During any
extension of the Offer, all Depositary Shares previously tendered pursuant to
the Offer and not withdrawn will remain subject to the Offer.
If the Trust makes a material change in the terms of the Offer, the Trust
will extend the Offer. The minimum period for which the Offer will be extended
following a material change, other than a change in the amount of Depositary
Shares sought for exchange or an increase or decrease in the consideration
offered to Holders of Depositary Shares, will depend upon the facts and
circumstances, including the relative materiality of the change. With respect to
a decrease in the number of Depositary Shares sought in the Offer or an increase
or decrease in the consideration offered to Holders of Depositary Shares, if
required, the Offer will remain open for a minimum of ten Business Days
following public announcement of such change. In the case of any amendment,
withdrawal or termination of the Offer, a public announcement will be issued no
later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date of the Offer subject to such extension. If
the Trust withdraws or terminates the Offer, it will give immediate notice to
the Exchange Agent, and all Depositary Shares theretofore tendered pursuant to
the Offer will be returned promptly to the tendering Holders thereof. See
"-- Withdrawal of Tenders." In order to satisfy the NYSE listing requirements,
acceptance of Depositary Shares validly tendered in the Offer is subject to the
Minimum Distribution Condition, which condition may not be waived.
PROCEDURES FOR TENDERING
The tender of Depositary Shares by a Holder thereof pursuant to one of the
procedures set forth below will constitute an agreement between such Holder and
the Trust in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal and the Trust's right to terminate or
withdraw the Offer at any time for any reason.
EACH HOLDER OF DEPOSITARY SHARES WISHING TO PARTICIPATE IN THE OFFER MUST
(I) PROPERLY COMPLETE AND SIGN THE LETTER OF TRANSMITTAL IN ACCORDANCE WITH THE
INSTRUCTIONS CONTAINED HEREIN AND IN THE LETTER OF TRANSMITTAL (EXCEPT WHEN AN
AGENT'S MESSAGE IS APPROPRIATE AND UTILIZED), TOGETHER WITH ANY REQUIRED
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SIGNATURE GUARANTEES, AND DELIVER THE SAME TO THE EXCHANGE AGENT, AT ONE OF ITS
ADDRESSES SET FORTH ON THE BACK COVER PAGE HEREOF PRIOR TO THE EXPIRATION DATE,
AND EITHER (A) CERTIFICATES FOR THE DEPOSITARY SHARES MUST BE RECEIVED BY THE
EXCHANGE AGENT AT SUCH ADDRESS OR (B) SUCH DEPOSITARY SHARES MUST BE TRANSFERRED
PURSUANT TO THE PROCEDURES FOR BOOK-ENTRY TRANSFER DESCRIBED BELOW AND A
CONFIRMATION OF SUCH BOOK-ENTRY TRANSFER MUST BE RECEIVED BY THE EXCHANGE AGENT,
IN EACH CASE PRIOR TO THE EXPIRATION DATE, OR (II) COMPLY WITH THE GUARANTEED
DELIVERY PROCEDURES DESCRIBED BELOW. LETTERS OF TRANSMITTAL, DEPOSITARY SHARES
AND ANY OTHER REQUIRED DOCUMENTS SHOULD BE SENT ONLY TO THE EXCHANGE AGENT, NOT
TO THE TRUST, UAL, THE DEALER MANAGERS OR THE INFORMATION AGENT.
Special Procedure for Beneficial Owners. Any beneficial owner whose
Depositary Shares are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and who wishes to tender should contact
such registered Holder promptly and instruct such registered Holder to tender on
such beneficial owner's behalf. If such beneficial owner wishes to tender on its
own behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering its Depositary Shares, either make appropriate
arrangements to register ownership of the Depositary Shares in such owner's name
or obtain a properly completed stock power from the registered Holder. The
transfer of registered ownership may take considerable time and may not be able
to be completed prior to the Expiration Date.
THE METHOD OF DELIVERY OF DEPOSITARY SHARES AND ALL OTHER DOCUMENTS IS AT
THE ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT (1)
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, (2) INSURANCE BE OBTAINED,
AND (3) THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO
PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE.
Signature Guarantees. If tendered Depositary Shares are registered in the
name of the signer of the Letter of Transmittal and the Preferred Securities to
be issued in exchange therefor are to be issued (and any untendered Depositary
Shares are to be reissued) in the name of the registered Holder, the signature
of such signer need not be guaranteed. If the tendered Depositary Shares are
registered in the name of someone other than the signer of the Letter of
Transmittal, or if Preferred Securities issued in exchange therefor are to be
issued in the name of any person other than the signer of the Letter of
Transmittal, such tendered Depositary Shares must be endorsed or accompanied by
written instruments of transfer in form satisfactory to the Trust and duly
executed by the registered Holder, and the signature on the endorsement or
instrument of transfer must be guaranteed by a financial institution (including
most banks, savings and loans associations and brokerage houses) that is a
participant in the Security Transfer Agents Medallion Program or the Stock
Exchange Medallion Program (any of the foregoing hereinafter referred to as an
"Eligible Institution"). If the Preferred Securities and/or the Depositary
Shares are not exchanged or are to be delivered to an address other than that of
the registered Holder appearing on the register for the Depositary Shares, the
signature in the Letter of Transmittal must be guaranteed by an Eligible
Institution.
Book-Entry Transfer. The Trust understands that the Exchange Agent will
make a request promptly after the date of this Prospectus to establish accounts
with respect to the Depositary Shares at a Depository Institution for the
purpose of facilitating the Offer and, subject to the establishment thereof, any
financial institution that is a participant in a Depository Institution's system
may make book-entry delivery of Depositary Shares by causing the Depository
Institution to transfer such Depositary Shares into the Exchange Agent's account
with respect to the Depositary Shares in accordance with such Depository
Institution's Automated Tender Offer Program ("ATOP") procedures for such
book-entry transfers. However, the exchange for the Depositary Shares so
tendered will only be made after timely confirmation (a "Book-Entry
Confirmation") of such Book-Entry Transfer of Depositary Shares into the
Exchange Agent's account, and timely receipt by the Exchange Agent of an Agent's
Message (as such term is defined in the next paragraph) and any other documents
required by the Letter of Transmittal.
The term "Agent's Message" means a message, transmitted by a Depository
Institution and received by the Exchange Agent and forming a part of a
Book-Entry Confirmation, which states that such Depository
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Institution has received an express acknowledgment from a participant tendering
Depositary Shares that is the subject of such Book-Entry Confirmation, that such
participant has received and agrees to be bound by the terms of the Letter of
Transmittal, and that the Trust may enforce such agreement against such
participant.
Guaranteed Delivery. If a Holder desires to participate in the Offer and
time will not permit a Letter of Transmittal or Depositary Shares to reach the
Exchange Agent before the Expiration Date or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if the
Exchange Agent has received at one of its addresses on the back cover page
hereof, prior to the Expiration Date, a letter, telegram or facsimile
transmission from an Eligible Institution setting forth the name and address of
the tendering Holder, the name(s) in which the Depositary Shares are registered
and, if the Depositary Shares are held in certificated form, the certificate
numbers of the Depositary Shares to be tendered, and stating that the tender is
being made thereby and guaranteeing that within three NYSE trading days after
the date of execution of such letter, telegram or facsimile transmission by the
Eligible Institution, the Depositary Shares in proper form for transfer together
with a properly completed and duly executed Letter of Transmittal (and any other
required documents), or, in the case of a Depositary Institution, an Agent's
Message, will be delivered by such Eligible Institution. Unless the Depositary
Shares being tendered by the above-described method are deposited with the
Exchange Agent within the time period set forth above (accompanied or preceded
by a properly completed Letter of Transmittal and any other required documents)
or, in the case of a Depositary Institution, in accordance with such Depository
Institution's ATOP procedures (along with a Letter of Transmittal or an Agent's
Message) are received, the Trust may, at its option, reject the tender. In
addition to the copy being transmitted herewith, copies of a Notice of
Guaranteed Delivery which may be used by Eligible Institutions for the purposes
described in this paragraph are available from the Exchange Agent and the
Information Agent.
Miscellaneous. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance for exchange of any tender of
Depositary Shares will be determined by the Trust, whose determination will be
final and binding. The Trust reserves the absolute right to reject any or all
tenders not in proper form or the acceptance for exchange of which may, in the
opinion of the Trust's counsel, be unlawful. The Trust also reserves the
absolute right to waive any defect or irregularity in the tender of any
Depositary Shares, and the Trust's interpretation of the terms and conditions of
the Offer (including the instructions in the Letter of Transmittal) will be
final and binding. None of the Trust, the Exchange Agent, the Dealer Managers,
the Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification.
Tenders of Depositary Shares involving any irregularities will not be
deemed to have been made until such irregularities have been cured or waived.
Depositary Shares received by the Exchange Agent that are not validly tendered
and as to which the irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering Holder (or, in the case of
Depositary Shares tendered by book-entry transfer into the Exchange Agent's
account at a Depository Institution, such Depositary Shares will be credited to
an account maintained at the Depository Institution designated by the
participant therein who so delivered such Depositary Shares), unless otherwise
requested by the Holder in the Letter of Transmittal, as promptly as practicable
after the Expiration Date or the withdrawal or termination of the Offer.
LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Offer.
The party tendering Depositary Shares for exchange (the "Transferor")
exchanges, assigns and transfers the Depositary Shares to the Trust, and
irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Depositary Shares to be assigned,
transferred and exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the Depositary
Shares and the underlying Series B Preferred and to acquire Preferred Securities
issuable upon the exchange of such tendered Depositary Shares and that, when
such Transferor's Depositary Shares are accepted for exchange, the Trust will
acquire good and unencumbered title to such
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tendered Depositary Shares and the underlying Series B Preferred, free and clear
of all liens, restrictions, charges and encumbrances and not subject to any
adverse claim. The Transferor also warrants that it will, upon request, execute
and deliver any additional documents deemed by the Trust to be necessary or
desirable to complete the exchange, assignment and transfer of tendered
Depositary Shares or transfer ownership of such Depositary Shares on the account
books maintained by the Depository Institution. All authority conferred by the
Transferor will survive the death, bankruptcy or incapacity of the Transferor
and every obligation of the Transferor shall be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of such
Transferor.
WITHDRAWAL OF TENDERS
Tenders of Depositary Shares pursuant to the Offer may be withdrawn at any
time prior to the Expiration Date and, unless accepted for exchange by the
Trust, may be withdrawn at any time after 40 Business Days after the date of
this Prospectus.
To be effective, a written notice of withdrawal delivered by mail, hand
delivery or facsimile transmission must be timely received by the Exchange Agent
at one of its addresses set forth on the back cover page hereof. The method of
notification is at the risk and election of the Holder. Any such notice of
withdrawal must specify (i) the Holder named in the Letter of Transmittal as
having tendered Depositary Shares to be withdrawn, (ii) if the Depositary Shares
are held in certificated form, the certificate numbers of the Depositary Shares
to be withdrawn, (iii) that such Holder is withdrawing his election to have such
Depositary Shares exchanged and (iv) the name of the registered Holder of such
Depositary Shares, and must be signed by the Holder in the same manner as the
original signature on the Letter of Transmittal (including any required
signature guarantees) or be accompanied by evidence satisfactory to the Trust
that the person withdrawing the tender has succeeded to the beneficial ownership
of the Depositary Shares being withdrawn. The Exchange Agent will return the
properly withdrawn Depositary Shares promptly following receipt of notice of
withdrawal. If Depositary Shares have been tendered pursuant to the procedure
for book-entry transfer, any notice of withdrawal must specify the name and
number of the account at a Depository Institution to be credited with the
withdrawn Depositary Shares and otherwise comply with such Depository
Institution procedures. All questions as to the validity of notice of
withdrawal, including time of receipt, will be determined by the Trust, and such
determination will be final and binding on all parties. Withdrawals of tenders
of Depositary Shares may not be rescinded and any Depositary Shares withdrawn
will thereafter be deemed not validly tendered for purposes of the Offer.
Properly withdrawn Depositary Shares, however, may be retendered by following
the procedures therefor described elsewhere herein at any time prior to the
Expiration Date. See "-- Procedures for Tendering."
ACCEPTANCE OF SHARES
Upon the terms and subject to the conditions of the Offer, including the
Minimum Distribution Condition, the Trust will accept for exchange any and all
Depositary Shares that have been validly tendered and not withdrawn prior to the
Expiration Date.
The Trust expressly reserves the right, in its sole discretion, to delay
acceptance for exchange of Depositary Shares tendered under the Offer and the
delivery of the Preferred Securities with respect to the Depositary Shares
accepted for exchange (subject to Rules 13e-4 and 14e-1 under the Exchange Act,
which require that the Company consummate the Offer or return the Depositary
Shares deposited by or on behalf of the Holders thereof promptly after the
termination or withdrawal of the Offer), or to amend, withdraw or terminate the
Offer, at any time prior to the Expiration Date for any of the reasons set forth
in "The Offer -- Conditions to the Offer" and "-- Expiration Date; Extensions;
Amendments; Termination."
If the Trust decides, in its sole discretion, to decrease the number of
Depositary Shares sought in the Offer or to increase or decrease the
consideration offered to Holders of Depositary Shares, and if the Offer is
scheduled to expire less than ten Business Days from and including the date that
notice of such increase or decrease is first published, sent or given in the
manner specified in "-- Expiration Date; Extensions;
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Amendments; Termination," then the Offer will be extended for a minimum of ten
Business Days from and including the date of such notice.
All Depositary Shares not accepted pursuant to the Offer will be returned
to the tendering Holders at the Trust's expense as promptly as practicable
following the Expiration Date.
EXCHANGE AGENT AND INFORMATION AGENT
The Bank of New York has been appointed as Exchange Agent for the Offer.
THE EXCHANGE AGENT IS:
THE BANK OF NEW YORK
By Hand or Overnight Courier: By Mail:
The Bank of New York (registered or certified mail recommended)
Corporate Debt Operations The Bank of New York
101 Barclay Street Corporate Debt Operations
(7 East) 101 Barclay Street
New York, New York 10286 (7 East)
Attn: Enrique Lopez New York, New York 10286
Attn: Enrique Lopez
By Facsimile:
(For Eligible Institutions Only)
(212) 571-3080
Confirm Receipt of Notice of Guaranteed Delivery by Telephone:
(212) 815-2742
Attn: Enrique Lopez
Georgeson & Company Inc. has been retained as the Information Agent to
assist in connection with the Offer. Questions and requests for assistance
regarding the Offer, requests for additional copies of this Prospectus, requests
for the Letter of Transmittal and requests for Notice of Guaranteed Delivery may
be directed to the Information Agent.
THE INFORMATION AGENT IS:
(LOGO)
Wall Street Plaza
New York, New York 10005
(800) 223-2064 (Toll-Free)
(212) 440-9800 (Call Collect)
UAL will pay the Exchange Agent and Information Agent reasonable and
customary fees for their services and will reimburse them for all their
reasonable out-of-pocket expenses in connection therewith.
DEALER MANAGERS; SOLICITING DEALERS
Merrill Lynch & Co. and Smith Barney Inc., as Dealer Managers, have agreed
to solicit exchanges of Depositary Shares for Preferred Securities. The maximum
fee payable to the Dealer Managers is approximately $940,000 plus any amount
that the Dealer Managers may be entitled to pursuant to the next paragraph. UAL
will also reimburse the Dealer Managers for certain reasonable out-of-pocket
expenses in connection with the Offer and will indemnify the Dealer Managers
against certain liabilities, including liabilities under the Securities Act. In
certain circumstances relating to the number of Depositary Shares tendered, the
Dealer
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Managers will reimburse UAL for certain fees and expenses. The Dealer Managers
engage in transactions with, and from time to time have performed services for,
UAL, including acting as underwriters for the issuance of the Depositary Shares.
UAL will pay to a Soliciting Dealer a solicitation fee of $0.50 per
Depositary Share ($0.25 per Depositary Share with respect to the solicitation of
beneficial holders of 10,000 or more shares) validly tendered and accepted for
exchange pursuant to the Offer. As used in this Prospectus, "Soliciting Dealer"
includes (i) any broker or dealer in securities, including a Dealer Manager in
its capacity as a broker or dealer, who is a member of any national securities
exchange or of the National Association of Securities Dealers, Inc. (the
"NASD"), (ii) any foreign broker or dealer not eligible for membership in the
NASD who agrees to conform to the NASD's Rules of Fair Practice in soliciting
tenders outside the United States to the same extent as though it were an NASD
member, or (iii) any bank or trust company, any one of which has solicited and
obtained a tender pursuant to the Offer. No solicitation fee shall be payable to
a Soliciting Dealer with respect to the tender of depositary receipts evidencing
Depositary Shares by a Holder unless the Letter of Transmittal accompanying such
tender designates such Soliciting Dealer as such in the box captioned "Solicited
Tenders."
If tendered Depositary Shares are being delivered by book-entry transfer
made to an account maintained by the Exchange Agent with Depository
Institutions, the Soliciting Dealer must return a Notice of Solicited Tenders
(included in the materials provided to brokers and dealers) to the Exchange
Agent within three trading days after the Expiration Date in order to receive a
solicitation fee. No solicitation fee shall be payable to a Soliciting Dealer in
respect of Depositary Shares (i) beneficially owned by such Soliciting Dealer or
(ii) registered in the name of such Soliciting Dealer unless such Depositary
Shares are held by such Soliciting Dealer as nominee and such Depositary Shares
are being tendered for the benefit of one or more beneficial owners identified
on the Letter of Transmittal or the Notice of Solicited Tenders. No solicitation
fee shall be payable to the Soliciting Dealer with respect to the tender of
Depositary Shares by the Holder of record, for the benefit of the beneficial
owner, unless the beneficial owner has designated such Soliciting Dealer.
No solicitation fee shall be payable to a Soliciting Dealer if such
Soliciting Dealer is required for any reason to transfer any portion of such fee
to a tendering Holder (other than itself). No broker, dealer, bank, trust
company or fiduciary shall be deemed to be the agent of UAL, the Trust, the
trustees, the Exchange Agent, the Information Agent or the Dealer Managers for
purposes of the Offer.
Other than as described above, UAL will not pay any solicitation fees to
any broker, dealer, bank, trust company or other person for any Depositary
Shares exchanged in connection with the Offer. UAL will reimburse such persons
for customary handling and mailing expenses incurred in connection with the
Offer.
Additional solicitations may be made by telephone, in person or otherwise
by officers and regular employees of UAL and its affiliates. No additional
compensation will be paid to any such officers and employees who engage in
soliciting tenders.
LISTING AND TRADING OF PREFERRED SECURITIES AND DEPOSITARY SHARES
The Preferred Securities constitute a new issue of securities with no
established trading market. While the Preferred Securities have been approved
for listing on the NYSE subject to official notice of issuance, there can be no
assurance that an active market for the Preferred Securities will develop or be
sustained in the future on such exchange. Although the Dealer Managers have
indicated to the Trust that they intend to make a market in the Preferred
Securities following the Expiration Date as permitted by applicable laws and
regulations prior to the commencement of trading on the NYSE, they are not
obligated to do so and may discontinue any such market-making at any time
without notice. Accordingly, no assurance can be given as to the liquidity of,
or trading markets for, the Preferred Securities. In order to satisfy the NYSE
listing requirements, acceptance of Depositary Shares validly tendered in the
Offer is subject to the Minimum Distribution Condition, which condition may not
be waived.
To the extent that a certain number of Depositary Shares are tendered and
accepted in the Offer and/or the number of holders of Depositary Shares is
reduced below certain levels, UAL, pursuant to NYSE rules and regulations, would
be required to delist the Depositary Shares from the NYSE, and the trading
market for
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untendered Depositary Shares could be adversely affected. UAL does not believe
that the Offer has a reasonable likelihood of causing the Depositary Shares to
be delisted from the NYSE. In addition, if the Offer is substantially
subscribed, there would be a significant risk that round lot holdings of
Depositary Shares outstanding following the Offer would be limited. See "Risk
Factors and Special Considerations Relating to the Offer -- Lack of Established
Trading Market for Preferred Securities" and "-- Reduced Trading Market for
Depositary Shares."
TRANSACTIONS AND ARRANGEMENTS CONCERNING THE OFFER
Except as described herein, there are no contracts, arrangements,
understandings or relationships in connection with the Offer between UAL or any
of its directors or executive officers, the Trust or the Trustees and any person
with respect to any securities of UAL or the Trust, including the Junior
Subordinated Debentures, the Series B Preferred, the Depositary Shares and the
Preferred Securities.
FEES AND EXPENSES; TRANSFER TAXES
The expenses of soliciting tenders of the Depositary Shares will be borne
by UAL. For compensation to be paid to the Dealer Managers and Soliciting
Dealers, see "The Offer -- Dealer Managers; Soliciting Dealers." The total cash
expenditures to be incurred in connection with the Offer, other than fees
payable to the Dealer Managers and Soliciting Dealers, but including the
expenses of the Dealer Managers, printing, accounting and legal fees, and the
fees and expenses of the Exchange Agent, the Information Agent, the
Institutional Trustee, the Delaware Trustee and the Indenture Trustee, are
estimated to be approximately $500,000
UAL will pay all transfer taxes, if any, applicable to the exchange of
Depositary Shares pursuant to the Offer. If, however, certificates representing
Preferred Securities or Depositary Shares not tendered or accepted for exchange
are to be delivered to, or are to be issued in the name of, any person other
than the registered Holder of the Depositary Shares tendered or if a transfer
tax is imposed for any reason other than the exchange of Depositary Shares
pursuant to the Offer, then the amount of any such transfer taxes (whether
imposed on the registered Holder or any other persons) will be payable by the
tendering Holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering Holder.
PRICE RANGE OF DEPOSITARY SHARES
The Depositary Shares are listed and principally traded on the NYSE. The
following table sets forth, for each period shown, the high and low sales prices
of the Depositary Shares as reported on the NYSE Composite Tape. For recent
closing prices of the Depositary Shares, see the cover page of this Prospectus.
HIGH LOW
------ ------
YEAR ENDED DECEMBER 31, 1994
3rd Quarter...................................................... $26.75 $25.00
4th Quarter...................................................... 26.75 25.38
YEAR ENDED DECEMBER 31, 1995
1st Quarter...................................................... 29.00 26.63
2nd Quarter...................................................... 30.75 28.25
3rd Quarter...................................................... 31.38 30.00
4th Quarter...................................................... 33.13 29.88
YEAR ENDING DECEMBER 31, 1996
1st Quarter...................................................... 33.38 31.88
2nd Quarter...................................................... 35.00 31.88
3rd Quarter...................................................... 34.00 32.88
4th Quarter (through November 20)................................ 34.38 33.13
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DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the
Declaration which will be qualified under the Trust Indenture Act. The First
National Bank of Chicago as the Institutional Trustee, but not the other
Trustees of the Trust, will act as the indenture trustee for purposes of the
Trust Indenture Act. The terms of the Preferred Securities and the Declaration
include those stated in the Declaration and those made part of the Declaration
by the Trust Indenture Act. The description of the Preferred Securities and the
Declaration set forth below summarizes the material terms of the Declaration,
which has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part, and is subject to the Business Trust Act and the Trust
Indenture Act.
GENERAL
The Declaration authorizes the Trust to issue the Preferred Securities,
which represent preferred undivided beneficial interests in the assets of the
Trust, and the Common Securities, which represent common undivided beneficial
interests in the assets of the Trust. All of the Common Securities will be
owned, directly or indirectly, by UAL. The Common Securities and the Preferred
Securities will have equivalent terms except that (i) if an Event of Default
under the Declaration occurs and is continuing, the rights of the holders of the
Common Securities to payment in respect of periodic distributions and payments
upon liquidation, redemption or otherwise are subordinated to the rights of the
holders of the Preferred Securities and (ii) holders of Common Securities have
the exclusive right (subject to the terms of the Declaration) to appoint, remove
or replace Trustees and to increase or decrease the number of Trustees. The
Declaration does not permit the issuance by the Trust of any securities or other
evidences of beneficial ownership of, or beneficial interests in, the Trust
other than the Preferred Securities and the Common Securities, the incurrence of
any indebtedness for borrowed money by the Trust or the making of any investment
other than in the Junior Subordinated Debentures. The payment of distributions
out of moneys held by the Trust and payments on redemption of the Preferred
Securities or liquidation of the Trust are guaranteed by UAL on a subordinated
basis as and to the extent described under "Description of the Preferred
Securities Guarantee." The Institutional Trustee will hold the Preferred
Securities Guarantee for the benefit of holders of the Preferred Securities. The
Preferred Securities Guarantee covers distributions and other payments on the
Preferred Securities only if and to the extent that UAL has made a payment to
the Institutional Trustee of interest or principal on the Junior Subordinated
Debentures deposited in the Trust as trust assets. The Preferred Securities
Guarantee, when taken together with UAL's obligations under the Junior
Subordinated Debentures and the Indenture and its obligations under the
Declaration, including its obligation to pay costs, expenses and certain
liabilities of the Trust, constitutes a full and unconditional guarantee of
amounts due on the Preferred Securities.
DISTRIBUTIONS
Distributions on the Preferred Securities will be fixed at a rate per annum
of 13 1/4% of the stated liquidation amount of $25 per Preferred Security.
Distributions in arrears will bear interest thereon at the rate per annum of
13 1/4%, compounded quarterly to the extent permitted by applicable law. The
term "distributions" as used herein includes any such cash distributions and any
such interest payable unless otherwise stated. The amount of distributions
payable for any period will be computed on the basis of a 360-day year of twelve
30-day months and, for any period shorter than a full quarterly period for which
distributions are computed, the amount of the distribution payable will be
computed on the basis of the actual number of days elapsed in such a 30-day
month.
Distributions on the Preferred Securities will be cumulative, will accrue
from the Accrual Date and, except as otherwise described below, will be payable
quarterly in arrears, on March 31, June 30, September 30 and December 31 of each
year, commencing on December 31, 1996, and at final maturity of the Junior
Subordinated Debentures, but only if, and to the extent that, interest payments
are made in respect of Junior Subordinated Debentures held by the Trust. In
addition, holders of Preferred Securities will be entitled to an additional cash
distribution at the rate of 12 1/4% per annum of the liquidation amount thereof
from November 1, 1996 through the Expiration Date in lieu of dividends
accumulating after November 1, 1996 on
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their Depositary Shares accepted for exchange, such additional distribution to
be made on December 31, 1996 to holders of the Preferred Securities on the
record date for such distribution.
So long as UAL shall not be in default in the payment of interest on the
Junior Subordinated Debentures, UAL has the right under the Indenture to defer
payments of interest on the Junior Subordinated Debentures by extending the
interest payment period from time to time on the Junior Subordinated Debentures
for a period not exceeding 20 consecutive quarterly interest periods and, as a
consequence, quarterly distributions on the Preferred Securities would not be
made (but would continue to accrue with interest thereon at the rate of 13 1/4%
per annum, compounded quarterly to the extent permitted by applicable law) by
the Trust during any such Extension Period. If UAL exercises the right to extend
an interest payment period, UAL may not, during any such Extension Period,
declare or pay dividends on, or redeem, purchase, acquire or make a distribution
or liquidation payment with respect to, any of its common stock or preferred
stock or any other securities similar to the Preferred Securities or the Junior
Subordinated Debentures or make any guarantee payments with respect thereto;
provided, however, that UAL may pay cash in lieu of fractional shares upon the
conversion of any of its preferred stock in accordance with the terms of such
stock. Any Extension Period with respect to payment of interest on the Junior
Subordinated Debentures will also apply to distributions with respect to the
Preferred Securities and all other securities with similar terms. Prior to the
termination of any such Extension Period, UAL may further extend such Extension
Period; provided that such Extension Period together with all such previous and
further extensions thereof may not exceed 20 consecutive quarterly interest
periods. Upon the termination of any Extension Period and the payment of all
amounts then due, UAL may commence a new Extension Period, subject to the above
requirements. Consequently, there could be multiple Extension Periods of varying
lengths (up to six Extension Periods of 20 consecutive quarterly interest
periods each or more numerous shorter Extension Periods) throughout the term of
the Junior Subordinated Debentures, provided that no Extension Period may extend
beyond the maturity of the Junior Subordinated Debentures. See "Risk Factors and
Special Considerations Relating to the Offer -- UAL May Defer Interest Payments
on Junior Subordinated Debentures" and "Description of the Junior Subordinated
Debentures -- Interest" and "-- Option to Extend Interest Payment Period."
Payments of accrued distributions will be payable to holders of Preferred
Securities as they appear on the books and records of the Trust on the first
record date after the end of an Extension Period. UAL may also pay on any
Interest Payment Date all or any portion of the interest accrued during an
Extension Period.
Distributions on the Preferred Securities must be paid on the dates payable
to the extent that the Institutional Trustee has cash on hand to permit such
payment. The funds available for distribution to the holders of the Preferred
Securities will be limited to payments received by the Trust in respect of the
Junior Subordinated Debentures that are deposited in the Trust as trust assets.
See "Description of the Junior Subordinated Debentures." If UAL does not make
interest payments on the Junior Subordinated Debentures, the Trust will not make
distributions on the Preferred Securities. Under the Declaration, if and to the
extent UAL does make interest payments on the Junior Subordinated Debentures
deposited in the Trust as trust assets, the Trust is obligated to make
distributions on the Trust Securities on a Pro Rata Basis. The payment of
distributions on the Preferred Securities is guaranteed by UAL on a subordinated
basis as and to the extent set forth under "Description of the Preferred
Securities Guarantee." The Preferred Securities Guarantee covers distributions
and other payments on the Preferred Securities only if and to the extent that
UAL has made a payment to the Trust of interest or principal on the Junior
Subordinated Debentures deposited in the Trust as trust assets. The liquidation
amount of each Common Security is $25 per share.
Distributions on the Preferred Securities will be made to the holders
thereof as they appear on the books and records of the Trust on the relevant
record dates, which will be 15 days prior to the relevant distribution dates,
except that the record date for the payment to be made on December 31, 1996
shall be the date of exchange of the Preferred Securities for the Depositary
Shares. The Declaration provides that the payment dates or record dates for the
Preferred Securities shall be the same as the payment dates and record dates for
the Junior Subordinated Debentures. Distributions payable on any Preferred
Securities that are not punctually paid on any distribution date as a result of
UAL having failed to make the corresponding interest payment on the Junior
Subordinated Debentures will forthwith cease to be payable to the person in
whose name such Preferred Security is registered on the relevant record date,
and such defaulted distribution will instead be
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payable to the person in whose name such Preferred Security is registered on the
special record date established by the Regular Trustees, which record date shall
correspond to the special record date or other specified date determined in
accordance with the Indenture; provided, however, that distributions shall not
be considered payable on any distribution payment date falling within an
Extension Period unless UAL has elected to make a full or partial payment of
interest accrued on the Junior Subordinated Debentures on such distribution
payment date. Distributions on the Preferred Securities will be paid by the
Trust. All distributions paid with respect to the Trust Securities shall be paid
on a Pro Rata Basis to the holders thereof entitled thereto. If any date on
which distributions are to be made on the Preferred Securities is not a Business
Day, then payment of the distribution to be made on such date will be made on
the next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay) except that, if such Business Day is
in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
If, at any time, a Tax Event or an Investment Company Event (each as
hereinafter defined, and each a "Special Event") shall occur and be continuing,
the Trust shall, unless the Junior Subordinated Debentures are redeemed in the
limited circumstances described below, be dissolved with the result that, after
satisfaction of creditors of the Trust, Junior Subordinated Debentures with an
aggregate principal amount equal to the aggregate stated liquidation amount of
the Preferred Securities and the Common Securities would be distributed on a Pro
Rata Basis to the holders of the Preferred Securities and the Common Securities
in liquidation of such holders' interests in the Trust, within 90 days following
the occurrence of such Special Event; provided, however, that in the case of the
occurrence of a Tax Event, as a condition of such dissolution and distribution,
the Regular Trustees shall have received an opinion (a "No Recognition Opinion")
of nationally recognized independent tax counsel experienced in such matters,
which opinion may rely on any then applicable published revenue rulings of the
Internal Revenue Service, to the effect that the holders of the Preferred
Securities will not recognize any gain or loss for United States federal income
tax purposes as a result of such dissolution and distribution of Junior
Subordinated Debentures; and, provided further that, if at the time there is
available to the Trust the opportunity to eliminate, within such 90-day period,
the Special Event by taking some ministerial action, such as filing a form or
making an election, or pursuing some other similar reasonable measure, which has
no adverse effect on the Trust or UAL or the holders of the Preferred
Securities, the Trust will pursue such measure in lieu of dissolution.
Furthermore, if, in the case of the occurrence of a Tax Event, (i) the Regular
Trustees have received an opinion (a "Redemption Tax Opinion") of nationally
recognized independent tax counsel experienced in such matters that, as a result
of a Tax Event, there is more than an insubstantial risk that UAL would be
precluded from deducting the interest on the Junior Subordinated Debentures for
United States federal income tax purposes even if the Junior Subordinated
Debentures were distributed to the holders of Preferred Securities and Common
Securities in liquidation of such holders' interests in the Trust as described
above or (ii) the Regular Trustees shall have been informed by such tax counsel
that a No Recognition Opinion cannot be delivered to the Trust, UAL shall have
the right, upon not less than 10 nor more than 60 days' notice, to redeem the
Junior Subordinated Debentures in whole or in part for cash within 90 days
following the occurrence of such Tax Event, and promptly following such
redemption Preferred Securities and Common Securities with an aggregate
liquidation amount equal to the aggregate principal amount of the Junior
Subordinated Debentures so redeemed will be redeemed by the Trust at the
Redemption Price on a Pro Rata Basis; provided, however, that if at the time
there is available to UAL or the Regular Trustees the opportunity to eliminate,
within such 90-day period, the Tax Event by taking some ministerial action, such
as filing a form or making an election, or pursuing some other similar
reasonable measure, which has no adverse effect on the Trust, UAL or the holders
of the Preferred Securities, UAL, or the Regular Trustees on behalf of the
Trust, will pursue such measure in lieu of redemption and provided further that
UAL shall have no right to redeem the Junior Subordinated Debentures while the
Regular Trustees on behalf of the Trust are pursuing any such ministerial
action. The Common Securities will be redeemed on a Pro Rata Basis with the
Preferred Securities, except that, if an Event of Default under the Declaration
has occurred and is continuing, the Preferred Securities will have a priority
over the Common Securities with respect to payment of the Redemption Price.
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"Tax Event" means that the Regular Trustees shall have obtained an opinion
(a "Dissolution Tax Opinion") of nationally recognized independent tax counsel
experienced in such matters to the effect that on or after the Expiration Date
as a result of (a) any amendment to, or change (including any announced
prospective change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein, (b)
any amendment to, or change in, an interpretation or application of any such
laws or regulations by any legislative body, court, governmental agency or
regulatory authority (including the enactment of any legislation and the
publication of any judicial decision or regulatory determination), (c) any
interpretation or pronouncement that provides for a position with respect to
such laws or regulations that differs from the theretofore generally accepted
position or (d) any action taken by any governmental agency or regulatory
authority, which amendment or change is enacted, promulgated, issued or
announced or which interpretation or pronouncement is issued or announced or
which action is taken, in each case on or after the Expiration Date, there is
more than an insubstantial risk that (i) the Trust is, or will be within 90 days
of the date thereof, subject to United States federal income tax with respect to
income accrued or received on the Junior Subordinated Debentures, (ii) the Trust
is, or will be within 90 days of the date thereof, subject to more than a de
minimis amount of other taxes, duties or other governmental charges or (iii)
interest payable by UAL to the Trust on the Junior Subordinated Debentures is
not, or within 90 days of the date thereof will not be, deductible by UAL for
United States federal income tax purposes.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of nationally recognized independent counsel experienced in
practice under the Investment Company Act of 1940, as amended (the "1940 Act"),
that, as a result of the occurrence of a change in law or regulation or a change
in interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority or by the staff of any such
governmental agency or regulatory authority (a "Change in 1940 Act Law"), there
is more than an insubstantial risk that the Trust is or will be considered an
"investment company" which is required to be registered under the 1940 Act,
which Change in 1940 Act Law becomes effective on or after the Expiration Date.
On the date fixed for any distribution of Junior Subordinated Debentures,
upon dissolution of the Trust, (i) the Preferred Securities and the Common
Securities will no longer be deemed to be outstanding and (ii) certificates
representing Trust Securities will be deemed to represent beneficial interests
in the Junior Subordinated Debentures having an aggregate principal amount equal
to the stated liquidation amount of, and bearing accrued and unpaid interest
equal to accrued and unpaid distributions on, such Trust Securities until such
certificates are presented to UAL or its agent for transfer or reissuance.
There can be no assurance as to the market price for the Junior
Subordinated Debentures which may be distributed in exchange for Trust
Securities if a dissolution and liquidation of the Trust were to occur.
Accordingly, the Junior Subordinated Debentures which the investor may
subsequently receive on dissolution and liquidation of the Trust may trade at a
discount to the price of the Trust Securities exchanged. If the Junior
Subordinated Debentures are distributed to the holders of Trust Securities upon
the dissolution of the Trust, UAL will use its best efforts to list the Junior
Subordinated Debentures on the NYSE or on such other exchange on which the
Preferred Securities are then listed.
MANDATORY REDEMPTION
Upon the repayment of the Junior Subordinated Debentures, in whole or in
part, whether at maturity, upon redemption or otherwise, the proceeds from such
repayment will be promptly applied to redeem Preferred Securities and Common
Securities having an aggregate liquidation amount equal to the Junior
Subordinated Debentures so repaid, upon not less than 10 nor more than 60 days'
notice, at the Redemption Price. The Common Securities will be entitled to be
redeemed on a Pro Rata Basis with the Preferred Securities, except that if an
Event of Default under the Declaration has occurred and is continuing, the
Preferred Securities will have a priority over the Common Securities with
respect to payment of the Redemption Price. Subject to the foregoing, if fewer
than all outstanding Preferred Securities and Common Securities are to be
redeemed, the Preferred Securities and Common Securities will be redeemed on a
Pro Rata Basis. In the event fewer than all outstanding Preferred Securities are
to be redeemed, Preferred
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Securities registered in the name of and held by a Depository Institution or its
nominee will be redeemed pro rata as described under "-- Book-Entry; Delivery
and Form" below.
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all the outstanding Preferred
Securities unless all accrued and unpaid distributions have been paid on all
Preferred Securities for all quarterly distribution periods terminating on or
prior to the date of redemption.
If the Trust gives a notice of redemption in respect of Preferred
Securities (which notice will be irrevocable), then immediately prior to the
close of business on the redemption date, provided that UAL has paid to the
Trust a sufficient amount of cash in connection with the related redemption or
maturity of the Junior Subordinated Debentures, distributions will cease to
accrue on the Preferred Securities called for redemption, such Preferred
Securities shall no longer be deemed to be outstanding and all rights of holders
of such Preferred Securities so called for redemption will cease, except the
right of the holders of such Preferred Securities to receive the Redemption
Price, but without interest on such Redemption Price. Neither the Trustees nor
the Trust shall be required to register or cause to be registered the transfer
of any Preferred Securities which have been so called for redemption. If any
date fixed for redemption of Preferred Securities is not a Business Day, then
payment of the Redemption Price payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay) except that, if such Business Day falls in the
next calendar year, such payment will be made on the immediately preceding
Business Day, in each case with the same force and effect as if made on such
date fixed for redemption. If UAL fails to repay Junior Subordinated Debentures
on maturity or on the date fixed for a redemption or if payment of the
Redemption Price in respect of Preferred Securities is improperly withheld or
refused and not paid by the Trust or by UAL pursuant to the Preferred Securities
Guarantee described under "Description of the Preferred Securities Guarantee,"
distributions on such Preferred Securities will continue to accrue from the
original redemption date of the Preferred Securities to the date of payment in
which case the actual payment date will be considered the date fixed for
redemption for purposes of calculating the Redemption Price.
The Trust shall not be required to (i) issue, register the transfer of or
exchange of any Trust Securities during a period beginning at the opening of
business 15 days before the mailing of a notice of redemption of Trust
Securities and ending at the close of business on the day of the mailing of the
relevant notice of redemption or (ii) register the transfer of or exchange of
any Trust Securities so selected for redemption, in whole or in part, except the
unredeemed portion of any Trust Securities being redeemed in part.
If a partial redemption of the Preferred Securities would result in the
delisting of the Preferred Securities by any national securities exchange or
other organization on which the Preferred Securities are then listed, UAL
pursuant to the Indenture will only redeem the Junior Subordinated Debentures in
whole and, as a result, the Trust may only redeem the Preferred Securities in
whole.
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), UAL or any of its subsidiaries may at
any time and from time to time purchase outstanding Preferred Securities by
tender, in the open market or by private agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary dissolution, winding-up or
termination of the Trust, the holders of the Preferred Securities and Common
Securities at the date of dissolution, winding-up or termination of the Trust
will be entitled to receive on a Pro Rata Basis solely out of the assets of the
Trust, after satisfaction of liabilities of creditors (to the extent not
satisfied by UAL as provided in the Declaration), an amount equal to the
aggregate of the stated liquidation amount of $25 per Trust Security plus
accrued and unpaid distributions thereon to the date of payment (such amount
being the "Liquidation Distribution"), unless, in connection with such
dissolution, winding-up or termination, Junior Subordinated Debentures in an
aggregate principal amount equal to the aggregate stated liquidation amount of
such Trust Securities, and bearing accrued and unpaid interest in an amount
equal to the accrued and unpaid distributions on such Trust
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Securities, shall be distributed on a Pro Rata Basis to the holders of the
Preferred Securities and Common Securities in exchange therefor.
If, upon any such dissolution, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Preferred Securities and the Common Securities shall be paid on a
Pro Rata Basis.
The holders of the Common Securities will be entitled to receive
distributions upon any such dissolution on a Pro Rata Basis with the holders of
the Preferred Securities, except that if an Event of Default under the
Declaration has occurred and is continuing, the Preferred Securities shall have
a priority over the Common Securities with respect to payment of the Liquidation
Distribution.
Pursuant to the Declaration, the Trust shall terminate: (i) on December 15,
2026, (ii) when all of the Trust Securities shall have been called for
redemption and the amounts necessary for redemption thereof shall have been paid
to the holders of Trust Securities in accordance with the terms of the Trust
Securities, (iii) when all of the Junior Subordinated Debentures shall have been
distributed to the holders of Trust Securities in exchange for all of the Trust
Securities in accordance with the terms of the Trust Securities, (iv) upon the
bankruptcy of UAL or the Trust, (v) upon the filing of a certificate of
dissolution or the equivalent with respect to UAL, the filing of a certificate
of cancellation with respect to the Trust after having obtained the consent of
at least a majority in liquidation amount of the Trust Securities, voting
together as a single class, to file such certificate of cancellation, or the
revocation of the charter of UAL and the expiration of 90 days after the date of
revocation without a reinstatement thereof, or (vi) upon the entry of a decree
of judicial dissolution of UAL or the Trust.
MERGER, CONSOLIDATION OR AMALGAMATION OF THE TRUST ONLY UNDER CERTAIN CONDITIONS
The Trust may, with the consent of the Regular Trustees or, if there are
more than two, a majority of the Regular Trustees and without the consent of the
Holders of the Trust Securities, the Delaware Trustee or the Institutional
Trustee, consolidate, amalgamate, merge with or into, or be replaced by a trust
organized as such under the laws of any State; provided that: (i) such successor
entity (the "Successor Entity") either: (A) expressly assumes all of the
obligations of the Trust under the Preferred Securities; or (B) substitutes for
the Preferred Securities other securities having substantially the same terms as
the Preferred Securities (the "Successor Securities") so long as the Successor
Securities rank the same as the Preferred Securities rank with respect to
Distributions and payments upon liquidation, redemption and otherwise; (ii) UAL
expressly appoints a trustee of the Successor Entity that possesses the same
powers and duties as the Institutional Trustee as the holder of the Junior
Subordinated Debentures; (iii) the Preferred Securities or any Successor
Securities are listed, or any Successor Securities will be listed upon
notification of issuance, on any national securities exchange or with another
organization on which the Preferred Securities are then listed or quoted; (iv)
such merger, consolidation, amalgamation or replacement does not cause the
Preferred Securities (including any Successor Securities) to be downgraded by
any nationally recognized statistical rating organization; (v) such merger,
consolidation, amalgamation or replacement does not adversely affect the rights,
preferences and privileges of the Holders of the Preferred Securities (including
any Successor Securities) in any material respect (other than with respect to
any dilution of such Holders' interests in the Preferred Securities as a result
of such merger, consolidation, amalgamation or replacement); (vi) such Successor
Entity has a purpose substantially identical to that of the Trust; (vii) such
merger, consolidation, amalgamation or replacement does not vary the investment
of the Holders of the Preferred Securities within the meaning of Treasury
Regulation Section 301.7701-4(c)(i), e.g., does not substitute other assets for
assets of the Trust to which the Preferred Securities relate or add assets to
the Trust to which the Preferred Securities relate; (viii) prior to such merger,
consolidation, amalgamation or replacement, UAL has received an opinion of a
nationally recognized independent counsel to the Trust experienced in such
matters to the effect that: (A) such merger, consolidation, amalgamation or
replacement does not adversely affect the rights, preferences and privileges of
the Holders of the Preferred Securities (including any Successor Securities) in
any material respect (other than with respect to any dilution of the Holders'
interest in the new entity); (B) following such merger, consolidation,
amalgamation or replacement, neither the Trust nor the Successor Entity will be
required to register as an investment company; and (C) following such merger,
consolidation,
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amalgamation or replacement, the Trust (or the Successor Entity) will continue
to be classified as a grantor trust for United States federal income tax
purposes; and (ix) UAL guarantees the obligations of such Successor Entity under
the Successor Securities at least to the extent provided by the Preferred
Securities Guarantee.
DECLARATION EVENTS OF DEFAULT
An Indenture Event of Default will constitute an Event of Default under the
Declaration; provided that pursuant to the Declaration, the holder of the Common
Securities will be deemed to have waived any such Event of Default with respect
to the Common Securities until all Events of Default with respect to the
Preferred Securities have been cured or waived. Until all such Events of Default
with respect to the Preferred Securities have been cured or waived, the
Institutional Trustee will be deemed to be acting solely on behalf of the
holders of the Preferred Securities, and only the holders of the Preferred
Securities will have the right to direct the Institutional Trustee with respect
to certain matters under the Declaration and consequently under the Indenture.
In the event that any Event of Default with respect to the Preferred Securities
is waived by the holders of the Preferred Securities as provided in the
Declaration, the holders of Common Securities pursuant to the Declaration have
agreed that such waiver also constitutes a waiver of such Event of Default with
respect to the Common Securities for all purposes under the Declaration without
any further act, vote or consent of the holders of the Common Securities. See
"-- Voting Rights."
Upon the occurrence of an Event of Default, the Institutional Trustee or
the holders of at least 25% in aggregate principal amount of the Junior
Subordinated Debentures will have the right under the Indenture to declare the
principal of and interest on the Junior Subordinated Debentures to be
immediately due and payable. In addition, the Institutional Trustee will have
the power to exercise all rights, powers and privileges under the Indenture. If
an Event of Default is attributable to the failure of UAL to pay interest or
principal on the Junior Subordinated Debentures on the date such interest or
principal is otherwise payable (or in the case of redemption, the redemption
date), then a holder of Preferred Securities may also directly institute a
proceeding for enforcement of payment to such holder of the principal of or
interest on the Junior Subordinated Debentures having a principal amount equal
to the aggregate liquidation amount of the Preferred Securities of such holder
without first (i) directing the Institutional Trustee to enforce the terms of
the Junior Subordinated Debentures or (ii) instituting a legal proceeding
against UAL to enforce the Institutional Trustee's rights under the Junior
Subordinated Debentures. In connection with such direct action, UAL shall be
subrogated to the rights of such holder of Preferred Securities under the
Declaration to the extent of any payment made by UAL to such holder in such
direct action. See "Description of the Junior Subordinated Debentures."
VOTING RIGHTS
Except as provided under "-- Merger, Consolidation or Amalgamation of the
Trust Only Under Certain Conditions," "-- Modification and Amendment of the
Declaration" and "Description of the Preferred Securities
Guarantee -- Amendments and Assignment" and as otherwise required by the
Business Trust Act, the Trust Indenture Act and the Declaration, the holders of
the Preferred Securities will have no voting rights.
Subject to the requirements of the second to last sentence of this
paragraph, the holders of a majority in aggregate liquidation amount of the
Preferred Securities have the right (i) on behalf of all holders of Preferred
Securities, to waive any past default that is waivable under the Declaration and
(ii) to direct the time, method and place of conducting any proceeding for any
remedy available to the Institutional Trustee, or exercising any trust or power
conferred upon the Institutional Trustee under the Declaration; provided,
however, that the holders of the Preferred Securities will vote as a single
class (the "Capital Trust Voting Class") with any holders of any other preferred
undivided beneficial interests of a UAL Corporation Capital Trust, such as the
Preferred Securities, similarly situated with respect to debt securities issued
pursuant to the Indenture (including the Junior Subordinated Debentures) with
respect to the right to direct an Institutional Trustee, to (x) direct the time,
method and place of conducting any proceeding for any remedy available to the
Indenture Trustee or exercising any trust or power conferred on the Indenture
Trustee with respect to debt securities issued pursuant to the Indenture
(including the Junior Subordinated Debentures), (y) waive any past default and
its consequences that is waivable under Section 5.13 of the Indenture with
respect to debt securities issued
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pursuant to the Indenture (including the Junior Subordinated Debentures) or (z)
exercise any right to rescind or annul a declaration that the principal of all
debt securities issued pursuant to the Indenture (including the Junior
Subordinated Debentures) shall be due and payable; provided that where a consent
under the Indenture would require the consent of (1) holders of debt securities
issued pursuant to the Indenture (including Junior Subordinated Debentures)
representing a specified percentage greater than a majority in principal amount
of such securities or (2) each holder of such securities affected thereby, no
such consent shall be given by any Trustee without the prior consent of, in the
case of clause (1) above, holders of securities in the Capital Trust Voting
Class representing such specified percentage or, in the case of clause (2)
above, each holder of securities in the Capital Trust Voting Class affected
thereby. The Institutional Trustee shall not revoke or take any action
inconsistent with any action previously authorized or approved by a vote of the
holders of Preferred Securities. The Institutional Trustee shall notify all
holders of record of Preferred Securities of any notice of default received from
the Indenture Trustee with respect to the Junior Subordinated Debentures. Other
than with respect to directing the time, method and place of conducting any
proceeding for any remedy available to the Institutional Trustee or the
Indenture Trustee as set forth above, the Institutional Trustee shall be under
no obligation to take any of the foregoing actions at the direction of the
holders of the Preferred Securities unless the Institutional Trustee shall have
obtained an opinion of nationally recognized independent tax counsel recognized
as expert in such matters to the effect that the Trust will not be classified
for United States federal income tax purposes as an association taxable as a
corporation or a partnership on account of such action and will be treated as a
grantor trust for United States federal income tax purposes following such
action. If the Institutional Trustee fails to enforce its rights under the
Declaration (including, without limitation, its rights, powers and privileges as
a holder of the Junior Subordinated Debentures under the Indenture) to the
fullest extent permitted by law, any holder of Preferred Securities may, upon
such holder's written request to the Institutional Trustee to enforce such
rights, institute a legal proceeding directly against UAL to enforce the
Institutional Trustee's rights under the Declaration, without first instituting
a legal proceeding against the Institutional Trustee or any other Person;
provided that any holder may institute a direct action without prior request to
the Institutional Trustee to enforce UAL's payment obligations on the Junior
Subordinated Debentures.
A waiver of an Indenture Event of Default by the Institutional Trustee at
the direction of holders of the Preferred Securities will constitute a waiver of
the corresponding Event of Default under the Declaration in respect of the Trust
Securities.
In the event the consent of the Trust as the holder of the Junior
Subordinated Debentures is required under the Indenture with respect to any
amendment, modification or termination of the Indenture or the Junior
Subordinated Debentures, the Institutional Trustee shall request the direction
of the holders of the Trust Securities with respect to such amendment,
modification or termination and shall vote with respect to such amendment,
modification or termination as directed by a majority in liquidation amount of
the Trust Securities voting together in the Capital Trust Voting Class,
provided, however, that where any such amendment, modification or termination of
the Indenture would require the consent of (i) holders of debt securities issued
pursuant to the Indenture representing a specified percentage greater than a
majority in principal amount of such securities or (ii) each holder of such debt
securities, the Trustee may only give such consent at the direction of the
holders of securities in the Capital Trust Voting Class representing such
specified percentage in the case of clause (i) above, or each holder of
securities in the Capital Trust Voting Class affected thereby, in the case of
clause (ii) above; and, provided, further, that the Institutional Trustee shall
be under no obligation to take any such action in accordance with the directions
of the holders of the Trust Securities unless the Institutional Trustee has
obtained an opinion of nationally recognized independent tax counsel recognized
as expert in such matters to the effect that the Trust will not be classified
for United States federal income tax purposes as an association taxable as a
corporation or a partnership on account of such action and will be treated as a
grantor trust for United States federal income tax purposes following such
action.
Any required approval or direction of holders of Preferred Securities may
be given at a separate meeting of holders of Preferred Securities convened for
such purpose, at a meeting of all of the holders of Trust Securities or pursuant
to written consent. The Regular Trustees will cause a notice of any meeting at
which
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holders of Preferred Securities are entitled to vote, or of any matter upon
which action by written consent of such holders is to be taken, to be mailed to
each holder of record of Preferred Securities. Each such notice will include a
statement setting forth (i) the date of such meeting or the date by which such
action is to be taken, (ii) a description of any resolution proposed for
adoption at such meeting on which such holders are entitled to vote or of such
matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consents.
No vote or consent of the holders of Preferred Securities will be required
for the Trust to redeem and cancel Preferred Securities or distribute Junior
Subordinated Debentures in accordance with the Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities at such time that are owned by UAL or by any entity directly or
indirectly controlling or controlled by or under direct or indirect common
control with UAL shall not be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if they were not outstanding.
The procedures by which persons owning Preferred Securities registered in
the name of and held by a Depositary Institution or its nominee may exercise
their voting rights are described under "-- Book-Entry; Delivery and Form"
below.
Holders of the Preferred Securities will have no rights to increase or
decrease the number of Trustees or to appoint, remove or replace a Trustee,
which rights are vested exclusively in the holders of the Common Securities.
MODIFICATION AND AMENDMENT OF THE DECLARATION
The Declaration may be modified and amended on approval of a majority of
the Regular Trustees, provided that, if any proposed modification or amendment
provides for, or the Regular Trustees otherwise propose to effect, (i) any
action that would adversely affect the powers, preferences or special rights of
the Trust Securities, whether by way of amendment to the Declaration or
otherwise, or (ii) the dissolution, winding-up or termination of the Trust other
than pursuant to the terms of the Declaration, then the holders of the
outstanding Trust Securities as a class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of at least a majority in liquidation amount of the
Trust Securities, provided that if any amendment or proposal referred to in
clause (i) above would adversely affect only the Preferred Securities or the
Common Securities, then only the affected class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of a majority in liquidation amount of such class of
Trust Securities.
Notwithstanding the foregoing, (i) no amendment or modification may be made
to the Declaration if such amendment or modification would cause the Trust to be
classified for United States federal income tax purposes as other than a grantor
trust or would cause the Trust to be deemed an "investment company" which is
required to be registered under the 1940 Act, (ii) certain specified provisions
of the Declaration may not be amended without the consent of all of the holders
of the Trust Securities, (iii) no amendment which adversely affects the rights,
powers and privileges of the Institutional Trustee shall be made without the
consent of the Institutional Trustee, (iv) Article IV of the Declaration
relating to the obligation of UAL to purchase the Common Securities and to pay
certain obligations and expenses of the Trust as described under "UAL
Corporation Capital Trust I" may not be amended without the consent of UAL, and
(v) the rights of holders of Common Securities under Article V of the
Declaration to increase or decrease the number of, and to appoint, replace or
remove, Trustees shall not be amended without the consent of each holder of
Common Securities.
The Declaration further provides that it may be amended without the consent
of the holders of the Trust Securities to (i) cure any ambiguity, (ii) correct
or supplement any provision in this Declaration that may be defective or
inconsistent with any other provision of this Declaration, (iii) add to the
covenants, restrictions or obligations of UAL, (iv) preserve the status of the
Trust as a grantor trust for federal income tax purposes, and (v) to conform to
changes in, or a change in interpretation or application of, certain 1940 Act
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requirements by the Commission or its staff, which amendment does not adversely
affect the rights, preferences or privileges of the holders of Trust Securities.
BOOK-ENTRY; DELIVERY AND FORM
Preferred Securities will be issued in fully registered form. Investors may
elect to hold their Preferred Securities directly or, subject to the rules and
procedures of a Depository Institution described below, hold interests in a
global certificate (the "Preferred Securities Global Certificate") registered in
the name of a Depository Institution or its nominee. However, tendering holders
of Depositary Shares held in global form shall initially receive an interest in
the Preferred Securities Global Certificate and tendering holders of Depositary
Shares held directly in certificated form shall initially receive Preferred
Securities in certificated form, in each case unless otherwise specified in the
Letter of Transmittal. See "The Offer -- Procedures for Tendering."
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in a global Preferred
Security.
A Depository Institution holds securities that its participants
("Participants") deposit with the Depository Institution. A Depository
Institution also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations ("Direct Participants").
A Depository Institution is owned by a number of its Direct Participants and by
the NYSE, the American Stock Exchange, Inc., and the National Association of
Securities Dealers, Inc. Access to the Depository Institution's system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The rules
applicable to a Depository Institution and its Participants are on file with the
Commission.
Upon issuance of a Preferred Securities Global Certificate, the Depository
Institution will credit on its book-entry registration and transfer system the
number of Preferred Securities represented by such Preferred Securities Global
Certificate to the accounts of institutions that have accounts with the
Depository Institution. Ownership of beneficial interests in a Preferred
Securities Global Certificate will be limited to Participants or persons that
may hold interests through Participants. The ownership interest of each actual
purchaser of each Preferred Security ("Beneficial Owner") is in turn to be
recorded on the Direct and Indirect Participants' records. Beneficial Owners
will not receive written confirmation from the Depository Institution of their
purchases, but Beneficial Owners are expected to receive written confirmations
providing details of the transactions, as well as periodic statements of their
holdings, from the Direct or Indirect Participants through which the Beneficial
Owners purchased Preferred Securities. Transfers of ownership interests in the
Preferred Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners.
A Depository Institution has no knowledge of the actual Beneficial Owners
of the Preferred Securities; a Depository Institution's records reflect only the
identity of the Direct Participants to whose accounts such Preferred Securities
are credited, which may or may not be the Beneficial Owners. The Participants
will remain responsible for keeping account of their holdings on behalf of their
customers. So long as a Depository Institution, or its nominee, is the owner of
a Preferred Securities Global Certificate, a Depository Institution or such
nominee, as the case may be, will be considered the sole owner and holder of
record of the Preferred Securities represented by such Preferred Securities
Global Certificate for all purposes.
Conveyance of notices and other communications by a Depository Institution
to Direct Participants, by Direct Participants to Indirect Participants, and by
Direct Participants and Indirect Participants to Beneficial Owners will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
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Redemption notices shall be sent to the Depository Institution. If less
than all of the Preferred Securities are being redeemed, the Depository
Institution will reduce pro rata (subject to adjustment to eliminate fractional
Preferred Securities) the amount of interest of each Direct Participant in the
Preferred Securities to be redeemed.
Although voting with respect to the Preferred Securities is limited, in
those instances in which a vote is required, the Depository Institution will not
consent or vote with respect to Preferred Securities. Under its usual
procedures, the Depository Institution would mail an Omnibus Proxy to the Trust
as soon as possible after the record date. The Omnibus Proxy assigns the
Depository Institution's consenting or voting rights to those Direct
Participants to whose accounts the Preferred Securities are credited on the
record date (identified in a listing attached to the Omnibus Proxy).
Distribution payments on the Preferred Securities represented by a
Preferred Series Global Certificate will be made by the Trust to the Depository
Institution. The Depository Institution's practice is to credit Direct
Participants' accounts on the relevant payment date in accordance with their
respective holdings shown on a Depository Institution's records unless the
Depository Institution has reason to believe that it will not receive payments
on such payment date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices and will be the
responsibility of such Participants and not of a Depository Institution, the
Trust or UAL, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of distributions to a Depository Institution
is the responsibility of the Trust, disbursement of such payments to Direct
Participants is the responsibility of the Depository Institution, and
disbursement of such payments to the Beneficial Owners is the responsibility of
Direct and Indirect Participants.
A Depository Institution may discontinue providing its services as
securities depository with respect to the Preferred Securities at any time by
giving reasonable notice to the Trust. Under such circumstances, if a successor
securities depository is not obtained, Preferred Security certificates will be
required to be printed and delivered. Additionally, the Trust may decide to
discontinue use of the system of book-entry transfers through the Depository
Institution (or a successor depository). In that event, certificates for the
Preferred Securities will be printed and delivered.
The information in this section concerning the Depository Institution and
the Depository Institution's book-entry system has been obtained from sources
that the Trust and UAL believe to be reliable, but the Trust and UAL take no
responsibility for the accuracy thereof.
REGISTRAR, TRANSFER AGENT AND PAYING AGENT
The First National Bank of Chicago or one of its affiliates will act as
registrar and transfer agent for the Preferred Securities. The First National
Bank of Chicago will also act as paying agent and, with the consent of the
Regular Trustees, may designate additional paying agents.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of the Trust, but upon payment (with the giving of such
indemnity as the Trust or UAL may require) in respect of any tax or other
governmental charges that may be imposed in relation to it.
The Trust will not be required to register or cause to be registered the
transfer of Preferred Securities after such Preferred Securities have been
called for redemption.
INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
The Institutional Trustee, prior to a default with respect to the Trust
Securities, undertakes to perform only such duties as are specifically set forth
in the Declaration and, after default, shall exercise the same degree of care as
a prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provision, the Institutional Trustee is under no obligation to
exercise any of the powers vested in it by the Declaration at the request of any
holder of Preferred Securities, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities which might be incurred
thereby. The Institutional Trustee is not required to expend or risk its own
funds or otherwise incur personal financial liability in the performance of
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its duties if the Institutional Trustee reasonably believes that repayment or
adequate indemnity is not reasonably assured to it.
UAL and certain of its affiliates maintain deposit accounts and banking
relationships with the Institutional Trustee.
GOVERNING LAW
The Declaration and the Preferred Securities will be governed by, and
construed in accordance with, the laws of the State of Delaware.
MISCELLANEOUS
The Preferred Securities have been approved for listing on the NYSE subject
to official notice of issuance. The Regular Trustees are authorized and directed
to take such action as they deem reasonable in order that the Trust will not be
deemed to be an "investment company" required to be registered under the 1940
Act or that the Trust will not be classified for United States federal income
tax purposes as an association taxable as a corporation or a partnership and
will be treated as a grantor trust for United States federal income tax
purposes. In this connection, the Regular Trustees are authorized to take any
action, not inconsistent with applicable law, the certificate of trust or the
Declaration, that the Regular Trustees determine in their discretion to be
reasonable and necessary or desirable for such purposes, as long as such action
does not adversely affect the interests of holders of the Trust Securities.
UAL and the Regular Trustees on behalf of the Trust will be required to
provide to the Institutional Trustee annually a certificate as to whether or not
UAL and the Trust, respectively, are in compliance with all the conditions and
covenants under the Declaration.
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DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEE
Set forth below is a summary of information concerning the Preferred
Securities Guarantee that will be executed and delivered by UAL for the benefit
of the holders from time to time of Preferred Securities. The Preferred
Securities Guarantee is separately qualified under the Trust Indenture Act and
will be held by The First National Bank of Chicago acting in its capacity as
indenture trustee with respect thereto, for the benefit of the holders of the
Preferred Securities. The terms of the Preferred Securities Guarantee include
those stated in such Guarantee and those made part of the Preferred Securities
Guarantee by the Trust Indenture Act. The summary set forth below is a
description of the material terms of the Preferred Securities Guarantee, which
is filed as an exhibit to the Registration Statement of which this Prospectus
forms a part, and is subject to the Trust Indenture Act.
GENERAL
Pursuant to the Preferred Securities Guarantee, UAL will agree, to the
extent set forth therein, to pay in full to the holders of the Preferred
Securities, the Guarantee Payments (as defined below), to the extent not paid by
the Trust, regardless of any defense, right of set-off or counterclaim that the
Trust may have or assert. The following payments or distributions with respect
to the Preferred Securities to the extent not paid or made by the Trust (the
"Guarantee Payments") will be subject to the Guarantee (without duplication):
(i) any accrued and unpaid distributions on the Preferred Securities and the
redemption price, including all accrued and unpaid distributions to the date of
the redemption, with respect to the Preferred Securities called for redemption
by the Trust but only if and to the extent that in each case UAL has made a
payment to the Institutional Trustee of interest or principal on the Junior
Subordinated Debentures and (ii) upon a voluntary or involuntary dissolution,
winding-up or termination of the Trust (other than in connection with the
distribution of Junior Subordinated Debentures to holders of Trust Securities or
the redemption of all of the Preferred Securities upon the maturity or
redemption of the Junior Subordinated Debentures) the lesser of (a) the
aggregate of the liquidation amount and all accrued and unpaid distributions on
the Preferred Securities to the date of payment, to the extent the Trust has
funds available therefor, and (b) the amount of assets of the Trust remaining
available for distribution to holders of Preferred Securities in liquidation of
the Trust. UAL's obligation to make a Guarantee Payment may be satisfied by
direct payment of the required amounts by UAL to the holders of Preferred
Securities or by paying the required amount to the Trust and causing the Trust
to pay such amounts to such holders. The Preferred Securities Guarantee, when
taken together with UAL's obligations under the Junior Subordinated Debentures
and the Indenture and its obligations under the Declaration, including its
obligation to pay costs, expenses and certain liabilities of the Trust,
constitutes a full and unconditional guarantee of amounts due on the Preferred
Securities.
CERTAIN COVENANTS OF UAL
In the Preferred Securities Guarantee, UAL will covenant that, so long as
any Preferred Securities remain outstanding, UAL will not declare or pay any
dividends on, or redeem, purchase, acquire or make a distribution or liquidation
payment with respect to, any of its common stock or preferred stock or any other
securities similar to the Preferred Securities or the Junior Subordinated
Debentures or make any guarantee payment with respect thereto if at such time
(i) UAL shall be in default with respect to its Guarantee Payments or other
payment obligations under the Preferred Securities Guarantee, (ii) there shall
have occurred and be continuing any event of default under the Indenture or
(iii) UAL shall have given notice of its selection of an Extension Period as
provided in the Indenture and such period, or any extension thereof, is
continuing. In addition, so long as any Preferred Securities remain outstanding,
UAL has agreed (i) to remain the sole direct or indirect owner of all of the
outstanding Common Securities and shall not cause or permit the Common
Securities to be transferred except to the extent permitted by the Declaration,
provided that any permitted successor of UAL under the Indenture may succeed to
UAL's ownership of the Common Securities, and (ii) that it will not take any
action which will cause the Trust to cease to be treated as a grantor trust for
United States federal income tax purposes except in connection with a
distribution of Junior Subordinated Debentures.
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AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of Preferred Securities (in which case no consent will be required),
the Preferred Securities Guarantee may be amended only with the prior approval
of the holders of not less than a majority in liquidation amount of the
outstanding Preferred Securities. The manner of obtaining any such approval of
holders of the Preferred Securities will be as set forth under "Description of
the Preferred Securities -- Voting Rights." All guarantees and agreements
contained in the Preferred Securities Guarantee shall bind the successors,
assigns, receivers, trustees and representatives of UAL and shall inure to the
benefit of the holders of the Preferred Securities then outstanding. Except in
connection with a consolidation, merger or sale involving UAL that is permitted
under the Indenture, UAL may not assign its obligations under the Preferred
Securities Guarantee.
TERMINATION OF THE PREFERRED SECURITIES GUARANTEE
The Preferred Securities Guarantee will terminate and be of no further
force and effect as to the Preferred Securities upon full payment of the
Redemption Price of all Preferred Securities, or upon distribution of the Junior
Subordinated Debentures to the holders of Preferred Securities in exchange for
all of the Preferred Securities, or upon full payment of the amounts payable
upon liquidation of the Trust. Notwithstanding the foregoing, the Preferred
Securities Guarantee will continue to be effective or will be reinstated, as the
case may be, if at any time any holder of Preferred Securities must restore
payment of any sums paid with respect to the Preferred Securities or the
Preferred Securities Guarantee.
STATUS OF THE PREFERRED SECURITIES GUARANTEE
UAL's obligations under the Preferred Securities Guarantee to make the
Guarantee Payments will constitute an unsecured obligation of UAL and will rank
(i) subordinate and junior in right of payment to all other liabilities of UAL,
except obligations and securities made pari passu or subordinate by their terms,
and (ii) senior to all capital stock now or hereafter issued by UAL, including
the Depositary Shares, and to any guarantee now or hereafter entered into by UAL
in respect of any of its capital stock. The Declaration provides that each
holder of Preferred Securities by acceptance thereof agrees to the subordination
provisions and other terms of the Preferred Securities Guarantee.
The Preferred Securities Guarantee will constitute a guarantee of payment
and not of collection; thus, any holder of Preferred Securities may institute a
legal proceeding directly against UAL to enforce such holder's rights under the
Preferred Securities Guarantee, without first instituting a legal proceeding
against the Trust or any other person or entity. The Preferred Securities
Guarantee will be deposited with the Institutional Trustee, as Guarantee
Trustee, to be held in trust for the benefit of the holders of the Preferred
Securities. The Institutional Trustee shall enforce the Preferred Securities
Guarantee on behalf of the holders of the Preferred Securities although any
holder of a Preferred Security may bring a direct action against UAL to enforce
the Guarantee without prior notice to the Institutional Trustee. The holders of
not less than a majority in aggregate liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available in respect of the Preferred Securities
Guarantee, including the giving of directions to the Institutional Trustee.
UAL and certain of its affiliates maintain deposit accounts and banking
relationships with the Institutional Trustee.
GOVERNING LAW
The Preferred Securities Guarantee will be governed by and construed in
accordance with the laws of the State of New York.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
Set forth below is a description of the Junior Subordinated Debentures
which will be deposited in the Trust as trust assets. The terms of the Junior
Subordinated Debentures include those stated in the Indenture
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to be dated as of December 20, 1996, as supplemented by the officer's
certificate pursuant to board resolutions setting forth certain terms of the
Junior Subordinated Debentures (as so supplemented, the "Indenture") between UAL
and The First National Bank of Chicago, as trustee (the "Indenture Trustee"),
the form of which has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part, and those made part of the Indenture by the
Trust Indenture Act. The following description sets forth the material terms and
is qualified in its entirety by reference to the Trust Indenture Act. Whenever
particular provisions or defined terms in the Indenture are referred to herein,
such provisions or defined terms are incorporated by reference herein.
The Indenture provides for the issuance of debentures (including the Junior
Subordinated Debentures), notes or other evidences of indebtedness by UAL in an
unlimited amount from time to time. The Junior Subordinated Debentures
constitute a separate series under the Indenture.
Under certain circumstances involving the dissolution of the Trust
following the occurrence of a Special Event, Junior Subordinated Debentures may
be distributed to the holders of the Trust Securities in liquidation of the
Trust. See "Description of the Preferred Securities -- Special Event Redemption
or Distribution."
GENERAL
The Junior Subordinated Debentures are unsecured, subordinated obligations
of UAL, limited in aggregate principal amount to (i) the aggregate liquidation
preference of the Preferred Securities issued by the Trust in the Offer and (ii)
the proceeds received by the Trust upon issuance of the Common Securities to UAL
(which proceeds will be used to purchase an equal principal amount of Junior
Subordinated Debentures).
The Junior Subordinated Debentures mature on December 15, 2026. The Junior
Subordinated Debentures are not subject to any sinking fund.
If Junior Subordinated Debentures are distributed to holders of Trust
Securities in dissolution of the Trust, such Junior Subordinated Debentures will
be so issued in fully registered certificated form in denominations of $25 and
integral multiples thereof and may be transferred or exchanged at the offices
described below.
Payments of principal and interest on Junior Subordinated Debentures will
be payable, the transfer of the Junior Subordinated Debentures will be
registrable, and Junior Subordinated Debentures will be exchangeable for Junior
Subordinated Debentures of other denominations of a like aggregate principal
amount, at the corporate trust office of the Indenture Trustee in The City of
New York; provided that payments of interest may be made at the option of UAL by
check mailed to the address of the persons entitled thereto and that the payment
of principal with respect to any Junior Subordinated Debenture will be made only
upon surrender of such Junior Subordinated Debenture to the Indenture Trustee.
If the Junior Subordinated Debentures are distributed to the holders of
Trust Securities upon the dissolution of the Trust, UAL will use its best
efforts to list the Junior Subordinated Debentures on the NYSE or on such other
exchange on which the Preferred Securities are then listed.
The Indenture contains no provisions which would afford the holders of
Junior Subordinated Debentures protection in the event of a highly leveraged
transaction involving UAL or a change of control of UAL.
OPTIONAL REDEMPTION
Except as provided below, the Junior Subordinated Debentures may not be
redeemed prior to July 12, 2004. UAL shall have the right to redeem the Junior
Subordinated Debentures, in whole or in part, from time to time, on or after
July 12, 2004, upon not less than 10 nor more than 60 days' notice, at a
redemption price equal to 100% of the principal amount to be redeemed, plus any
accrued and unpaid interest to the redemption date, including interest accrued
during an Extension Period. UAL will also have the right to redeem the Junior
Subordinated Debentures at any time upon the occurrence of a Tax Event if
certain conditions are met as described under "Description of the Preferred
Securities -- Special Event Redemption or Distribution."
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If UAL gives a notice of redemption in respect of Junior Subordinated
Debentures (which notice will be irrevocable) then, on or before the redemption
date, UAL will deposit irrevocably with the Indenture Trustee funds sufficient
to pay the applicable redemption price and will give irrevocable instructions
and authority to pay such redemption price to the holders of the Junior
Subordinated Debentures. If notice of redemption shall have been given and funds
deposited as required, then, upon the date of such deposit, interest will cease
to accrue on the Junior Subordinated Debentures called for redemption, such
Junior Subordinated Debentures will no longer be deemed to be outstanding and
all rights of holders of such Junior Subordinated Debentures so called for
redemption will cease, except the right of the holders of such Junior
Subordinated Debentures to receive the applicable redemption price, but without
interest on such redemption price. If any date fixed for redemption of Junior
Subordinated Debentures is not a Business Day, then payment of the redemption
price payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay) except that, if such Business Day falls in the next calendar year, such
payment will be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on such date fixed for redemption. If
payment of the redemption price in respect of Junior Subordinated Debentures is
improperly withheld or refused and not paid by UAL, interest on such Junior
Subordinated Debentures will continue to accrue compounded quarterly, from the
original redemption date to the date of payment, in which case the actual
payment date will be considered the date fixed for redemption for purposes of
calculating the applicable redemption price. If fewer than all of the Junior
Subordinated Debentures are to be redeemed, the Junior Subordinated Debentures
to be redeemed shall be selected by lot or pro rata or in some other equitable
manner determined by the Indenture Trustee.
UAL shall not be required to (i) issue or register the transfer of or
exchange of any Junior Subordinated Debentures during a period beginning at the
opening of business 15 days before the mailing of a notice of redemption of
Junior Subordinated Debentures and ending at the close of business on the day of
the mailing of the relevant notice of redemption or (ii) register the transfer
of or exchange of any Junior Subordinated Debentures so selected for redemption,
in whole or in part, except the unredeemed portion of any Junior Subordinated
Debentures being redeemed in part.
PROPOSED TAX LEGISLATION
Certain tax law changes have been proposed that may, if enacted, deny
corporate issuers a deduction for interest in respect of certain debt
obligations, such as the Junior Subordinated Debentures. See "Taxation --
Proposed Tax Legislation."
INTEREST
The Junior Subordinated Debentures will bear interest at an annual rate of
13 1/4% from the Accrual Date. In addition, holders of the Junior Subordinated
Debentures will be entitled to Pre-Issuance Accrued Distribution at the rate of
12 1/4% per annum of the principal amount thereof from November 1, 1996 through
the Expiration Date, payable on December 31, 1996 to holders of the Preferred
Securities on the record date for such distribution. Interest will be payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year (each, an "Interest Payment Date"), commencing on December 31, 1996, and at
final maturity to the person in whose name such Junior Subordinated Debenture is
registered, subject to certain exceptions, at the close of business on the
fifteenth day next preceding such Interest Payment Date, except that the record
date for the payment to be made on December 31, 1996 shall be the date of
exchange of the Preferred Securities for the Depository Shares. Interest payable
on any Junior Subordinated Debenture that is not punctually paid or duly
provided for on any Interest Payment Date will forthwith cease to be payable to
the person in whose name such Junior Subordinated Debenture is registered on the
relevant record date, and such defaulted interest will instead be payable to the
person in whose name such Junior Subordinated Debenture is registered on the
special record date or other specified date determined in accordance with the
Indenture; provided, however, that interest shall not be considered payable by
UAL on any Interest Payment Date falling within an Extension Period unless UAL
has elected to make a full or partial payment of interest accrued on the Junior
Subordinated Debentures on such Interest Payment Date.
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The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months and, for any period shorter than a
full quarterly period for which interest is computed, the amount of interest
payable will be computed on the basis of the actual number of days elapsed in
such a 30-day month. If any Interest Payment Date is not a Business Day, then
payment of the interest payable on such date will be made on the next succeeding
day that is a Business Day (and without any interest or other payment in respect
of any such delay), except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on such date.
ADDITIONAL INTEREST
If the Trust would be required to pay any taxes, duties, assessments or
governmental charges of whatever nature (other than withholding taxes) imposed
by the United States, or any other taxing authority, then, in any such case, UAL
will pay as additional interest ("Additional Interest") such amounts as shall be
required so that the net amounts received and retained by the Trust after paying
any such taxes, duties, assessments or governmental charges will be not less
than the amounts the Trust would have received had no such taxes, duties,
assessments or governmental charges been imposed.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as UAL shall not be in default in the payment of interest on the
Junior Subordinated Debentures, UAL shall have the right to extend the interest
payment period from time to time for a period not exceeding 20 consecutive
quarterly interest periods. UAL has no current intention of exercising its right
to extend an interest payment period. No extension of interest will be permitted
with respect to interest accruing from November 1, 1996 through the Expiration
Date. No interest shall be due and payable during an Extension Period. During
any Extension Period, UAL shall not declare or pay any dividends on, or redeem,
purchase, acquire or make a distribution or liquidation payment with respect to,
any of its common stock or preferred stock or any other securities similar to
the Preferred Securities or the Junior Subordinated Debentures or make any
guarantee payments with respect thereto, provided, however, that UAL may pay
cash in lieu of fractional shares upon the conversion of any of its preferred
stock in accordance with the terms of such stock. Any Extension Period with
respect to payment of interest on the Junior Subordinated Debentures will also
apply to distributions with respect to the Preferred Securities and all other
securities with similar terms. Prior to the termination of any such Extension
Period, UAL may further extend the interest payment period; provided that such
Extension Period together with all such previous and further extensions thereof
may not exceed 20 consecutive quarterly interest periods. On the next Interest
Payment Date occurring after the end of each Extension Period, UAL shall pay to
the holders of Junior Subordinated Debentures of record on the record date for
such Interest Payment Date (regardless of who the holders of record may have
been on other dates during the Extension Period) all accrued and unpaid interest
on the Junior Subordinated Debentures, together with interest thereon at the
rate specified for the Junior Subordinated Debentures. Upon the termination of
any Extension Period and the payment of all amounts then due, UAL may commence a
new Extension Period, subject to the above requirements. UAL may also pay on any
Interest Payment Date during an Extension Period all or any portion of the
interest accrued during an Extension Period. Consequently, there could be
multiple Extension Periods of varying lengths (up to six Extension Periods of 20
consecutive quarterly interest periods each or more numerous shorter Extension
Periods) throughout the term of the Junior Subordinated Debentures provided that
no Extension Period may extend beyond the maturity of the Junior Subordinated
Debentures. The failure by UAL to make interest payments during an Extension
Period would not constitute a default or an event of default under the Indenture
or UAL's currently outstanding indebtedness.
If the Trust shall be the sole holder of the Junior Subordinated
Debentures, UAL shall give the Institutional Trustee and the Indenture Trustee
notice of its selection of such Extension Period ten Business Days prior to the
earlier of (i) the date the distributions on the Preferred Securities are
payable or (ii) the date the Trust is required to give notice to the NYSE or
other applicable self-regulatory organization or to holders of the Preferred
Securities of the record date or the date such distribution is payable, but in
any event
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not less than one Business Day prior to such record date. The Trust shall give
notice of UAL's selection of such Extension Period to the holders of the
Preferred Securities.
If Junior Subordinated Debentures have been distributed to holders of Trust
Securities, UAL shall give the holders of the Junior Subordinated Debentures and
the Indenture Trustee notice of its selection of such Extension Period ten
Business Days prior to the earlier of (i) the next succeeding Interest Payment
Date or (ii) the date UAL is required to give notice to the NYSE (if the Junior
Subordinated Debentures are then listed thereon) or other applicable
self-regulatory organization or to holders of the Junior Subordinated Debentures
of the record or payment date of such related interest payment.
CERTAIN COVENANTS OF UAL APPLICABLE TO THE JUNIOR SUBORDINATED DEBENTURES
In the Indenture, UAL will covenant that, so long as any Preferred
Securities remain outstanding, UAL will not declare or pay any dividends on, or
redeem, purchase, acquire or make a distribution or liquidation payment with
respect to, any of its common stock or preferred stock or any other securities
similar to the Preferred Securities or the Junior Subordinated Debentures or
make any guarantee payment with respect thereto if at such time (i) UAL shall be
in default with respect to its Guarantee Payments or other payment obligations
under the Preferred Securities Guarantee, (ii) there shall have occurred any
Indenture Event of Default with respect to the Junior Subordinated Debentures or
(iii) UAL shall have given notice of its selection of an Extension Period as
provided in the Indenture and such period, or any extension thereof, is
continuing. In addition, so long as the Preferred Securities remain outstanding,
UAL has agreed (i) not to cause or permit the Common Securities to be
transferred except to the extent permitted by the Declaration, provided that any
permitted successor of UAL under the Indenture may succeed to UAL's ownership of
the Common Securities, (ii) to comply fully with all of its obligations and
agreements contained in the Declaration and (iii) not to take any action which
would cause the Trust to cease to be treated as a grantor trust for United
States federal income tax purposes except in connection with a distribution of
Junior Subordinated Debentures.
SUBORDINATION
The payment of the principal of and interest on the Junior Subordinated
Debentures will be subordinated to the extent set forth in the Indenture to the
prior payment in full of amounts then due on all Senior Indebtedness (as defined
below). Upon the maturity of any Senior Indebtedness of UAL by lapse of time,
acceleration or otherwise, all obligations with respect thereto shall first be
paid in full, or such payment duly provided for in cash or in a manner
satisfactory to the holders of such Senior Indebtedness, before any payment is
made on account of the principal of or interest on the Junior Subordinated
Debentures or to redeem, retire, purchase, deposit moneys for the defeasance of
or acquire any of the Junior Subordinated Debentures. Upon the happening of (i)
any default in payment of any Senior Indebtedness of UAL or (ii) any other
default on Senior Indebtedness of UAL and the maturity of such Senior
Indebtedness is accelerated in accordance with its terms, then, unless (w) such
default relates to Senior Indebtedness of UAL in an aggregate amount equal to or
less than $20 million, (x) such default shall have been cured or waived or shall
have ceased to exist, (y) any such acceleration has been rescinded, or (z) such
Senior Indebtedness has been paid in full, no direct or indirect payment in
cash, property or securities, by set-off or otherwise (except payment of the
Junior Subordinated Debentures from funds previously deposited in accordance
with the Indenture at any time such deposit was not prohibited by this
Indenture), shall be made or agreed to be made by UAL on account of the
principal of or interest on the Junior Subordinated Debentures, or in respect of
any redemption, retirement, purchase, deposit of moneys for the defeasance or
other acquisition of any of the Junior Subordinated Debentures. In the case of
such a default in Senior Indebtedness of UAL, UAL shall not deposit money for
any such payment or distribution with the Trustee or any paying agent nor shall
UAL (if UAL is acting as its own paying agent) segregate and hold in trust money
for any such payment or distribution. Upon the happening of an event of default
(other than under circumstances set forth above) with respect to any Senior
Indebtedness of UAL pursuant to which the holders thereof are entitled under the
terms of such Senior Indebtedness to immediately accelerate the maturity thereof
(without further notice or expiration of any applicable grace periods), upon
written notice thereof given to each of UAL and the Trustee
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by the trustee for or other representative of the holders of at least $25
million of Senior Indebtedness of UAL (a "Payment Notice"), then, unless and
until such event of default shall have been cured or waived or shall have ceased
to exist, no direct or indirect payment in cash, property or securities, by
set-off or otherwise (except payment of the Junior Subordinated Debentures from
funds previously deposited in accordance with the Indenture at any time such
deposit was not prohibited by this Indenture), shall be made or agreed to be
made by UAL on account of the principal of or interest on the Junior
Subordinated Debentures, or in respect of any redemption, retirement, purchase,
deposit of moneys for the defeasance or other acquisition of any of the Junior
Subordinated Debentures, and UAL shall not deposit money for any such payment or
distribution with the Trustee or any paying agent nor shall UAL or a Subsidiary
(if UAL or such Subsidiary is acting as paying agent) segregate and hold in
trust money for any such payment or distribution (a "Payment Block"); provided,
however, that this provision shall not prevent the making of any payment for
more than 120 days after a Payment Notice shall have been given unless the
Senior Indebtedness in respect of which such event of default exists has been
declared due and payable in its entirety, in which case no such payment shall be
made until such acceleration has been rescinded or annulled or such Senior
Indebtedness has been paid in full in accordance with its terms. Notwithstanding
the foregoing, (i) not more than one Payment Notice shall be given with respect
to a particular event of default (which shall not bar subsequent Payment Notices
for other such events of default), (ii) all events of default under Senior
Indebtedness occurring within any 30-day period shall be treated as one event of
default to the extent that one or more Payment Notices are issued in connection
therewith and (iii) no more than two Payment Blocks shall be permitted within
any period of 12 consecutive months. Any payment made in contravention of these
provisions shall be returned to the Company. Upon any payment or distribution of
assets of UAL of any kind or character, whether in cash, property or securities
(other than securities of UAL or any other corporation provided for by a plan of
reorganization or readjustment the payment of which is subordinated, at least to
the same extent as the Junior Subordinated Debentures, to the payment of all
Senior Indebtedness at the time outstanding and to any securities issued in
respect thereof under such plan of reorganization or readjustment) to creditors
upon any dissolution or winding up or total or partial liquidation or
reorganization of UAL, whether voluntary or involuntary or in bankruptcy,
insolvency, receivership or other proceedings, all amounts due upon all Senior
Indebtedness shall first be paid in full, or payment thereof provided for in
money or money's worth, before the holders of the Junior Subordinated Debentures
or the Trustee shall be entitled to retain any assets so paid or distributed
(other than the securities described in the first parenthetical of this
sentence) in respect of the Junior Subordinated Debentures (for principal or
interest) or of the Indenture.
The term "Senior Indebtedness" means, with respect to UAL, all Indebtedness
of UAL (other than indebtedness issued pursuant to the Indenture, including the
Junior Subordinated Debentures), unless such Indebtedness, by its terms or the
terms of the instrument creating or evidencing it, is subordinate in right of
payment to or pari passu with the Junior Subordinated Debentures, and, in
particular, the securities issued pursuant to the Indenture, including the
Junior Subordinated Debentures, shall rank pari passu with all other debt
securities and guarantees in respect of those debt securities issued to any
other UAL Corporation Capital Trust or any indebtedness of the Company to a
Subsidiary.
"Indebtedness" of UAL means, without duplication, the principal of, and
premium, if any, and accrued and unpaid interest (including post-petition
interest) on any obligation, whether outstanding on the date hereof or
thereafter created, incurred or assumed, which is (i) indebtedness for money
borrowed, (ii) Indebtedness Guarantees of UAL for indebtedness for money
borrowed by any other person, (iii) indebtedness evidenced by notes, debentures,
bonds or other instruments of indebtedness for payment of which UAL is
responsible or liable, (iv) obligations for the reimbursement of any obligor on
any letter of credit, bankers' acceptance or similar credit transaction, (v)
obligations of UAL under Capital Leases and Flight Equipment leases (the amount
of UAL's obligation under such Flight Equipment leases to be computed in
accordance with Statement of Financial Accounting Standards No. 13 as if such
Flight Equipment leases were Capital Leases), (vi) obligations (net of
counterparty payments) under interest rate and currency swaps, caps, collars,
options, forward or spot contracts or similar arrangements or with respect to
foreign currency hedges, and (vii) commitment and other bank financing fees
under contractual obligations associated with bank debt; provided, however, that
Indebtedness shall not include amounts owed to trade creditors in the ordinary
course of business.
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"Flight Equipment" means (a) aircraft of all types and classes used in
transportation and incidental services, together with all aircraft instruments,
appurtenances, parts and fixtures comprising such aircraft; (b) aircraft engines
of all types and classes used in transportation and incidental services,
together with all accessories, appurtenances, parts and fixtures comprising such
aircraft engines; (c) aircraft communication equipment of all types and classes
used in transportation and incidental services, including radio, radar,
radiophone and other aircraft communication apparatus, together with all
accessories, appurtenances, parts and fixtures comprising such aircraft
communication equipment; (d) miscellaneous flight equipment of all types and
classes (including miscellaneous crew flight equipment) used in transportation
and incidental services; and (e) spare parts, accessories and assemblies held
for use in or repair of the items described in (a) through (d).
"Capital Lease" means any lease obligation of a person incurred with
respect to real property or equipment acquired or leased by such person and used
in its business that is required to be recorded on its balance sheet as a
capitalized lease in accordance with generally accepted accounting principles
consistently applied as in effect on the date hereof.
"Indebtedness Guarantee" by any person means any obligation, contingent or
otherwise, of such person directly or indirectly guaranteeing any Indebtedness
or other obligation of any other person and, without limiting the generality of
the foregoing, any obligation, direct or indirect, contingent or otherwise, of
such person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation (whether arising by virtue
of partnership arrangements, by agreement to keep well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for the purpose of
assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment or performance thereof (or payment of damages in the
event of nonperformance) or to protect such obligee against loss in respect
thereof (in whole or in part); provided, however, that the term Indebtedness
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business.
By reason of the subordination described herein, in the event of the
distribution of assets upon insolvency, creditors of UAL who are not holders of
Senior Indebtedness or of the Junior Subordinated Debentures may recover less,
ratably, than holders of Senior Indebtedness, and may recover more, ratably,
than holders of the Junior Subordinated Debentures.
Because UAL is a holding company that conducts business through its
subsidiaries, the Junior Subordinated Debentures are effectively subordinated to
all existing and future obligations of UAL's subsidiaries, including United. Any
right of UAL to participate in any distribution of the assets of any of UAL's
subsidiaries, including United, upon the liquidation, reorganization or
insolvency of such subsidiary (and the consequent right of the holders of the
Junior Subordinated Debentures to participate in those assets) will be subject
to the claims of the creditors (including trade creditors) and preferred
stockholders of such subsidiary, except to the extent that claims of UAL itself
as a creditor of such subsidiary may be recognized, in which case the claims of
UAL would still be subordinate to any security interest in the assets of such
subsidiary and any indebtedness of such subsidiary senior to that held by UAL.
The Indenture does not limit the aggregate amount of indebtedness,
including Senior Indebtedness, that may be issued. As of September 30, 1996,
Senior Indebtedness of UAL (on a consolidated basis) aggregated approximately
$13.1 billion and there was no indebtedness outstanding that would rank pari
passu with the Junior Subordinated Debentures. The calculation of the amount of
Senior Indebtedness assumes that UAL is primarily obligated for the present
value of future minimum lease payments under operating leases guaranteed by UAL
but does not include other contingent obligations such as stipulated loss values
or liquidated damages which may be payable under such operating leases. See
"Description of the Preferred Securities Guarantee -- Status of the Preferred
Securities Guarantee."
RESTRICTIONS ON MERGERS AND SALES OF ASSETS
The Indenture provides that UAL may merge or consolidate with or into any
other corporation or sell, convey, transfer or otherwise dispose of all or
substantially all of its assets to any person, firm or corporation, if
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(i) (a) in the case of a merger or consolidation, UAL is the surviving
corporation or (b) in the case of a merger or consolidation where UAL is not the
surviving corporation and in the case of a sale, conveyance, transfer or other
disposition, the successor corporation is a corporation organized and existing
under the laws of the United States of America or a State thereof and such
corporation expressly assumes by supplemental indenture all the obligations of
UAL under the Junior Subordinated Debentures and under the Indenture, (ii)
immediately after giving effect to such merger or consolidation, or such sale,
conveyance, transfer or other disposition, no Default or Event of Default (as
defined below) shall have occurred and be continuing and (iii) certain other
conditions are met. In the event a successor corporation assumes the obligations
of UAL, such successor corporation shall succeed to and be substituted for UAL
under the Indenture and under the Junior Subordinated Debentures and all
obligations of UAL thereunder shall terminate.
EVENTS OF DEFAULT AND NOTICE THEREOF
The Indenture provides that, if an Event of Default specified therein shall
have occurred and be continuing, either the Trustee or the holders of 25% in
aggregate principal amount of the Junior Subordinated Debentures then
outstanding may, by written notice to UAL (and to the Trustee, if notice is
given by such holders of Junior Subordinated Debentures), declare the principal
of all the Junior Subordinated Debentures to be due and payable. However, at any
time after a declaration of acceleration with respect to the Junior Subordinated
Debentures has been made, but before a judgment or decree based on such
acceleration has been obtained, the holders of a majority in aggregate principal
amount of the Junior Subordinated Debentures then outstanding may, under certain
circumstances, rescind and annul such acceleration.
Events of Default are defined in the Indenture as being: default for thirty
days in payment of any interest installment when due; default for ten days in
payment of principal at maturity or on redemption or otherwise, on the Junior
Subordinated Debentures when due; default for sixty days after notice to UAL by
the Trustee, or to UAL and the Trustee by the holders of at least 25% in
aggregate principal amount of the Junior Subordinated Debentures then
outstanding, in the performance of any other covenant or warranty in the
Indenture; and certain events of bankruptcy, insolvency or reorganization of
UAL.
The Indenture provides that the Trustee shall, within ninety days after the
occurrence of a Default with respect to the Junior Subordinated Debentures, give
to the holders of the Junior Subordinated Debentures notice of all uncured
Defaults known to it; provided that, except in the case of default in payment on
the Junior Subordinated Debentures the Trustee may withhold the notice if and so
long as a Responsible Officer (as defined in the Indenture) in good faith
determines that withholding such notice is in the interests of the holders.
"Default" means any event which is, or after notice or passage of time or both,
would be, an Event of Default.
The Indenture provides that the holders of a majority in aggregate
principal amount of the Junior Subordinated Debentures then outstanding may
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee, provided that such direction shall not be in conflict with any law or
the Indenture and subject to certain other limitations. The right of any holder
of Junior Subordinated Debentures to institute action for any remedy under the
Indenture (except the right to enforce payment of the principal of and interest
on its Junior Subordinated Debentures when due) is subject to certain conditions
precedent, including a request to the Trustee by the holders of not less than
25% in aggregate principal amount of Junior Subordinated Debentures then
outstanding to take action, and an offer to the Trustee of satisfactory
indemnification against liabilities incurred by it in so doing.
The Indenture includes a covenant that UAL will file annually with the
Trustee a certificate as to UAL's compliance with all conditions and covenants
of the Indenture.
The holders of a majority in aggregate principal amount of the Junior
Subordinated Debentures then outstanding by notice to the Trustee may waive, on
behalf of the holders of all the Junior Subordinated Debentures, any past
Default or Event of Default and its consequences except a Default or Event of
Default in the payment of the principal of or interest on any of the Junior
Subordinated Debentures and certain other defaults.
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If a bankruptcy proceeding is commenced in respect of UAL under the Federal
Bankruptcy Code or if the principal amount of the Junior Subordinated Debentures
is accelerated upon the occurrence of an event of default, the holders of the
Junior Subordinated Debentures may be unable to recover amounts representing the
unamortized portion of any original issue discount at the time such proceeding
is commenced or such acceleration occurs.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides with respect to the Junior Subordinated Debentures
that UAL may elect either (a) to defease and be discharged from any and all
obligations with respect to the Junior Subordinated Debentures (except for the
obligations to register the transfer or exchange of the Junior Subordinated
Debentures, to replace temporary or mutilated, destroyed, lost or stolen Junior
Subordinated Debentures, to maintain an office or agency in respect of the
Junior Subordinated Debentures and to hold moneys for payment in trust) ("legal
defeasance") or (b) to be released from its obligations with respect to the
Junior Subordinated Debentures (except for the obligations set forth as
exceptions in the preceding clause (a) and except for the obligations to pay the
principal of and interest on the Junior Subordinated Debentures, to compensate
and indemnify the Trustee and to appoint a successor Trustee) ("covenant
defeasance"), upon the deposit with the Trustee (or other qualifying trustee),
in trust for such purpose, of money or U.S. Government Obligations (as defined
in the Indenture) which through the payment of principal and interest in
accordance with their terms will provide money in an amount sufficient to pay
the principal of and interest on the Junior Subordinated Debentures, and any
mandatory sinking fund or analogous payments thereon, on the due date thereof.
Such a trust may only be established, if, among other things, UAL has delivered
to the Trustee an opinion of counsel (as specified in the Indenture) to the
effect that the holders of the Junior Subordinated Debentures will not recognize
income, gain or loss for Federal income tax purposes as a result of such legal
defeasance or covenant defeasance and will be subject to Federal income tax on
the same amounts, in the same manner and at the same time as would have been the
case if such legal defeasance or covenant defeasance had not occurred. Such
opinion, in the case of legal defeasance under clause (a) above, must refer to
and be based upon a ruling of the Internal Revenue Service or a change in
applicable Federal income tax law occurring after the date of the Indenture.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting UAL and the Trustee to enter
into one or more supplemental indentures without the consent of the holders of
any of the Junior Subordinated Debentures in order (i) to evidence the
succession of another corporation to UAL and the assumption of the covenants and
obligations of UAL by such successor to UAL; (ii) to add to the covenants of UAL
or surrender any right or power of UAL; (iii) to add additional Events of
Default with respect to any series; (iv) to add or change any provisions to such
extent as necessary to permit or facilitate the issuance of securities pursuant
to the Indenture in bearer form or in global form; (v) to add to, change or
eliminate any provisions affecting securities not yet issued pursuant to the
Indenture; (vi) to secure the Junior Subordinated Debentures; (vii) to establish
the form or terms of Junior Subordinated Debentures of any series; (viii) to
evidence and provide for successor Trustees; (ix) if allowed without penalty
under applicable laws and regulations, to permit payment in respect of Junior
Subordinated Debentures in bearer form in the United States; (x) to correct or
supplement any defective or inconsistent provisions in the Indenture or any
supplemental indenture, to cure any ambiguity or correct any mistake or to make
any other provisions with respect to matters or questions arising under the
Indenture, provided that such action shall not adversely affect the interests of
the holders of the Junior Subordinated Debentures; or (xi) to comply with any
requirement of the Commission in connection with the qualification of the
Indenture under the Trust Indenture Act.
The Indenture also contains provisions permitting UAL and the Trustee, with
the consent of the holders of a majority in aggregate principal amount of the
securities of all series adversely affected at the time outstanding, to execute
supplemental indentures adding any provisions to or changing or eliminating any
of the provisions of the Indenture or any supplemental indenture or modifying
the rights of the holders, except that no such supplemental indenture may,
without the consent of each holder of each outstanding security affected
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thereby, (i) change the time for payment of principal or interest on any Junior
Subordinated Debenture; (ii) reduce the principal of, or any installment of
principal of, or interest on any Junior Subordinated Debenture; (iii) change the
coin or currency in which any Junior Subordinated Debenture or interest thereon
is payable; (iv) impair the right to institute suit for the enforcement of any
payment on or with respect to any Junior Subordinated Debenture; (v) reduce the
percentage in principal amount of the outstanding Junior Subordinated Debentures
the consent of which holders is required for modification or amendment of the
Indenture or for waiver of compliance with certain provisions of the Indenture
or for waiver of certain defaults; (vi) change the obligation of UAL to maintain
an office or agency in the places and for the purposes specified in the
Indenture; (vii) modify the provisions relating to waiver of certain defaults or
any of the foregoing provisions; (viii) adversely affect the right to convert
Junior Subordinated Debentures; or (ix) modify the provisions with respect to
the subordination of the Junior Subordinated Debentures.
CONCERNING THE INDENTURE TRUSTEE
UAL and its subsidiaries maintain ordinary banking relationships with The
First National Bank of Chicago and its affiliates and a number of other banks.
BOOK-ENTRY AND SETTLEMENT
If any Junior Subordinated Debentures are distributed to holders of Trust
Securities (see "Description of the Preferred Securities"), such Junior
Subordinated Debentures will be issued in fully registered form. In such event,
investors may elect to hold their Junior Subordinated Debentures directly or,
subject to the rules and procedures of a Depository Institution, hold interests
in a global certificate registered in the name of a Depository Institution or
its nominee.
For a description of a Depository Institution and a Depository
Institution's book-entry system, see "Description of the Preferred
Securities -- Book-Entry; Delivery and Form." As of the date of this Prospectus,
the description herein of a Depository Institution's book-entry system and
Depository Institution's practices as they relate to purchases, transfers,
notices and payments with respect to the Preferred Securities apply in all
material respects to any Junior Subordinated Debentures registered in the name
of and held by a Depository Institution or its nominee.
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DESCRIPTION OF THE SERIES B PREFERRED AND DEPOSITARY SHARES
SERIES B PREFERRED
The following is a description of the material terms of the Series B
Preferred and the Depositary Shares as set forth in the provisions of UAL's
Certificate of Incorporation and the Certificate of Designation for the Series B
Preferred and the Deposit Agreement (as defined herein). Whenever defined terms
in the Deposit Agreement are referred to in this "Description of the Series B
Preferred and Depositary Shares," such defined terms are incorporated by
reference herein.
General
The Series B Preferred presently consists of 16,416 shares, of which
6,266.781 are not owned by UAL. The holders of the Series B Preferred do not
have any preemptive rights with respect to any shares of capital stock of UAL or
any other securities of UAL convertible into or carrying rights or options to
purchase any such shares. The Series B Preferred are not subject to any sinking
fund or other obligation of UAL to redeem or retire the Series B Preferred.
Ranking
The Series B Preferred ranks senior with respect to payment of dividends
and amounts payable upon liquidation, dissolution or winding up to all shares of
capital stock of UAL that are presently outstanding.
While any shares of Series B Preferred are outstanding, UAL may not
authorize the creation or issue of any class or series of stock that ranks
senior to the Series B Preferred as to dividends or upon liquidation,
dissolution or winding up without the consent of the holders of 66 2/3% of the
outstanding shares of Series B Preferred. UAL may create additional classes or
series of preferred stock or authorize, or increase the authorized amount of,
any shares of any class or series of preferred stock ranking on a parity with or
junior to the Series B Preferred without the consent of any holder of Series B
Preferred. See "-- Voting Rights."
Dividends
Holders of shares of Series B Preferred are entitled to receive, when, as
and if declared by the Board of UAL out of assets of UAL legally available
therefor, cumulative cash dividends at a rate per annum that has been fixed at
12 1/4% of the $25,000 liquidation preference thereof (or $3.0625 per Depositary
Share) per annum. Dividends on the Series B Preferred are payable quarterly in
arrears on February 1, May 1, August 1 and November 1 of each year (and, in the
case of any accrued but unpaid dividends, at such additional times and for such
interim periods, if any, as determined by the Board), at such annual rate. Each
such dividend is payable to holders of record as they appear on the stock
records of UAL at the close of business on such record dates, which is not more
than 60 days or less than 10 days preceding the payment dates corresponding
thereto, as may be fixed by the Board of Directors of the Company or a duly
authorized committee thereof. Dividends are cumulative, whether or not in any
dividend period or periods there are assets of UAL legally available for the
payment of such dividends. Dividends on the Series B Preferred have been paid
through November 1, 1996.
Each share of Series B Preferred issued after the initial issue date of the
Series B Preferred (the "Issue Date") (whether issued upon transfer of or in
exchange for an outstanding share of Series B Preferred or issued for any other
reason) is entitled to receive, when, as and if declared by the Board, dividends
with respect to each dividend period, starting with the Issue Date, for which
full dividends have not been paid prior to the date upon which such share of
Series B Preferred was issued. Any share of Series B Preferred that is issued
after the record date with respect to any dividend payment and before such
dividend is paid is not entitled to receive the dividend paid to holders of
Series B Preferred as of such record date.
Accumulations of dividends on shares of Series B Preferred do not bear
interest. Dividends payable on the Series B Preferred for any period greater or
less than a full dividend period are computed on the basis of a 360-day year
consisting of twelve 30-day months. Dividends payable on the Series B Preferred
for each full dividend period are computed by dividing the annual dividend rate
by four.
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Except as provided in the next sentence, no dividend can be declared or
paid or set apart for payment on any Parity Stock (as defined below) unless full
cumulative dividends have been or contemporaneously are declared, paid or set
apart for payment on the Series B Preferred for all prior dividend periods. If
accrued dividends on the Series B Preferred for all prior dividend periods have
not been paid in full or a sum sufficient for such payment has not been set
apart, then any dividend declared on the Series B Preferred for any dividend
period and on any Parity Stock shall be declared ratably in proportion to
accrued and unpaid dividends on the Series B Preferred and such Parity Stock.
UAL cannot (i) declare, pay or set apart funds for the payment of any
dividend or other distribution with respect to any Junior Stock (as defined
below) or (ii) redeem, purchase or otherwise acquire for consideration any
Junior Stock or Parity Stock through a sinking fund or otherwise (except by
conversion into or exchange for shares of Junior Stock and other than a
redemption or purchase or other acquisition of Common Stock made for purposes of
an employee incentive or benefit plan of UAL or any subsidiary), unless all
accrued and unpaid dividends with respect to the Series B Preferred and any
Parity Stock at the time such dividend or other distribution is payable or such
redemption, purchase or acquisition is to occur have been paid or funds have
been set apart for payment of such dividends.
For purposes of the description of the Series B Preferred, (i) the term
"dividend" does not include dividends payable solely in shares of Junior Stock
on Junior Stock, or in options, warrants or rights to holders of Junior Stock to
subscribe for or purchase any Junior Stock, (ii) the term "Parity Stock" means
any class or series of preferred stock ranking on a parity with the Series B
Preferred as to the payment of dividends and amounts payable upon liquidation,
dissolution or winding up and (iii) the term "Junior Stock" means all presently
outstanding classes or series of capital stock of UAL, other than the Series B
Preferred, and any other class or series of capital stock of UAL now or
hereafter issued and outstanding that ranks junior as to the payment of
dividends or amounts payable upon liquidation, dissolution or winding up of the
Series B Preferred.
Optional Redemption
The Series B Preferred is not redeemable prior to July 12, 2004. On and
after such date, the Series B Preferred is redeemable at the option of UAL, in
whole or in part, at the redemption price of $25,000 per share, plus, in each
case, all dividends accrued and unpaid on the Series B Preferred up to the date
fixed for redemption, upon giving notice as provided below.
If fewer than all of the outstanding shares of Series B Preferred are to be
redeemed, the shares to be redeemed will be determined pro rata or by lot or in
such other manner as is prescribed by UAL's Board.
At least 30 days but not more than 60 days prior to the date fixed for the
redemption of the Series B Preferred, a written notice will be mailed to each
holder of record of Series B Preferred to be redeemed, notifying such holder of
UAL's election to redeem such shares, stating the date fixed for redemption
thereof and calling upon such holder to surrender to UAL on the redemption date
at the place designated in such notice the certificate or certificates
representing the number of shares specified therein. On or after the redemption
date, each holder of Series B Preferred to be redeemed must present and
surrender the certificate or certificates for such shares to UAL at the place
designated in such notice and thereupon the redemption price of such shares will
be paid to or on the order of the person whose name appears on such certificate
or certificates as the owner thereof and each surrendered certificate will be
canceled. If fewer than all the shares represented by any such certificate are
redeemed, then a new certificate will be issued representing the shares not
redeemed.
From and after the redemption date (unless UAL defaults in payment of the
redemption price), all dividends on the shares of Series B Preferred designated
for redemption in such notice will cease to accrue, and all rights of the
holders thereof as stockholders of UAL, except the right to receive the
redemption price thereof (including all accrued and unpaid dividends up to the
redemption date), will cease and terminate. Such shares may not thereafter be
transferred (except with the consent of UAL) on UAL's books, and such shares may
not be deemed to be outstanding for any purpose whatsoever. On the redemption
date, the Company must pay any accrued and unpaid dividends in arrears for any
dividend period ending on or prior to
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the redemption date. In the case of a redemption date falling after a dividend
payment record date and prior to the related payment date, the holders of Series
B Preferred at the close of business on such record date will be entitled to
receive the dividend payable on such shares on the corresponding dividend
payment date, notwithstanding the redemption of such shares following such
dividend payment record date. Except as provided for in the preceding sentences,
no payment or allowance will be made for accrued dividends on any shares of
Series B Preferred called for redemption.
At its election, UAL, prior to the redemption date, may deposit the
redemption price of the shares of Series B Preferred so called for redemption in
trust for the holders thereof with a bank or trust company, in which case such
notice to holders of the shares of Series B Preferred to be redeemed will (i)
state the date of such deposit, (ii) specify the office of such bank or trust
company as the place of payment of the redemption price and (iii) call upon such
holders to surrender the certificates representing such shares at such place on
or after the date fixed in such redemption notice (which may not be later than
the redemption date), against payment of the redemption price (including all
accrued and unpaid dividends up to the redemption date). Any moneys so deposited
which remain unclaimed by the holders of Series B Preferred at the end of two
years after the redemption date will be returned by such bank or trust company
to UAL.
Liquidation Preference
The holders of shares of Series B Preferred are entitled to receive, in the
event of any liquidation, dissolution or winding up of UAL, $25,000 per share
plus an amount per share equal to all dividends (whether or not earned or
declared) accrued and unpaid thereon to the date of final distribution to such
holders (for purposes of the description of the Series B Preferred, the
"Liquidation Preference"), and no more.
Until the holders of the Series B Preferred have been paid the Liquidation
Preference in full, no payment may be made to any holder of Junior Stock upon
the liquidation, dissolution or winding up of UAL. If, upon any liquidation,
dissolution or winding up of UAL, the assets of UAL or proceeds thereof,
distributable among the holders of the shares of Series B Preferred are
insufficient to pay in full the Liquidation Preference and the liquidation
preference with respect to any other shares of Parity Stock, then such assets,
or the proceeds thereof, will be distributed among the holders of shares of
Series B Preferred and any such Parity Stock ratably in accordance with the
respective amounts that would be payable on such shares of Series B Preferred
and any such Parity Stock if all amounts payable thereon were paid in full.
Neither a consolidation or merger of UAL with another corporation nor a sale,
lease or transfer of all or substantially all of UAL's assets will be considered
a liquidation, dissolution or winding up, voluntary or involuntary, of UAL.
Voting Rights
Except in the limited circumstances indicated below, or except as otherwise
from time to time required by applicable law, the holders of shares of Series B
Preferred do not have the right to vote for directors or have any other voting
rights, and their consent is not required for taking any corporate action. When
and if the holders of the Series B Preferred are entitled to vote, each share
will be entitled to 1,000 votes.
If the equivalent of six quarterly dividends payable on the Series B
Preferred have not been declared and paid or set apart for payment, whether or
not consecutive, the number of directors of UAL will be increased by two and the
holders of all Series B Preferred and any other series of preferred stock in
respect of which such a default exists, voting as a class without regard to
series, will be entitled to elect two additional directors at the next annual
meeting and each subsequent meeting, until all cumulative dividends on all such
serial preferred stock have been paid in full or set apart for payment at which
time the term of office of such directors shall terminate.
The affirmative vote or consent of the holders of 66 2/3% of the
outstanding shares of the Series B Preferred is required for any amendment of
the Restated Certificate of Incorporation that alters or changes the powers,
preferences, privileges or rights of the Series B Preferred so as to materially
adversely affect the holders thereof. The affirmative vote or consent of the
holders of shares representing 66 2/3% of the outstanding shares of the Series B
Preferred is required to authorize the creation or issue of, or reclassify any
authorized stock of
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UAL into, or issue or authorize any obligation or security convertible into or
evidencing a right to purchase, any additional class or series of stock ranking
senior to the Series B Preferred.
Except as required by law, the holders of Series B Preferred are not
entitled to vote on any merger or consolidation involving UAL or a sale of all
or substantially all of the assets of UAL.
Transfer Agent, Registrar, Dividend Disbursing Agent and Redemption Agent
The transfer agent, registrar, dividend agent and redemption agent for the
shares of Series B Preferred is First Chicago Trust Company of New York (in such
capacities, the "Transfer Agent"). First Chicago Trust Company of New York also
acts as the Depositary (the "Depositary") for the Depositary Shares.
DEPOSITARY SHARES
The Depositary Shares are issued under a Deposit Agreement (the "Deposit
Agreement") between UAL, First Chicago Trust Company of New York, as the
Depositary, and the holders from time to time of the Depositary Receipts. The
summary of terms of the Depositary Shares, the Depositary Receipts and the
Deposit Agreement contained in this Prospectus Supplement does not purport to be
complete.
General
Each Depositary Share represents one one-thousandth of a share of the
Series B Preferred (the equivalent of $25 liquidation preference of Series B
Preferred).
Subject to the terms of the Deposit Agreement, each owner of a Depositary
Share is entitled, in proportion to the applicable fraction of a share of the
Series B Preferred represented by such Depositary Share, to all the rights and
preferences of the shares of the Series B Preferred represented thereby
(including dividend, voting, redemption and liquidation rights).
The Depositary Shares are listed on the New York Stock Exchange.
Dividends and Other Distributions
The Depositary distributes all cash dividends or other cash distributions
received in respect of the shares of the Series B Preferred to the record
holders of Depositary Shares relating to the Series B Preferred in proportion to
the number of such Depositary Shares owned by such holders.
In the event of a distribution other than in cash, the Depositary
distributes property received by it to the record holders of Depositary Shares
in an equitable manner in proportion to the number of such Depositary Shares
owned by such holders, unless the Depositary determines that it is not feasible
to make such distribution, in which case the Depositary may sell such property
and distribute the net proceeds from such sale to such holders.
Redemption of Depositary Shares
If the shares of the Series B Preferred represented by Depositary Shares
are redeemed, the Depositary Shares will be redeemed from the proceeds received
by the Depositary resulting from the redemption, in whole or in part, of such
shares of the Series B Preferred held by the Depositary. The redemption price
per Depositary Share will be equal to the applicable fraction of the redemption
price per share payable with respect to the shares of the Series B Preferred.
Whenever UAL redeems shares of the Series B Preferred held by the Depositary,
the Depositary redeems as of the same redemption date the number of Depositary
Shares representing shares of the Series B Preferred so redeemed. If fewer than
all the Depositary Shares are to be redeemed, the Depositary Shares to be
redeemed will be selected by lot, pro rata or by any other equitable method as
may be determined by the Depositary.
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Voting the Shares of the Series B Preferred
Upon receipt of notice of any meeting at which the holders of the Series B
Preferred are entitled to vote, the Depositary mails the information contained
in such notices of meeting to the record holders of the Depositary Shares
relating to such shares of the Series B Preferred. Each record holder of such
Depositary Shares on the record date (which will be the same date as the record
date for the shares of the Series B Preferred) is entitled to instruct the
Depositary as to the exercise of the voting rights pertaining to the fraction of
the shares of the Series B Preferred represented by such holder's Depositary
Shares. The Depositary will endeavor, insofar as practicable, to vote the amount
of the shares of the Series B Preferred represented by such Depositary Shares in
accordance with such instructions, and UAL will agree to take all reasonable
action that may be deemed necessary by the Depositary in order to enable the
Depositary to do so. The Depositary will abstain from voting the shares of the
Series B Preferred to the extent it does not receive specific instructions from
the holder of Depositary Shares representing such shares of the Series B
Preferred.
Amendment and Termination of the Deposit Agreement
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may at any time be amended by agreement
between UAL and the Depositary. However, any amendment that materially and
adversely alters the rights of the holders of Depositary Shares will not be
effective unless the holders of at least a majority of the Depositary Shares
then outstanding approve such amendment. The Deposit Agreement will only
terminate if (i) all outstanding Depositary Shares have been redeemed or (ii)
there has been a final distribution in respect of the shares of the Series B
Preferred in connection with any liquidation, dissolution or winding up of UAL
and such distribution has been distributed to the holders of the Depositary
Receipts.
Charges of Depositary
UAL pays all transfer and other taxes and governmental charges arising
solely from the existence of the depositary arrangements. UAL pays charges of
the Depositary in connection with the initial deposit of the shares of the
Series B Preferred and issuance of Depositary Receipts, all withdrawals of
shares of the Series B Preferred by owners of Depositary Shares and any
redemption of the shares of the Series B Preferred. Holders of Depositary
Receipts pay other transfer and other taxes and governmental charges and such
other charges as are expressly provided in the Deposit Agreement to be for their
accounts.
Resignation and Removal of Depositary
The Depositary may resign at any time by delivering to UAL notice of its
election to do so, and may at any time remove the Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Depositary and its acceptance of such appointment. Such successor Depositary
must be appointed within 60 days after delivery of the notice of resignation or
removal and must be a bank or trust company having its principal office in the
United States and having a combined capital and surplus of at least $50,000,000.
Miscellaneous
The Depositary forwards all reports and communications from UAL that are
delivered to the Depositary and that UAL is required or otherwise determines to
furnish to the holders of the shares of the Series B Preferred.
Neither the Depositary nor UAL is liable under the Deposit Agreement to
holders of Depositary Receipts other than for its gross negligence, willful
misconduct or bad faith. Neither UAL nor the Depositary is obligated to
prosecute or defend any legal proceeding in respect of any Depositary Shares or
Series B Preferred unless satisfactory indemnity is furnished. UAL and the
Depositary may rely upon written advice of counsel or accountants, or upon
information provided by persons presenting shares of the Series B Preferred for
deposit, holders of Depositary Receipts or other persons believed to be
competent and on documents believed to be genuine.
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RELATIONSHIP BETWEEN THE PREFERRED SECURITIES, THE JUNIOR SUBORDINATED
DEBENTURES AND THE PREFERRED SECURITIES GUARANTEE
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
distributions and other payments due on the Preferred Securities primarily
because (i) the aggregate principal amount of Junior Subordinated Debentures
held as trust assets will be equal to the sum of the aggregate stated
liquidation amount of the Preferred Securities and the proceeds received by the
Trust upon issuance of the Common Securities to UAL; (ii) the interest rate and
interest and other payment dates on the Junior Subordinated Debentures will
match the distribution rate and distribution and other payment dates for the
Preferred Securities; (iii) the Declaration provides that UAL shall pay for all
debts and obligations (other than with respect to the Trust Securities) and all
costs and expenses of the Trust, including any taxes and all costs and expenses
with respect thereto, to which the Trust may become subject, except for United
States withholding taxes; and (iv) the Declaration further provides that the
Trustees shall not cause or permit the Trust, among other things, to engage in
any activity that is not consistent with the limited purposes of the Trust.
Payments of distributions and other payments due on the Preferred
Securities are guaranteed by UAL on a subordinated basis as and to the extent
set forth under "Description of the Preferred Securities Guarantee." If UAL does
not make interest or other payments on the Junior Subordinated Debentures, the
Trust will not make distributions or other payments on the Preferred Securities.
Under the Declaration, if and to the extent UAL does make interest or other
payments on the Junior Subordinated Debentures, the Institutional Trustee is
obligated to make distributions or other payments on the Preferred Securities.
The Preferred Securities Guarantee covers distributions and other payments on
the Preferred Securities only if and to the extent that UAL has made a payment
of interest or principal on the Junior Subordinated Debentures deposited in the
Trust as trust assets. The Preferred Securities Guarantee, when taken together
with UAL's obligations under the Junior Subordinated Debentures and the
Indenture and its obligations under the Declaration, including its obligation to
pay costs, expenses and certain liabilities of the Trust, constitutes a full and
unconditional guarantee of amounts due on the Preferred Securities.
The Institutional Trustee will have the power to exercise all rights,
powers and privileges under the Indenture with respect to the Junior
Subordinated Debentures, including its rights as the holder of the Junior
Subordinated Debentures to enforce UAL's obligations under the Junior
Subordinated Debentures upon the occurrence of an Indenture Event of Default,
and will also have the right to enforce the Preferred Securities Guarantee on
behalf of the holders of the Preferred Securities. In addition, the holders of
at least a majority in liquidation amount of the Preferred Securities will have
the right to direct the Institutional Trustee with respect to certain matters
under the Declaration and the Preferred Securities Guarantee. Under certain
circumstances, holders of Preferred Securities may institute a legal proceeding
against UAL to enforce the Preferred Securities Guarantee and the Company's
payment obligations on the Junior Subordinated Debentures. See "Description of
the Preferred Securities" and "Description of the Preferred Securities
Guarantee."
If a Special Event shall occur and be continuing, the Trust shall be
dissolved (unless the Junior Subordinated Debentures are redeemed) with the
result that Junior Subordinated Debentures held by the Trust having an aggregate
principal amount equal to the aggregate stated liquidation amount of the
Preferred Securities and Common Securities will be distributed on a Pro Rata
Basis in exchange for the outstanding Preferred Securities and Common
Securities, subject in the case of a Tax Event to UAL's right in certain
circumstances to redeem Junior Subordinated Debentures as described under
"Description of the Preferred Securities -- Special Event Redemption or
Distribution." The Preferred Securities represent preferred undivided beneficial
interests in the assets of the Trust, a statutory business trust which exists
for the purpose of (a) issuing (i) its Preferred Securities in exchange for
Depositary Shares validly tendered in the Offer and delivering such Depositary
Shares to UAL in consideration for the deposit by UAL of Junior Subordinated
Debentures in the Trust as trust assets, and (ii) its Common Securities to UAL
in exchange for cash and investing the proceeds thereof in an equivalent amount
of Junior Subordinated Debentures and (b) engaging in such other activities as
are necessary or incidental thereto.
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Upon any voluntary or involuntary dissolution, winding-up or termination of
the Trust, after satisfaction of creditors, the holders of Trust Securities will
be entitled to receive the Liquidation Distribution in cash or Junior
Subordinated Debentures and will be entitled to the benefits of the Preferred
Securities Guarantee with respect to any such distribution. See "Description of
the Preferred Securities -- Liquidation Distribution Upon Dissolution." Upon any
voluntary or involuntary liquidation or bankruptcy of UAL, the holders of Junior
Subordinated Debentures would be subordinated creditors of UAL, subordinated in
right of payment to all Senior Indebtedness, but entitled to receive payment in
full of principal, premium, if any, and interest, before any stockholders of UAL
receive payments or distributions.
A default or event of default under any Senior Indebtedness would not
constitute a default or event of default under the Junior Subordinated
Debentures. However, in the event of payment defaults under, or acceleration of,
Senior Indebtedness, the subordination provisions of the Junior Subordinated
Debentures provide that no payments may be made in respect of the Junior
Subordinated Debentures. Failure to make required payments on the Junior
Subordinated Debentures would constitute an event of default under the
Indenture.
TAXATION
The following is a general summary of the material United States federal
income tax consequences of the issuance of Preferred Securities in exchange for
the Depositary Shares pursuant to the Offer, and of the ownership and
disposition of Preferred Securities. To the extent it relates to matters of law
or legal conclusions, this summary constitutes the opinion of Mayer, Brown &
Platt, special tax counsel to the Trust. Unless otherwise stated, this summary
deals only with Preferred Securities held as capital assets by Securityholders
who acquire the Preferred Securities pursuant to the Offer ("Initial Holders")
and who hold Depositary Shares as capital assets. This summary does not discuss
all the tax consequences that may be relevant to a particular Securityholder in
light of the Securityholder's particular circumstances and it is not intended to
be applicable in all respects to all categories of Securityholders, some of
whom -- such as insurance companies, tax-exempt persons, financial institutions,
regulated investment companies, dealers in securities or currencies, persons
that hold Depositary Shares or Preferred Securities received in the exchange as
a position in a "straddle," as part of a "synthetic security," "hedge,"
"conversion transaction" or other integrated investment or persons whose
functional currency is other than United States dollars -- may be subject to
different rules not discussed below. In addition, this summary does not address
any state, local or foreign tax considerations that may be relevant to a
Securityholder's decision to exchange Depositary Shares for Preferred Securities
pursuant to the Offer. This summary is based on the Internal Revenue Code of
1986, as amended (the "Code"), Treasury Regulations thereunder and
administrative and judicial interpretations thereof, as of the date hereof, all
of which are subject to change (possibly on a retroactive basis).
ALL HOLDERS OF DEPOSITARY SHARES ARE ADVISED TO CONSULT THEIR TAX ADVISORS
AS TO THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OF
DEPOSITARY SHARES FOR PREFERRED SECURITIES AND OF THE OWNERSHIP AND DISPOSITION
OF PREFERRED SECURITIES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AS WELL AS
THE EFFECT OF ANY STATE, LOCAL OR OTHER TAX LAWS.
EXCHANGE OF DEPOSITARY SHARES FOR PREFERRED SECURITIES
The exchange of Depositary Shares for Preferred Securities pursuant to the
Offer will be a taxable transaction. In the case of an Initial Holder who
actually or constructively owns solely Depositary Shares, or who actually or
constructively owns Depositary Shares and a minimal percentage of any other
class of UAL stock, and who does not exercise any control over the affairs of
UAL, gain or loss will be recognized on an exchange of a Preferred Security for
a Depositary Share in an amount equal to the difference between the fair market
value on the Expiration Date of the Preferred Security (representing an
undivided interest in the Junior Subordinated Debentures) received in the
exchange and the exchanging Holder's tax basis in the Depositary Share exchanged
therefor and will be long-term capital gain or loss if the Depositary Share has
been held for more than one year as of such date. UAL will provide information
concerning such fair market
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value to the Exchange Agent, which will prepare and mail, prior to January 31,
1997, to each holder of record who exchanges Depositary Shares for Preferred
Securities, other than stockholders who demonstrate that they are not U.S.
persons (as described in clause (c) of paragraph (i) under "-- United States
Alien Holders"), a Form 1099-B reporting such information. It is anticipated
that persons who hold such Depositary Shares as nominees for beneficial holders
will provide such information to such beneficial holders in accordance with the
requirements of the New York Stock Exchange and securities regulations. A
holder's aggregate tax basis in his or her pro rata share of the underlying
Junior Subordinated Debentures will be equal to his or her pro rata share of
their "issue price" on the Expiration Date as defined below.
Holders of Depositary Shares who actually or constructively own more than a
minimal percentage of any other class of UAL stock are advised to consult their
tax advisors as to the income tax consequences of exchanging Depositary Shares.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Preferred Securities, Mayer, Brown &
Platt, special tax counsel to the Trust, will render its opinion generally to
the effect that, under then current law and assuming full compliance with the
terms of the Declaration, the Trust will be classified for United States federal
income tax purposes as a grantor trust and not as an association taxable as a
corporation. Accordingly, each Securityholder will be considered the owner of a
pro rata portion of the Junior Subordinated Debentures held by the Trust and
will be required to include in gross income his or her pro rata share of the
income accrued on the Junior Subordinated Debentures.
ACCRUAL OF ORIGINAL ISSUE DISCOUNT AND PREMIUM
The Junior Subordinated Debentures will be considered to have been issued
with "original issue discount" and each Securityholder, including a
Securityholder who otherwise uses the cash method of accounting, will be
required to include his or her pro rata share of original issue discount on the
Junior Subordinated Debentures in income as it accrues, in accordance with a
constant yield method based on a compounding of interest, before the receipt of
cash distributions on the Preferred Securities. Generally, all of a
Securityholder's taxable interest income with respect to the Junior Subordinated
Debentures will be accounted for as "original issue discount" and actual
distributions of stated interest will not be separately reported as taxable
income. So long as the interest payment period is not extended, cash
distributions received by an Initial Holder for any quarterly interest period
(assuming no disposition prior to the record date for such distribution) will
equal or exceed the sum of the daily accruals of income for such quarterly
interest period, unless the issue price of the Junior Subordinated Debentures
(as defined below) is less than $25.
The total amount of "original issue discount" on the Junior Subordinated
Debentures will equal the difference between the "issue price" of the Junior
Subordinated Debentures and their "stated redemption price at maturity." Because
UAL has the right to extend the interest payment period of the Junior
Subordinated Debentures, all of the stated interest payments on the Junior
Subordinated Debentures will be includible in determining their "stated
redemption price at maturity." The "issue price" of each $25 principal amount of
the Junior Subordinated Debentures will be equal to the fair market value of a
Preferred Security on the Expiration Date, which may be more or less than $25,
with the result that the total amount of original issue discount on the Junior
Subordinated Debentures may be more or less than the amount of stated interest
payable with respect thereto. The issue price of each $25 principal amount of
the Junior Subordinated Debentures may be reduced by the Pre-issuance Accrued
Distribution. If a Securityholder computes the issue price of his or her pro
rata share of the Junior Subordinated Debentures in this manner, then the
payment of such amount will be treated as a return of capital rather than as an
interest payment. UAL and the Trust may elect to compute the issue price of the
Junior Subordinated Debentures in this manner and, if so, will report the
payment of such amount on IRS Form 1099-B.
A Securityholder's initial tax basis for his or her pro rata share of the
Junior Subordinated Debentures will be equal to the fair market value on the
Expiration Date of the Preferred Securities held by such Securityholder, and
will be increased by original issue discount accrued with respect thereto, and
reduced by
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the amount of cash distributions (including the amount of Pre-issuance Accrued
Distribution) paid to such Securityholder. No portion of the amounts received on
the Preferred Securities will be eligible for the dividends received deduction
for corporate holders.
POTENTIAL EXTENSION OF PAYMENT PERIOD ON THE JUNIOR SUBORDINATED DEBENTURES
Securityholders will continue to accrue original issue discount with
respect to their pro rata share of the Junior Subordinated Debentures during an
Extension Period, and any holders who dispose of Preferred Securities prior to
the record date for the payment of interest following such extended interest
payment period will not receive from the Trust any cash related thereto. If (i)
UAL elects to defer interest payments on the Junior Subordinated Debentures and
(ii) the issue price of the Junior Subordinated Debentures is greater than or
less than $25, in general, such deferral could cause the yield used to accrue
OID on the Junior Subordinated Debentures to increase or decrease, respectively,
which in turn would cause a certain amount of OID to accrue earlier or later,
respectively, than would have been the case if there had been no such deferral
of interest payments.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF PREFERRED
SECURITIES
Under current law, a distribution by the Trust of the Junior Subordinated
Debentures as described under the caption "Description of the Preferred
Securities -- Special Event Redemption or Distribution" will be non-taxable and
will result in the Securityholder receiving directly his or her pro rata share
of the Junior Subordinated Debentures previously held indirectly through the
Trust, with a holding period and tax basis equal to the holding period and
adjusted tax basis such Securityholder was considered to have had in his or her
pro rata share of the underlying Junior Subordinated Debentures prior to such
distribution.
DISPOSITION OF THE PREFERRED SECURITIES
Upon a sale, exchange or other disposition of the Preferred Securities
(including a distribution of cash in redemption of a Securityholder's Preferred
Securities upon redemption or repayment of the underlying Junior Subordinated
Debentures, but excluding the distribution of Junior Subordinated Debentures), a
Securityholder will be considered to have disposed of all or part of his or her
pro rata share of the Junior Subordinated Debentures, and will recognize gain or
loss equal to the difference between the amount realized and the
Securityholder's adjusted tax basis in his or her pro rata share of the
underlying Junior Subordinated Debentures deemed disposed of. Gain or loss will
be capital gain or loss (except, in the case of a Securityholder that is not an
Initial Holder, to the extent of any accrued market discount with respect to
such Securityholder's pro rata share of the Junior Subordinated Debentures not
previously included in income). Such gain or loss will be long-term capital gain
or loss if the Preferred Securities have been held for more than one year.
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying Junior
Subordinated Debentures. In such event, a Securityholder who disposes of
Preferred Securities and does not receive a payment of interest from the Trust
for the period in which the disposition occurs will nevertheless be required to
include accrued but unpaid interest on the Junior Subordinated Debentures
through the date of disposition in income as ordinary income, and to add such
amount to his or her adjusted tax basis in his or her pro rata share of the
underlying Junior Subordinated Debentures deemed disposed of. Accordingly, such
a Securityholder will recognize a capital loss to the extent the selling price
(which may not fully reflect the value of accrued but unpaid interest) is less
than the Securityholder's adjusted tax basis (which will include accrued but
unpaid interest). Subject to certain limited exceptions, capital losses cannot
be applied to offset ordinary income for United States income tax purposes.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
beneficial owner of Preferred Securities or Depositary Shares that is not a U.S.
person. For purposes of this discussion, a "U.S. person" means a citizen or
resident of the United States, a corporation or partnership created or organized
in the
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United States or under the law of the United States or of any State or political
subdivision of the foregoing, any estate whose income is includible in gross
income for U.S. federal income tax purposes regardless of its source or a
"United States Trust." A United States Trust is (a) for taxable years beginning
after December 31, 1996, or if the trustee of a trust elects to apply the
following definition to an earlier taxable year, any trust if, and only if, (i)
a court within the United States is able to exercise primary supervision over
the administration of the trust and (ii) one or more U.S. trustees have the
authority to control all substantial decisions of the trust, and (b) for all
other taxable years, any trust whose income is includible in gross income for
United States Federal income tax purposes regardless of its source.
Except as otherwise described below, under present United States federal
income tax law:
(i) payments by the Trust or any of its paying agents to any holder of
a Preferred Security who or which is a United States Alien Holder will not
be subject to United States federal withholding tax, provided that (a) the
beneficial owner of the Preferred Security does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of UAL entitled to vote, (b) the beneficial owner of the
Preferred Security is not a controlled foreign corporation that is related
to UAL through stock ownership, and (c) either (A) the beneficial owner of
the Preferred Security certifies to the Trust or its agent, under penalties
of perjury, that it is not a U.S. person and provides its name and address
or (B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business (a "Financial Institution") and holds the Preferred
Security certifies to the Trust or its agent under penalties of perjury
that such statement has been received from the beneficial owner by it or by
a Financial Institution between it and the beneficial owner and furnishes
the Trust or its agent with a copy thereof;
(ii) a United States Alien Holder of a Preferred Security will not be
subject to United States federal withholding tax on any gain realized upon
the sale or other disposition of a Preferred Security; and
(iii) any gain realized by a United States Alien Holder upon the
exchange of Depositary Shares for Preferred Securities will not be subject
to United States federal withholding tax.
Gain recognized by a United States Alien Holder on the exchange of
Depositary Shares for Preferred Securities and gain on the disposition of
Preferred Securities will be subject to United States federal income tax if (i)
such gain is effectively connected with a trade or business conducted by such
United States Alien Holder within the United States (in which case the branch
profits tax may also apply if the United States Alien Holder is a foreign
corporation), (ii) in the case of a United States Alien Holder that is an
individual, such United States Alien Holder is present in the United States for
a period or periods aggregating 183 days or more in the taxable year of the sale
or exchange and certain other conditions are met or (iii) UAL is or has been a
"United States real property holding corporation" for federal income tax
purposes (which UAL does not believe it has been or is currently) and such
United States Alien Holder has held, directly or constructively, more than 5% of
the outstanding Depositary Shares within the five-year period ending on the date
of the sale or exchange, and no treaty exception is applicable.
If a United States Alien Holder is engaged in a trade business within the
United States and interest (including original issue discount) and premium, if
any, on Preferred Securities is effectively connected with the conduct of such
trade or business, such United States Alien Holder may be subject to United
States federal income tax on such interest (including original issue discount)
and premium at ordinary federal income tax rates on a net basis (in which case
the branch profits tax may also apply if the United States Alien Holder is a
foreign corporation).
On April 15, 1996, proposed Treasury Regulations (the "Proposed
Regulations") were issued which, if adopted in final form, could affect the
United States taxation of United States Alien Holders, including changing the
certification requirements. The Proposed Regulations are generally proposed to
be effective for payments after 1997, regardless of the issue date of the note
with respect to which such payments were made. It cannot be predicted at this
time whether the Proposed Regulations will become effective as proposed or what,
if any, modifications may be made to them.
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INFORMATION REPORTING TO HOLDERS
The Trust will report the original issue discount that accrued during the
year with respect to the Junior Subordinated Debentures, and any gross proceeds
received by the Trust from the retirement or redemption of the Junior
Subordinated Debentures, annually on IRS Form 1041 to the holders of record of
the Preferred Securities and the Internal Revenue Service. The Trust currently
intends to deliver such reports to holders of record prior to January 31
following each calendar year. It is anticipated that persons who hold Preferred
Securities as nominees for beneficial holders will report the required tax
information to beneficial holders on IRS Form 1099. As described below under
"-- Backup Withholding," different reporting rules may apply to United States
Alien Holders.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, Preferred Securities may
be subject to a "backup" withholding tax of 31% unless such Securityholder (i)
is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (ii) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable backup withholding rules. Information
reporting on IRS Form 1099 (including IRS Form 1099-B) and backup withholding at
a rate of 31% will not apply to payments of principal and interest (including
original issue discount) made by the Trust or a paying agent to a United States
Alien Holder on Preferred Securities if the certification described in clause
(c) of paragraph (i) under "-- United States Alien Holders" is received,
provided that the payor does not have actual knowledge that the Securityholder
is a U.S. person. However, interest (including original issue discount) on
Junior Subordinated Debentures beneficially owned by a United States Alien
Holder may be required to be reported annually on IRS Form 1041 and will be
required to be reported annually on IRS Form 1042S. Any withheld amounts will
generally be allowed as a credit against the Securityholder's federal income
tax, provided the required information is timely filed with the Internal Revenue
Service.
PROPOSED TAX LEGISLATION
On March 19, 1996, President Clinton proposed certain tax law changes (the
"Proposed Legislation") that would, among other things, generally deny corporate
issuers a deduction for interest in respect of certain debt obligations, such as
the Junior Subordinated Debentures, issued on or after December 7, 1995. On
March 29, 1996, Senate Finance Committee Chairman William V. Roth, Jr. and House
Ways and Means Committee Chairman Bill Archer issued a joint statement (the
"Joint Statement") indicating their intent that the Proposed Legislation, if
adopted by either of the tax-writing committees of Congress, would have an
effective date that is no earlier than the date of "appropriate Congressional
action." In addition, subsequent to the publication of the Joint Statement,
Senator Daniel Patrick Moynihan and Representatives Sam M. Gibbons and Charles
B. Rangel wrote letters to Treasury Department officials concurring with the
view expressed in the Joint Statement (the "Democrat Letters"). If the
principles contained in the Joint Statement and the Democrat Letters were
followed and the Proposed Legislation were enacted, such legislation would not
apply to the Junior Subordinated Debentures. There can be no assurance, however,
that the effective date guidance contained in the Joint Statement will be
incorporated into the Proposed Legislation, if enacted, or that other
legislation enacted after the date hereof will not otherwise adversely affect
the ability of UAL to deduct the interest payable on the Junior Subordinated
Debentures. Accordingly, there can be no assurance that a Tax Event will not
occur. The occurrence of a Tax Event may, among other things, result in a
dissolution of the Trust in which holders of the Preferred Securities may
receive cash, which would be a taxable event to such holders. See
"-- Disposition of the Preferred Securities" and "Description of the Preferred
Securities -- Special Event Redemption or Distribution."
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LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Preferred
Securities will be passed upon for the Trust by Richards, Layton & Finger,
special Delaware counsel to the Trust and UAL. The validity of the Preferred
Securities Guarantee and the Junior Subordinated Debentures, and certain legal
matters in connection with the Preferred Securities, the Preferred Securities
Guarantee and the Junior Subordinated Debentures, will be passed upon for the
Trust and UAL by Mayer, Brown & Platt, Chicago, Illinois. Certain legal matters
in connection with the Preferred Securities will be passed upon for the Dealer
Managers by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
Skadden, Arps, Slate, Meagher & Flom LLP, from time to time, provides legal
services for UAL.
EXPERTS
The consolidated financial statements and related schedules of UAL
Corporation and subsidiary companies as of December 31, 1995 and 1994 and for
each of the three years in the period ended December 31, 1995, incorporated by
reference in this Prospectus, 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.
ERISA CONSIDERATIONS
Generally, employee benefit plans that are subject to the Employee
Retirement Income Security Act of 1974 ("ERISA"), or Section 4975 of the Code
("Plans"), may purchase Preferred Securities, subject to the investing
fiduciary's determination that the investment in Preferred Securities satisfies
ERISA's fiduciary standards and other requirements applicable to investments by
the Plan.
In any case, UAL and/or any of its affiliates may be considered a "party in
interest" (within the meaning of ERISA) or a "disqualified person" (within the
meaning of Section 4975 of the Code) with respect to certain plans (generally,
Plans maintained or sponsored by, or contributed to by, any such persons). The
acquisition and ownership of Preferred Securities by a Plan (or by an individual
retirement arrangement or other Plans described in Section 4975(e)(i) of the
Code) with respect to which UAL or any of its affiliates is considered a party
in interest or a disqualified person, may constitute or result in a prohibited
transaction under ERISA or Section 4975 of the Code, unless such Preferred
Securities are acquired pursuant to and in accordance with an applicable
exemption.
As a result, Plans with respect to which UAL or any of its affiliates is a
party in interest or a disqualified person should not acquire Preferred
Securities. Any other Plans or other entities whose assets include Plan assets
subject to ERISA proposing to acquire Preferred Securities should consult with
their own ERISA counsel.
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Facsimile copies of the Letter of Transmittal will be accepted. Letters of
Transmittal, certificates representing Depositary Shares and any other required
documents should be sent by each Holder of Depositary Shares or his broker,
dealer, commercial bank, trust company or other nominee to the Exchange Agent at
one of the addresses as set forth below:
THE EXCHANGE AGENT IS:
THE BANK OF NEW YORK
By Hand or Overnight Courier: By Mail:
The Bank of New York (registered or certified
Corporate Debt Operations mail recommended)
101 Barclay Street The Bank of New York
(7 East) Corporate Debt Operations
New York, New York 10286 101 Barclay Street
Attn: Enrique Lopez (7 East)
New York, New York 10286
Attn: Enrique Lopez
By Facsimile:
(For Eligible Institutions Only)
(212) 571-3080
Confirm Receipt by Telephone:
(212) 815-2742
Attn: Enrique Lopez
THE INFORMATION AGENT IS:
(LOGO)
Wall Street Plaza
New York, New York 10005
(800) 223-2064 (Toll-Free)
(212) 440-9800 (Call Collect)
Any questions or requests for assistance or additional copies of this
Prospectus, the Letter of Transmittal or for copies of the Notice of Guaranteed
Delivery may be directed to the Information Agent at its telephone number and
location set forth above. You may also contact your broker, dealer, commercial
bank or trust company or other nominee for assistance concerning the Offer.
THE DEALER MANAGERS FOR THE OFFER ARE:
MERRILL LYNCH & CO. SMITH BARNEY INC.
World Financial Center 388 Greenwich Street
North Tower -- Seventh Floor New York, New York 10013
New York, New York 10281 (800) 655-4811 (Toll-Free)
(888) ML4-TNDR (Toll-Free) Attn: Paul S. Galant
(888) 654-8637 (Toll-Free)
Attn: Susan L. Weinberg
