AIR LINE PILOTS ASSOCIATION, INTERNATIONAL ASSOCIATION OF
INTERNATIONAL MACHINISTS AND AEROSPACE WORKERS
UAL-MEC District Lodge 141
6400 Shafer Court 321 Allerton Avenue
Rosemont, IL 60018 South San Francisco, CA 94083
December 22, 1993
Board of Directors
UAL Corporation
1200 East Algonquin Road
Elk Grove Township, IL 60007
Ladies and Gentlemen:
We are pleased to propose our revised restructuring
plan that will provide extraordinary long-term benefits to UAL
Corporation and its subsidiaries (the "Company"), its employees,
customers and other constituencies.
We believe that our plan will catapult the Company
light-years ahead of its competitors by enabling it to serve the
global community more flexibly and efficiently than any other
major American carrier and to compete head to head with "low-cost
carriers" in the short-haul domestic marketplace. Our plan will
also provide years of stable labor relations and a workforce
highly motivated by its ownership stake in the Company, a
substantial benefit not available to the Company's competitors.
Pursuant to our restructuring plan (the "Transaction"),
in exchange for the acquisition by one or more employee stock
ownership plans ("ESOPs") of securities initially representing
53% of the common equity interest and voting power of the
reorganized Company (subject to adjustment as described in
Section 2), the Company's existing stockholders would receive a
package comprised of an aggregate of approximately $743 million
in cash paid by the Company; $900 million of Debentures of the
Company; $900 million of Preferred Stock of the Company; and
common stock representing 47% of the equity of the reorganized
Company at closing. New corporate governance rules would protect
the continuing interests of public shareholders while promoting
employee ownership.
As a consequence of changes to be made in the
collective bargaining agreements of the participating unions, the
new reorganized United will be significantly more agile and
competitive than the existing Company. As a part of the
Transaction, the Company's participating employees -- its pilots,
IAM- represented employees, and the salaried and management
employees -- would invest, through a combination of wage
concessions and collective bargaining agreement modifications, in
excess of $5 billion of present value. As a result of these
contract modifications, the Company will be able for the first
time to compete effectively with "low-cost" carriers in the
domestic short-haul market. Of course, all of these
contributions by the participating unions are available only in
the context of the Transaction.
The participating unions are prepared to work together
with you and with the Company's management to close the
Transaction as quickly as possible. We invite and encourage the
participation of the Association of Flight Attendants (the "AFA")
and their assistance in making the Company the world's number one
airline. However, such participation is not a condition to
proceeding with the Transaction. As discussed with the Company's
representatives, the Company would be provided, in the
Transaction, with the full value of the contemplated employee
investment by extending the IAM, ALPA and salaried and management
employee investment for an additional period as described in
Exhibits E-1, E-2 and E-3. If the AFA agrees to participate in
the Transaction prior to the closing as described in Exhibit E-4
and actually participates at that level from the date of closing,
the extension of the IAM, ALPA and salaried and management
employee investment will be rolled back as described in Exhibit
E-4.
1. In order to effect the Transaction, the Company
and the participating unions will enter into a Reorganization
Agreement which will provide that holders of shares of the
Company's Common Stock, par value $5 per share (the "Old Common
Stock"), will receive, in the aggregate, (i) approximately
$743 million in cash, (ii) $900 million principal amount of
Debentures of the Company having the terms described in Exhibit A
(the "Debentures"), (iii) $900 million liquidation value of a new
series of Preferred Stock of the Company having the terms
described in Exhibit B (the "Public Preferred Stock"), and
(iv) common stock of the reorganized Company which will
represent, in the aggregate, 47% of the common equity interest
and voting power of the Company at closing (the foregoing being
based upon 28.9 million fully-diluted common shares outstanding
at closing). The Transaction structure is intended to provide
the holders of Old Common Stock with capital gains treatment on
their receipt of cash and Debentures and deferral of gain with
respect to their receipt of Public Preferred Stock.
2. Upon closing, the ESOPs will acquire securities
representing 53% of the common equity interest and voting power
of the Company. The ESOPs will cover the Company's salaried and
management employees (as defined in Exhibit E-3) and the
employees represented by the participating unions. The overall
structure of the ESOP program is described in Exhibit C-1. The
key terms of the principal ESOP are described in Exhibit C-2. In
addition, the percentage of the common equity and voting power
represented by the securities of the Company deposited into the
ESOPs may be increased to as much as 63% depending on the value
of the new Common Stock in the public trading markets following
the closing, as described in Exhibit C-3. The securities to be
acquired by the ESOPs will consist of one or more series of a new
class of convertible preferred stock of the Company having
substantially the terms set forth in Exhibit D (the "ESOP
Shares").
3. Each of the participating unions will execute a
new collective bargaining agreement with the Company, effective
upon the closing of the Transaction, containing the terms set
forth in Exhibit E-1, in the case of ALPA, and E-2 in the case of
the IAM. You have informed us that the Company will establish
appropriate employment terms for the salaried and management
employees as described in Exhibit E-3.
4. In addition to the wage rate and work rule
revisions described in Exhibits E-1 through E-3 to this letter,
all participating employee groups will forego scheduled wage
increases (other than step, progression program or longevity
increases) through the investment period. Instead, the
participating employee groups may receive wage adjustments, if
any, as described in Exhibits F-1, F-2 and F-3.
5. In connection with the Transaction, ALPA and the
IAM will permit United, for the first time, to create a high
frequency, lower cost operation described in Exhibit G, which can
successfully compete against other high frequency, lower cost
carriers.
6. The reorganized Company will be governed as
provided in Exhibit H. In brief, the Board of the reorganized
Company will be comprised of 12 directors of whom 5 will be
elected by the public stockholders (3 of whom are intended to be
existing Company outside directors), 4 will be Independent
Directors, 2 will be Union Directors and 1 will be a Salaried/
Management Employee Director. ALPA and the IAM have selected an
individual to serve as the CEO of the reorganized Company who we
are confident will be satisfactory to the Board. Those
governance provisions will be given effect through amendments to
the Company's Certificate of Incorporation and by-laws to be
approved at a meeting of the Company's existing shareholders.
7. The consummation of the Transaction would be
subject to necessary ratification of the labor agreements by the
participating unions and the negotiation and execution by each of
the Company, ALPA and the IAM of definitive documentation
containing appropriate representations, covenants,
indemnification and closing conditions (including, without
limitation, approval of the Transaction by shareholders of the
Company, no alteration of the status quo as provided in Section
10 with respect to the participating unions, listing of the
Company's new Common Stock on the New York Stock Exchange,
satisfactory opinions of counsel as to the new governance
structure and receipt by UAL of appropriate bring-down fairness
opinions).
8. The parties understand that they will be required
to reach certain mutually acceptable agreements on provisions and
details necessary or appropriate for the implementation of the
Transaction and will use their reasonable best efforts to reach
such agreements in definitive documentation. The parties further
understand that the provisions and details to be contained in
such definitive documentation which are necessary or appropriate
for implementation of the Transaction are not intended to reduce
the value of the consideration to be received in the Transaction
for each share of Old Common Stock.
9. The Company hereby agrees to be bound by the
provisions of Exhibit I.
10. Effective upon the signing of this letter, United
Airlines, Inc. and the Company will not take actions (i) which
would breach the job protection provisions set forth in Exhibit
E-1 or Exhibit E-2 hereto as if all references to the date of
signing, the date of the Agreement, the date of ratification or
the date of closing in such Exhibits referred to the date of this
letter, (ii) which are described in the governance provisions set
forth in Section 13 of Exhibit H hereto or (iii) which would
breach the conduct provisions set forth in Exhibit J-1 hereto.
The provisions set forth in the preceding sentence shall
terminate unless (1) both ALPA and IAM obtain necessary
ratification of the provisions of this letter on or before
January 31, 1994, (2) definitive documentation with respect to
the Transaction is executed on or before March 15, 1994 and (3) a
final and complete closing of the Transaction contemplated hereby
occurs on or before the expiration of four months following the
date of the filing by the Company of preliminary proxy materials
relating to the Transaction with the Securities and Exchange
Commission; but in no event earlier than May 1, 1994 nor later
than August 31, 1994. The obligations pursuant to this
Section 10 will cease if a shareholder vote on the Transaction
occurs and the shareholders of the Company do not approve the
Transaction. The obligation set forth in the first sentence of
this Section 10 will not, pending the final and complete closing
of the Transaction, require (a) cessation of any current activity
or (b) non-renewal of any agreements, in each case set forth on
Exhibit J-2 hereto.
11. The obligations of the parties under this letter
(other than Section 9) may be terminated by the Board in response
to a proposal by a third party to acquire control of the Company
if the Board is advised by its independent legal counsel (who may
be the Company's regularly engaged independent legal counsel)
that such action is required by its fiduciary duties.
Notwithstanding any other provision hereof, if the Company
receives any contact from, or indication or expression of
interest by, a third party with respect to the possible
acquisition of control of the Company, the Company may discuss or
negotiate with, and provide information to, such third party, and
may engage in any other similar activity relating to such
contact, indication or expression. The Company will keep the
participating unions promptly apprised of the relevant details
relating to such contacts, indications, expressions and
activities (and provide copies of any written contacts,
indications, expressions and proposals).
12. This letter sets forth the agreement in principle
between the parties with respect to the transactions contemplated
hereby. It is not, however, intended to be, and is not, a
legally binding agreement, except that the provisions set forth
in Sections 9, 10, 11 and this Section 12 shall be legally
binding upon the parties.
We look forward to working with you to carry this
transaction to a successful consummation.
Very truly yours,
AIR LINE PILOTS ASSOCIATION, INTERNATIONAL
By: /s/ Roger Hall
Name: Roger Hall
Title: Chairman, UAL - MEC
INTERNATIONAL ASSOCIATION
OF MACHINISTS AND AEROSPACE
WORKERS
By: /s/ Ken Thiede
Name: Ken Thiede
Title: President and General Chairman,
District Lodge 141
Accepted and Agreed to
this 22 day of December, 1993
UAL CORPORATION
By: /s/ Lawrence M. Nagin
Name: Lawrence M. Nagin
Title: Executive Vice President
---------------------------
12/22/93
EXHIBIT A
SENIOR UNSECURED DEBENTURES
Summary of Terms
Issuer: UAL Corporation (the "Company").
Principal Amount: Tranche A - 1/2 of total principal
amount
Tranche B - 1/2 of total principal
amount
Total $900 million
Type of Security: Senior Unsecured
Debentures - Tranche A
Tranche B
Maturity: Tranche A - 10 years.
Tranche B - 20 years.
Coupon: The debentures will be priced at the
time of execution of definitive
documentation (the "First Pricing")
to trade at par. However, two
financial advisors, one selected by
the Company and one selected by the
participating unions, shall mutually
determine, not later than five days
prior to the shareholder vote on the
Transaction, an appropriate coupon
rate so that the debentures will be
priced, subject to the proviso set
forth below, to trade at par on such
date. In the event that the
respective financial advisors to
each of the Company and the
participating unions are unable so
to agree on a coupon rate, a
mutually acceptable nationally
recognized investment banking firm
will be appointed to participate in
the determination of the coupon rate
referred to above. The coupon rate
will equal the average of the two of
the three coupon rates referred to
above (i.e. the rates selected by
the three financial advisors
referred to above) that are closest;
provided, however, that in no event
shall such rate be more than 150
basis points higher than the coupon
rate in effect at the First Pricing.
Optional Redemption: Not callable for five years.
Callable at a premium thereafter,
declining to par by the end of the
tenth year.
Mandatory Redemption: None.
---------------------------
12/22/93
EXHIBIT B
SERIES B REDEEMABLE PREFERRED STOCK
Summary of Terms
Issuer: UAL Corporation (the "Company").
Securities Offered: Series B Redeemable Preferred Stock
(the "Public Preferred").
Maturity: Perpetual.
Liquidation Value: $25 per share of Public Preferred.
Aggregate Amount Approximately 36 million shares of
Issuable: Public Preferred (having an aggregate
Liquidation Value of $900 million).
Dividends: The Public Preferred will be priced
at the time of execution of
definitive documentation (the "First
Pricing") to trade at par. However,
two financial advisors, one selected
by the Company and one selected by
the participating unions, shall
mutually determine, not later than
five days prior to the shareholder
vote on the transaction, an
appropriate dividend rate so that the
Public Preferred will be priced,
subject to the proviso set forth
below, to trade at par on such date.
In the event that the respective
financial advisors to each of the
Company and the participating unions
are unable so to agree on a dividend
rate, a mutually acceptable
nationally recognized investment
banking firm will be appointed to
participate in the determination of
the dividend rate referred to above.
The dividend rate will equal the
average of the two of the three
dividend rates referred to above
(i.e. the rates selected by the three
financial advisors referred to above)
that are closest; provided, however,
that in no event shall such rate be
more than 150 basis points higher
than the dividend rate in effect at
the First Pricing.
Optional Redemption: The Public Preferred will not be
redeemable prior to the fifth
anniversary of the Issue Date.
Thereafter, the Public Preferred will
be redeemable at any time at the
option of the Company, in whole or in
part, at par.
Vote: Non-voting, except that in the event
the Company defaults on the
equivalent of six quarterly
dividends, the holders of Public
Preferred shall have the right to
elect two additional public directors
to the Company's board of directors,
such right to remain in effect until
dividends have been paid regularly
for at least one year.
Ranking: The Public Preferred shall rank
senior to the ESOP Preferred.
---------------------------
12/20/93
EXHIBIT C-1
OVERALL ESOP STRUCTURE
Overview
Participating employee groups will be covered by an
employee stock ownership program, consisting of at least two
ESOPs (all plans under such program being herein
collectively referred to as the "ESOP"), the key features of
which are outlined below, subject to appropriate variations
for each union group and for salaried and management
employees. As presently contemplated, there will be a joint
ESOP covering all participating employees (including pilots)
and a supplemental ESOP covering only pilots. The joint
ESOP and the pilot-only ESOP will hold one or more series of
a convertible preferred stock (collectively, "ESOP Preferred
Shares") of the recapitalized Company. If and to the extent
that the required stock deposits cannot be made to tax-
qualified ESOPs because of tax limitations on deposit
opportunities, non-qualified ESOPs will be established to
accept the overflow. It is contemplated that the ESOP
program will generate more than $4 billion of tax deductions
over the life of the program.
Establishment of the ESOP and Purchase of the ESOP Shares
One or more independent financial institutions will
be retained to act as trustee(s) of the ESOP (collectively,
the "ESOP Trustee"). The ESOP Trustee will in turn retain
an independent financial advisor(s). The ESOP Trustee and
the financial advisor(s) must be satisfactory to the
participating unions.
If the ESOP Trustee determines that the ESOP
transaction is fair from a financial point of view to the
participants and otherwise consistent with applicable law,
the ESOP Trustee will purchase, for the joint ESOP, ESOP
Preferred Shares from the Company. The ESOP Trustee will
obtain funds to pay the purchase price with the proceeds of
a loan (the "ESOP Purchase Loan") made by the Company to the
ESOP. The ESOP Purchase Loan will be in a multi-billion
dollar amount, the exact figure to be negotiated by the
independent ESOP Trustee.
The funds advanced to the joint ESOP by the Company
under the ESOP Purchase Loan will represent a significant
portion of present value of the labor concessions effected
by the Labor Agreements. The amount and terms of the ESOP
Purchase Loan will depend upon a number of factors,
including the number of participants in the ESOPS, their
annual wages and the amount, terms and conditions of the
ESOP Preferred Shares.
It is presently intended that stock targeted for the
pilot-only ESOP will be contributed by the Company to the
pilot-only ESOP over the wage investment period rather than
by leveraged purchase at the inception of the transaction.
Until contributed, the stock will be held in a nonqualified
trust, or other arrangements will be made, to protect the
pilots' voting and dividend rights on the uncontributed
shares. (A leveraged pilot-only ESOP with a dividend-paying
security would be used only if tax efficient.)
ESOP Operation
The employee groups will agree to make wage
investments over the wage investment period as a condition
to the ESOP's acquisition of its share of the Company's
common equity. The ESOP Preferred Shares initially acquired
by the ESOP will be allocated to ESOP participants' accounts
as the ESOP pays down the ESOP Purchase Loan (the ESOP's
acquisition indebtedness) over that period. Each Union
group and the salaried and management employees will have
separate previously agreed to allocation rates. The joint
ESOP will pay back the ESOP Purchase Loan with employer
contributions made by the Company for this purpose and
dividends received on the ESOP Preferred Shares held by the
ESOP.
The ESOP Preferred Shares allocated to participants'
accounts will be converted into shares of Company Common
Stock and be distributed from the ESOP to participants after
their employment ends and when benefits are scheduled to
start.
ESOP Eligibility and Vesting
Eligibility and vesting provisions will be agreed
upon for each participating Union employee group and
established for salaried and management employees.
ESOP Allocation Among Employee Groups
The ESOP Preferred Shares will be allocated to each
employee group as follows:
ALPA 46.23% of ESOP shares
IAM 37.13% of ESOP shares
Salaried/Management 16.64% of ESOP shares(1)
1/ The allocation will require that the Company
implement annual payroll cost reductions for
salaried and management employees as described
in Exhibit E-3.
---------------------------
12/20/93
EXHIBIT C-2
JOINT (LEVERAGED) ESOP TERM SHEET
Effective Date: Effective Date of Transaction.
Trustee: A large commercial bank or trust
company acceptable to the
participating unions.
Plan Administrator: Committee consisting of
representatives, in proportion to
equity allocation, of the employee
groups. Administrative issues
affecting only one group may be
resolved by only that group's
representatives.
Plan Year: Calendar year.
Valuation Dates: Last day of Plan Year and such other
dates as the Plan Administrator so
determines.
Eligibility: To be agreed upon for each
participating Union employee group
and established for salaried and
management employees.
Entry Date: Later of Effective date and first
day of month after completion of
eligibility requirement.
Vesting: 100% immediate vesting.
Allocation of Shares will be allocated in level
Shares: allocations over the wage investment
period.
Shares, in any given year, will be
allocated first with respect to
dividends paid on previously
allocated shares, and then, subject
to "Limitations on Allocations"
(below), in accordance with
Considered Compensation.
Considered A Participant's total pay during the
Compensation: Plan Year, including bonuses,
overtime pay and sections 125 and
401(k) deferrals, but excluding
travel allowances and imputed
income, up to the limits of tax code
section 401(a)(17).(1)
Limitations on Lesser of 25% of Considered
Allocations: Compensation (excluding sections 125
and 401(k) deferrals) and $30,000;
provided, that the highly
compensated employees, as a group,
may not be allocated more than 33-
1/3% of the employer contributions
during any Plan Year; and provided,
further, that the non-highly
compensated pilots' allocation rate
will be reduced to match that of the
highly compensated pilots.
For pilots, if defined contribution
limits of section 415 operate, the
Directed Account Plan will be
primary and the ESOP secondary. If
the combined plan limits of
section 415 operate, the defined
benefit will generally be secondary.
Accounts: ESOP stock and ESOP cash accounts
will be established and maintained
by the Company.
Employee None.
Contributions:
Investment of In ESOP Preferred Shares of the
Contributions: Company.
Allocation of Not applicable.
Forfeitures:
1/ To the extent benefits would otherwise accrue based on
pay in excess of the section 401(a)(17) or in excess of
section 415 limits, such benefits will accrue under the
related non-qualified plans. Corresponding section
415/401(a)(17) plans will be established/continued for
the pilot-defined benefit arrangements.
Dividends: To the extent in excess of common
dividends, used solely to repay ESOP
loan. To the extent dividends on
allocated shares are so used,
additional suspense account shares
will be allocated to the
Participant's account based on the
then fair market value.
Normal Retirement As under current plans.
Age:
Commencement of At least as early as IRS minimum
Distributions: payout schedules for ESOPs; earlier
distribution as determined by the
unions. Former participants may
otherwise elect to defer
distributions otherwise available,
subject to IRS limits on deferred
payouts.
Form of Benefits will be paid by converting
Distribution: the ESOP convertible preferred and
distributing the publicly-traded
common stock, either (i) in a lump
sum or (ii) in five equal annual
installments. At the Participant's
request, the ESOP shall, after
conversion, sell the common stock in
the public market and distribute
cash.
Put Rights: None, assuming the common stock is
still publicly-traded stock when
distributed.
Right of First None, assuming the common stock is
Refusal: still publicly-traded stock when
distributed.
Diversification Participants, who have attained age
Rights: 55 and have completed 10 years of
participation, may elect to
diversify a percentage (generally
25%, though 50% in the last year of
the election period) of their
Company stock accounts; that is,
qualifying Participants will be
permitted to (i) invest prescribed
amounts in at least three other
investment options or (ii) receive
early distributions.
Plan Amendment/ Solely pursuant to collective
Termination: bargaining.
---------------------------
12/20/93
EXHIBIT C-3
At the Closing, the number of shares of Common
Stock into which the ESOP Preferred will be convertible (the
"Initial ESOP Shares") and the corresponding voting power
shall equal 53% of the sum of (x) the number of fully
diluted shares of Common Stock on such date (the "Closing
Date Public Shares") plus (y) the Initial ESOP Shares (the
sum of (x) and (y) being referred to as the "Initial Sum").
If, during the Measuring Period, the Average
Closing Price exceeds $85.00, then an adjustment shall be
made such that the number of shares of Common Stock into
which the ESOP Preferred will be convertible (the "Adjusted
ESOP Shares") and the corresponding voting power shall equal
the Adjusted Percentage of the sum of (x) the number of
fully diluted shares of Common Stock on the last day of the
Measuring Period (excluding ESOP shares) plus (y) the
Adjusted ESOP Shares.
For purposes of this Exhibit C-3, the following
terms shall have the following meanings:
(a) The term "Measuring Period" shall mean the
365 day period commencing on the date of the closing of the
Transaction.
(b) The term "Average Closing Price" shall mean
the average closing price of the Common Stock on the New
York Stock Exchange for each trading day during the
Measuring Period.
(c) The term "Base Market Value" shall mean the
Initial Sum multiplied by $85.
(d) The term "Final Market Value" shall mean the
Initial Sum multiplied by the Average Closing Price.
(e) The term "Market Value Differential" shall
mean the Final Market Value minus the Base Market Value.
(f) The term "Employee Share" shall equal 93% of
the Market Value Differential.
(g) The term "Public Share" shall mean 7% of the
Market Value Differential.
(h) The term "Incremental Public Value" shall
mean the Public Share divided by the Closing Date Public
Shares.
(i) The term "Hypothetical Stock Price" shall
mean $85.00 plus the "Incremental Public Value."
(j) The term "Incremental Coalition Value" shall
mean the Incremental Public Value multiplied by the Initial
ESOP Shares.
(k) The term "Additional Coalition Shares-New
Stock Value" shall mean the Employee Share minus the
Incremental Coalition Value.
(l) The term "Hypothetical New Shares" shall mean
the Additional Coalition Shares-New Stock Value divided by
the Hypothetical Stock Price.
(m) The term "Hypothetical Outstanding Shares"
shall mean the number equal to the sum of the Initial Sum
plus the Hypothetical New Shares.
(n) The term "Employee New Total Shares" shall
mean the Hypothetical Outstanding Shares minus the Closing
Date Public Shares.
(o) The term "Adjusted Percentage" shall mean the
lesser of (i) the Employee New Total Shares as a percentage
of the Hypothetical Outstanding Shares or (ii) 63%;
provided, however, that in no event shall the Adjusted
Percentage be less than 53%.
It is not intended that Non-Dilutive Issuances (as
defined in Exhibit H) will be effected during the Measuring
Period. Any Non-Dilutive Issuances will only be effected
during the Measuring Period if at least one union director
agrees that the adjustments reflected in this Exhibit C-3
have been appropriately revised.
---------------------------
<TABLE>
<CAPTION>
To be read with Exhibit C-3 Illustrative Share Value Matrix
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Line 1 Pre-Adjustment Stock Price $75.00 $80.00 $85.00 $90.00 $94.00 $98.00 $102.00 $106.00 $110.00 $113.33
Line 2 Initial Sum (1) 61.49 61.49 61.49 61.49 61.49 61.49 61.49 61.49 61.49 61.49
Line 3 Final Market Value $4,611.7 $4,919.2 $5,226.6 (2) $5,534.0 $5,780.0 $6,026.0 $6,271.9 $6,517.9 $6,763.8 $6,968.8
Line 4 Market Value Differential ($614.9) ($307.4) $0.0 $307.4 $553.4 $799.4 $1,045.3 $1,291.3 $1,537.2 $1,742.2
Line 5 Employee Share 93.0% $0.0 $0.0 $0.0 $285.9 $514.7 $743.4 $972.1 $1,200.9 $1,429.6 $1,620.2
Line 6 Public Share 7.0% $0.0 $0.0 $0.0 $21.5 $38.7 $56.0 $73.2 $90.4 $107.6 $122.0
Line 7 Incremental Public Value
(Line 6 divided by 28.9) $0.0 $0.0 $0.0 $0.74 $1.34 $1.94 $2.53 $3.13 $3.72 $4.22
Line 8 Hypothetical Stock Price
(Line 7 + $85) $75.00 $80.00 $85.00 $85.74 $86.34 $86.94 $87.53 $88.13 $88.72 $89.22
Line 9 Incremental Coalitaion
Value (Line 7 x 32.59) $0.0 $0.0 $0.0 $24.3 $43.7 $63.1 $82.5 $101.9 $121.3 $137.5
Line 10 Additional Coalition Shares
- New Stock Value
(Line 5 - Line 9) $0.0 $0.0 $0.0 $261.7 $471.0 $680.3 $889.6 $1,099.0 $1,308.3 $1,482.7
Line 11 Hypothetical New Shares
(Line 10 divided by Line 8) 0.00 0.00 0.00 3.05 5.45 7.83 10.16 12.47 14.75 16.62
Line 12 Hypothetical Outstanding
Shares (Line 2 + Line 11) 61.49 61.49 61.49 64.54 66.94 69.31 71.65 73.96 76.23 78.11
Line 13 Employee New Total Shares
(Line 12 - 28.9) 0.00 0.00 0.00 35.64 38.04 40.41 42.75 45.06 47.33 49.21
Line 14 Adjusted Percentage (Line
13 as a % of Line 12) 53.00% 53.00% 53.00% 55.2% 56.8% 58.3% 59.7% 60.9% 62.1% 63.0%
Line 15 CRAM Distribution $88.00 $88.00 $88.00 $88.00 $88.00 $88.00 $88.00 $88.00 $88.00 $88.00
Line 16 Total Value of UAL
Shareholders $163.00 $168.00 $173.00 $173.74 $174.34 $174.94 $175.53 $176.13 $176.72 $177.22
<FN>
(1) Assumed shares outstanding 28.9 million
(2) Base Market Value
</TABLE>
---------------------------
12/20/93
EXHIBIT D
ESOP CONVERTIBLE PREFERRED STOCK
Summary of Terms
Issuer: UAL Corporation (the "Company").
Securities Offered: ESOP Convertible Preferred Stock (the
"ESOP Preferred Shares" or "ESOP
Preferred"). Series A (and possibly
other Series to provide each
participating group with a separate
Series) will be issued to the joint
leveraged ESOP; Series B will be
issued to the pilot-only unleveraged
ESOP and any nonqualified
arrangements. Except for dividends
and voting arrangements (See "Vote"),
Series A and B (and possibly other
Series) shares are identical.
Issue Date: The closing date of the Transaction.
Maturity: Perpetual.
Liquidation Value: Tied to the value of the ESOP Loan.
Aggregate Amount A number of shares of ESOP Preferred
Issuable: equal to 53% of the number of common
shares (fully diluted).
Dividends: A fixed rate, expected to be 5%, plus
the dividend paid on common shares,
for Series A; the fixed guaranteed
dividend will stop after a stated
period of years, expected to be the
term of the joint ESOP loan. Series
B gets the dividend paid on common
shares.
Conversion: Each share of ESOP Preferred is
convertible at any time, at the
option of the ESOP Trustee acting on
instructions of a participant, at a
conversion ratio to be determined in
accordance with Exhibit C-3.
Converts automatically to the
publicly-traded common stock upon
sale by the ESOP Trustee, other
transfer to a third party or
distribution from the ESOP to a
participant or beneficiary.
Redemption: Non-redeemable.
Vote: Generally, as provided in the
"Governance" term sheet; subject to
paragraph 17 of "Governance", ESOP
Preferred Shares shall always hold in
the aggregate voting power of the
Company determined in accordance with
Exhibit C-3. (The ESOP Preferred's
vote may be assigned to separate,
possibly stapled, securities, one for
each employee group, to comply with
IRS rules governing ESOP loans, to
assure delivery of the vote in the
agreed proportions and, possibly, to
restrict the ESOP Preferred's pass-
through vote to active employees.)
Subject to paragraph 17 of
"Governance," the ESOP Preferred
Shares will vote as a single class
together with the holders of the
Common Stock of the Company on all
matters submitted to shareholders
other than the election of the
"Public Directors" and matters with
respect to which the ESOP Preferred
Shares would be entitled to a
separate class vote as follows:
(i) the right to elect and remove
three directors to the board of
directors (each of the three
participating employee groups shall
be entitled to elect and remove one
director); and (ii) the affirmative
vote of holders of a majority of each
and every series of ESOP Preferred
Shares shall be required for the
issuance of any preferred stock
having a preference as to dividends
or in liquidation over the ESOP
Preferred Shares or the adoption of
any amendment to the Restated
Certificate of Incorporation of the
Company if such amendment materially
affects any of the rights,
preferences or privileges of the
holders of ESOP Preferred Shares.
Ranking: The ESOP Preferred Shares shall be
junior to the Public Preferred in the
payment of dividends and in
distributions on liquidation.
General Overall, the ESOP Preferred Shares
Comment: are generally intended to behave like
convertible preferred stocks commonly
issued to leveraged ESOPs maintained
by substantial public companies.
---------------------------
12/20/93
EXHIBIT E-1
TERMS OF THE ALPA INVESTMENT
In connection with the transaction described in this letter,
ALPA and United agree to amend the current ALPA-United collective
bargaining agreement (the "Agreement") as follows:
Pilot Wage Rate and B Plan Contribution Revisions
1. Pilot wage rates will be reduced from their current
levels by 15.7%. Benefits under the Company's defined benefit
retirement and disability plans will not be affected by these
wage rate reductions and will continue to be based on existing
book rates without regard to the wage rate reductions.
2. The pilot B-Plan contribution will be reduced from 9%
of compensation as measured under the B-Plan to 1% of post-
investment compensation as measured under the B-Plan.
Other Work Rule Revisions
The Agreement will also be amended to include certain
systemwide pilot work rule revisions in connection with the pilot
contribution to the Competitive Action Plan as described in
Exhibit G to this letter.
Job Security
The job security provisions of the Agreement will be revised
to incorporate the ALPA/United Job Security Terms dated December
12, 1993, which redraft and combine (1) the 1981 scope side
letter signed, (2) section 1 of the Agreement, (3) Letter 91-14
concerning feeder flying, and (4) Letter 91-18 concerning
successorship, change in control, and substantial asset transfers
into a single job security section of the Agreement. The
following is a summary of the central terms of the ALPA/United
Job Security Terms (which is the legally controlling document
between the parties):
1. The Agreement will state that all commercial flight
operations conducted by the Company, UAL or any corporate
affiliate they manage or control or hold any equity interest in
will be performed by United pilots under the terms of the
Agreement. The Agreement will permit:
a. feeder flying conducted by carriers that operate small
aircraft under Letter 91-18 as updated to the date of
the present agreement provided that feeder carriers can
operate jet aircraft under limited circumstances, and
b. certain domestic code-sharing conducted under the
Company's current agreements with Aloha Airlines, Inc.
and USAir, Inc. and additional domestic code sharing up
to one percent of the Company's total domestic block
hours, and
c. international code-sharing arrangements with foreign
carriers as long as the Company can demonstrate that
the arrangements do not cause a reduction in the
Company's international flying and the Company does not
expand international code sharing once it reduces
international flying below a minimum level.
2. The Agreement will provide that the Company cannot
transfer aircraft or international routes to other carriers that
use the assets to provide feed to the Company pursuant to an
agreement with the Company.
3. The Agreement will be revised to explicitly prohibit
any successorship transaction unless the successor agrees to
adopt the agreement, to employ United pilots pursuant to the
agreement, to recognize the Association and, if the successor is
an air carrier, to provide the Company's pilots with seniority
integration rights.
4. The Agreement will continue to provide the change in
control protections contained in the present Letter 91-18.
5. The Agreement will prohibit the furlough of pilots
employed by the Company as of the date of the Agreement for
12 months, subject to the present exceptions contained in Letter
91-18, once the Company makes a net disposition of (a) 25%
percent or more of its assets or (b) assets which produce 25% or
more of the Company's block hours.
6. The Agreement will provide that, if the Company
transfers aircraft or route authority which produce 25% or more
of the Company's operating revenues or block hours to another air
carrier, the Company must require the purchasing carrier to hire
and integrate an appropriate number of United pilots into its
pilot seniority list.
7. The Agreement will provide that, with certain
exceptions, the Company cannot, without the Association's
consent, (a) sell, lease, transfer or dispose of the Denver
training center, or any successor training center (other than in
a sale-lease back or similar financing transaction) or
(b) contract with any person or entity other than United
employees or former United pilots acting as consultants to United
to conduct or supervise United pilot training (other than initial
training of United flight instructors on new equipment).
8. The Agreement will prohibit the Company from
establishing a pilot domicile (other than a TDY domicile to the
extent permitted under the present agreement) outside the United
States without the Association's consent.
9. The Agreement will provide that no pilot employed by
United on the closing of the Transaction will be furloughed while
the new Agreement remains in effect except as a result of
explicitly defined circumstances beyond the Company's control.
Other Issues
1. Effective December 1, 1994, the hourly twelfth year
book rates for A-320 aircraft will be $175.30 (captains) and
$119.35 (first officers), with corresponding rates for all other
longevity years. Actual rates will be 15.7% below book rates.
2. Subject to the terms of Exhibit H, a process or means
will be established that will permit ALPA and the new management
to resolve issues creating disharmony between pilots and
management on a basis that will not reduce the value of the pilot
investment in the Transaction.
3. Subject to other legal obligations, the Company will
make reasonable efforts to fill pilot vacancies with the
individuals who satisfy United's hiring standards, who have
previously worked for carriers represented by ALPA, and who are
no longer working for those carriers for economic reasons such as
lay-offs or the shut down of that carrier.
Duration
The amended Agreement described in this Exhibit will become
effective on the closing date of the Transaction and will become
amendable under the Railway Labor Act five years and nine months
following the closing of the Transaction or such lesser period
(not less than five years) as may be appropriate as a result of
negotiations with the AFA.
---------------------------
12/21/93
EXHIBIT E-2
TERMS OF THE IAM INVESTMENT
The IAM agrees to amend the collective bargaining agreements as
necessary to incorporate the following:
1. Savings Period.
Except as provided in paragraph 16 below, the collective
bargaining agreement set forth herein shall take effect on the
closing date of the transaction and become amendable six years
following the closing of the transaction or such lesser period
(not less than five years and three months) as may be appropriate
as a result of negotiations with AFA.
2. Basic Wage Reductions.
The wage adjustment scheduled for May 1, 1994 shall be
cancelled. In addition, IAM represented employees of the Company
under all IAM Agreements shall have their straight time hourly
rates reduced by 9.7%. Such reductions shall be applicable to
base rates of pay excluding license premium, line differentials,
skill premiums, shift differentials and longevity allowances.
3. Progression and Longevity.
All IAM represented employees shall remain eligible for
progression and longevity step increases over the term of the
savings period.
4. Hours of Service.
The hours of service of all IAM represented full-time
employees shall be amended to provide for eight consecutive hours
exclusive of one-half hour unpaid meal period.
5. Job Security.
No employee on the payroll or on leave of absence as of the
date of ratification and no employee currently on furlough with
right of recall as of the date of ratification who is
subsequently recalled, shall be laid-off during the term of this
agreement.
This provision does not apply under the following
circumstances:
a) to an employee who fails to exercise his seniority
in his classification on the system in filling a permanent
vacancy or bumping an employee not protected by this paragraph in
a job he is qualified to perform, or refuses to fill a permanent
job in a higher classification that the employee is qualified to
perform;
b) to part-time or temporary employees;
c) to employees who are being laid-off as a direct
result of:
(i) an act of nature;
(ii) a strike or labor dispute;
(iii) a reduction of the Company's operations
because of a decrease in available fuel supply or other critical
materials due to either governmental action or commercial
supplier being unable to meet the Company's demands;
(iv) a revocation of the Company's operating
certificate(s) or the grounding of a substantial number of the
Company's aircraft by government action;
(v) a declared or undeclared war or national
emergency;
(vi) compulsion by a government agency,
legislative or court action.
d) to food service employees who lose their jobs as
the result of the sale of the UAL Flight Kitchens to Dobbs or
Caterair.
6. The contracts will provide that no IAM work shall be
contracted out unless the Company can demonstrate that such
contracting out will not result in the lay-off of any IAM
represented employee unless the employee fails to exercise his
seniority in his classification on the system in filling a
permanent vacancy or bumping an employee not protected by
paragraph 5 in a job he is qualified to perform, or refuses to
fill a permanent job in a higher classification that the employee
is qualified to perform.
7. The Ramp & Stores Agreement will provide that all Ramp
Serviceman work currently performed at the stations referred to
in Article II C shall be performed by Ramp Servicemen represented
by the IAM and shall not be contracted out.
8. Article II C of the Ramp & Stores Agreement will be
amended to provide that in addition to the stations currently
referred to in that article, the Company will assign ramp
servicemen to any U.S. location which has a sustained flight
level of 40 or more daily departures for a minimum period of 6
months. If the number of daily departures at a location
established as a ramp service station pursuant to this provision
should drop below 30 for at least 6 months, and if such reduction
is forecast to be reasonably permanent in nature, the Company
will have a right to reverse the process and reclassify that
location to a non-ramp serviceman location. However, if such
action is necessary, there will be no lay-off to the street of a
ramp serviceman at such locations who has not first been given an
option on the system in his/her classification or a higher
classification. At locations established as a Ramp Service
station pursuant to this paragraph, the number of part-time Ramp
Servicemen to be assigned by the Company will not exceed 25% of
the total number of full-time Lead Ramp Servicemen and Ramp
Servicemen in active service at that station.
9. Modify the Mechanics' Agreement to provide that the
Company will not sell, lease or otherwise transfer or dispose of
its maintenance facilities at its San Francisco Maintenance
Operations Center, Oakland Maintenance Center or Indianapolis
Maintenance Center. This includes the Company's engine
maintenance facility located in San Francisco. The Company will
be permitted to enter into sale / lease back arrangements for
financing reasons. Modify the Food Services Agreement to provide
that the Company will not sell, lease or otherwise transfer or
dispose of the flight kitchen in Miami or the four (4) current
employee cafeterias at Chicago O'Hare, the Denver Flight Training
Center, the Executive Offices, and San Francisco. The Company
will be permitted to enter into sale/lease back arrangements for
financing reasons. Notwithstanding the above, the Company may
(a) sell, lease or otherwise transfer the above facilities as
part of a sale, lease or transfer, within a twelve month period,
of all or substantially all the Company's assets, and (b) subject
to Union approval, sell, lease or otherwise transfer portions of
the above facilities to the extent such portions constitute
unused excess capacity, provided that the Union shall not be
permitted unreasonably to withhold approval if the "unused excess
capacity" condition exists. "Unused excess capacity" does not
refer to those facilities or portions of those facilities which
are temporarily unused as a result of seasonal or temporary work
schedule changes.
10. In the event that any of the facilities specified in
paragraph 9 become unavailable due to loss of lease (or other
circumstances beyond the Company's control), or become
uninhabitable due to a natural disaster, the Company agrees to
make every reasonable effort to replace such facility unless it
is not financially reasonable to do so.
11. The Company may contract out up to 20% of all
maintenance work annually as measured by the sum of the
Maintenance Operations Division's gross annual budget plus those
portions of stations' total gross annual budgets attributable to
building maintenance and ground equipment maintenance, provided
however this percentage may be exceeded in the event the Company
has fully utilized its existing equipment or facilities.
12. Modify letter 87-7M of the Mechanics' Agreement to add
Indianapolis Maintenance Center.
13. Modify the Mechanics' Agreement to provide that the
Company shall not perform any regularly scheduled heavy
maintenance in a non U.S. location without the Union's approval.
14. Any employee who is involuntarily transferred shall
receive moving expenses as currently provided under Company
policy for salaried employees.
15. New York Air language, change of control provisions,
code sharing protections and successorship language as agreed
upon with ALPA, with those modifications necessary to apply their
terms to IAM represented employees.
16. Amend Article XXVII (Effective Date & Duration Clause)
of the Mechanics' Agreement and similar provisions of the Ramp
and Stores, Food Services', Dispatchers', and Security Officers'
Agreements to provide that all portions of the agreements, except
those portions pertaining to paragraphs 4, 6, 8, 11 & 25 shall
become amendable at the end of the savings period specified in
paragraph 1 above. Paragraphs 4, 6, 8, 11 & 25 shall become
amendable in 12 years.
17. Revise Article XVII, Paragraph A of the Mechanics'
Agreement and similar provisions of the Ramp and Stores, Food
Services', Dispatchers', and Security Officers' Agreements to
provide:
A. Any employee who is to be questioned by Company
Representatives in the investigation of an incident which may
result in disciplinary action being taken against him, will be
informed of his right to have a Union Representative present
before such questioning begins. Such Union Representative will
not interfere with the Company's questioning of an employee.
18. Amend Article XXI of the Mechanics' Agreement and
similar provisions of the Ramp and Stores, Food Services',
Dispatchers', and Security Officers' Agreements by the addition
of a new paragraph to provide:
The Union will be permitted to participate in New-
Hire employee orientation or initial training
sessions which include Union-represented
employees.
19. All letters of agreement will be renewed and
appropriate dates modified to conform to the new dates of the
collective bargaining agreement.
20. The paycheck stub will reflect sick leave balances when
the Company otherwise acquires the technology to do so. The
Company will publish the details of each employee's pass travel
charges on the paycheck stub within six months of the date of the
signing of this Agreement.
21. A. All transfer requests to the Utility Employee
classification not filled in accordance with other provisions of
the Mechanics' Agreement shall be filled in order of Company
Seniority by regular IAM-represented employees who have transfer
requests on file and who have the ability to satisfactorily
perform the work required for the job in question, ahead of other
transfer requests and outside hires.
B. At least sixty-seven percent (67%) of all
permanent vacancies in the following classifications not filled
in accordance with other provisions of the IAM Agreements shall
be filled by regular IAM-represented employees who have the
appropriate transfer documents on file and who have the ability
to satisfactorily perform the work required for the job in
question. Vacancies for which no qualified regular IAM-
represented employee has a transfer document on file shall not be
counted in this calculation. This requirement will be measured by
classification on an annual basis. The classifications are:
mechanic, seamer, mechanic's helper, ramp serviceman,
storekeeper, and vehicle driver.
22. The Company will work with the Union to develop the
orderly transition of LHRDD work to IAM-represented dispatchers.
This will resolve all current grievances regarding Dispatcher
scope issues.
23. In addition to the existing no strike clauses, through
the day before the amendable date of the Agreements, neither the
IAM nor IAM-represented employees will engage in or cause
sympathy strikes or work stoppages, or recognition of picket
lines, or an organized job action in support of picket lines
established at the Company. This commitment shall become null
and void on the day before the amendable date of the Agreements.
Once this commitment becomes null and void, it is agreed that the
Agreements will contain no contractual prohibition on the ability
of the IAM represented employees to honor lawful picket lines at
the Company.
24. In addition to the pension increases previously
negotiated and effective on January 1, 1994 and November 1, 1994,
the monthly pension benefit for Group I, Group II and Group III
shall be increased 2.5%, effective on November 1, 1995, 2.5%
effective on November 1, 1996, 2.75% effective on November 1,
1997 and 3% effective on November 1, 1998. Any eligible IAM-
represented employee who retires on or after December 1, 1993
shall receive all increases in benefits referred to in this
paragraph. Any eligible IAM-represented employee who retires
during the term of the 1989-94 agreement but before December 1,
1993 shall only receive the future increases in benefits
effective on January 1, 1994 and November 1, 1994.
25. Delete Article VII (D) of the Mechanics' Agreement and
similar provisions of the Ramp and Stores, Food Services',
Dispatchers', and Security Officers' Agreements, except that
employees who work overtime on a regularly scheduled day off will
have a normal lunch period.
26. UAL Catering Division
Labor Protective Provisions
Section 1. The fundamental scope and purpose of the
conditions hereinafter specified are to provide for compensatory
allowances to food service employees who lose their jobs as the
result of the sale of Flight Kitchens to Dobbs or Caterair (the
"Flight Kitchen sale").
Section 2. The term "employee" as used herein shall mean
an employee of United Airlines covered by the IAM Food Services
Agreement other than a probationary employee, temporary employee
or part-time employee as of November 1, 1993.
Section 3.
(a) Any employee who is deprived of employment with
United as a result of the Flight Kitchen sale, and who applies
for but does not receive a job from Dobbs or Caterair, at his
current United location, shall be accorded an allowance
(hereinafter termed a "dismissal allowance"), based on length of
service, which shall be a monthly allowance equivalent in each
instance to 60 percent of an amount equal to 173.33 hours times
the straight-time rate which would have applied to the employee
in question as of November 12, 1993. This dismissal allowance
will be made to each eligible employee while unemployed by United
during a period beginning at the date the employee is first
deprived of employment as a result of the sale (subject to the
conditions in Section 5 hereof), and extending in each instance
for a length of time determined and limited by the following
schedule:
Length of Company Seniority Period of Payment Months
Years Months
6 Months & less than 1 year 1.5
1 and less than 2 4.5
2 and less than 3 9
3 and less than 5 13.5
5 and less than 10 27
10 and less than 15 36
15 and over 45
(b) Any employee who is deprived of employment
with United as a result of the Flight Kitchen sale, and who
receives a job offer from Dobbs or Caterair (whether accepted by
the employee or not) shall be provided flight passes for two
years, retention of recall rights to United, and a lump sum
"separation allowance" (and not a dismissal allowance),
calculated at the rate of pay as of November 12, 1993, as
follows:
Years of Service Amount of Months Pay
1 and less than 2 1.5
2 and less than 3 3
3 and less than 5 4.5
5 and over 6
(c) An employee shall not be regarded as deprived
of employment in case of resignation, death, or retirement as an
active employee in accordance with the agreement, or dismissal
for justifiable cause in accordance with the agreement: except
that, an employee who is eligible to retire and who elects to
retire during the period of December 1, 1993 to February 1, 1994
shall be eligible for the separation allowance as set forth in
3(b) above in addition to his/her contractual severance
allowance.
(d) An employee covered by Letter 84-15F or
Letter 87-10F who elects not to relocate from his/her current
United location to maintain a position at United as a result of
the Flight Kitchen sale shall be eligible for the separation
allowance.
(e) As a condition of receiving a dismissal
allowance, employees shall keep the carrier informed of their
address and the name and address of any other person or entity by
whom they may be employed, and must annually provide to United a
copy of their federal tax returns.
(f) An employee receiving a dismissal allowance
may be subject to call to return to service after being notified
in accordance with the agreement, and such employee may be
required to return to the service of United for other reasonably
comparable full time IAM represented employment (whether or not a
transfer request has been filed) for which the employee is
physically and mentally qualified whether or not such employment
requires a relocation, provided that United shall reimburse the
employee for a "salaried employee paid move" as presently
defined, and provided further that the employee's return to
United does not infringe upon the employment rights of other
employees under the agreement. Failure of the employee to return
to service will result in the termination of the employee's
dismissal allowance and benefits (but not the employee's
contractual severance allowance), except that an employee who is
receiving a dismissal allowance and is offered and declines a
position with United that involves a relocation, will be eligible
to receive a partial separation allowance equal to the amount, if
any, by which b exceeds a, as defined below:
a. Dollar amount of dismissal allowance
received as of the date he receives the job offer from United
plus up to twenty percent (20%) of that amount (to adjust for the
value of benefits actually received).
b. Dollar amount of the separation
allowance the employee would have received if eligible, under
Section 3(b).
Receipt of a dismissal allowance or failure
of the employee to return to service will not result in loss of
other contractual rights including seniority rights except as may
otherwise be provided for in the agreement.
(g) If an employee who is receiving a dismissal
allowance returns to service at United, the dismissal allowance
shall cease while the employee is so re-employed and the period
of time during which the employee is so re-employed shall be
deducted from the total period for which the employee is entitled
to receive a dismissal allowance.
(h) If an employee who is receiving a dismissal
allowance obtains other employment, the dismissal allowance shall
be reduced to the extent that the sum total of earnings in such
employment plus the allowance and any unemployment insurance
benefit (or similar benefit) exceed the amount upon which the
dismissal allowance is based.
(i) The amount of the dismissal allowance will be
reduced by amounts received due to contractual severance pay.
(j) A dismissal allowance shall cease prior to
the expiration of its prescribed period in the event of:
1. Failure without a good cause to return to service
after being notified of a position for which the employee is
eligible and as provided in paragraphs (f) and (g).
2. Resignation
3. Death
4. Retirement as an active employee in accordance
with the agreement
5. Dismissal for justifiable cause.
(k) Employees receiving a dismissal allowance
will be required as a condition of receiving the allowance to
participate in any United and/or government-provided programs
(including but not limited to training) designed to assist them
in obtaining re-employment, so long as such programs are
scheduled at a time and place that does not interfere with
employment, job search or other similar obligations.
(l) Employees eligible for a dismissal allowance
will be entitled to select the separation allowance referenced in
subsection 3(b) above in lieu of receiving the dismissal
allowance and continuation of benefits as provided in Section 4
below.
Section 4. During the period an employee receives a
dismissal allowance, the employee shall not be deprived of the
following benefits attaching to the employee's previous
employment: health care, life insurance and pass benefits,
provided that United shall not be required to provide such
benefits if they are provided to the employee by another
employer.
Section 5. The benefits provided under this agreement
become effective and payable only when and if the IAM and ALPA
ratify the ESOP transaction terms on or before January 31, 1994.
The lump sum "separation allowance" will not be paid until a
final and complete closing of the transaction. The benefits under
this agreement will terminate if:
a. Definitive documentation with respect to the
transaction is not executed on or before the date referred to in
Section 10 of the agreement in principle to which this Exhibit is
attached, or
b. A final and complete closing of the
transaction has not occurred on or before the date referred to in
Section 10 of the agreement in principle to which this Exhibit is
attached.
---------------------------
12/20/93
EXHIBIT E-3
TERMS OF THE SALARIED AND MANAGEMENT EMPLOYEE INVESTMENT
1. The U.S. salaried and management employee* contribution
over the five year and nine month investment period must equal
$509 million NPV** through a combination of wage reductions,
benefit changes, work practice changes and staffing level changes
as long as such changes create equivalent hard dollar value and
are reasonably acceptable to the participating unions. If the
investment period is reduced by nine (9) months due to
participation of the AFA, then the contribution must equal $453
million NPV. The participating unions will have the continuing
right to audit the implementation of the salaried and management
employee contribution under this paragraph.
2. These investments are only applicable to the Company's
U.S. salaried and management employees. In discussions with the
Company, we have explored the possibility of inviting the
participation of certain foreign employees in the Transaction,
although such participation would not increase the aggregate
investment of the Company's employees under the Transaction.
3. Management will be responsible for determining the
participation levels of specific U.S. salaried and management
employees at various pay and job levels in the Company, subject
to the requirement of achieving the overall hard dollar value
specified in paragraph 1 above.
4. The U.S. salaried and management investment will become
effective on the closing date of the Transaction and will
continue for five years and nine months thereafter or such lesser
period (not less than five years) as may be appropriate as a
result of negotiations with the AFA.
* The phrase U.S. salaried and management employees
refers to all U.S. payroll employees of the Company
(i.e., United Air Lines, Inc.) except those represented
by a U.S. labor union.
** Assume semi-annual payments, first period not
discounted, and annual discount rate of 10%.
---------------------------
12/20/93
EXHIBIT E-4
AFA PARTICIPATION
As described in Exhibits E-1, E-2 and E-3, the
ALPA, IAM and salaried and management investment period has
been extended by nine (9) months beyond the period otherwise
agreed upon. If, prior to the closing of the Transaction,
the AFA agrees to provide, in the sole judgment of the
Company, an investment equal to $416 million (present value
in January 1994 dollars for a five year AFA mainline
investment and a twelve year AFA U2 Investment)*, (i) the
nine (9) month extension of the ALPA, IAM and salaried and
management employee investment period shall be eliminated;
(ii) ALPA, IAM and salaried and management employees shall
make available 12.62 points of their ESOP stock to the AFA-
represented employees, on the following basis: 5.83 points
of the ALPA stock, 4.69 points of the IAM stock, and 2.10
points of the salaried and management employee stock; and
(iii) the parties will discuss appropriate adjustments to
other aspects of the Transaction (e.g., governance, ESOP
rules) as necessary to accommodate the participation of the
AFA.
* Assume semi-annual payments, first period not
discounted, and annual discount rate of 10%.
---------------------------
12/21/93
EXHIBIT F-1
ALPA WAGE ADJUSTMENT PROCESS
Pilot compensation for the fourth and later years
of the Agreement (the "Wage Adjustment Period") will be
subject to adjustment as follows:
1. At the end of the second year of the Agreement,
the parties will meet to establish increases, if any, in
both the book rates of pay and the actual rates of pay for
the Wage Adjustment Period. If the parties do not reach
agreement by the end of the thirtieth month of the
Agreement, the increases, if any, in such rates of pay will
be determined by expedited arbitration before a neutral
arbitrator (it being understood that the Company will retain
the right to contend that no increases of any type should be
granted).
2. The neutral arbitrator will be selected by mutual
agreement of the parties or, in the absence of such
agreement, by alternative striking from a panel of nine (9)
labor arbitrators of national standing supplied by the
National Mediation Board. The arbitration will be completed
by the end of the thirty-third month of the Agreement. The
neutral arbitrator will issue his decision by the end of the
thirty-fourth month of the Agreement.
3. If pay rates are submitted to arbitration under
this procedure, the neutral arbitrator will establish the
increases, if any, in pilot pay rates for the Wage
Adjustment Period as follows:
a. The neutral arbitrator will first determine the
across-the-board percentage increases, if any, in
pilot book wage rates (i.e., the pilot wage rates
that do not include the 15.7% wage rates reduction
adopted by the Association in connection with the
transaction) of the mainline United operation for
the Wage Adjustment Period on the basis of
(i) airline industry trends, (ii) United's
financial performance (including cumulative
profitability over the prior three years) and
(iii) the book wage rate levels for pilots of
Delta Airlines, Inc., American Airlines, Inc.,
USAir, Inc. and Northwest Airlines, Inc.
(collectively referred to as the "Comparison
Carriers"). Benefits under the Company's defined
benefits retirement and disability plans will be
based on these new book rates.
b. The neutral arbitrator will apply the percentage
increase in book rates determined under
paragraph 3.a above, if any, to the actual pilot
pay rates (i.e., the pilot wage rates net of the
15.7% wage rate reduction adopted by the
Association in connection with the transaction)
paid only to pilots at the Mainline operation.
c. The interest arbitration process described above
(i.e., the same arbitration) shall be applied to
determine the increases, if any, to actual pilot
pay rates applicable to pilots in the U2
operation, except that the U2 Comparison Carrier
shall be (a) Southwest Airlines ("Southwest") or
(b) the Short Haul Carrier that operates the
largest number of B-737 or equivalent type
aircraft at the time of the interest arbitration
if that carrier is not Southwest. For the purpose
of this provision, a "Short Haul Carrier" is any
U.S.-flag carrier with an average domestic stage
length (i.e., an average miles per departure) of
500 miles or less.
d. The increases, if any, in book rates and actual
rates awarded by the arbitrator will be effective
at the end of the third year of the Agreement, and
the arbitrator may (if deemed appropriate) award
additional increases to take effect at the end of
the fourth year of the Agreement.
e. For purposes of this midterm wage adjustment
process, the book wage rate of a Comparison
Carrier refers to the greater of (i) actual pay
rates at the Comparison Carrier or (ii) the pay
rates in effect at the Comparison Carrier prior to
any reduction from the pay rates in effect at the
same Comparison Carrier as of January 1, 1994.
4. In no event will the arbitrator establish (i) any
pay rate that is less favorable to the pilots than the pay
rates in effect when wage rates for the Wage Adjustment
Period are submitted to interest arbitration under this wage
adjustment process or (ii) any pay rate in either the fourth
or fifth year that is more than five (5) percent above the
actual rate in effect in the previous year.
5. In addition, the neutral arbitrator will determine
the increase, if any but not to exceed $.25 per hour, in
hourly expenses under section 4.A of the Agreement on the
basis of (i) airline industry trends, (ii) United's
financial performance (including cumulative profitability
over the prior three years) and (iii) the hourly expense
rates for pilots of the Comparison Carriers.
---------------------------
12/21/93
EXHIBIT F-2
IAM WAGE ADJUSTMENT PROCESS
The compensation of IAM-represented employees for
the fourth and later years of the Agreement (the "Wage
Adjustment Period") will be subject to adjustment as
follows:
1. At the end of the second year of the Agreement,
the parties will meet to establish increases, if any, in
both the book rates of pay and the actual rates of pay for
the Wage Adjustment Period. If the parties do not reach
agreement by the end of the thirtieth month of the
Agreement, the increases, if any, in such rates of pay will
be determined by expedited arbitration before a neutral
arbitrator (it being understood that the Company will retain
the right to contend that no increases of any type should be
granted).
2. The neutral arbitrator will be selected by mutual
agreement of the parties or, in the absence of such
agreement, by alternative striking from a panel of nine (9)
labor arbitrators of national standing supplied by the
National Mediation Board. The arbitration will be completed
by the end of the thirty-third month of the Agreement. The
neutral arbitrator will issue his decision by the end of the
thirty-fourth month of the Agreement.
3. If IAM pay rates are submitted to arbitration
under this procedure, the neutral arbitrator will establish
the increases, if any, in pay rates for IAM-represented
employees for the Wage Adjustment Period as follows:
a. The neutral arbitrator will first determine the
across-the-board percentage increases, if any, in
IAM book wage rates (i.e., the wage rates of IAM-
represented employees that do not include the wage
rate reductions adopted by the IAM in connection
with the transaction) of the mainline United
operation for the Wage Adjustment Period on the
basis of (i) airline industry trends,
(ii) United's financial performance (including
cumulative profitability over the prior three
years) and (iii) the book wage rate levels for
comparable employees of American Airlines, Inc.,
USAir, Inc. and Northwest Airlines, Inc.
(collectively referred to as the "Comparison
Carriers").
b. The neutral arbitrator will apply the percentage
increase in book rates determined under
paragraph 3.a above, if any, to the actual IAM pay
rates (i.e., the wage rates of IAM-represented
employees net of the wage rate reductions adopted
by the IAM in connection with the transaction)
paid to all IAM-represented employees.
c. The increases, if any, in book rates and actual
rates awarded by the arbitrator will be effective
at the end of the third year of the Agreement, and
the arbitrator may (if deemed appropriate) award
additional increases to take effect at the end of
the fourth year of the Agreement.
d. For purposes of this midterm wage adjustment
process, the book wage rate of a Comparison
Carrier refers to the greater of (i) the actual
pay rates maintained under the collective
bargaining agreements at such carriers or (ii) the
pay rates in effect at the Comparison Carrier
prior to any reduction from the pay rates in
effect at the same Comparison Carrier as of
January 1, 1994.
4. In no event will the arbitrator establish (i) any
pay rate that is less favorable to IAM-represented employees
than the pay rates in effect when wage rates for the Wage
Adjustment Period are submitted to interest arbitration
under this wage adjustment process or (ii) any pay rate in
either the fourth or the fifth year that is more than five
(5) percent above the actual rate in effect in the previous
year.
---------------------------
12/21/93
EXHIBIT F-3
SALARIED AND MANAGEMENT EMPLOYEE
WAGE ADJUSTMENT PROCESS
The Company's U.S. Salaried and Management
employees may receive an appropriate wage rate increase
beginning in the fourth year (and, if applicable, fifth
year) following the closing of the Transaction, if any,
through a program determined by management whose criteria
are consistent with the standards stated in paragraph 3.a of
the Wage Adjustment Process provided for Union-represented
employees pursuant to Exhibits F-1 and F-2, taking into
account the wage rate increases, if any, provided
IAM-represented and ALPA-represented employees pursuant to
Exhibits F-1 and F-2.
The average per capita increase due to a wage rate
increase, if any, for U.S. Salaried and Management Employees
pursuant to this Exhibit F-3 may not exceed five percent in
either the fourth or fifth year (i.e., the increase each
year may not exceed five percent of the total U.S. salaried
and management employee payroll in effect when the increase
is granted).
Management will be responsible for determining the
participation levels in any such wage rate adjustment of
specific U.S. salaried and management employees at various
pay and job levels in the Company.
---------------------------
12/20/93
EXHIBIT G
THE ALPA/IAM COMPETITIVE ACTION PLAN
ALPA and the IAM at United Airlines are prepared to reach an
agreement with the company on the terms of the Competitive Action
Plan. This agreement would be subject to completing the
transaction for substantial majority employee ownership of United
and subject to union ratification procedures with regard to that
transaction.
In connection with a transaction providing substantial
majority employee ownership of United, ALPA and the IAM would
modify existing collective bargaining agreements with United to
permit United, for the first time, to create a high frequency,
lower cost operation which could successfully compete against
other high frequency, lower cost carriers. The agreements would
produce dramatically reduced labor costs for this type of
operation, even compared to the labor costs already proposed by
ALPA and the IAM for the mainline operation under this
transaction.
The inauguration of this new service would not be limited by
employee attrition from mainline United. Rather, the ALPA/IAM
proposal will make sufficient employees available to commence a
fully ramped-up high frequency, lower cost operation, up to the
maximum authorized operating level, promptly following the
closing of the transaction.
The agreements between ALPA/IAM and the Company would permit
management to build a new lower cost operation that would have
the following characteristics:
1. ALPA and IAM will amend existing agreements with United
to permit the operation of a new short-haul operation
characterized by high frequency, simplified cabin and ramp
service, rapid turn-arounds and high rates of aircraft
utilization. This operation is called "U2" in this document.
The agreements will result in dramatically reduced labor costs in
contrast to status quo United, and even in comparison to the
post-transaction mainline United operation. The terms of each
Union's contractual modifications for the U2 operation as well as
the contributions of the Company's salaried and management
employees are summarized on pages four through ten of this
Exhibit.
2. The Company would be authorized to establish the new U2
operation as a distinct corporate division of United Airlines,
which will remain a single carrier for FAA and RLA purposes.
Employees in the U2 operation will be United Airlines employees
represented by the Coalition Unions in the respective United
Airlines crafts and classes.
3. Ramp-up of the new U2 operation would not be
constrained by mainline attrition. United would be authorized to
staff the operation by incumbent United employees and new hires
in accordance with each union's attached summary of terms.
United employees represented by ALPA and IAM as of the date of
closing would not be subject to furlough while U2 is in
operation.
4. For all years of the U2 operation, United would be
authorized to operate annual block hour levels in the U2
operation as follows: (a) 20 percent of the consolidated
systemwide block hours of United inclusive of U2 up to and
including 2,000,000 block hours per year; and (b) 25 percent of
the consolidated systemwide block hours of United inclusive of U2
in excess of 2,000,000 block hours per year. For years 6 through
12 following the closing of the Transaction, United would be
authorized to add additional U2 operations ("Additional U2
Flying") -- i.e., operations in addition to the level of U2
described in the preceding sentence -- in any city pairs other
than city pairs that were served by mainline United on a nonstop
basis at any time during the twenty-four months prior to the
introduction of U2 into that city pair.
5. United will be required to maintain 95 percent of the
annual consolidated systemwide wide body block hours as
identified in its October 1993 five year fleet plan. For the
purposes of this agreement, wide body aircraft shall include
B-757,B-767, DC-10, B-777, B-747, B-747-400 and any other
aircraft operated by United not identified in its October 1993
fleet plan which have an average seating configuration larger
than the B-757 aircraft. If the annual wide body block hours
flown by United for a twelve month period falls below such
thresholds, United will be required to reduce the annual block
hours flown in the U2 operation over the subsequent 12 month
period by such shortfall in wide body block hours.
6. United would be authorized to operate up to ninety
percent (90%) of the U2 monthly block hours, exclusive of any
Additional U2 Flying as defined in paragraph 4 above, in city
pairs that were served by mainline United on a nonstop basis at
any time during the twenty-four months prior to the introduction
of U2 into that city pair.
7. U2 would be authorized to operate nonstop service in
city pairs anywhere in the contiguous forty-eight states, with
stage lengths up to and including 750 miles, other than service
between current or future United hub or international gateway
cities (currently these cities are Chicago, Denver, New York
Area, Los Angeles Basin, San Francisco Bay, Miami, Washington,
D.C. Area). Nonetheless, U2 would be permitted to operate
between the San Francisco Bay airports and the Los Angeles Basin
airports pursuant to the terms of this proposal.
8. U2 would be authorized to utilize aircraft having any
gross weight and seating capacity up to the gross weight and
seating capacity of the Company's B-737-300 series aircraft.
Management would be free to determine whether such aircraft would
constitute a separate fleet from the mainline fleet.
SUMMARY OF ALPA U2 TERMS
1. The rates of pay, rules and working conditions for
United pilots in the U2 operation that differ from those of the
United pilots in the Mainline operation will be established in a
separate Supplemental Agreement to the new ALPA-United collective
bargaining agreement (the "U2 Supplement"). All pilots in the
employ of the Company, including the U-2 operations, shall be on
a single seniority list.
2. United pilots in the U2 operation will receive the same
fringe benefits (e.g., life insurance, long-term disability, sick
leave, medical/dental, workers compensation, A Plan and B Plan)
as pilots in the Mainline operation and will receive stock
allocation and profit sharing rights in connection with the
transaction.
3. The Company will establish separate bid positions for
the U2 operation. United pilots shall be afforded the following
bid opportunities with respect to the U2 operation:
a. All U2 Captain vacancies would be open for bid by all
United pilots.
b. All U2 First Officer vacancies would be open for bid by
probationary pilots and by pilots who are incumbent
B-727 Second Officers as of the date of the closing.
4. Training freezes for all United pilots would be
established as follows:
a. All United bids that require training of 12 days or
more will result in a 24 month freeze from bid award.
b. All United bids that require training of less than 12
days will result in a 12 month freeze from bid award.
c. Pilots who voluntarily go to U2 will incur a freeze of
24 months. Freezes will be served cumulatively except
any combined freeze will not exceed 36 months.
d. Pilots who are involuntarily displaced shall not incur
a freeze.
e. These freezes shall not prevent a pilot from bidding
and receiving passover pay.
5. Incumbent United pilots (i.e., pilots employed by
United on the date of closing) may be displaced into U2 positions
under existing contractual displacement rules. All such
displaced pilots (a) will be "red circled" so that their monthly
yield in the U2 operation is no less than the monthly yield they
would have earned if not displaced from their Mainline position
and (b) will not be subject to any restrictions on their ability
to bid back into the Mainline vacancies. However, if such
displaced pilots choose to bypass bidding opportunities into
Mainline vacancies and to remain in the U2 operation, they will
become subject to the pay rates and bidding restrictions
applicable to U2 pilots. A displaced pilot will be identified as
having bypassed bidding to the Mainline if such pilot chooses not
to bid into an open position which would produce a monthly yield
equal to or greater than the pilot's red circled yield in the
domicile in at least the same status from which the pilot was
originally displaced.
6. Pilots hired directly into the Mainline operation
following the closing may also be displaced into the U2 operation
under the current displacement rules. All such displaced pilots
will be subject to the U2 Supplement in its entirety.
7. United pilots in the U2 operation will receive hourly
pay rates for the B-737 aircraft equivalent to 78/84ths of the
post-transaction United B-737 hourly pay rates.
8. The following terms will be incorporated into the U2
Supplement:
a. Lineholders and reserves shall receive a guarantee of
78 hours per month.
b. Lines of flying should be constructed to a maximum of
85 credit hours per month.
c. Lineholders can pick up flying up to 90 credit hours
per month, but cannot schedule himself below 12 days
off per month.
d. Lines of flying in the U2 operation shall be
constructed with a minimum of 14 days free of duty per
month. Additionally, the average number of days free
of duty per month in line construction will be 16.
e. U2 schedules shall contain a minimum of 5.5 hours of
flight time credit average for each duty period.
f. Reserve lines of flying in the U2 operation shall be
constructed with a minimum of 14 days free of duty per
month.
g. Reserve pilots shall be able to pick up flying on one
of his days off. Such flying shall contain a minimum
of 5.5 hours of flight time credit average.
h. Modified 8 in 24 rest requirements to eliminate 2 for 1
requirement, maintaining all other contractual rest
provisions.
9. The vacation accrual schedule in the United collective
bargaining agreement shall be adjusted to equal the Southwest
vacation accrual schedule for U2 and Mainline pilots in their
first ten years of longevity.
10. The initial U2 Supplement will be amendable on the
amendable date of the new ALPA-United agreement (the "Basic
Agreement"). Following the amendable date of the Basic Agreement
and the U2 Supplement, the terms of the U2 Supplement governing
U2 pay rates and U2 work rules that are unique to U2 and that
differ from the pay rates and work rules applicable to the
Mainline -- i.e., the pay rates and work rules described in
paragraphs 4.c, 7 and 8 above plus the work rules in sections
4.A, 4.E (expense reimbursement), 5 (hours of service), 11
(vacation), and 20 (scheduling) of the Basic Agreement as and to
the extent they apply to the pilots in the U2 operation (such
terms being referred to in the aggregate as the "U2 Terms") --
will be determined as follows:
a. Upon the amendable date of the Basic Agreement and the
U2 Supplement (the "First Amendable Date"), the parties
will meet and attempt to negotiate the first successor
agreement governing the U2 Terms (the "First U2
Successor Agreement"). If the parties cannot reach
agreement on the First U2 Successor Agreement within
four (4) months following the First Amendable Date, the
parties will submit the unresolved U2 Terms to interest
arbitration under the following terms:
(1) The arbitrator will establish the unresolved U2
Terms on the basis of the comparable pay rates
and/or work rules in effect at the time of the
interest arbitration (including future pay rate
increases scheduled at the time of the interest
arbitration) at (a) Southwest Airlines
("Southwest") or (b) the Short Haul Carrier that
operates the largest number of B-737 or equivalent
type aircraft at the time of the interest
arbitration if that carrier is not Southwest. For
the purpose of this provision, a "Short Haul
Carrier" is any U.S.-flag carrier with an average
domestic stage length (i.e., an average miles per
departure) of 500 miles or less.
(2) If U2 pay rates are submitted to interest
arbitration under this provision, the arbitrator
will determine 12th year captain and 12th year
first officer rates pursuant to the standard
established in paragraph 10.a(1) above and will
apply the percentage increase, if any, in twelfth
year rates to years one through eleven on the U2
longevity scale.
(3) In no event shall the arbitrator establish any U2
Term that is less favorable to the pilots than the
U2 Term in effect when U2 Terms are submitted to
interest arbitration.
(4) The interest arbitration proceeding for the First
U2 Successor will commence no later than four (4)
months following the First Amendable Date; the
proceeding will be concluded no later than five
(5) months following the First Amendable Date; and
the arbitrator will render his or her decision no
later than six (6) months following the First
Amendable Date.
(5) The First U2 Successor Agreement will become
effective as of the First Amendable Date and will
be amendable (a) 42 months following the First
Amendable Date if the First Amendable Date is five
(5) years following the closing of the Transaction
or (b) 37.5 months following the First Amendable
Date if the First Amendable Date is five (5) years
and nine (9) months following the closing of the
Transaction.
b. Upon the amendable date of the First U2 Successor
Agreement (the "Second Amendable Date"), the parties
will meet and attempt to negotiate the second successor
agreement governing the U2 Terms (the "Second U2
Successor Agreement"). If the parties cannot reach
agreement on the Second U2 Successor Agreement within
four (4) months following the First Amendable Date, the
parties will submit the unresolved pay rates and/or
work rules of U2 Terms for the term of the Second U2
Successor Agreement to interest arbitration under the
interest arbitration terms applicable to the First U2
Successor Agreement except that the Second U2 Successor
Agreement will become effective as of the First
Amendable Date and will be amendable (a) 42 months
following the First Amendable Date if the First
Amendable Date is five (5) years following the closing
of the Transaction or (b) 37.5 months following the
Second Amendable Date if the First Amendable Date is
five (5) years and nine (9) months following the
closing of the Transaction.
c. Neither party will take self-help of any kind over the
U2 Terms subject to the negotiation/interest
arbitration process established in this paragraph,
provided that nothing in this paragraph shall prohibit
U2 pilots from engaging in self-help over rates of pay,
rules and working conditions other than U2 Terms.
SUMMARY OF IAMAW U2 TERMS
1. The employees assigned to U2 will remain covered by the same
collective bargaining agreements as cover current IAM-
represented employees. Assignment of employees to either
the mainline United operation or the U2 operation shall be
made to maximize capital utilization and manpower
utilization, but that assignment will be in accordance with
the terms of the collective bargaining agreements. The IAM
will modify those agreements as indicated below.
2. The hours of service of all IAM represented full-time
employees shall be amended to provide for eight consecutive
hours exclusive of one-half hour unpaid meal period. This
provision shall not be amendable for 12 years.
3. Article II (C) of the Ramp and Stores Agreement will be
amended to provide that in addition to the stations
currently referred to in that article, the Company will
assign ramp servicemen to any U.S. location which has a
sustained flight level of 40 or more daily departure for a
minimum period of 6 months. If the number of daily
departures at a location established as a ramp service
station pursuant to this provision should drop below 30 for
at least 6 months, and if such reduction is forecast to be
reasonably permanent in nature, the Company will have a
right to reverse the process and reclassify that location to
a non-ramp serviceman location. However, if such action is
necessary, there will be no lay-off to the street of a ramp
serviceman at such locations who has not first been given an
option on the system in his/her classification or a higher
classification. At locations established as a Ramp Service
station pursuant to this paragraph, the number of part-time
Ramp Servicemen to be assigned by the Company will not
exceed 25% of the total number of full-time Lead Ramp
Servicemen and Ramp Servicemen in active service at the
station. This provision shall not be amendable for 12
years.
4. The company may contract out up to 20% of all maintenance
work annually as measured by the sum of the Maintenance
Operations Division's gross annual budget plus those
portions of stations' total gross annual budgets
attributable to building maintenance and ground equipment
maintenance, provided however this percentage may be
exceeded in the event the Company has fully utilized its
existing equipment or facilities. This provision shall not
be amendable for 12 years.
5. Delete Article VII (D) of the Mechanic's Agreement and
similar provisions of the Ramp and Stores, Food Services',
Dispatchers', and Security Officers' Agreements, except that
employees who work overtime on a regular scheduled day off
will have a normal lunch period. This provision shall not
be amendable for 12 years.
SUMMARY OF SALARIED AND MANAGEMENT EMPLOYEE U2 TERMS
The Company's salaried and management employees will
make a contribution to the Competitive Action Plan which is fair
and equitable in relation to the contributions to the Competitive
Action Plan made by employees represented by ALPA and the IAMAW.
---------------------------
12/22/93
EXHIBIT H
GOVERNANCE TERMS
1. Board to be comprised of 12 directors (subject to the
rights of preferred stockholders upon default): 5
Public Directors elected solely by the public
stockholders (intended to include the CEO, one other
member of management and three other individuals who
are existing outside directors); 4 Independent
Directors nominated as provided in paragraph 5 below
and elected by a class of shares held solely by the
Independent Directors (who will be bound by a
Stockholders Agreement with the employee groups to
elect the persons so nominated); 2 Union Directors
(selected by each of the two participating unions); and
1 Salaried/Management Director (an additional director
selected solely by the salaried and management
employees).
The initial Public Directors (excluding the CEO and the
other member of management serving as a Public
Director, "Outside Public Directors") will be selected
by the existing Board of Directors of UAL and may be
from among the existing outside directors (excluding
employees and others who have provided professional
services to the Company). If any Outside Public
Directors are selected other than from the existing
outside directors, such persons will be selected prior
to execution of definitive documentation. At the
expiration of the term of each Outside Public Director
and to fill vacancies, Outside Public Directors would
be nominated or appointed, as appropriate, by a "Public
Director Nomination Committee" comprised of the Outside
Public Directors. The amendment of the terms or
authority of the Public Director Nomination Committee
and the deletion of any governance provision that
requires the inclusion of an Outside Public Director as
a member of a Board Committee or that affects their
power, authority or position on any committee shall, in
addition to the approval required under paragraph 13,
require the concurrence of a majority of the Outside
Public Directors.
2. The IAM and ALPA shall identify the initial Independent
Directors and CEO prior to the signing of definitive
documentation and such identified persons shall have
agreed to serve and, in the case of the Independent
Directors, shall have agreed to enter into the
Stockholders Agreement referred to above.
3. Each initial and replacement Independent Director shall
be a person of appropriate stature and experience and
may neither have a current or prior material
affiliation or business relationship with the Company
nor be an officer, director or trustee of any organized
labor group. In addition, at least 2 of the 4
Independent Directors at the time of their initial
nomination or appointment to