LETTER OF AGREEMENT
BY AND AMONG
UAL CORPORATION,
UNITED AIR LINES, INC.
AND
FLIGHT ATTENDANTS
IN THE SERVICE OF
UNITED AIR LINES, INC.,
AS REPRESENTED BY
ASSOCIATION OF FLIGHT ATTENDANTS - CWA
THIS LETTER OF AGREEMENT, dated as of July 25, 2006, is made and entered into in accordance with the Railway Labor Act by and among UAL CORPORATION (hereinafter referred to as “UAL”), UNITED AIR LINES, INC. (hereinafter referred to as the “Company”) and the ASSOCIATION OF FLIGHT ATTENDANTS – CWA (hereinafter referred to as “AFA” or the “Association”).
WHEREAS, the parties have previously entered into a Letter of Agreement, dated as of January 17, 2006, which provided for, among other things, the issuance of certain UAL convertible notes, as described in Exhibit B to such agreement (such exhibit, the “Term Sheet”);
WHEREAS, pursuant to the Second Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code (the “Plan”), which was approved by the United States Bankruptcy Court for the Northern District of Illinois on January 20, 2006, UAL will issue $726,000,000 in aggregate principal amount of Senior Convertible Notes due 2021 (the “Notes”) under an indenture (the “Indenture”, by and among UAL, the Company and The Bank of New York Trust Company, N.A., as indenture trustee, of which $20,000,000 in aggregate principal amount of Notes will be issued to an irrevocable trust (the “Trust”), as represented by The Bank of New York, as trustee (the “Trustee”), for the benefit of certain Company flight attendants (each, an “Eligible Flight Attendant”);
WHEREAS, following negotiations between the Company and the Association, a form of the Indenture has been filed in conjunction with the Plan; and
WHEREAS, pursuant to the Plan, the issuance of the Notes by UAL to the Trust is exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 1145(a)(1) of the Bankruptcy Code.
NOW THEREFORE the parties to this Letter of Agreement hereby agree as follows:
- Interest Rate; Conversion Price; Sale of the Notes. Notwithstanding anything to the contrary contained in the Term Sheet: (a) the interest rate for the Notes shall be 4.50%, (b) the conversion price for the Notes shall be $34.84; (c) the Notes shall be issued to the Trust on July 25, 2006 (subject to customary clearance by the Depository Trust Company); and (d) the Notes shall be sold by the Trust to Goldman, Sachs & Co. on July 28, 2006 for gross proceeds to the Trust of no less than $19.8 million (i.e., 99% of par value) pursuant to one or more transactions exempt from registration under the Securities Act of 1933, as amended (the “Sale Transaction”).
- Fees and Expenses. UAL, the Company and the Association shall each bear its own expenses in connection with the issuance of the Notes to the Trust, the Sale Transaction and the periodic distributions by the Trust of proceeds from the Sale Transaction. The costs, expenses and fees of the Trustee (including any indemnity of the Trustee) will be paid from the assets of the Trust (including the after-tax earnings on such assets pending final distribution to the Eligible Flight Attendants).
- Withholding Taxes. The Association acknowledges and agrees that all amounts distributed by the Trust to UAL and the Company for the benefit of the Eligible Flight Attendants will be subject to the withholding of applicable federal, state and local taxes, except to the extent such proceeds are forfeited to UAL on account of an equal cash amount being contributed to the Eligible Flight Attendants’ 401(k) accounts (the “401(k) accounts”) by the Company. The calculation of all such taxes shall be performed by the Company, and the Company shall be entitled to receive such amounts in cash from the Trust as necessary to fulfill its withholding obligations.
- Allocation of Proceeds. Attached as Exhibit A to this Letter of Agreement is an initial allocation formula (the “Allocation Formula”) for the proceeds from the Sale Transaction which lists the percentage of the assets of the Trust, net of all fees, taxes and expenses, to be received by each Eligible Flight Attendant. The parties acknowledge and agree that the Association may revise the Allocation Formula from time to time, upon reasonable notice to the Company.
- Distribution from the Trust. All proceeds from the Sale Transaction will be held in, and distributed in accordance with, the trust agreement attached as Exhibit B to this Letter of Agreement (the “Trust Agreement”). The parties acknowledge and agree that the proceeds of the Trust shall be distributed from time to time in accordance with the terms of the Trust Agreement provided that all assets of the Trust shall be distributed to the Company by no later than March 1, 2007 for further distribution to the Eligible Flight Attendants no later than March 15, 2007. Subject to the holdback structure described in Section 6 below, the Company agrees that, if and as directed by the Association following consultation with the Company, the Association shall direct the Trustee to make the following distributions of Trust assets, subject to any modification thereto that is disclosed with reasonable advance notice to the Company:
| a) |
first, the costs, fees and expenses of the Trustee incurred in administering the Trust (including the reasonable fees of its agents and counsel) an Athena Advisory Group, LLC and incurred through the date of such distribution shall be paid to the Trustee and Athena Advisory Group, LLC, respectively; |
| b) |
second, the Company’s best estimate of that amount of each Eligible Flight Attendant’s allocated proceeds as may be deposited in the 2006 tax year into such employee’s 401(k) account under applicable legal restrictions (each, a “2006 401(k) Amount” and, collectively, the “2006 401(k) Amounts”) shall be deposited into such account as promptly as reasonably possible following the Sale Transaction. An Eligible Flight Attendant's “401(k) account” means a separate account that exists under the United Airlines Flight Attendant 401(k) Plan and its related trust fund (the “UAL 401K Plan”) or that will be established under such UAL 401K Plan for the benefit of an eligible participant thereunder to receive such 2006 401(k) Amount. All amounts deposited in an Eligible Flight Attendant’s 401(k) account shall be treated as “nonelective contributions” (within the meaning of Treasury Regulation Section 1.401(k)-6), shall be fully vested and nonforfeitable at all times and shall have at least the same benefits, rights, and features (including investment opportunities, loan and withdrawal rights) as 401(k) accounts under the UAL 401K Plan; |
| c) |
third, to the extent any amount of proceeds from the Sale Transaction remains undistributed after distributing the 2006 401(k) Amount and after withholding the Reserve Amount in accordance with Section 6 below, to such employee as a direct cash payment (each, a “Direct Contribution” and, collectively, the “Direct Contributions”) from the Company as promptly as reasonably possible following the Sale Transaction; and |
| d) |
fourth, all remaining assets of the Trust, including the Reserve Amount (as defined below) and any after-tax earnings on assets of the Trust, will be distributed from the Trust as directed by the Association on or prior to March 1, 2007 so as to be paid to Eligible Flight Attendants no later than March 15, 2007. |
Notwithstanding anything to the contrary in this Letter of Agreement, (i) the Trustee shall pay to the Company, when and as incurred, an amount equal to the Company’s portion of payroll taxes on the income generated by Trust assets and distributed as direct cash payments to Eligible Flight Attendants and (ii) the Association may direct the Trustee to distribute to the Company any or all of the remaining assets of the Trust for further distribution (after withholding any applicable taxes) to Eligible Flight Attendants at any time following the distribution of the initial Direct Contributions, in which case such assets shall be distributed by the Trust to the Company for distribution to Eligible Flight Attendants as a direct cash payment as promptly as reasonably possible following receipt by the Trust and the Company of such direction from the Association but no later than fifteen (15) business days following receipt of such direction.
- Reserve Amount. To facilitate the orderly administration of each distribution, the parties shall direct the Trustee to withhold pro rata from the 2006 401(k) Amounts and the Direct Contributions a portion of the net proceeds from the Sale Transaction, currently contemplated to be $1,000,000 (the “Reserve Amount”), to be held in the Trust until such time as the Association has determined, in its sole but reasonable discretion, that the Eligible Flight Attendants have had a reasonable opportunity to correct errors or omissions in the Allocation Formula and that all Eligible Flight Attendants have received Trust distributions as directed by the Association, provided that all assets of the Trust shall be distributed to the Company by no later than March 1, 2007 for further distribution to the Eligible Flight Attendants no later than March 15, 2007.
- 401(k) Contributions. All contributions of Trust assets to the 401(k) accounts shall be accomplished by a simultaneous forfeiture of Trust assets to UAL under the terms of the Trust Agreement and the contribution of an equal amount of cash by the Company to the 401(k) accounts for the benefit of Eligible Flight Attendants as described in the Allocation Formula. Such contributions to the 401(k) accounts will not include any employer contributions to which an Eligible Flight Attendant would be entitled other than by reason of Amendment #7 to such plan.
- Amendments; Waiver. This Letter of Agreement may be amended, modified, superseded or canceled and any of its provisions may be waived only by a written instrument executed by all parties or, in the case of a waiver, by the party waiving compliance. The failure of any party at any time to require performance of any provision of this Letter of Agreement shall not affect the right of that party at a later time to enforce the same or a different provision. No waiver by any party of a right under this Letter of Agreement shall be deemed or construed as a further or continuing waiver of any such right with respect to the same or a different provision of this Letter of Agreement.
- Notices. Any notice or other communication given under the terms of this Letter of Agreement must be in writing and shall be deemed to have been duly given on the day it is delivered by hand, on the day it is sent by facsimile with confirmation of receipt by the transmitting machine, on the business day after it is sent by a national overnight mail service (delivery charge prepaid), or on the third business day after it is mailed first class, postage prepaid, in any case to the following addresses:
| If to the Company: |
United Air Lines, Inc.
1200 East Algonquin Road
Elk Grove Township, Illinois 60007
Attention: General Counsel
Facsimile: 847-700-4099 |
| with copies to: |
Kirkland & Ellis LLP
200 East Randolph Drive
Chicago, Illinois 60601
Attention: R. Scott Falk, P.C.
Facsimile: 312-861-2200 |
| If to the Association: |
Association of Flight Attendants-CWA
One O'Hare Center
Suite 4020
6250 N. River Road
Rosemont, Illinois 60018
Attention: President, UAL Master
Executive Council |
or to such other address or to such other person as any party shall have last designated by written notice provided to the other parties in the manner set forth in this paragraph.
- Counterparts. This Letter of Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same
instrument, and each of which shall be deemed an original. Each party to
this Letter of Agreement has agreed to permit the use of faxed or otherwise
electronically transmitted signatures in order to expedite the consummation
of the transactions contemplated hereby.
- Headings; Construction. The paragraph headings in this Letter of Agreement have been inserted for convenience of reference only and do not restrict or otherwise modify any of the terms or provisions of this Letter of Agreement. Unless otherwise expressly provided, the words “including” or “includes” in this Letter of Agreement do not limit the preceding words or terms and shall be deemed to be followed by the words “without limitation.” The provisions of this Letter of Agreement, and the exercise by either party of any rights hereunder, shall not form the basis for any course of dealing between the Company and the Association with respect to any matter between the Company and the Association.
- Exhibits. This Letter of Agreement includes Exhibits A and B hereto.
- No Setoff. The Company hereby agrees that its obligations hereunder are irrevocable, absolute and unconditional and shall not be subject to any defense, deferment, suspension, counterclaim or set-off of any nature whatsoever and its obligations to fulfill its agreements hereunder shall remain in full force and effect regardless of any claims it may have against the Association or any Eligible Flight Attendant or any other person or entity.
IN WITNESS WHEREOF, the parties hereto have signed this LETTER OF AGREEMENT this 25th day of July 2006.
WITNESS:
|
|
FOR UNITED AIR LINES, INC.
|
|
|
|
Peter B. Kain
Vice President - Labor Relations
|
| WITNESS: |
|
FOR UAL CORPORATION
|
|
|
|
Frederic F. Brace
Executive Vice President and Chief
Financial Officer |
WITNESS:
|
|
FOR THE FLIGHT ATTENDANTS IN
THE SERVICE OF UNITED AIR LINES, INC. |
| |
|
Patricia Friend
International President
Association of Flight Attendants-CWA, AFL-CIO |
| |
|
|
| |
|
Gregory E. Davidowitch, President
United Master Executive Council,
Association of Flight Attendants-CWA, AFL-CIO |