Bankruptcy Solicitation Packet for Retirees
The Company has begun the process of soliciting votes on its Plan of Reorganization (POR). Unsecured creditors who are eligible to vote have begun to receive Solicitation Packages in the mail. The POR contains a class of unsecured creditors called the "Unsecured Retiree Convenience Class" comprised of retirees who were affected by the 1114 changes to retiree medical benefits. This includes retirement dates of June 30, 2003 or earlier.
It is important to note that the retiree's claim is handled differently than active employees, since the claims for active employees is being treated in accordance with the Distribution Agreement in the Collective Bargaining Agreement. See also: Packet Questions and Answers
Information for Pre-July 1, 2003 Retirees
Questions?
See: Packet Q&A
How to Vote on United Airlines’ Plan and Determine Distribution of Your Bankruptcy Claim
During the last week of October, 2005, United Air Lines, Inc. (“United”) mailed out copies of its Plan of Reorganization (“Plan”) and Disclosure Statement to creditors.
In summary, a plan of reorganization is a contract between United and its creditors, under which United agrees to pay its creditors as set forth in the Plan. Creditors are entitled to vote on whether or not to accept the Plan. Only if a sufficient number of creditors vote to accept the Plan and the Court finds it meets certain legal requirements, will the Plan become binding upon United and its creditors. The Disclosure Statement contains financial and other information to allow creditors to decide how they should vote.
The package from United also should have in it a ballot (this document is printed on colored paper), a summary of the Plan (the full document is on the computer disk or a copy of these documents may be viewed at United’s website: www.pd-ual.com) and a notice telling you what the deadlines are for voting and when the Court will consider the Plan. United also has enclosed an envelope you should use to return your ballot. Ballots are due by December 19, 2004.
Retiree Medical Benefit Related Claims:
Pre-July 1, 2003 retirees have claims against United for medical benefits that they will not receive. This entitles them to vote on United’s Plan. During United’s Chapter 11 case, United asked the Bankruptcy Court to allow it change the medical benefits it offered to its pre-July 1, 2003 retirees. As a result of the negotiations which occurred in May and June, 2004 between United and AFA along with other retiree authorized representatives, certain adjustments were made to retiree medical benefits. You have previously been told about these changes which went into effect in 2004.
If the Plan is confirmed, the Plan provides that United must continue to offer medical benefits to its pre-July 1, 2003 retirees at the levels negotiated during the bankruptcy case. United will not be able to legally change these benefits. These agreements are described at pages 77-78 of the Plan (the Plan is Appendix A on the disk and the adobe acrobat page numbers are 83-84) and page numbers 139-141 of the Disclosure Statement (the Disclosure Statement is on the disk and the adobe acrobat page numbers are pages 144-146).
AFA filed claims for the pre-July 1, 2003 retirees for these lost benefits and increased costs. Each retiree who had been receiving medical benefits from United, holds a claim against United for the medical benefits they will not receive in the future and the increased costs they must now pay for the medical benefits they are receiving.
In its Plan, United proposes that all of its retirees’ claims for retiree medical benefits be included in what United has called the “Retiree Convenience Class.” The description for how United will treat these claims is found at pages 51-52 of the Plan (the Plan is Appendix A on the disk and the adobe acrobat page numbers are 57-58) and page numbers 113 and 139-141 of the Disclosure Statement (the Disclosure Statement is on the disk and the adobe acrobat page numbers are 118 and 144-146).
Reading Your Ballot
On the front of your ballot, is a box which states “Amount of Claim.” Line 2 in this box states the amount of your “Section 1114 Claim.” The dollar amount listed after the description “Section 1114 Claim” is the dollar amount that United owes to you because it modified its promise to provide you with medical benefits during your retirement. AFA and the other authorized representatives have reviewed these numbers and believe that they are generally accurate and consistent with the claims filed on your behalf. The Company has projected that the recovery for unsecured claims is 4-8% of the allowed amount of the claim. This box also contains two other types of claims, which are described below. The Section 1114 Claim has nothing to do with amounts you will receive in the future for your pension.
Your first decision is how and whether to vote for the Plan. If you decide not to vote, and the Plan is approved by the Bankruptcy Court, you will still receive payment on account of your Section 1114 Claim. United is proposing to satisfy the claims of all of its unsecured creditors, including its retirees, by distributing common stock in the reorganized company in full satisfaction of the claims.
Determining Distribution of Your Claim
Retirees also have two additional decisions to make. United has grouped all of the Section 1114 Claims in what it calls the Retiree Convenience Class. United proposes that it be allowed to sell the stock for retirees and distribute the cash. Other unsecured creditors will receive the stock directly. If you do not do anything, United will sell that stock for you, deduct the costs of sale from the money received for the stock and any applicable taxes that would be due, and pay you in cash what remains. United has not stated in its Plan what the costs of sale will be or how or when it will sell the stock. If you would prefer to receive the stock and decide whether and when to sell your stock, you must elect not to be included in the Retiree Convenience Class. This requires you to complete and return the ballot form and check the box on the Ballot listed under Item 4 -- Optional Election.
In addition, United has stated on the ballot what it believes the amount of your Section 1114 Claim to be. AFA and the other authorized representatives have reviewed United’s calculations of the claim amounts and agree with the amounts of the claims as stated by United. AFA and the other authorized representatives hired professionals who calculated the claims amount for each retiree group and believe these numbers are generally correct.
You have the right, however, to change the amount, by stating a different amount on the ballot, but if you do, United may require you to go to court to defend the number you place on the ballot. The line where you must do this is found in Item 4. If you write in a different amount, United can challenge your amount. If United does so, you will have to appear in Bankruptcy Court to defend the amount you selected. This may require you to hire a lawyer and expert witnesses to support your number. If you do not put anything on the line found under Item 4, your claim will be the amount stated at the top of the Ballot.
Serp Claims and Pilot Non-Qualified Benefit Claims:
Only retired pilots or retired members of management that participated in the non-qualified plans for retirement benefits will have a listed dollar amount at the top of the ballot for “SERP Claim” or “Pilot Non-Qualified Benefit Claim.”
Solicitation Packet Question and Answers
1. Does this have anything to do with or affect stock I own of UAL Inc.?
The resolution of the claim has nothing to do with the United stock an individual may currently own. Under the terms of the Plan of Reorganization all existing stock is extinguished. Upon confirmation of the Plan and exit from bankruptcy United will issue new stock. It is that stock that United will convert into cash or distribute directly to the retirees depending upon the election they make.
2. If I elect to take this 'settlement' does this put the cost of my medical insurance in jeopardy?
The resolution of the retirees' claims has no effect whatsoever upon retiree health benefits as established during the Section 1114 negotiations in June 2004.
3. Is the existing agreement for retirees in place until the end of 2011 contract agreement?
It is AFA's position that once United exits from bankruptcy the only way United can change retiree health benefits is through regular (Section 6) negotiations under the Railway Labor Act.
4. In accepting this claim, am I in anyway waiving anything of my retirement/medical benefits as I know them at this time?
In accepting the Company's treatment of his or her claim the individual retiree is not waiving or otherwise compromising the benefits that were established in June 2004. The claim relates solely to the benefits retirees lost as a result of the modifications made pursuant to Section 1114.
5. If I select option # 2 for a stock distribution, would I receive stock equal to the amount listed on the front of my solicitation package or the 4 to 8% the company projects as the recovery?
The stock distribution would be handled like the cash option. The stock distribution option would be based on the 4 to 8% the company projects as the recovery, not the full amount of the "allowed" claim.
6. Who should I call if I didn’t receive a Solicitation Packet?
United is responsible for providing you with a solicitation packet and an estimate of your claim. The last of the packets were sent as of November 1, 2005. If you do not receive your solicitation packet, call Portman Douglas at 1-877-752-5527 to advise United and request a new copy.
7. Are the losses associated with the 1114 medical benefit changes -- after the 4-8% recovery through distribution of cash or stock -- tax deductible?
AFA cannot give tax advice, but certainly some medical expenses are tax-deductible within limitations set by the IRS. Whether these medical expenses are deductible for a particular individual is an issue that each individual must assess, in consultation with a tax professional if necessary.
The Solicitation Package
Pursuant to the agreement reached between the Company and representatives of United retirees, retirees hold an unsecured claim for lost retiree benefits. The dollar amount of each retiree's claim, which United believes is the proper or "allowed" amount, is stated on the first page of each retiree's ballot. While AFA cannot warranty the accuracy of the stated claim amount on each ballot mailed out by the Company, AFA's actuaries have reviewed, and consider reasonable, the Company's methodology for calculating the total amount of the claim for all retired Flight Attendants. The Company has projected that the recovery for unsecured claims is 4-8% of the allowed amount of the claim.
The Plan of Reorganization provides retirees with three choices regarding their claim.
- First, unless they elect to "opt-out," retirees will hold Unsecured Retiree Convenience Class Claims. Convenience Class Claims are to be satisfied by the Company selling an amount of new UAL Common Stock equal in value to the retiree's recovery and distributing the cash proceeds of the stock sale to the retiree, less the amount of any discount, commission, fee or tax incurred in the sale.
- Second, if a retiree does not want his or her distribution paid in cash, but rather prefers a stock distribution, the retiree may opt-out of the Convenience Class. In that case, the claim will be treated as an Other Unsecured Claim, and the retiree's recovery will be distributed in new UAL Common Stock, which may be held or sold at the discretion of the retiree.
- Third, in the event a retiree believes that the amount of the claim allowed by the Company, as stated on the first page of the ballot, understates the retiree's lost benefits, the retiree must opt out of the Convenience Class and state what the retiree believes to the proper amount of the claim. However, should a retiree assert a claim to an amount greater than what the Company has allowed, the Company reserves the right to challenge the "amount" of the claim, including, presumably, the allowed amount.
