November 25, 2005
UNITED AIRLINE’S PLAN OF REORGANIZATION
BALLOT INFORMATION
Dear Fellow URPBPA Member,
The information in this letter will be presented in two parts. Part A will provide you with a description of the provisions of the ballot you recently received from United Airlines. Part B will provide URPBPA’s recommendations on voting approved by URPBPA’s Board of Directors.
This letter will be lengthy due to the complex issues you will be considering when you vote. We urge you to take the time to carefully consider all of the information in this letter and in the package United mailed to you. In addition URPBPA urges you to consult with your personal attorney and financial advisor prior to voting.
PART A
United Airlines recently mailed each retired pilot a
package containing a ballot and explanatory materials, including a CD that
explains United’s Plan of Reorganization.
In order for your ballot to be counted it must be delivered to
Poorman-Douglas in
All unsecured creditors will be offered the opportunity to vote their “claims”. The front page of your ballot contains a box entitled, “Class 2D-2-Unsecured Retiree Convenience Class Claims”. In that box under the “Amount of Claim”, there will be a dollar amount next to “Amount of Pilot Non-Qualified Benefit Claim”, if you were receiving pension payments from the “non-qualified” component of the pension plan. There should also be a dollar amount next to “Amount of Section 114[1] Claim”, if you retired before July 1, 2003 and have insurance benefits from United. This letter will provide you with more information and a recommendation from URPBPA about your “non-qualified” claim amount. Any issues about your “Section 1114 Claim” will be addressed by your Section 1114 Retired Pilots’ Committee and you should receive a separate letter from them.
Retired pilots are just one of the classes of unsecured
creditors voting on the Plan. Once the
ballots are counted, there will be a hearing in the Bankruptcy Court in
emerge from bankruptcy as provided in the Plan. If the Plan is rejected, United will have to develop a new Plan and present it to the creditors once again.
1. The first selection you will make on your ballot is a vote on United’s Plan of Reorganization, shown as Ballot-Part II, Item 2. If you vote to accept the Plan you are agreeing to the Plan as described in United’s mailing to you. Your vote to reject United’s Plan indicates that you do not want to accept United’s plan.
The Plan contains the following provisions:
a. Your claim will be based upon the value of the claim amounts indicated in the box on the first page of your ballot. If you have been receiving non-qualified pension benefits, the box will show an amount for the net present value of the non-qualified benefits that you will lose under United’s Plan. If you retired before July 1, 2003, the box will also show an amount representing the value of your insurance benefits that are estimated to be lost because of changes to medical and life insurance benefits under Section 1114 of the Bankruptcy Code.
b. If you vote to accept the Plan, you are considered to have released all of the parties associated with the UAL bankruptcy from any further legal liability. If you vote to reject the plan, you also are stating that you reject the release provisions of the plan. If you do not vote to either accept or reject the plan, you may elect to not release the parties by opting out of the release provisions.
c. United intends to settle your claim by issuing “New United Stock” with a value estimated to be from 4 to 8 percent of the claim amounts shown in the box on the front of your ballot. Under United’s Plan, all United stock issued up to the time of approval of United’s Plan of Reorganization will be cancelled. It will have no value once the Plan is approved and stockholders will receive nothing for the lost value of the stock.
2. The vote on Part II, Item 3 will allow you to accept or reject the release provisions of the Plan. If you accept the release provisions of the Plan and the release provisions are approved by the bankruptcy judge, then any current or future legal action you may have against any party in the UAL bankruptcy may be disallowed. If you reject the release provisions, then you are opposing the release of parties to the bankruptcy from further legal action.
3. Part II, Item 4 on the ballot allows you to indicate whether you wish to remain in the Unsecured Retiree Convenience Class. If you elect to remain in the Class, United will retain the stock issued to you to settle your claim and will sell your stock for you. They will deduct an amount for income tax and other costs from the proceeds and send you a check for the remainder. United has not stated what the costs of sale will be or when it will sell the stock.
If you wish to receive the stock yourself and decide whether and when to sell the stock, you must opt out of the Unsecured Retiree Convenience Class, by checking the
appropriate box. If you elect to opt out, then as soon as practical after the plan is approved, a portion of your stock will be sold in sufficient amounts to cover the tax liabilities of issuing the stock to you and the remaining stock will be sent to you. You can then sell or retain the stock at your option
4. If you disagree with the amount of your non-qualified pension claim as stated in the box on the front of your ballot, Part II, Item 3 of the ballot also allows you to challenge United’s calculations of your claim. United and the bankruptcy court may require you to substantiate any different value of your claim.
PART B
VOTING ON THE PLAN OF REORGANIZATION IS AN INDIVIDUAL DECISION THAT CAN ONLY BE MADE BY THE CREDITOR NAMED ON THE BALLOT. THE VOTE YOU CAST WILL IMPACT YOU FINANCIALLY AND MAY HAVE TAX IMPLICATIONS. AGAIN, URPBPA STRONGLY URGES EACH RETIRED PILOT TO CONSULT WITH HIS OR HER OWN LEGAL AND FINANCIAL ADVISORS PRIOR TO VOTING.
After carefully considering the United Plan of Reorganization and the ballot you received, URPBPA’s Board of Directors makes the following recommendations to its members:
1. URPBPA recommends that its members vote to REJECT United’s Plan of Reorganization (Ballot-Part II, Item 2). Many retired pilots will experience significant losses in their pension income under United’s Plan. URPBPA’s Board believes that United could have taken steps to minimize the impact of United’s bankruptcy on the pension income of pilot retirees. URPBPA’s Board believes that United should produce another Plan of Reorganization which would be better for all of the retirees of United, especially the retired pilots who will suffer substantial losses in pension income and will recover back only a small portion of those losses from the present Plan of Reorganization.
2. Despite the language on the ballot, and in order to make it abundantly clear that the voter rejects the release provisions, URPBPA recommends that its members vote to OPT OUT of United’s release provisions (Ballot-Part II Item 3). URPBPA will pursue substantial legal measures against all parties responsible, including ALPA, in an effort to protect and recover pension benefits for retired pilots. United’s release provisions attempt to release parties, other than United, from liability and United’s proposed release would encompass ALPA. URPBPA will pursue legal action to oppose the proposed release regardless of the outcome of the vote.
3. URPBPA recommends that its members elect to OPT OUT of the Unsecured Retiree Convenience Class by checking the box in Ballot-Part II, Item 4. This will allow you to exercise control over the sale of your remaining stock at a time and price of your choosing. However, you should review the tax issues related to your receipt of the stock with your own attorney and financial advisor. You also should realize that there is no assurance, that by following this recommendation, your stock will be more valuable or sell for a price equal to or greater than what it would be worth or sell for if you had remained in the Unsecured Retiree Convenience Class.
4. URPBPA recommends that its members increase the amount for the “Amount of Pilot Non-Qualified Benefit Claim”. URPBPA’s actuary is of the opinion that a “discount rate factor” and “life annuity factor” may be used, which are different from the factors used by United. URPBPA’s actuary has prepared a chart, which is enclosed, that may be referenced to increase the Non-Qualified Benefit Claim as follows:
A) The chart displays columns for “Age” and “Percent Increase”. To use the chart, refer to your age and find the number under the “Percent Increase” column, which corresponds to that age. Then refer to your “Non-Qualified Benefit Claim” amount shown on the front page of your ballot and multiply that amount by your “Percent Increase” to produce the increased amount. The increased amount should be added to your Non-Qualified Benefit Claim amount to produce a new amount. Finally, enter the total amount in the box under Part II, Item 4 on your ballot and write next to the amount “Plus” and then write the Section 1114 claim amount from the front page of the ballot.
B) The following is an example of how you may make this calculation:
A hypothetical retired pilot (Mr. Smith) has on his ballot a “Non-Qualified Benefit Claim” amount of $300,000. Mr. Smith’s Section 1114 claim amount shown on his ballot is $20,000. Mr. Smith is 70 years of age. Mr. Smith would multiply $300,000 by the “Percent Increase” on the chart which corresponds to age 70 (14.0%) and the result of $300,000 x .140 equals $42,000. Mr. Smith would add the $42,000 to the $300,000 to produce $342,000 as his new Non-Qualified Benefit Claim amount. Mr. Smith would then write “342,000 plus $20,000” on the line next to the “$” sign within the box in Part II, Item 4 of his ballot.
C) URPBPA’s attorneys and actuary are continuing their review of United’s Plan of Reorganization and the issues associated with the voting and the amounts of the claims. They will also appear in court on behalf of URPBPA members to address challenges by United to the recommended increase in Non-Qualified Benefit claim amounts.
For your review, a sample ballot is enclosed which reflects URPBPA’s recommendations. However, your voting and the positions you take on your ballot should be based on what you believe is best for you and you are encouraged to consult with your own attorney and financial advisor.
Please be sure to sign and return your ballot so that it is RECEIVED by UAL’s agent, Poorman-Douglas in Portland Oregon, PRIOR to the December 19, 2005 deadline.
Fraternally,
The United Retired Pilots Benefit Protection Association
Board of Directors
[1] The “114” on the ballot is a misprint and should be “1114.” This refers to Bankruptcy Code Section 1114 which relates to insurance benefits provided by companies who are in bankruptcy.