United Airlines 2010 Annual Report Download - page 175

performance period depending on the synergies achieved during such period. The number of Merger Incentive
RSUs that become vested depends on the timing and/or level of achievement of the related performance goals. In
no event will the payment with respect to a vested Merger Incentive RSU exceed a maximum amount to be
established by the Compensation Committee at the time of grant.
Generally, except as otherwise provided in a recipient’s employment agreement, a recipient of Merger
Incentive RSUs must remain continuously employed from the date of receipt of such award through the relevant
vesting date for a tranche in order to receive payment with respect to the award for that tranche. If a recipient dies
or becomes disabled during a performance period for a tranche of Merger Incentive RSUs, then, except as
otherwise provided in the recipient’s employment agreement, the recipient will become vested and receive
payment with respect to a pro-rata portion of the Merger Incentive RSUs included in such tranche (assuming
targeted level of performance) as determined in accordance with the Merger Performance Incentive Award
Notice. In the event a change of control of UAL occurs during the relevant performance period for a tranche of
the Merger Incentive RSUs, a pro-rated portion of the Merger Incentive RSUs included in such tranche will vest
(assuming targeted level of performance) and be paid out as determined in accordance with the Merger
Performance Incentive Award Notice.
In general, and subject to limited exceptions set forth in the Merger Performance Incentive Award Notice,
the Compensation Committee has the right to reduce or eliminate a payment under the Merger Performance
Incentive Award Notice that would otherwise be payable if the Compensation Committee determines that such
reduction or elimination is appropriate based on UAL’s level of unrestricted cash and cash available under
unused credit lines as of the time of achievement of the performance goal; provided, however, that any such
reduction or elimination shall apply in a uniform manner to all participants who are otherwise entitled to receive
payments under corresponding provisions of their respective Merger Performance Incentive Award Notices.
PBGC
After the May 2010 announcement of the Merger agreement, the Pension Benefit Guaranty Corporation (the
“PBGC”) requested certain information from Continental to assess the Merger’s impact on Continental’s
qualified defined benefit programs (the “PBGC Information Request”). Subsequently, shortly before the closing
of the Merger, the PBGC took the position that the Merger would constitute a “Fundamental Change” under the
indenture (the “PBGC Indenture”) governing UAL’s 6% Senior Notes due 2031 held by PBGC (the “6% Senior
Notes”), which would require UAL to offer to redeem the $597 million outstanding principal amount of the 6%
Senior Notes at par, payable in cash or shares of UAL common stock. UAL strongly believes, based on the
language of the PBGC Indenture, market practice and relevant statutes and case law, that the Merger did not
constitute a “Fundamental Change” under the PBGC Indenture and that the PBGC’s position is without merit. In
the unlikely event that the PBGC were to prevail in its position that the Merger constituted a “Fundamental
Change”, the redemption of the 6% Senior Notes could require the prepayment of amounts outstanding under
United’s Amended and Restated Revolving Credit, Term Loan and Guaranty Agreement, dated as of February 2,
2007, 9.875% Senior Secured Notes due 2013 and 12.0% Senior Second Lien Notes due 2013, which aggregated
$2.2 billion principal amount as of December 31, 2010. UAL believes that, if such redemption were required,
UAL has adequate liquidity to satisfy such obligations and that new financings could be arranged substantially
replacing the amounts prepaid, although potentially on not as favorable terms.
On September 30, 2010, the PBGC, UAL and Continental entered into a standstill agreement providing that,
on or before January 31, 2011, they will not initiate any court or administrative proceeding regarding
Continental’s qualified defined benefit programs or the 6% Senior Notes, in each case as they relate to the
consummation of the Merger, or to assert in any court or administrative proceeding that the Merger did or did not
constitute a “fundamental change” under the PBGC Indenture. In addition, the PBGC and Continental agreed on
a schedule for providing the information requested by the PBGC relating to Continental’s qualified defined
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