Item 1.01 Entry into a Material Definitive Agreement.
Payroll Support Program 3 Agreement
United Airlines Holdings, Inc. ("UAL") and United Airlines, Inc., a wholly-owned
subsidiary of UAL ("United" and, together with UAL, the "Company") submitted an
application to the United States Department of the Treasury (the "U.S. Treasury
Department") pursuant to the Payroll Support Program established under Section
7301 of the American Rescue Plan Act of 2021 (the "ARP").
On April 29, 2021, in connection with the Payroll Support Program, United
entered into a Payroll Support Program 3 Agreement (the "PSP Agreement") with
the U.S. Treasury Department providing the Company with total funding of
approximately $2.8 billion.
Pursuant to the PSP Agreement, United and its affiliates will be required to
comply with certain provisions of the ARP, including, among others, the
requirement that all funds provided under the Payroll Support Program will be
used by United exclusively for the continuation of payment of its employee
wages, salaries and benefits; requirements to maintain employment levels from
the date of the PSP Agreement through September 30, 2021 or the date on which
the Company has expended all of the support, whichever is later; provisions
prohibiting certain reductions in employee wages, salaries and benefits;
provisions prohibiting the payment of dividends and the repurchase of certain
equity until September 30, 2022; audit and reporting requirements; provisions to
comply with certain continuation of service requirements until March 1, 2022;
and provisions restricting the payment of certain executive compensation until
April 1, 2023.
Promissory Note
On April 29, 2021, UAL issued a promissory note (the "PSP Note") to the U.S.
Treasury Department evidencing senior unsecured indebtedness of UAL in the
initial principal amount of approximately $390 million. The principal amount of
the PSP Note will increase in an amount equal to 30% of any disbursement made by
the U.S. Treasury Department to United under the PSP Agreement after the initial
issuance date. The aggregate principal amount of the PSP Note after all
disbursements will be approximately $810 million.
The PSP Note is guaranteed by United and will mature ten years after issuance on
April 29, 2031 (the "Maturity Date"). If any subsidiary of UAL (other than
United) guarantees other unsecured indebtedness of UAL with a principal balance
in excess of a specified amount, then such subsidiary shall be required to
guarantee the obligations of UAL under the PSP Note. UAL may, at its option,
prepay the PSP Note, at any time, and from time to time, at par. UAL is required
to prepay the PSP Note upon the occurrence of certain change of control
triggering events. The PSP Note does not require any amortization and is to be
repaid in full on the Maturity Date.
Interest on the PSP Note is payable semi-annually in arrears on the last
business day of March and September of each year, beginning on September 30,
2021, at a rate of 1.00% in years 1 through 5, and at the Secured Overnight
Financing Rate (SOFR) plus 2.00% in years 6 through 10.
Warrant Agreement
In addition to the PSP Note, UAL also entered into a warrant agreement (the
"Warrant Agreement") with the U.S. Treasury Department on April 29, 2021,
pursuant to which UAL will issue to the U.S. Treasury Department warrants to
purchase up to approximately 1.5 million shares of UAL common stock, pro rata in
conjunction with increases to the principal amount outstanding under the PSP
Note (the "Warrants"), with an initial issuance of Warrants to purchase up to
approximately 0.7 million shares of UAL common stock. The Warrants will have a
strike price of $53.92 per share (which was the closing price of UAL's common
stock on The Nasdaq Stock Market on March 10, 2021). The Warrants will expire
five years after issuance and are exercisable either through net share
settlement in cash or in shares of UAL common stock, at UAL's option.
The Warrants contain customary anti-dilution provisions and registration rights
and are freely transferrable. Pursuant to the terms of the Warrants, Warrant
holders do not have any voting rights.
The foregoing descriptions do not purport to be complete and are qualified in
their entirety by reference to each of the PSP Agreement, the PSP Note, the
Warrant Agreement and the Form of Warrant. The PSP Note, the Warrant Agreement,
the Form of Warrant and the PSP Agreement are attached as Exhibits 4.1, 4.2, 4.3
and 10.1, respectively, to this Current Report on Form 8-K and are incorporated
herein by reference.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
The information described under Item 1.01 is incorporated herein by reference to
the extent responsive to Item 2.03.
Item 3.02 Unregistered Sales of Equity Securities.
The information described under Item 1.01 is incorporated herein by reference to
the extent responsive to Item 3.02. The Warrants were or will be issued pursuant
to an exemption from registration provided for under Section 4(a)(2) of the
Securities Act of 1933, as amended, since the issuance did not involve any
public offering.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
Exhibit
No. Description
4.1 Promissory Note, dated as of April 29, 2021, among UAL, United, as
guarantor, and the United States Department of the Treasury.
4.2 Warrant Agreement, dated as of April 29, 2021, between UAL and the
United States Department of the Treasury.
4.3 Form of Warrant (included in Exhibit 4.2 as Annex B thereto).
10.1 Payroll Support Program 3 Agreement, dated as of April 29, 2021,
between United and the United States Department of the Treasury.
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document).
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