<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
CONTINENTIAL AIRLINES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[CONTINENTAL AIRLINES LOGO]
April 28, 1995
To Our Stockholders:
On behalf of the Board of Directors, it is our pleasure to invite you to
attend the 1995 Annual Meeting of Stockholders of Continental Airlines, Inc.
As shown in the attached notice, the meeting will be held at The Hyatt
Regency, 1200 Louisiana Street, Houston, Texas on Monday, June 5, 1995, at 9:00
a.m., local time. At the meeting, in addition to acting on the matters described
in the proxy statement, there will be an opportunity to discuss other matters of
interest to you as a stockholder.
Please date, sign and mail the enclosed proxy card in the envelope
provided, even if you plan to attend the meeting in person. We look forward to
seeing you in Houston.
Cordially,
/s/ DAVID BONDERMAN
------------------------
David Bonderman
Chairman of the Board
/s/ GORDON BETHUNE
------------------------
Gordon Bethune
President and Chief
Executive Officer
<PAGE> 3
CONTINENTAL AIRLINES, INC.
2929 ALLEN PARKWAY, SUITE 2010
HOUSTON, TEXAS 77019
------------------------
NOTICE OF 1995 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 5, 1995
------------------------
NOTICE IS HEREBY GIVEN that the 1995 Annual Meeting of Stockholders of
Continental Airlines, Inc., a Delaware corporation (the "Company" or
"Continental"), will be held at The Hyatt Regency, 1200 Louisiana Street,
Houston, Texas, on Monday, June 5, 1995, at 9:00 a.m. (Central Daylight Savings
Time) for the following purposes:
1. To elect eighteen directors for the ensuing year ;
2. To consider and act upon a proposal to approve an amendment to the
Company's 1994 Incentive Equity Plan;
3. To consider and act upon a proposal to ratify the appointment of Ernst &
Young LLP, independent public accountants, as independent auditors of the
Company and its subsidiaries for 1995; and
4. To consider and act upon any other matters that may properly come before
the Annual Meeting or any adjournment or adjournments thereof.
The holders of record of the Company's common stock at the close of
business on April 14, 1995 are entitled to notice of and to vote at the Annual
Meeting.
The proxy statement and form of proxy are enclosed.
By Order of the Board of Directors,
/s/ JEFFERY A. SMISEK
-------------------------
Jeffery A. Smisek
Secretary
Houston, Texas
April 28, 1995
PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY BY MAIL IN
THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. IF YOU DO ATTEND THE
MEETING IN PERSON, YOU MAY WITHDRAW YOUR PROXY AND VOTE PERSONALLY ON ALL
MATTERS BROUGHT BEFORE THE MEETING.
<PAGE> 4
CONTINENTAL AIRLINES, INC.
2929 ALLEN PARKWAY, SUITE 2010
HOUSTON, TEXAS 77019
------------------------
PROXY STATEMENT
1995 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 5, 1995
------------------------
This proxy statement is furnished in connection with the solicitation by
and on behalf of the Board of Directors of Continental Airlines, Inc., a
Delaware corporation (the "Company" or "Continental"), of proxies to be used at
the 1995 Annual Meeting of Stockholders of the Company or any adjournment or
adjournments thereof (the "Meeting"), to be held at The Hyatt Regency, 1200
Louisiana Street, Houston, Texas, on Monday, June 5, 1995, at 9:00 a.m. (Central
Daylight Savings Time), for the purposes set forth in the accompanying Notice of
1995 Annual Meeting of Stockholders. This proxy statement and the accompanying
proxy, together with a copy of the Company's 1994 Annual Report, are being first
mailed to stockholders on or about April 28, 1995.
THE PROXY
Stockholders giving proxies may revoke them at any time before they are
voted by notifying the Secretary of the Company in writing of such revocation or
by delivering to such Secretary a duly executed proxy bearing a later date. Any
such revocation or subsequent proxy must be received prior to the commencement
of voting at the Meeting to be effective. If a proxy is properly signed by a
holder of common stock and is not revoked, it will be voted at the Meeting in
the manner specified on the proxy or, if no manner is specified, it will be
voted "FOR" the election of directors nominated by the Board of Directors
(Proposal 1), "FOR" approval of the First Amendment to the Continental Airlines,
Inc. 1994 Incentive Equity Plan (Proposal 2) and "FOR" the ratification of the
appointment of Ernst & Young LLP as independent auditors for 1995 (Proposal 3).
The Company will bear the costs of the solicitation of proxies. In addition
to the solicitation of proxies by mail, proxies may also be solicited by
telephone, telegram, fax and in person by regular employees and directors of the
Company, none of whom will receive additional compensation therefor, and by
Morrow & Co., Inc., which the Company has retained to assist in the solicitation
of proxies for a fee estimated not to exceed $5,000 plus reasonable
out-of-pocket expenses. Arrangements will be made with brokerage houses and with
other custodians, nominees and fiduciaries to forward proxy soliciting materials
to beneficial owners, and the Company will reimburse such persons for their
reasonable out-of-pocket expenses incurred in connection therewith.
RECORD DATE AND VOTING SECURITIES
The Board of Directors fixed the close of business on April 14, 1995 as the
record date for the determination of stockholders entitled to notice of and to
vote at the Meeting. At the close of business on the record date, the Company
had outstanding and entitled to vote 6,301,056 shares of Class A common stock,
par value $.01 per share, and 20,561,065 shares of Class B common stock, par
value $.01 per share.
Continental's Restated Certificate of Incorporation authorizes the issuance
of up to 10 million shares of preferred stock, 50 million shares each of Class A
common stock, Class C common stock and Class D common stock, and 100 million
shares of Class B common stock. No shares of Class C common stock or Class D
common stock are outstanding. Subject to certain limitations on voting by
non-U.S. citizens, each share of Class A common stock is entitled to ten votes
per share and each share of Class B common stock is entitled to one vote per
share. The holders of a majority of the aggregate voting power of the
outstanding common stock entitled to vote at the Meeting, present or represented
by proxy, will constitute a quorum for the transaction of business at the
Meeting. In establishing the presence of a quorum, abstentions and broker
non-votes (if any) will be included in the determination of the number of shares
represented at the Meeting.
<PAGE> 5
Abstentions are treated as votes cast and thus will have the same effect as a
vote against a proposal; broker non-votes, however, are not treated as votes
cast and thus will not affect the outcome of any proposal.
LIMITATION ON VOTING BY FOREIGN OWNERS
The Company's Restated Certificate of Incorporation defines "Foreign
Ownership Restrictions" as "applicable statutory, regulatory and interpretive
restrictions regarding foreign ownership or control of U.S. air
carriers (as amended or modified from time to time)". Such restrictions
currently require that no more than 25% of the voting stock of the Company be
owned or controlled, directly or indirectly, by persons who are not U.S.
Citizens ("Foreigners") for purposes of the Foreign Ownership Restrictions, and
that the Company's president and at least two-thirds of its directors be U.S.
Citizens. For purposes of the Restated Certificate of Incorporation, "U.S.
Citizen" means (i) an individual who is a citizen of the United States; (ii) a
partnership each of whose partners is an individual who is a citizen of the
United States; or (iii) a corporation or association organized under the laws of
the United States or a State, the District of Columbia, or a territory or
possession of the United States, of which the president and at least two-thirds
of the board of directors and other managing officers are citizens of the United
States, and in which at least 75 percent of the voting interest is owned or
controlled by persons that are citizens of the United States. The Restated
Certificate of Incorporation provides that no shares of capital stock may be
voted by or at the direction of Foreigners, unless such shares are registered on
a separate stock record (the "Foreign Stock Record") maintained by the Company
for the registration of ownership of voting stock by Foreigners. The Company's
Bylaws further provide that no shares will be registered on the Foreign Stock
Record if the amount so registered would exceed the Foreign Ownership
Restrictions or adversely affect the Company's operating certificates or
authorities. Registration on the Foreign Stock Record is made in chronological
order based on the date the Company receives a written request for registration,
except that shares held by Air Canada, a Canadian corporation, and, after such
shares, shares acquired by Air Partners, L.P., a Texas limited partnership ("Air
Partners"), in connection with its original investment in the Company that are
subsequently transferred to any Foreigner are entitled to be registered prior
to, and to the exclusion of, other shares. Shares currently owned by Air Canada
and registered on the Foreign Stock Record constitute substantially the maximum
number of shares that may be voted by Foreigners under the Foreign Ownership
Restrictions. Accordingly, at this time only a very limited number of shares of
Class B common stock or other equity securities of the Company may be registered
on the Foreign Stock Record and voted by any Foreigner other than Air Canada.
VOTING RIGHTS AND PRINCIPAL STOCKHOLDERS
The following table sets forth, as of April 14, 1995 (except as otherwise
set forth below), certain information with respect to persons owning
beneficially (to the knowledge of the Company) more than five percent of any
class of the Company's voting securities. The table also sets forth the
respective general voting power of such persons. In accordance with regulations
promulgated by the Securities and Exchange Commission (the "SEC" or the
"Commission"), the table below shows the effect of the exercise of warrants (and
in the case of Air Canada the exchange of Class B common stock for Class A
common stock) owned by the person in question, but, in determining the
denominator used to show percentage ownership by such person, does not assume
the exercise of warrants or the exchange of shares owned by any other person.
2
<PAGE> 6
The table does not show under "General Voting Power" the effect of Air
Canada's potential exercise of warrants to purchase shares of Class A common
stock or Class B common stock or of its potential exchange of certain shares of
Class B common stock for an equal number of shares of Class A common stock,
because the voting of most of the Class A common stock and Class B common stock
acquirable as a result of such exercises or exchange would currently be
prohibited by applicable Foreign Ownership Restrictions. Such information is,
however, shown in the footnotes to the table.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE GENERAL
NAME AND ADDRESS OF BENEFICIAL PERCENT VOTING
OF BENEFICIAL HOLDER TITLE OF CLASS OWNERSHIP OF CLASS POWER(1)
- ----------------------------------- --------------------- ------------- -------- --------
<S> <C> <C> <C> <C>
Air Canada Class A common stock 4,107,880(2) 47.0% 23.9%(3)
Air Canada Centre Class B common stock 8,188,699(4) 32.2%
Montreal Int'l Airport (Dorval)
P. O. Box 14000
Postal Station, St. Laurent
Canada H4Y 1H4
Air Partners, L.P.(5) Class A common stock 4,259,734(6) 54.5% 47.2%
2420 Texas Commerce Tower Class B common stock 5,642,632(7) 23.6%
201 Main Street
Fort Worth, TX 75102
American General Corporation Class A common stock 812,584(8) 12.4% 10.5%
2929 Allen Parkway Class B common stock 1,026,216(9) 4.8%
Houston, TX 77019
Capital Growth Management Class B common stock 1,070,000(10) 5.2% 1.3%
Limited Partnership
One International Place
Boston, MA 02110
FMR Corp. Class B common stock 3,317,148(11) 16.2% 3.0%
82 Devonshire St.
Boston, MA 02109
Wellington Management Company Class B common stock 2,036,750(12) 9.9% 1.9%
75 State Street
Boston, MA 02109
</TABLE>
- ---------------
(1) Each share of Class A common stock is entitled to ten votes, and each share
of Class B common stock is entitled to one vote. General Voting Power
includes the combined total of the votes attributable to Class A common
stock and Class B common stock.
(2) Amount includes 1,367,880 shares of Class A common stock issuable upon the
exercise of warrants held by Air Canada and 1,078,944 shares of Class A
common stock issuable upon exchange of a like number of shares of Class B
common stock held by Air Canada.
(3) Does not include 1,367,880 shares of Class A common stock or 4,849,755
shares of Class B common stock subject to warrants that are currently
exercisable, or the exchange of 1,078,944 shares of Class B common stock
for Class A common stock as described in Note 2 above, in each case subject
to Foreign Ownership Restrictions. If Air Canada were permitted to exercise
all of its warrants to purchase Class A common stock and Class B common
stock and were allowed to exchange the 1,078,944 shares of Class B common
stock for an equal number of shares of Class A common stock, its General
Voting Power would be 43.1%.
(4) Amount includes 4,849,755 shares of Class B common stock issuable upon the
exercise of warrants held by Air Canada and 1,078,944 shares of Class B
common stock held by Air Canada which are
(Footnotes continued on following page)
3
<PAGE> 7
exchangeable, under certain circumstances, for a like number of shares of
Class A common stock. Such 1,078,944 shares are also included in the number
of shares of Class A common stock reported herein pursuant to SEC Rule
13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
(5) Based on reports filed with the Commission pursuant to the Exchange Act,
the general partners of Air Partners are Air II General, Inc. and 1992 Air
GP. The general partners of 1992 Air GP are 1992 Air, Inc. and Air Saipan,
Inc. Mr. David Bonderman is the majority shareholder of Air II General,
Inc. and 1992 Air, Inc. and accordingly may be deemed the beneficial owner
of shares held by Air Partners. In addition, Mr. Bonderman, individually
and through a partnership he controls, also holds limited partnership
interests in Air Partners. Mr. Larry L. Hillblom, solely in his capacity as
the sole shareholder of Air Saipan, Inc., may be deemed the beneficial
owner of shares held by Air Partners. In addition, Mr. Hillblom,
individually and through a corporation he controls, also holds limited
partnership interests in Air Partners. On the basis of certain provisions
of the partnership agreement, Mr. Hillblom may be deemed to beneficially
own the shares of Class A common stock and Class B common stock
beneficially owned by Air Partners that are attributable to such limited
partnership interests. Bondo Air Limited Partnership ("Bondo Air"), solely
in its capacity as a limited partner of Air Partners, may be deemed to
beneficially own the shares held by Air Partners that are attributable to
such limited partnership interest. Mr. Alfredo Brener, through a limited
partnership whose corporate general partner he controls, owns warrants to
purchase a 98.5% limited partnership interest in Bondo Air, and on the
basis of certain provisions of the limited partnership agreement of Bondo
Air, Mr. Brener may be deemed to beneficially own such limited partnership
interests and, in turn, the shares attributable to Bondo Air. However, Mr.
Brener, pursuant to Rule 13d-4 under the Exchange Act, disclaims beneficial
ownership of all such shares.
(6) Assumes the exercise of warrants to purchase 1,519,734 shares of Class A
common stock.
(7) Assumes the exercise of warrants to purchase 3,382,632 shares of Class B
common stock.
(8) Based on reports filed with the SEC, 774,496 of the shares reported
represent the proportionate interest in shares beneficially owned by Air
Partners, of which American General is a limited partner, including shares
issuable upon exercise of warrants held by Air Partners to purchase 276,315
shares of Class A common stock. The remaining 38,088 shares of Class A
common stock represent shares held by American General Life Insurance
Company, an indirect, wholly owned subsidiary of American General. American
General may be deemed to have voting and shared dispositive power with
respect to all such shares.
(9) Based on reports filed with the SEC, the reported shares represent the
proportionate interest in shares beneficially owned by Air Partners,
including shares issuable upon exercise of warrants held by Air Partners to
purchase 615,024 shares of Class B common stock. American General may be
deemed to have voting and shared dispositive power with respect to all such
shares.
(10) Based on reports filed with the SEC, Capital Growth Management has sole
power to dispose of none of the shares beneficially owned by it, but shares
dispositive power with respect to all such shares, and has sole power to
vote all such shares.
(11) Based on an amendment to Schedule 13D filed with the SEC on April 21, 1995,
FMR, together with its wholly owned subsidiaries, Fidelity Management &
Research Company and Fidelity Management Trust Company, has sole
dispositive power with respect to all of the shares beneficially owned by
it and sole voting power with respect to 2,490,450 of such shares. FMR has
no shared voting or dispositive power. Edward D. Johnson 3d is the Chairman
of FMR and owns approximately 25% of its outstanding voting common stock.
Mr. Johnson disclaims beneficial ownership of the Class B common stock held
by FMR Corp. or its affiliated entities.
(12) Based on reports filed with the SEC, Wellington has sole dispositive power
with respect to none of the shares beneficially owned by it, but shares
dispositive power with respect to all such shares, and has sole voting
power with respect to none of such shares, but shares voting power with
respect to 1,611,260 such shares.
4
<PAGE> 8
BENEFICIAL OWNERSHIP OF COMMON STOCK
OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The following table shows, as of April 14, 1995, the number of shares of
Class B common stock beneficially owned by each of the directors, nominees for
director, the executive officers named in the Summary Compensation Table, and
all executive officers and directors as a group. The beneficial ownership of
Class A common stock by certain of such persons is described in the footnotes to
the table. See also "Voting Rights and Principal Stockholders".
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OF
NAME OF BENEFICIAL OWNERS OWNERSHIP (1) CLASS
- --------------------------------------------------------------- ------------- ----
<S> <C> <C>
Thomas J. Barrack, Jr.......................................... -0- *
Gordon M. Bethune.............................................. 143,750(2) *
David Bonderman................................................ 5,644,132(3) 23.6
Gregory D. Brenneman........................................... -0- *
Joel H. Cowan.................................................. 1,500(4) *
Patrick Foley.................................................. 764,661(5) 3.6
Rowland C. Frazee, C.C......................................... 1,500(4) *
Hollis L. Harris............................................... 8,190,199(6) 32.2
Dean C. Kehler................................................. -0- *
Robert L. Lumpkins............................................. 1,500(4) *
Douglas H. McCorkindale........................................ 1,500(4) *
David E. Mitchell, O.C......................................... 8,190,199(6) 32.2
Richard W. Pogue............................................... 1,500(4)(7) *
William S. Price............................................... 5,644,132(3) 23.6
Donald L. Sturm................................................ 478,477(8) 2.3
Claude I. Taylor, O.C.......................................... 8,190,199(6) 32.2
Karen Hastie Williams.......................................... 1,500(4) *
Charles A. Yamarone............................................ -0- *
Robert R. Ferguson III **...................................... -0- *
Daniel P. Garton............................................... 44,125(9) *
Charles T. Goolsbee **......................................... 23,750(10) *
John E. Luth **................................................ 26,250(10) *
Donald G. Valentine **......................................... -0- *
All executive officers and directors as a group................ 14,273,081(11) 49.1%
</TABLE>
- ---------------
* Less than 1%
** These persons have terminated their employment with the Company. Mr. Luth
has agreed to serve as the Company's Senior Vice President and Chief
Information Officer through May 31, 1995 and as a consultant through August
1, 1995. Messrs. Ferguson and Goolsbee have agreed to serve as consultants
to the Company through November 1995 and March 1996, respectively.
(1) The persons listed have the sole power to vote and dispose of the shares
beneficially owned by them except as otherwise indicated.
(2) Includes 37,500 restricted shares scheduled to vest on March 15, 1996 and
62,500 shares subject to a vested option to purchase shares.
(3) Includes 1,500 shares subject to a vested option to purchase shares. Also
includes 2,260,000 shares beneficially owned by Air Partners and 3,382,632
such shares subject to warrants owned by Air Partners, which Mr. Bonderman
may be deemed to own beneficially (see note 5 to the previous table) and
which Mr. Price may be deemed to own beneficially through shared voting and
dispositive power as a Managing Director of Air Partners. Does not include
2,740,000 shares of Class A common stock beneficially owned by Air Partners
or 1,519,734 such shares subject to warrants (54.5% of the class)
(Footnotes continued on following page)
5
<PAGE> 9
owned by Air Partners, which Messrs. Bonderman and Price also may be deemed
to own beneficially (see note 5 to the previous table). The power to vote
or dispose of all such shares may be deemed to be shared with Mr. Hillblom,
as described in note 5 to the previous table.
(4) Represents shares subject to a vested option to purchase shares.
(5) Includes 1,500 shares subject to a vested option to purchase shares. Also
includes 305,663 shares representing the proportionate interest of DHL
Management Services, Inc. ("DHL Management") in shares beneficially owned
by Air Partners, including shares issuable upon exercise of warrants held
by Air Partners to purchase 457,498 shares of Class B common stock. Does
not include DHL Management's interest in 370,582 shares of Class A common
stock beneficially owned by Air Partners or 205,543 shares of such stock
issuable upon exercise of warrants held by Air Partners. DHL Management,
and Mr. Foley as President of DHL Management, may be deemed to have voting
and shared dispositive power with respect to all such shares.
(6) Includes 1,500 shares subject to a vested option to purchase shares. Also
includes 3,338,944 shares beneficially owned by Air Canada and 4,849,755
such shares subject to warrants owned by Air Canada. Does not include
1,661,056 shares of Class A common stock beneficially owned by Air Canada,
1,367,880 such shares subject to warrants owned by Air Canada or 1,078,944
such shares issuable upon exchange of a like number of shares of Class B
common stock held by Air Canada. Mr. Harris, as the "shareholder
representative" of Air Canada, may be deemed to have sole voting power with
respect to all such shares. Messrs. Harris, Mitchell and Taylor, as
directors of Air Canada, may be deemed to have shared dispositive power
with respect to all such shares.
(7) Mr. Pogue also owns 4,000 shares of Class A common stock.
(8) Includes 1,500 shares subject to a vested option to purchase shares. Also
includes 191,040 shares representing the proportionate interest of Mr.
Sturm in shares beneficially owned by Air Partners, including shares
issuable upon exercise of warrants held by Air Partners to purchase 285,937
shares of Class B common stock. Does not include Mr. Sturm's proportionate
interest in 231,615 shares of Class A common stock beneficially owned by
Air Partners or 128,465 such shares subject to warrants owned by Air
Partners. Mr. Sturm is a limited partner of Air Partners and, as such, may
be deemed to have voting and shared dispositive power with respect to all
such shares.
(9) Includes 7,500 restricted shares scheduled to vest on March 15, 1996 and
29,125 shares subject to a vested option to purchase shares.
(10) Includes 18,750 shares subject to a vested option to purchase shares.
Non-vested options terminate upon termination of employment. Mr. Goolsbee's
vested options terminated on April 15, 1995 and Mr. Luth's vested options,
if not exercised, will terminate on May 1, 1995.
(11) Includes 285,250 shares subject to vested options held by officers and
non-employee directors of the Company, 2,260,000 shares beneficially owned
by Air Partners and 3,382,632 such shares subject to warrants owned by Air
Partners. See notes 3, 5 and 8. Does not include 2,740,000 shares of Class
A common stock beneficially owned by Air Partners or 1,519,734 such shares
subject to warrants owned by Air Partners. Also includes 3,338,944 shares
beneficially owned by Air Canada and 4,849,755 such shares subject to
warrants owned by Air Canada. See note 6. Does not include 1,661,056 shares
of Class A common stock beneficially owned by Air Canada, 1,367,880 such
shares subject to warrants owned by Air Canada or 1,078,944 such shares
issuable upon exchange of a like number of shares of Class B common stock
held by Air Canada.
6
<PAGE> 10
GENERAL INFORMATION
BOARD OF DIRECTORS MEETINGS
Regular meetings of the Board of Directors are generally held four times
per year and special meetings are scheduled when required. The Board held four
regular meetings and one special meeting in 1994.
COMMITTEES OF THE BOARD
The Audit Committee has the authority and power to act on behalf of the
Board of Directors with respect to the appointment of independent auditors for
the Company and with respect to authorizing any special audit or audit-related
activities which, in its discretion, are deemed necessary to perform its
functions. The committee monitors the audit activities of the Company and its
subsidiaries to assure that they have installed proper accounting and audit
controls. The committee, which consists of six non-employee directors, met three
times in 1994.
The Executive Committee exercises certain powers of the Board of Directors
between Board meetings. The committee, which consists of two non-employee
directors and one officer-director of the Company, met eight times in 1994.
The Finance and Strategy Committee reviews the Company's short and
long-term strategic plans and its plans for raising capital and increasing
liquidity, and makes recommendations to the Board of Directors regarding
implementation of those plans as the committee deems appropriate. The committee,
which consists of one officer-director and seven non-employee directors, met one
time in 1994.
The Finance Committee reviews and recommends to the Board of Directors the
Company's annual capital expenditure budget and financial plan for each fiscal
year. The committee, which consists of two non-employee directors and one
officer-director, did not meet during 1994.
The Human Resources Committee has the authority and power to act on behalf
of the Board of Directors with respect to all matters relating to the employment
of senior officers by the Company or its subsidiaries, including but not limited
to approval of compensation, benefits, incentives and employment contracts, and
relating to loans to any officers or employees and administration of the
Company's 1994 Employee Stock Purchase Plan and 1994 Incentive Equity Plan. The
committee, which consists of six non-employee directors, met five times in 1994.
The Operations Committee has the authority and responsibility to consider
and recommend to the Board of Directors the entering into, amending,
supplementing, modifying, waiving of any provisions of, waiving or enforcing any
rights under or terminating any contract between the Company or any of its
wholly owned subsidiaries and any air carrier, other than Air Canada or any of
its affiliates, with respect to code-sharing or marketing alliances. In
addition, the committee has the authority and responsibility for considering and
recommending to the Board of Directors such other matters as may be designated
from time to time by the Board of Directors, which matters may, at the
discretion of the Board of Directors include, without limitation, material
acquisitions and dispositions, material contracts, and commencement of material
litigation. The committee, which consists of two non-employee directors and one
officer-director, met one time in 1994.
The Company does not have a nominating committee.
During 1994, each director of the Company other than Mr. Pogue attended
more than 75% of the sum of the total number of meetings of the Board and each
committee of which he or she was a member.
COMPENSATION OF DIRECTORS
Compensation for non-employee members of the Board of Directors (i.e.,
directors who are not employed by the Company on a full-time basis) has been set
at an annual retainer of $15,000 and a fee of $1,000 per meeting plus expenses
for each Board and committee meeting attended (with an additional $500 per
committee meeting for the committee chair). In addition, each non-employee
director is automatically
7
<PAGE> 11
granted an option to purchase 1,500 shares of Class B common stock the day
following each annual meeting of stockholders at an exercise price equal to the
fair market value of Class B common stock on such date.
Full-time employees of the Company who serve as directors receive
reimbursement of expenses incurred in attending meetings. Directors and their
spouses are eligible for complimentary transportation privileges on Continental.
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Company's current executive officers:
<TABLE>
<CAPTION>
NAME, AGE AND POSITION TERM OF OFFICE AND BUSINESS EXPERIENCE
- ---------------------------------------- -------------------------------------------------
<S> <C>
GORDON M. BETHUNE, age 53 Director since August 1994. President and Chief
President and Chief Executive Officer Executive Officer since November 1994; President
and Chief Operating Officer (February
1994-November 1994); various positions with The
Boeing Company commencing in 1988, including Vice
President and General Manager of the Commercial
Airplane Group's Renton Division, Vice President
and General Manager of the Customer Services
Division, and Vice President of Airline Logistics
Support.
DONALD J. BREEDING, age 60 President and Chief Executive Officer,
President and Chief Executive Continental Micronesia, Inc. since April 1993.
Officer, Continental Micronesia President and Chief Executive Officer (April
1992-April 1993) of the Continental/Air
Micronesia division; Senior Vice
President -- Operations and Senior Vice
President -- Flight Operations (November
1988-July 1992) of Continental; Vice
President -- Flight Operations (July
1986-November 1988) of Eastern Air Lines, Inc.
GREGORY D. BRENNEMAN, age 33 Chief Operating Officer effective May 1, 1995.
Chief Operating Officer Chairman and Chief Executive Officer of
Turnworks, Inc. (consulting) since February 1995;
Partner of Bain & Company, Inc. (consulting)
1987-1995.
D. SAM COATS, age 54 Senior Vice President since April 1993. Chief
Senior Vice President -- Inflight Executive Officer (1991-April 1993) of Southern
Service Cross Airlines Holdings, Ltd. (Australian airline
placed in receivership and liquidated in March
and April 1993); partner, Jenkens & Gilchrist
(law firm) (1989-1991); President and Chief
Executive Officer (1985-1989) of Trinity Texas
Corporation (real estate and investment).
WILLIAM S. DIFFENDERFFER, age 44 President, System One Information Management,
President, System One Inc. since August 1991. Group Vice President --
Administration and Planning and General Counsel
(June 1990-August 1991) and Vice President and
General Counsel (June 1986-June 1990) of System
One.
MARK A. ERWIN, age 39 Senior Vice President since April 1995. Various
Senior Vice President -- Airport positions with the Company commencing in 1987,
Services including, most recently, Vice
President -- Newark Hub.
</TABLE>
(Table continued on following page)
8
<PAGE> 12
<TABLE>
<CAPTION>
NAME, AGE AND POSITION TERM OF OFFICE AND BUSINESS EXPERIENCE
- ---------------------------------------- -------------------------------------------------
<S> <C>
DANIEL P. GARTON, age 37 Senior Vice President and Chief Financial Officer
Senior Vice President and Chief since May 1993. Vice President -- Financial
Financial Officer Planning and Analysis and similar positions with
American Airlines, Inc. (1988-1993).
DAVID A. LOESER, age 40 Senior Vice President -- Human Resources since
Senior Vice President -- Human May 1994. Vice President of Human Resources
Resources (1992- 1994) of PepsiCo Foods International; Vice
President -- Human Resources (1989-1992),
Division/General Manager (1987-1989) and various
Human Resources positions (1984-1987) of
FritoLay.
C. D. MCLEAN, age 54 Senior Vice President -- Operations since April
Senior Vice President -- Operations 1994. Executive Vice President -- Operations
(January 1992-March 1994) of LeisureAir, Inc.;
self-employed (March 1990-December 1991); Senior
Vice President -- Flight Operations (May
1989-February 1990) of Braniff Airlines, Inc.
JONATHAN ORNSTEIN, age 37 President and Chief Executive Officer of
President and Chief Executive Continental Express, Inc. since July 1994. Senior
Officer -- Continental Express Vice President -- Airport Services (November
1994-April 1995); various positions with Mesa
Airlines, Inc. (1989-1994), including Executive
Vice President, President of West Air/United
Express and Vice President of Planning and
Scheduling; Executive Vice President of Air LA,
Inc. (1987-1989).
BARRY P. SIMON, age 52 Senior Vice President -- Strategic Business Units
Senior Vice President -- Strategic since March 1995. Senior Vice
Business Units President -- International Widebody Division
(August 1994-March 1995), Senior Vice President
and General Counsel (June 1990-August 1994),
except Senior Vice President, General Counsel and
Director, GAF Corporation (January-March 1993).
Senior Vice President and General Counsel
(November 1987-June 1990) of Eastern Air Lines.
JEFFERY A. SMISEK, age 40 Senior Vice President and Secretary since April
Senior Vice President, General Counsel 1995. General Counsel since March 1995. Partner,
and Secretary Vinson & Elkins L.L.P. (law firm) (January
1990-March 1995).
</TABLE>
COMPENSATION OF EXECUTIVE OFFICERS
The following tables set forth, for 1994, 1993 and 1992, with respect to
compensation for services to Continental and its subsidiaries, (i) the aggregate
amount of remuneration paid by the Company to the current (and a former) chief
executive officer and the four most highly compensated executive officers of the
Company during 1994 (other than such chief executive officers), (ii) the number
of shares of Class B common stock subject to options (or SARs) granted to such
individuals during 1994 and the hypothetical value thereof assuming specified
annual rates of Class B common stock price appreciation, (iii) the value of the
stock options held by such individuals at the end of 1994 and (iv) certain
information relating to long-term performance units awarded to such individuals.
No stock options were exercised by any of such individuals during 1994.
9
<PAGE> 13
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
---------------------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER AWARDS(1) OPTIONS COMPENSATION
- ----------------------------- ---- -------- --------- ------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gordon M. Bethune............ 1994(2) $434,185 $1,500,000(3) $85,018(4) $1,240,625 250,000 $286,969(5)
President and Chief 1993(2) -- -- -- -- -- --
Executive Officer 1992(2) -- -- -- -- -- --
Robert R. Ferguson III....... 1994 573,407 -0- 45,225(6) 641,250(7) 225,000(7) 418,209(8)
Vice Chairman and Chief 1993 526,881 -0- -0- -0- -0- -0-
Executive Officer 1992 512,294 -0- -0- -0- -0- -0-
Daniel P. Garton............. 1994(2) 349,992 -0- -0-(9) 320,625 116,500 -0-(10)
Senior Vice President and 1993 200,348 -0- 32,532 -0- -0- 100,000
Chief Financial Officer 1992(2) -- -- -- -- -- --
Donald G. Valentine.......... 1994(2) 325,008 -0- -0-(9) 213,750(11) 75,000(11) -0-(12)
Senior Vice President 1993 183,546 -0- 75,303 -0- -0- 92,307
1992(2) -- -- -- -- -- --
Charles T. Goolsbee.......... 1994 311,308 -0- -0- 213,750(13) 75,000(13) -0-
Executive Vice President 1993 287,334 -0- -0- -0- -0- -0-
1992 279,043 -0- -0- -0- -0- -0-
John E. Luth................. 1994 293,730 -0- -0- 213,750(13) 75,000(13) -0-
Senior Vice President 1993 246,333 -0- -0- -0- -0- -0-
1992 167,296 -0- -0- -0- -0- -0-
</TABLE>
- ---------------
(1) The value of restricted stock shown was calculated by multiplying the
closing price of the Class B common stock on the date the restricted shares
were granted ($14.125 as to 50,000 of the shares granted to Mr. Bethune;
$21.375 as to his remaining 25,000 shares and the shares awarded to the
other officers named in the table) by the number of restricted shares.
Messrs. Bethune, Ferguson, Garton, Valentine, Goolsbee and Luth received,
respectively, 75,000, 30,000, 15,000, 10,000, 10,000 and 10,000 shares,
which had respective year-end values of $693,750, $0, $138,750, $92,500,
$92,500 and $92,500 based on the year-end 1994 closing price of the Class B
common stock of $9.25. All such shares were to vest in 50% increments on
March 15, 1995 and 1996, and on March 15, 1995, Messrs. Bethune, Garton,
Goolsbee and Luth vested in 37,500, 7,500, 5,000 and 5,000 shares,
respectively. None of the shares awarded to Mr. Ferguson or Mr. Valentine
vested. Although the Company has paid no dividends on its common stock,
such dividends would be payable upon both vested and non-vested shares.
(2) Messrs. Bethune, Garton and Valentine commenced employment with the Company
in February 1994, May 1993 and May 1993, respectively.
(3) Mr. Bethune received a bonus in connection with certain amendments to his
employment agreement which were made as the result of an offer of
employment to Mr. Bethune by one of the Company's competitors. See
"Executive Compensation Report of the Human Resources Committee -- 1994 CEO
Compensation". One-half of such bonus remains subject to a repayment
obligation if Mr. Bethune voluntarily terminates his employment with the
Company prior to January 12, 1996.
(4) Represents a tax adjustment relating to (i) certain moving expenses paid by
the Company and (ii) reimbursement for a loss on the sale of Mr. Bethune's
previous residence in connection with his hiring and relocation to Houston,
Texas.
(5) Represents (i) $144,463 paid to compensate Mr. Bethune for the forfeiture
of certain benefits under his prior employer's compensation program when he
joined the Company, (ii) $107,957 for the loss on sale of residence (see
note 4) and (iii) $34,549 for moving expenses (see note 4).
(6) Represents a contractual payment relating to certain salary reductions and
accruing upon termination of Mr. Ferguson's employment.
(Footnotes continued on following page)
10
<PAGE> 14
(7) Mr. Ferguson's employment with the Company terminated in October 1994. In
connection therewith, his stock options and shares of restricted stock were
forfeited. Mr. Ferguson is retained as a consultant to the Company through
November 1995.
(8) Represents a contractual severance payment in connection with the
termination of Mr. Ferguson's employment.
(9) Represents a tax adjustment relating to certain moving expenses paid by the
Company.
(10) Relates to the buy-out of certain stock options that were forfeited when
Mr. Garton joined the Company.
(11) Mr. Valentine's employment with the Company terminated in February 1995. In
connection therewith, his stock options and shares of restricted stock were
forfeited.
(12) Represents the amount paid for moving expenses.
(13) Mr. Goolsbee retired and Mr. Luth's employment with the Company terminated
in March 1995. As of such time, each had vested in 5,000 shares of their
restricted stock. The remainder of their restricted stock was forfeited in
connection with the termination of their employment. Non-vested options
terminate upon termination of employment; Mr. Goolsbee's vested stock
options terminated on April 15, 1995 and, if not exercised, Mr. Luth's
vested stock options will terminate on May 1, 1995. Mr. Goolsbee has agreed
to serve as a consultant to the Company through March 1996. Mr. Luth has
agreed to serve as Senior Vice President and Chief Information Officer of
the Company through May 31, 1995 and as a consultant through August 1,
1995.
OPTION/SAR GRANTS DURING LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------- POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM
OPTIONS/SARS IN FISCAL PRICE PER EXPIRATION ---------------------------
NAME GRANTED(1) YEAR SHARE(2) DATE 0% 5%(3) 10%(3)
- ---------------------- ------------- ---------- --------- ---------------- --- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Gordon M. Bethune..... 250,000 11.8% $14.125 March 4, 2004 $ 0 $2,220,784 $5,627,903
Robert R. Ferguson
III................. 225,000 10.7% 21.375 March 4, 2004(4) 0 3,024,590 7,664,905
Daniel P. Garton...... 116,500 5.5% 21.375 March 4, 2004 0 1,566,066 3,968,718
Donald G. Valentine... 75,000 3.6% 21.375 March 4, 2004(5) 0 1,008,197 2,554,968
Charles T. Goolsbee... 75,000 3.6% 21.375 March 4, 2004(5) 0 1,008,197 2,554,968
John E. Luth.......... 75,000 3.6% 21.375 March 4, 2004(5) 0 1,008,197 2,554,968
</TABLE>
- ---------------
(1) Each of the options granted vest, or were to vest, in annual 25%
increments, commencing in most cases, on January 2, 1995. In tandem with
his stock option, Mr. Valentine received an SAR for 37,500 shares.
(2) In April 1995, Mr. Garton was granted five-year options with respect to
75,000 shares at a lower exercise price, which he can obtain, subject to
certain conditions, upon the surrender of all his outstanding stock
options. See "Executive Compensation Report of the Human Resources
Committee -- Repricing of Stock Options and 1995 Compensation Strategy"
below.
(3) For the values shown to be achieved, a share of Class B common stock would
have a market price of $34.82, assuming 5% appreciation, and $55.44,
assuming 10% appreciation, at the end of the 10-year option term, or $23.01
and $36.64, respectively, in the case of Mr. Bethune.
(4) Mr. Ferguson's stock options terminated prior to the end of the fiscal
year.
(5) Messrs. Valentine and Goolsbee's stock options, and Mr. Luth's non-vested
options, terminated subsequent to the end of the fiscal year. If not
exercised, Mr. Luth's vested stock options will terminate on May 1, 1995.
11
<PAGE> 15
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gordon M. Bethune............................ 62,500 187,500 $ 0 $ 0
Robert R. Ferguson III....................... -0- -0- 0 0
Daniel P. Garton............................. 29,125 87,375 0 0
Donald G. Valentine.......................... 18,750(1) 56,250(1) 0 0
Charles T. Goolsbee.......................... 18,750(1) 56,250(1) 0 0
John E. Luth................................. 18,750(1) 56,250(1) 0 0
</TABLE>
- ---------------
(1) Messrs. Valentine and Goolsbee's stock options, and Mr. Luth's non-vested
options, terminated subsequent to the end of the fiscal year. If not
exercised, Mr. Luth's vested stock options will terminate on May 1, 1995.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
PERFORMANCE
OR OTHER
PERIOD UNTIL
NUMBER OF MATURATION OR
NAME UNITS PAYOUT
---- --------- -------------
<S> <C> <C>
Gordon M. Bethune................................................... -0- N/A
Robert R. Ferguson III.............................................. 112,500 (2)
Daniel P. Garton.................................................... -0- N/A
Donald G. Valentine................................................. -0- N/A
Charles T. Goolsbee................................................. 37,500 (2)
John E. Luth........................................................ 37,500 (2)
</TABLE>
- ---------------
(1) Certain of the Company's executive officers were awarded Executive
Performance Units ("EPUs") in 1994. The awards were to mature as to 25% of
the EPUs on each of January 2, 1995, 1996, 1997 and 1998. The awards
represent the right to receive the excess of the closing price of the Class
B common stock on the date of maturity over $11.00, multiplied by the
number of EPUs maturing on such date and subject to a maximum value of
$10.375 per unit. No payouts resulted under the EPUs in January 1995.
(2) Mr. Ferguson's EPUs terminated prior to the end of the fiscal year. The
EPUs of Messrs. Goolsbee and Luth terminated subsequent to the end of
the fiscal year.
EMPLOYMENT AND SEVERANCE AGREEMENTS
Continental has entered into an employment agreement with Mr. Bethune
relating to his service as an officer of the Company. The agreement provides for
an annual base salary of $550,000, stock options to purchase up to 275,000
shares of Class B common stock at prices ranging from $9.75 to $14.125 per
share, a restricted stock grant for 75,000 shares of Class B common stock and
certain other matters. The agreement may be terminated at any time by either
party, with or without cause. However, if there were a "termination of
employment" (as defined), Mr. Bethune would be (i) paid a lump sum amount equal
to 300% of the sum of (a) his then current annual salary (of not less than
$550,000) and (b) a deemed annual bonus of 25% of such salary, and (ii)
indemnified for his tax obligations with respect to such payments and other
benefits payable under such employment agreement to the extent they are at a
higher percentage of total income then they would have been in the absence of
such severance payment (a "Tax Adjustment"). The agreement requires the Company
to indemnify Mr. Bethune in the good-faith performance of his duties, to
continue providing certain employee benefits to Mr. Bethune for certain
specified time periods following a termination of employment and to maintain
life insurance on his behalf in an amount equal to the severance payment
described above.
12
<PAGE> 16
Continental has entered into an employment agreement with Mr. Garton, which
provides for an annual base salary of $350,000. The agreement may be terminated
at any time by either party, with or without cause. However, if there were a
"termination of employment" (as defined), Mr. Garton would (i) be paid a lump
sum amount equal to 200% of the sum of (a) his then current annual salary (of
not less than $350,000) and (b) a deemed annual bonus of 25% of such salary, and
(ii) receive a Tax Adjustment. The agreement requires the Company to indemnify
Mr. Garton in the good-faith performance of his duties, to continue providing
certain employee benefits to Mr. Garton for certain specified time periods
following a termination of employment and to maintain life insurance on his
behalf in an amount equal to the severance payment described above.
Mr. Valentine's employment with the Company terminated in February 1995.
Pursuant to his employment agreement with the Company and in connection with
such termination, Mr. Valentine received a lump-sum payment in the amount of
$874,219. Also pursuant to such agreement, the Company is obligated to indemnify
Mr. Valentine for actions taken in good faith as an employee of the Company and
to provide certain employee benefits to Mr. Valentine for specified time
periods. Mr. Valentine has agreed not to engage in certain activities
competitive with the Company.
Mr. Ferguson's employment agreement with the Company was terminated in
connection with the termination of his employment on October 26, 1994. In lieu
of the obligations theretofore set forth in his employment agreement and in
settlement of all rights and obligations of Mr. Ferguson and Continental to one
another, Mr. Ferguson and the Company entered into a severance agreement
pursuant to which: (i) Continental agreed to pay Mr. Ferguson $418,209 on
November 21, 1994 and $2,394,222 on January 3, 1995, in each case subject to
certain adjustments; (ii) Continental agreed to continue providing certain
employee benefits to Mr. Ferguson for specified time periods; (iii) Mr. Ferguson
agreed to provide certain consulting services to the Company through November
1995 for which the Company agreed to pay Mr. Ferguson $100,000; (iv) Continental
agreed to indemnify Mr. Ferguson for actions taken in good faith as an employee
of the Company; (v) Mr. Ferguson agreed not to engage in certain activities
competitive with Continental.
Mr. Goolsbee's employment agreement with the Company was terminated in
connection with his retirement on March 15, 1995. In lieu of the obligations
theretofore set forth in his employment agreement and in settlement of all
rights and obligations of Mr. Goolsbee and the Company to one another, Mr.
Goolsbee and the Company entered into a severance agreement pursuant to which:
(i) Continental forgave certain loans to Mr. Goolsbee (together with accrued
interest) in the principal amount of $364,000; (ii) Continental agreed to pay
Mr. Goolsbee $150,000 on or before March 15, 1995; (iii) Continental agreed to
reimburse Mr. Goolsbee, upon the sale of his Houston residence, a brokerage
commission of up to 6% of the sale price, plus pay Mr. Goolsbee $30,000; (iv)
Mr. Goolsbee agreed to act as a consultant to the Company with respect to
certain specified matters until March 14, 1996 at a rate of $15,000 per month;
(v) Mr. Goolsbee agreed not to engage in certain activities competitive with
Continental; (vi) Continental agreed to indemnify Mr. Goolsbee for actions taken
in good faith as an employee or consultant of the Company and (vii) the Company
agreed to provide certain group insurance and other benefits to Mr. Goolsbee.
Mr. Luth's employment agreement with the Company was terminated in
connection with the termination of his employment effective March 31, 1995. In
lieu of the obligations theretofore set forth in his employment agreement and in
settlement of all rights and obligations of Mr. Luth and Continental to one
another, Mr. Luth and the Company entered into a severance agreement pursuant to
which: (i) Mr. Luth agreed to serve as Senior Vice President and Chief
Information Officer through May 31, 1995; (ii) the Company agreed to continue
providing certain employee benefits to Mr. Luth for specified time periods;
(iii) Continental agreed to pay Mr. Luth a lump sum of $741,404 and a Tax
Adjustment with respect thereto; (iv) Continental agreed to indemnify Mr. Luth
for actions taken in good faith as an employee of the Company; (v) Mr. Luth
agreed to serve the Company from March 31 through May 31, 1995 at an annual rate
of compensation of $350,000, and from June 1 through August 1, 1995 to act as a
consultant to the Company (subject to certain early termination rights) at an
annual rate of compensation of $175,000; (vi) Continental agreed to pay Mr. Luth
a bonus of $247,135 upon the execution by third parties of amendments to certain
loan and aircraft purchase agreements; and (vii) Mr. Luth agreed not to engage
in certain activities competitive with Continental.
13
<PAGE> 17
RETIREMENT PLAN
The Continental Airlines, Inc. Retirement Plan (the "Retirement Plan") is a
noncontributory, defined benefit pension plan adopted in 1988. Substantially all
employees of Continental and certain designated affiliates, other than temporary
employees, are eligible to participate in the Retirement Plan. Messrs. Ferguson
and Goolsbee began participating in the Retirement Plan on December 28, 1988.
Messrs. Bethune, Garton, Valentine and Luth began participating in February
1995, May 1994, May 1994 and August 1989, respectively, after completing one
year of service.
The following table represents the estimated annual benefits payable for
life to employees under the Retirement Plan, assuming normal retirement in the
current year, and election by the employee of a single life annuity. The values
reflected in the table represent the application of the Retirement Plan formula
to the specified amounts of compensation and years of participation without
regard to maximums set forth in the Internal Revenue Code of 1986, as amended
(the "Code").
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF PARTICIPATION
----------------------------------------------------------
FINAL AVERAGE COMPENSATION 5 YRS. 10 YRS. 15 YRS. 20 YRS. 25 YRS. 30 YRS.
- ---------------------------------------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
$100,000................................ $ 7,653 $15,306 $22,959 $30,612 $38,265 $ 45,918
$125,000................................ 9,703 19,406 29,109 38,812 48,515 58,218
$150,000................................ 11,753 23,506 35,259 47,012 58,765 70,518
$175,000................................ 13,803 27,606 41,409 55,212 69,015 82,818
$200,000................................ 15,853 31,706 47,559 63,412 79,265 95,118
$225,000................................ 17,903 35,806 53,709 71,612 89,515 107,418
$235,000................................ 18,723 37,446 56,169 74,892 93,615 112,338
</TABLE>
Compensation as defined in the Retirement Plan for each of the individuals
included in the Summary Compensation Table set forth above is not substantially
different from the amounts of salary set forth in such table. However, Mr.
Bethune's employment agreement provides for certain supplemental retirement
benefits at the rate of 1.6% times his credited years of service times his final
average compensation, which benefits will be offset by amounts received under
the Retirement Plan. Under the Retirement Plan, a retired participant's annual
benefit commencing at or after the normal retirement age of 65 (60 for pilots)
is equal to 1.19% of the participant's final average compensation plus 0.45% of
the participant's final average compensation in excess of the average Social
Security wage base, multiplied by the participant's years of participation up to
a maximum of 30 years. Such benefits are not subject to any deduction for Social
Security payments, but are reduced by an amount equal to the actuarial cost to
the Retirement Plan, if any, of providing pre-retirement death benefit
protection under such plan. The Code currently limits the annual amount of such
payments under the Retirement Plan to $120,000. Under the Retirement Plan, final
average compensation means the average of the participant's highest five
consecutive years of compensation during the last ten calendar years with
Continental. Plan compensation includes regular pay and shift differential, but
excludes bonuses, overtime, severance pay, incentive and other special forms of
pay. Regulations under the Code previously limited compensation covered by the
Retirement Plan to $235,840 and currently provide that such compensation may not
exceed $150,000 for 1994 or 1995.
A participant who has attained age 50 or age 55 and satisfied certain
service requirements may elect to receive an early retirement benefit of
equivalent actuarial value. Participants who terminate employment before they
are eligible to retire will receive benefits as described above only if they
have at least five years of service. The employment of Messrs. Ferguson,
Valentine, Goolsbee and Luth with the Company terminated in October 1994,
February 1995, March 1995 and March 1995, respectively. Of this group, only Mr.
Goolsbee was eligible to retire. Requirements of the Code may in certain
circumstances limit the benefits payable under the Retirement Plan to an amount
which is less than that described above. The Retirement Plan permits
participants to elect a reduced retirement benefit in return for the Retirement
Plan's providing a death benefit
14
<PAGE> 18
to the participant's spouse in the event of the participant's death prior to
retirement. The Retirement Plan also provides certain benefits in the event of a
participant's disability.
PERFORMANCE GRAPH
The following graph compares the cumulative total return on the Class B
common stock (the more widely traded of the Company's common stocks) with the
cumulative total returns (assuming reinvestment of dividends) on the Standard &
Poor's Airline Index and the Standard & Poor's 500 Stock Index as if $100 were
invested in the Class B common stock and each such index on July 14, 1993, the
date on which the Company's common stock began trading on the New York Stock
Exchange on a "when-issued" basis.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
Continental
Measurement Period Airlines, S&P Airlines S&P 500
(Fiscal Year Covered) Inc. Index Index
<S> <C> <C> <C>
7/14/93 100.00 100.00 100.00
9/30/93 66.02 104.11 102.58
12/31/93 79.61 108.56 104.97
3/31/94 75.73 91.06 100.99
6/30/94 50.00 91.49 101.41
9/30/94 66.99 79.12 106.37
12/31/94 35.92 75.75 106.35
3/31/95 43.20 90.18 116.71
</TABLE>
EXECUTIVE COMPENSATION REPORT OF THE HUMAN RESOURCES COMMITTEE
To the Stockholders of Continental Airlines, Inc.:
This report to the stockholders is respectfully submitted by the Human
Resources Committee of the Board of Directors of Continental Airlines, Inc. (the
"Committee").
As reported last year, prior to the establishment of the Committee in May
1993, salary levels for executive officers, including executive officers named
in the Summary Compensation Table (the "Named Executives"), had been established
based on an informal assessment of market conditions, including conditions
encountered during attempts to recruit new executive talent. Salary levels of
executive officers within the Company had risen somewhat above the airline
industry market median to compensate for the fact that the Company did not
provide competitive incentive compensation for a number of years. Beginning in
1991, however, the Company began implementing a wage and salary reduction
program for substantially all of its employees, including all executive
officers, and on July 1, 1992 effected an across-the-board wage and salary
reduction for all employees, including all executive officers, ranging from 5%
of pay at the lowest level of compensation to approximately 22.5% of base pay
for the Company's senior management. The Company restored 25% of the wage and
salary reduction on December 1, 1992, 25% in April 1993, 25% in April 1994 and
the final 25% in July 1994. Even with these adjustments, total compensation
levels for the Company's executives in 1994 were well below market median rates.
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<PAGE> 19
General Compensation Strategy
In mid-1993, the Committee retained an independent, nationally recognized
compensation consulting firm to assist in redesigning a comprehensive
compensation strategy for the Company. The compensation strategy development
process encompassed both executive and broad-based employee compensation
programs. The process also included a review of competitive marketplace
compensation data for U.S. airlines of comparable size. Long-term and short-term
compensation data for general industry companies of comparable size to the
Company (as measured by revenues) were also examined. The airlines considered in
this analysis included industry peer airlines shown in the performance graph.
The elements of compensation included in the competitive analysis were base
salaries, annual incentives, long-term incentives and key employee benefits.
The Committee's compensation strategy development process, which included a
review of the consultant's analysis, was concluded in March 1994. As a result,
the Company established the following key objectives for both its executive and
broad-based employee compensation programs:
- Develop an appropriate linkage between compensation levels and the
creation of stockholder value;
- Provide that the total program will be able to attract, motivate and
retain employees of outstanding talent;
- Achieve competitiveness of total compensation over time;
- Focus on variable pay to the greatest extent possible to control fixed
costs and provide the greatest possible incentive to improve
performance.
In light of these key objectives, the Company revised its base salary
compensation strategy for 1994 and beyond and established a variety of new
incentive compensation programs for both executive and non-executive employees.
The new incentive programs included stock options, restricted stock grants, and
annual and long-term incentive awards pursuant to the Company's 1994 Incentive
Equity Plan, under which increased compensation could be earned based upon stock
price performance, earnings before taxes, performance compared to industry peers
and corporate plan, and other corporate, business unit and individual
performance criteria. In developing these programs, the Company considered the
effects of the Omnibus Budget Reconciliation Act of 1993 (the "Budget Act"),
which added Section 162(m) of the Internal Revenue Code. Amended proposed
regulations have been issued by the Treasury Department to implement the Budget
Act, the general effect of which is to deny publicly held companies a tax
deduction for annual compensation in excess of one million dollars paid to their
chief executive officer or any of their four other most highly compensated
executive officers who are employed on the last day of a given year, unless
other compensation is based on performance criteria that are established by a
committee of outside directors and approved, as to their material terms, by the
Company's stockholders. The Company's executive officer compensation levels
generally do not exceed the one million dollar limit. Stock options under the
1994 Incentive Equity Plan are designed to qualify as performance-based
compensation under Section 162(m), and the Committee believes that these stock
options should be excluded from the limitation on deductibility. However, other
awards, such as restricted stock grants and long-term and annual incentive
awards under the 1994 Incentive Equity Plan, as well as profit sharing and
executive cash bonus plans and payments, do not so qualify and will be subject
to the limitation on deductibility.
Base Salary Program. The Company has established an objective of targeting
its executive salary levels conservatively (i.e., slightly below competitive
market norms for peer airlines and for general industry companies of comparable
size, based on revenues). The Committee believes it is crucial to provide
salaries within a competitive market range in order to attract and retain highly
talented employees. The specific competitive markets considered depend on the
nature and level of the positions in question and the labor markets from which
qualified individuals are recruited. Base salary levels are also dependent on
the performance of each individual employee over time. Thus, employees who
sustain higher levels of performance over time will have correspondingly higher
salaries. Annual salary adjustments will be based on general levels of market
increases in salaries, individual performance, overall financial results, and
(for promotions)
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<PAGE> 20
changes in job duties and responsibilities. All base salary increases will be
based on a philosophy of pay-for-performance.
Encouragement of Stock Ownership. The Committee believes that the ownership
of the common stock of the Company by its executive officers provides one of the
best incentives to enhance management's performance. The 1994 Incentive Equity
Plan is designed to provide strong encouragement to the Company's executive
officers and key employees, as well as the Company's non-employee directors, to
increase their ownership of Class B common stock. The Committee believes that
such an investment in the Company will serve as an additional incentive for
improved performance.
Other Plans. In addition to the 1994 Incentive Equity Plan, the Company in
1994 established a profit sharing plan (the "Profit Sharing Plan"), under which
15% of the Company's pre-tax earnings (before unusual or nonrecurring items)
will be distributed each year to all employees on a pro rata basis according to
base salary, and an executive cash bonus program (the "EPU Program") based upon
Company share price performance within a specified range over a period of years.
The objectives of these incentive programs are to motivate and reward the
accomplishment of corporate, business unit (e.g., customer service) and
individual performance objectives and to align the interests of officers and
employees with those of stockholders generally.
1994 Executive Compensation
Base Salaries. Based on the Company's performance in 1993 and 1994, none
of the Named Executives received any increase in base salary during 1994, except
the Chief Executive Officer (see "1994 CEO Compensation" below) and Mr. Luth.
Mr. Luth's salary increase was based on his assumption of increased
responsibilities in connection with a change of assignment and not on the
performance of the Company. As described above, the salaries of executive
officers that had been reduced were restored to their prior levels from December
1992 through July 1994.
Stock Incentives. Consistent with the foregoing strategy, the Company
awarded a number of stock options to executive officers and key employees,
representing (in the aggregate) the right to purchase up to 2,111,000 shares of
the Company's Class B common stock, which includes the stock options granted to
the Named Executives. The options vest in annual 25% increments and may be
exercised at prices ranging from $7.75 to $21.375 per share. To date, none of
the stock options has been exercised. See "Repricing of Stock Options and 1995
Compensation Strategy" below.
In addition to stock options, the Company awarded executive officers an
aggregate of 182,000 restricted shares of Class B common stock, which were to
vest in 50% increments on March 15, 1995 and 1996. This number includes 150,000
shares awarded to the Named Executives, 55,000 of which have now vested and
50,000 of which were forfeited upon terminations of employment.
Other Plans. No amounts were earned under the Company's Profit Sharing
Plan in 1994 or under the EPU Program which is based on share price performance.
1994 CEO Compensation
Robert R. Ferguson III served as the Chief Executive Officer of the Company
until October 26, 1994. Mr. Ferguson, whose base salary had been reduced under
the Company's general wage and salary reduction program, benefitted from the
salary and wage restorations in April and July 1994, but did not receive a
salary increase in 1994. Together with other executive officers, Mr. Ferguson
received a stock option and restricted stock as performance incentives, and was
eligible to participate in the Profit Sharing Plan and the EPU Program. Mr.
Ferguson forfeited his stock option and restricted stock, and terminated his
participation in the Profit Sharing Plan and the EPU Program, in connection with
his termination of employment. In addition to his salary, Mr. Ferguson received
a contractual severance payment in connection with his termination of
employment. Such payment was not tied to the Company's performance.
Gordon Bethune became Continental's Chief Executive Officer on November 2,
1994. Mr. Bethune had joined the Company in February 1994 as its President and
Chief Operating Officer. Thereafter, Mr. Bethune
17
<PAGE> 21
received an offer of employment from one of the Company's competitors, which
included a substantial bonus and significantly higher salary and benefits than
the Company had agreed to pay Mr. Bethune. Consistent with the Company's
strategy to retain highly talented employees and provide a competitive
compensation package relative to the individual's position and labor market
alternatives, and based upon the favorable evaluation of Mr. Bethune's
performance with the Company, the Committee recommended, and the Board of
Directors approved, amendments to Mr. Bethune's employment agreement providing
for an increased salary and certain additional benefits. See "General
Information -- Employment and Severance Agreements." In addition, pursuant to
his amended employment agreement, Mr. Bethune received an enhanced stock option
and restricted stock grant as well as a cash bonus payment. The number of shares
subject to Mr. Bethune's stock option was increased from 150,000 to 250,000 and
the exercise price therefor was reduced from $21.375 per share to $14.125. The
number of shares of restricted stock awarded to Mr. Bethune was increased from
25,000 to 75,000. The Company is not aware of any re-pricing of stock options
occurring prior to its reorganization in 1993 and, except as discussed below, no
other repricing of stock options has been effected since such reorganization.
Such awards were not based on the historical performance of the Company, but
were deemed to be appropriate inducements to retain Mr. Bethune and incentivize
his future performance. Of the total bonus amount paid in 1994, $750,000 was
subject to a repayment obligation if Mr. Bethune voluntarily terminated his
employment with the Company prior to January 12, 1995, and an equivalent amount
remains subject to such repayment obligation if Mr. Bethune voluntarily
terminates his employment with the Company prior to January 12, 1996.
Repricing of Stock Options and 1995 Compensation Strategy
For 1995 the Committee intends to continue its present performance-based
compensation strategy. Our compensation philosophy will continue to reward
performance for executive and broad-based employees tied to both corporate
goals, business unit goals, and individual benchmarks. The Profit Sharing Plan
introduced in 1994 serves to engage all employees in the success of the Company.
The Committee further recognizes that it must examine closely recommendations to
provide additional rewards and incentives for executive officers through cash
bonuses, the 1994 Stock Purchase Plan and the 1994 Incentive Equity Plan. In
that regard, the Committee approved in early 1995 a special cash bonus plan for
approximately 20 senior executives which pays quarterly cash bonuses based on
cumulative Company performance. Based on the success of the program, the
Committee took action in April 1995 to increase the number of employees who
participate in the Company's 1995 special cash bonus plan. Such plan, which is
in effect for 1995 only, now covers approximately 270 employees and provides for
quarterly cash bonuses (in annualized amounts of 15%, 30% and 100% of annual
salary, depending on the employee) based on Company performance and, in certain
cases, individual performance as determined by the Company's Chief Executive
Officer. The Committee believes that a short-term, quarterly payment cash bonus
program, such as the Company's 1995 special cash bonus program, directly tied to
Company or individual performance, is an appropriate incentive during the
current period of significant strategic change in the Company.
In April 1995, the Committee authorized the exchange and repricing (the
"repricing") of certain outstanding non-qualified stock options ("Old Options")
held by certain employees of the Company (excluding the Chief Executive Officer)
and generally bearing an exercise price higher than the then current market
price of the common stock, whereby such employees may surrender and cancel their
respective Old Options and receive new options ("New Options") generally
exercisable at a price lower than that of the canceled options, subject to
certain conditions, including the approval by the stockholders of the Company of
the First Amendment to the 1994 Incentive Equity Plan as provided in the First
Amendment. See "Proposal 2" below. Inasmuch as the Old Options were designed to
attract and retain employees and to provide incentives for such persons to work
to achieve the Company's success, the Committee, after consulting with an
independent, nationally recognized compensation consulting firm, determined that
the decline in the market value of the Company's common stock since the dates
the Old Options were awarded had frustrated these purposes and diminished the
value of the Company's 1994 Incentive Equity Plan as an element of the Company's
compensation arrangements. At the time of the repricing, fewer than ten of
approximately 270 optionees had options with an exercise price lower than the
then current market price of the common stock. The vast majority of the Old
Options have an exercise price of $21.375 per share. The Committee
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<PAGE> 22
determined that repricing options and making modest additional grants were the
most cost-effective method to retain key employees. The Committee also believed
it was appropriate, in connection with the repricing, to shorten the term of the
stock options from ten years to five years. Accordingly, the Committee adopted a
repricing program as described below.
Certain employees, including certain executive officers (but excluding the
Chief Executive Officer) holding Old Options at the time of the repricing will
be eligible to participate in the repricing program. Each such participant may
elect to surrender for cancellation all such individual's Old Options in
exchange for New Options (generally covering the same number of shares, with
certain exceptions), subject to certain conditions. The term of each New Option
will be five years, and the exercise price of the New Options will be equal to
the Market Value per Share (as defined in the Plan) on April 27, 1995, the date
of grant ($16.00). The options will vest as to 25% six months from the date of
grant and will vest an additional 25% on the first, second and third anniversary
of the date of grant. The grant of the New Options to an individual is
conditioned on (i) termination of such individual's Old Options, termination of
such individual's current employment agreement with the Company or any
subsidiary in exchange, in certain cases, for a new employment agreement,
surrender by such individual for cancellation of all such individual's existing
Annual Incentive Awards and Long-Term Incentive Awards under the Plan, and
surrender by such individual for cancellation of all such individual's awards
under the EPU Program and certain other awards, if any (provided that an
individual shall be permitted to retain all or any portion of such individual's
Old Options with an exercise price lower than the exercise price of the New
Options if such individual's New Options are reduced on the basis of one new
option share for each outstanding option share retained), and (ii) the approval
of the First Amendment to the Plan by the stockholders of the Company as
provided in such First Amendment. See "Proposal 2" below. The Company
anticipates entering into new employment agreements with certain of such
individuals.
In connection with the repricing, Mr. Garton may exchange, subject to the
conditions described above, 116,500 Old Options bearing an exercise price of
$21.375 and having a remaining term of approximately nine years, for 75,000 New
Options bearing an exercise price of $16.00 and having a term of five years.
None of the other Named Executives will be eligible to participate in the
repricing.
Respectfully submitted,
Human Resources Committee
Karen Hastie Williams, Chair
Thomas J. Barrack, Jr.
Patrick Foley
David E. Mitchell, O.C.
William S. Price
Donald L. Sturm
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's executive compensation programs are administered by the Human
Resources Committee of the Board of Directors. The committee is composed of six
independent, non-employee directors, and no member of the committee has been an
officer or employee of the Company or any of its subsidiaries. Karen Hastie
Williams is a Partner of Crowell & Moring, a law firm that has provided services
to the Company and its subsidiaries for many years.
CERTAIN TRANSACTIONS
Continental Micronesia, Inc. ("CMI"), a 91%-owned subsidiary of the
Company, and United Micronesia Development Association ("UMDA"), which is
controlled by Mr. Larry L. Hillblom and is the minority stockholder of CMI, have
a services agreement whereby CMI pays UMDA a fee for certain services, which fee
approximates 1% of CMI's revenues. During 1994, these fees totalled
approximately $4.8 million. As of December 31, 1994, CMI had a liability due to
UMDA totaling approximately $7.2 million. The note
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<PAGE> 23
evidencing such liability bears interest at 12% per annum and matures in 2011.
Annual principal and interest payments on such note aggregating $1,000,000 per
year are used to satisfy a portion of the 1% fee.
In connection with Air Canada's investment in the Company, Air Canada, Air
Partners and the Company agreed to identify and pursue opportunities to achieve
cost savings, revenue enhancement or other synergies from areas of joint
operation between the Company and Air Canada. The Company and Air Canada have
entered into a series of synergies agreements, primarily in the areas of
aircraft maintenance and commercial and marketing alliances (including
agreements regarding coordination of connecting flights). The Company believes
that the synergies agreements allocate potential benefits to the Company and Air
Canada in a manner that is equitable and commercially reasonable, and contain
terms at least as favorable to the Company as could be obtained from unrelated
parties. As a result of these agreements, the Company paid Air Canada $29.1
million during 1994, primarily relating to aircraft maintenance.
As a limited partner in AmWest Partners, L.P. ("AmWest"), Continental
participated in the acquisition by AmWest of a portion of the equity of
reorganized America West in connection with America West's emergence from
bankruptcy, effective August 25, 1994. In the transaction, Continental paid
$18.8 million for approximately 4.1% of the equity interest and 17.1% of the
voting power of the reorganized America West. Continental also entered into a
series of agreements with America West, including agreements related to code-
sharing and ground handling, which have created substantial benefits for both
airlines.
Each investor participating in the acquisition did so on individual terms;
Continental and certain other parties invested at the same per share price, but
at a higher price (approximately $9.36 per share as compared to approximately
$7.01 per share) than the price paid by Air Partners, II, L.P., TPG Partners,
L.P. and TPG Parallel I, L.P. (collectively, the "TPG entities"), partnerships
controlled by Mr. Bonderman. However, as between Continental and the TPG
entities, Continental is entitled to receive a 10.0% per year return on its
investment before the TPG entities receive any return and to recoup its invested
capital before the TPG entities recoup their capital.
During the period from January 1, 1994 to March 15, 1995, the date of his
retirement, Mr. Goolsbee, the Company's Executive Vice President, had
outstanding loans from the Company. The highest balance of such loans, which
bore interest at rates of 3% (as to $250,000 in principal amount) and 8.66% (as
to the balance), was approximately $373,000. The loans, which were to mature in
1997 and 1995, respectively, were forgiven in connection with Mr. Goolsbee's
retirement.
Mr. Brenneman, who joined the Company as an employee on April 27, 1995 and
was elected as the Company's Chief Operating Officer effective May 1, 1995, was
a partner with Bain & Company, Inc., a consulting firm that has provided
consulting services to the Company from time to time. In addition, Mr. Brenneman
is the Chairman, Chief Executive Officer and majority shareholder of Turnworks,
Inc. ("Turnworks") which has acted as a consultant to the Company since February
1995. In connection with the consulting agreement, the Company has paid
Turnworks an aggregate amount of approximately $825,000 to date.
In connection with his employment by the Company, Mr. Brenneman and the
Company entered into an agreement pursuant to which (i) the Company's agreement
with Turnworks was terminated and the Company paid Turnworks $750,000, (ii) the
Company and Mr. Brenneman agreed to enter into definitive employment and other
compensation agreements pursuant to which Mr. Brenneman will be paid an annual
salary of $525,000, participate in the Company's 1995 executive bonus program,
receive a stock option to purchase up to 275,000 shares of Class B common stock,
receive 75,000 restricted shares of Class B common stock and receive certain
additional benefits.
CERTAIN LEGAL PROCEEDINGS
Claims were filed against certain persons serving as directors or officers
of Continental or its former parent in the fall of 1990 alleging violations of
the federal securities laws and fraud because of alleged misrepresentations
concerning the intentions of such parent, Continental Airlines Holdings, Inc.
("Holdings"), with respect to filing for protection under the federal bankruptcy
code. The plan of reorganization
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<PAGE> 24
approved in the Company's reorganization released and enjoined such third-party
claims against current and former directors and officers, but certain parties
appealed such release and injunction and the question of whether such claims are
released and enjoined has not been finally determined. Such claims, if not
released or enjoined, and if successful, could give rise to indemnity claims
against the Company.
PROPOSAL 1:
ELECTION OF DIRECTORS
It is the intention of the persons named in the enclosed form of proxy,
unless otherwise instructed, to vote each duly executed proxy for the election
of each nominee listed below. Pursuant to the Company's Bylaws, directors will
be elected by a plurality of the votes duly cast at the Meeting. If elected,
such nominee will hold office until the next annual meeting of stockholders and
until his or her respective successor has been duly elected and has qualified.
Management does not contemplate that any of the nominees will become unavailable
for any reason, but if that should occur before the Meeting, proxies will be
voted for another nominee or nominees to be selected by the Board of Directors
of the Company.
Pursuant to a stockholders' agreement, Air Canada and Air Partners have
agreed to vote their shares for the election of six directors designated by Air
Canada, six directors designated by Air Partners and six directors who are
"Independent Directors" (as defined in the stockholders' agreement) satisfactory
to Air Partners. The Creditors Committee (as defined in the stockholders'
agreement) has the right to designate three of the six Independent Directors,
and one of the three other Independent Directors must be the Chief Executive
Officer. Air Canada has elected to designate only four directors pursuant to the
stockholders' agreement.
Air Canada has the right, subject to foreign ownership restrictions, to
convert shares of Class B common stock into shares of Class A common stock.
Also, Air Canada has the limited right, in certain circumstances, to convert its
Class A common stock into Class C common stock, and Air Partners has the limited
right, in certain circumstances, to convert its Class A common stock into Class
D common stock. No person may hold or own Class C common stock or Class D common
stock, respectively, other than Air Canada and certain of its affiliates or Air
Partners and certain of its affiliates. The Class C common stock and Class D
common stock, if issued, would preserve the rights of Air Canada and Air
Partners, respectively, to elect six directors to the Company's Board in certain
circumstances, including a sale by the other party of its stock.
There is no family relationship between any of the nominees for director or
between any nominee and any executive officer.
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<PAGE> 25
The following table shows, with respect to each nominee, (i) such person's
name and age, (ii) the period for which such person has served as a director of
the Company, (iii) all positions and offices with the Company currently held by
him or her and his or her principal occupation during the last five years
(including other directorships and business experience), and (iv) the standing
committees of the Board of Directors of which he or she is a member. Each of the
nominees, other than Mr. Brenneman and Mr. Kehler, is currently a director of
the Company.
<TABLE>
<CAPTION>
NAME, AGE, POSITION AND COMMITTEE
MEMBERSHIPS TERM OF OFFICE AND BUSINESS EXPERIENCE
- ---------------------------------------- -------------------------------------------------
<S> <C>
THOMAS J. BARRACK, JR., age 47 Director since August 1994. Chief Executive
(Human Resources Committee) Officer of Colony Capital, Inc. and Colony
Advisors, Inc. (real estate investments) since
1991. Partner of Keystone, Inc. (formerly Robert
M. Bass Group, Inc.) from 1987-1991.
GORDON M. BETHUNE, age 53 Director since August 1994. President and Chief
President and Chief Executive Officer Executive Officer since November 1994; President
(Executive Committee, Finance and and Chief Operating Officer (February
Strategy Committee, Finance Committee, 1994-November 1994); various positions with The
Operations Committee) Boeing Company commencing in 1988, including Vice
President and General Manager of the Commercial
Airplane Group's Renton Division, Vice President
and General Manager of the Customer Services
Division, and Vice President of Airline Logistics
Support.
DAVID BONDERMAN, age 52 Director since April 1993 and Chairman of the
Chairman of the Board of Directors Board since May 1993. Managing Director of Air
(Executive Committee, Finance and Partners, L.P. since September 1992; Managing
Strategy Committee, Operations Director of Texas Pacific Group (a private
Committee) investment firm) since September 1992; Chief
Operating Officer of Keystone, Inc. (formerly
Robert M. Bass Group, Inc.) (a private investment
firm) (1983-August 1992); Director of: Bell &
Howell Holdings Company; National Re Corporation;
National Education Corporation; Carr Realty
Company; American Savings Bank, F.A.
GREGORY D. BRENNEMAN, age 33 Chief Operating Officer effective May 1, 1995.
Chief Operating Officer, Nominee for Chairman and Chief Executive Officer of
Director Turnworks, Inc. (consulting) since February 1995;
Partner of Bain & Company, Inc. (consulting)
1987-1995.
JOEL H. COWAN, age 58 Director since April 1993. President of Cowan &
(Audit Committee) Associates (real estate holding company) since
1976; Chairman, The Habersham Group
(international trade & investment) since 1984;
Director of: Interstate General Company, L.P.
since 1986; IRT Property Company, L.P.
(1978-1992).
PATRICK FOLEY, age 63 Director since April 1993. Chairman of the Board,
(Finance and Strategy Committee, Human President and Chief Executive Officer of DHL
Resources Committee) Airways, Inc. since September 1988.
</TABLE>
(Table continued on following page)
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<PAGE> 26
<TABLE>
<CAPTION>
NAME, AGE, POSITION AND COMMITTEE
MEMBERSHIPS TERM OF OFFICE AND BUSINESS EXPERIENCE
- ---------------------------------------- -------------------------------------------------
<S> <C>
ROWLAND C. FRAZEE, C.C., age 73 Director since April 1993. Various positions with
(Audit Committee, Finance Committee) The Royal Bank of Canada since January 1939,
retiring as Chairman and Chief Executive Officer;
Director and Chairman of Ganong Bros. Limited;
Director of: International Minerals and Chemical
Corporation of Canada, Limited; Newfoundland
Capital Corporation Limited.
HOLLIS L. HARRIS, age 63 Director since April 1993. Chairman of the Board,
(Executive Committee, Finance and President and Chief Executive Officer of Air
Strategy Committee, Operations Canada since January 1993; Vice Chairman,
Committee) President and Chief Executive Officer of Air
Canada (February 1992-January 1993); Chairman and
Chief Executive Officer of Air Eagle Holdings
since October 1991; Chairman of the Board,
President and Chief Executive Officer of
Continental and President and Chief Executive
Officer of Holdings (September 1990-August 1991);
prior to that, 36 years with Delta Air Lines,
Inc. with final position being Director,
President and Chief Operating Officer; Director
of American Business Products Inc.
DEAN C. KEHLER, age 38 Managing Director and a founding partner of The
Nominee for Director Argosy Group L.P. (investment banking) since
1990; Trustee of the Care Foundation.
ROBERT L. LUMPKINS, age 51 Director since April 1993. Senior Vice President,
(Audit Committee) Chief Financial Officer (since May 1989) and
Director (since August 1991) of Cargill, Inc.;
various positions with Cargill, Inc. since 1968.
DOUGLAS H. MCCORKINDALE, age 55 Director since April 1993. Vice Chairman,
(Audit Committee) Director and Chief Financial and Administrative
Officer of Gannett Co., Inc. (a nationwide
diversified communications company) since 1984;
Director of seven funds which are part of the
Prudential Group of Mutual Funds; Director,
Frontier Corporation.
DAVID E. MITCHELL, O.C., age 68 Director since April 1993. Chairman of Alberta
(Human Resources Committee) Energy Company, Ltd. since 1994; President and
Chief Executive Officer of Alberta Energy
(1975-1993); Governor & Director of Hudson's Bay
Company; Chairman of the Board, Chieftain
International, Inc.; Director of: Air Canada; The
Bank of Nova Scotia; Lafarge Corporation; and
Founder and President, the Ernest C. Manning
Awards Foundation.
</TABLE>
(Table continued on following page)
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<PAGE> 27
<TABLE>
<CAPTION>
NAME, AGE, POSITION AND COMMITTEE
MEMBERSHIPS TERM OF OFFICE AND BUSINESS EXPERIENCE
- ---------------------------------------- -------------------------------------------------
<S> <C>
RICHARD W. POGUE, age 66 Director since April 1993. Senior Advisor of Dix
(Audit Committee) & Eaton (a public relations firm) since July
1994; Senior Partner of Jones, Day, Reavis &
Pogue (January 1993 through June 1994); Managing
Partner of Jones, Day, Reavis & Pogue (law firm)
(1984-1992); Director of: Derlan Industries,
Ltd.; M.A Hanna Co.; KeyCorp; OHM Corporation;
Redland PLC; Rotek Incorporated; TRW Inc.
WILLIAM S. PRICE, age 39 Director since April 1993. Managing Director of
(Finance and Strategy Committee, Air Partners, L.P. since November 1992; Managing
Finance Committee, Human Resources Director of Texas Pacific Group (a private
Committee) investment firm) since November 1992; Vice
President -- Strategic Planning and Business
Development of GE Capital (1991-1992); Vice
President of Bain & Company (consulting firm)
(1985-1991); Director of Preferred Provider
Organization of Michigan; Surgical Partners
Affiliates; Banco Allianza.
DONALD L. STURM, age 62 Director since April 1993. Chairman of the Board
(Finance and Strategy Committee, Human and Chief Executive Officer of: Community First
Resources Committee) Bankshares, Inc. since 1993 (which owns four
banks in Colorado); Community First Bancorp, Inc.
since 1993 (which owns four banks in Wyoming);
Sturm Investment, Inc. since 1984 (which owns one
bank in Illinois); Premier Bank since 1994;
Continental Can Company, Inc., and various
subsidiaries and affiliated corporations
(1984-1990). Various positions culminating in
Vice Chairman of Peter Kiewit Sons', Inc.
(1963-1990). Limited Partner of Air Partners, L.
P.
CLAUDE I. TAYLOR, O.C., age 69 Director since April 1993. Chairman Emeritus of
(Audit Committee, Finance and Strategy Air Canada since January 1993; Chairman of the
Committee) Board of Air Canada (February 1992-December
1993); Chairman, President and Chief Executive
Officer of Air Canada (1990-1992); Chairman of
the Board (1984-1990), President and Chief
Executive Officer (1976-1984) of Air Canada;
Chairman of the Board of Medina Inc.; Vice
Chairman of the Board of Governors of Concordia
University; Vice Chairman of the Board of
Directors of Friday's Child International;
Director of: Air Canada; CGI Group Inc.; Blenheim
Aviation Limited; Montreal Neurological Hospital;
National Quality Institute of Canada; Canadian
Aviation Hall of Fame.
KAREN HASTIE WILLIAMS, age 50 Director since April 1993. Partner of Crowell &
(Human Resources Committee) Moring (law firm), Washington, D.C. since
December 1982; Director of: Federal National
Mortgage Association; Crestar Financial
Corporation; Washington Gas Light Company;
SunAmerica, Inc.
</TABLE>
(Table continued on following page)
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<PAGE> 28
<TABLE>
<CAPTION>
NAME, AGE, POSITION AND COMMITTEE
MEMBERSHIPS TERM OF OFFICE AND BUSINESS EXPERIENCE
- ---------------------------------------- -------------------------------------------------
<S> <C>
CHARLES A. YAMARONE, age 36 Director since January 1995. Executive Vice
(Finance and Strategy Committee) President and Research Director of Libra
Investments, Inc. since July 1994; Senior Vice
President and General Counsel of Libra
Investments, Inc. (October 1991-June 1994);
Senior Vice President -- Legal and Secretary of
Columbia Savings (January 1990-October 1991).
Director of Bally's Grand, Inc. since 1993.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES
NAMED ABOVE, WHICH IS DESIGNATED AS PROPOSAL NO. 1 ON THE ENCLOSED PROXY.
PROPOSAL 2:
APPROVAL OF THE FIRST AMENDMENT TO THE 1994 INCENTIVE EQUITY PLAN
Subject to the approval of stockholders, the Board of Directors, on the
recommendation of the Human Resources Committee, has amended the Company's 1994
Incentive Equity Plan (the "Plan"). The proposed amendment (the "First
Amendment") (i) increases the number of shares of Class B common stock covered
by the Plan by 700,000 shares (from 2,300,000 shares to 3,000,000 shares), and
increases to 400,000 the number of shares subject to options that may be granted
to any participant during any calendar year, (ii) permits the Chief Executive
Officer to administer and make awards under the Plan (other than administration
of the Plan or the making of awards under the Plan as it relates to any
participant who is subject to Section 16 of the Exchange Act, which
administration and making of awards will continue to be the responsibility of
the Human Resources Committee, or the Board of Directors, as provided in the
Plan), (iii) provides that the Plan administrator may require that a percentage
of the aggregate shares of stock obtained from certain exercises of a stock
option not be transferable prior to the earliest to occur of the termination of
the relevant stock option term, the participant's retirement, death or
disability or the termination of the participant's employment with the Company
and its subsidiaries, and (iv) makes certain technical changes, including
changes to broaden the discretion of the Plan administrator in connection with
the terms of written agreements evidencing awards under the Plan.
The Plan may be amended by the Board in the future, but may not be so
amended without further approval by the stockholders of the Company if such
amendment would result in the Plan no longer satisfying the requirements of Rule
16b-3 under the Exchange Act, subject to certain additional limitations.
The text of the First Amendment to the 1994 Incentive Equity Plan is
attached as Appendix A to this proxy statement. Stockholders are being asked to
vote upon approval of the First Amendment as contemplated therein. The First
Amendment will be adopted upon a majority of the votes duly represented at the
Meeting being cast in favor thereof.
At April 14, 1995, there were stock options with respect to an aggregate of
1,675,000 shares of Class B common stock outstanding under the Plan, and 160,000
shares of restricted stock were outstanding under the Plan. In connection with
the repricing of certain outstanding stock options and related grants of
additional stock options (see "General Information -- Executive Compensation
Report of the Human Resources Committee -- Repricing of Stock Options and 1995
Compensation Strategy", above), the Company anticipates that a total of
2,054,500 stock options will be outstanding if all participants offered the
opportunity to receive repriced options accept such options and surrender their
outstanding options. The vast majority of the options outstanding at April 14,
1995 have an exercise price of $21.375 per share.
Mr. Garton is the only executive officer set forth in the Summary
Compensation Table who will have the opportunity to receive repriced options.
Mr. Garton will have the opportunity to surrender his 116,500 outstanding
options, under certain conditions, for 75,000 New Options at an exercise price
of $16.00 per share (the fair market value of the Class B common stock on the
date of grant of the New Options). All current
25
<PAGE> 29
executive officers as a group will have the opportunity to surrender an
aggregate of 369,500 outstanding options, under certain circumstances, for an
aggregate of 350,000 New Options at an exercise price of $16.00 per share, and
all employees, including current officers but excluding executive officers, will
have the opportunity to surrender an aggregate of 928,000 outstanding options,
under certain circumstances, for an aggregate of 1,307,500 New Options at an
exercise price of $16.00 per share. No directors of the Company will have the
opportunity to receive repriced options. All outstanding stock options are, and
all the new options will be, options not intended to qualify as "incentive stock
options" within the meaning of subsection (b) of section 422 of the Code.
The following table sets forth, as of April 27, 1995, shares subject to
stock options that have been awarded to the specified individuals and groups
under the 1994 Incentive Equity Plan in connection (except as described below)
with the repricing of options described under "General Information -- Executive
Compensation Report of the Human Resources Committee -- Repricing of Stock
Options and 1995 Compensation Strategy", subject to the approval of the First
Amendment by stockholders at the Meeting.
INCENTIVE EQUITY PLAN BENEFIT AWARDS TABLE(1)
<TABLE>
<CAPTION>
STOCK
OPTIONS(2)
---------
NUMBER OF
SHARES
---------
<S> <C>
Gordon M. Bethune.............................................................. -0-
President and Chief Executive Officer
Robert R. Ferguson III......................................................... -0-
Vice Chairman and Chief Executive Officer
Daniel P. Garton............................................................... 75,000(3)
Senior Vice President and Chief Financial Officer
Donald G. Valentine............................................................ -0-
Senior Vice President
Charles T. Goolsbee............................................................ -0-(3)
Executive Vice President
John E. Luth................................................................... -0-(3)
Senior Vice President
Gregory D. Brenneman(4)........................................................ 275,000(3)(5)
Dean C. Kehler(4).............................................................. -0-
All current executive officers, as a group(6).................................. 625,000(3)(6)
All current directors (other than executive officers), as a group.............. -0-
All employees (other than executive officers), as a group...................... 1,307,500(3)
</TABLE>
- ---------------
(1) The dollar values of the stock options set forth in the table will depend
upon the future market prices of the Class B common stock and are not
currently determinable.
(2) The closing sales price of the Class B common stock was $16.00 per share on
April 27, 1995.
(3) Non-qualified options with an exercise price of $16.00 per share that vest
in 25% increments on October 27, 1995, April 27, 1996, April 27, 1997 and
April 27, 1998.
(4) Nominee for director.
(5) Such option has been awarded to Mr. Brenneman in connection with his initial
employment and not as a part of the repricing described above.
(6) Includes Mr. Brenneman, Chief Operating Officer effective May 1, 1995.
An optionee will not realize any taxable income under the Code upon the
grant of a New Option or the exchange of an Old Option for a New Option as
described above. The exercise of a New Option will result in immediate taxable
income to the optionee in an amount equal to the difference between the option
price and the market price on the date of exercise. This same amount will be
deductible by the Company as
26
<PAGE> 30
compensation, provided that the Company withholds any income taxes that are
required to be withheld or such amounts are deposited by the optionee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE FIRST
AMENDMENT TO THE 1994 INCENTIVE EQUITY PLAN, WHICH IS DESIGNATED AS PROPOSAL NO.
2 ON THE ENCLOSED PROXY.
PROPOSAL 3:
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The firm of Ernst & Young LLP has been the Company's independent auditors
since 1993, and the Board of Directors desires to continue to engage the
services of this firm for the fiscal year ending December 31, 1995. Accordingly,
the Board of Directors, upon the recommendation of the Audit Committee, has
reappointed Ernst & Young LLP to audit the financial statements of the Company
and its subsidiaries for fiscal 1995 and report thereon. Stockholders are being
asked to vote upon the ratification of such appointment. In the event
stockholders do not ratify such appointment, the Audit Committee and Board will
reconsider such appointment.
Representatives of Ernst & Young LLP will be present at the Meeting and
will be available to respond to appropriate questions and make a statement
should they so desire.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF THE INDEPENDENT AUDITORS, WHICH IS DESIGNATED AS PROPOSAL NO. 3
ON THE ENCLOSED PROXY.
OTHER MATTERS
Management knows of no business to be presented for action at the Meeting
other than that described in this proxy statement. If any other matters should
properly come before the Meeting calling for a vote of the stockholders, it is
the intention of the persons named in the accompanying proxy, unless otherwise
directed in such proxy, to vote on such matters in accordance with their best
judgment.
Each director and executive officer, and each holder of greater than ten
percent of a class of the Company's equity securities, is required to report his
or her transactions in such securities to the Commission by certain specified
dates. Messrs. Barrack and Cowan inadvertently failed to timely file their
initial statements of beneficial ownership upon becoming directors and Messrs.
Bethune, Loeser, McLean and Ornstein inadvertently failed to timely file such
reports upon becoming executive officers; such omissions were subsequently
cured. Messrs. Luth, Ornstein and Valentine each inadvertently failed to timely
file a report relating to the acquisition of the Company's equity securities
during 1994. The appropriate reports were subsequently filed.
EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND MAIL PROMPTLY
THE ENCLOSED PROXY.
INTEREST OF CERTAIN PERSONS IN MATTERS
TO BE ACTED UPON
As described above, executive officers of the Company are eligible to
receive grants of stock options under the Company's 1994 Incentive Equity Plan,
including directors who are employees of the Company. Non-employee directors are
also eligible to receive grants of stock options under such plan, but are not
eligible to participate in the repricing of currently outstanding options.
27
<PAGE> 31
1996 ANNUAL MEETING
Any stockholder who desires to present proposals at the 1996 annual meeting
of stockholders and to have such proposals set forth in the proxy statement and
form of proxy mailed in conjunction with such annual meeting must submit such
proposals in writing to the Secretary of the Company not later than December 30,
1995. The Company's Bylaws require that for nominations of persons for election
to the Board of Directors of the Company or the proposal of business to be
considered by the stockholders at an annual meeting, a stockholder must give
timely written notice thereof. To be timely for the 1996 annual meeting of
stockholders, such notice must be delivered to the Secretary of the Company at
the principal executive offices of the Company not earlier than the ninetieth
day prior to June 5, 1996 nor later than the seventienth day prior to June 5,
1996, provided, that if the 1996 annual meeting of stockholders is advanced by
more than 20 days, or delayed by more than 70 days, from June 5, 1996, such
notice must be delivered not earlier than the ninetieth day prior to the 1996
annual meeting and not later than the close of business on the later of (a) the
seventieth day prior to the 1996 annual meeting or (b) the tenth day following
the day on which public announcement of the date of the 1996 annual meeting is
first made. The stockholder's notice must contain and be accompanied by certain
information as specified in the Bylaws. It is recommended that any stockholder
desiring to make a nomination or submit a proposal for consideration obtain a
copy of the Company's Bylaws, which may be obtained without charge from the
Secretary of the Company upon written request addressed to the Secretary at the
Company's principal executive offices.
By Order of the Board of Directors,
/s/ JEFFERY A. SMISEK
-------------------------
Jeffery A. Smisek
Houston, Texas
April 28, 1995
THE COMPANY WILL FURNISH TO INTERESTED SECURITYHOLDERS WITHOUT CHARGE, UPON
WRITTEN REQUEST, COPIES OF ITS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1994. THE COMPANY WILL FURNISH ANY EXHIBIT TO SUCH REPORT,
UPON WRITTEN REQUEST, TO ANY SECURITYHOLDER REQUESTING SUCH REPORT UPON PAYMENT
OF REASONABLE FEES RELATING TO THE COMPANY'S FURNISHING SUCH EXHIBIT. REQUESTS
FOR COPIES SHOULD BE ADDRESSED TO THE SECRETARY OF THE COMPANY AT THE COMPANY'S
HEADQUARTERS: 2929 ALLEN PARKWAY, SUITE 2010, HOUSTON, TEXAS 77019.
28
<PAGE> 32
APPENDIX A
FIRST AMENDMENT TO
CONTINENTAL AIRLINES, INC.
1994 INCENTIVE EQUITY PLAN
The Board of Directors (the "Board") of Continental Airlines, Inc. (the
"Company") adopted the Continental Airlines, Inc. 1994 Incentive Equity Plan
(the "Plan") on March 4, 1994, subject to approval by the stockholders of the
Company, which was obtained at the annual meeting held June 30, 1994. Subject to
applicable provisions of Paragraph 15 of the Plan, the Board retained the right
to amend the Plan. The Board has determined by resolutions adopted on April 27,
1995 that the Plan be amended as follows. Capitalized terms not otherwise
defined in this First Amendment to the Plan have the meanings ascribed thereto
in the Plan.
The Plan is hereby amended as follows:
1. The first sentence of Paragraph 3 is hereby amended so as to read in its
entirety as follows:
"Subject to adjustment as provided in Paragraph 10 and in accordance
with and subject to Rule 16b-3 under the Exchange Act and applicable
judicial and administrative interpretations thereof, the shares of
Common Stock covered by all Awards granted under this Plan will not
exceed in the aggregate 3,000,000 shares, of which number (a) no more
than 300,000 shares will be granted or sold as Restricted Stock, (b)
Stock Options with respect to no more than 400,000 shares will be
granted to any Participant during any calendar year, and (c) no more
than 200,000 shares will be delivered in payment of Annual Incentive
Awards (for all Participants in the aggregate) in respect of any given
year."
2. The first sentence of Paragraph 4(k) is hereby amended so as to read in
its entirety as follows:
"In the discretion of the Administrator, a percentage (determined by the
Administrator and set forth in the written agreement or notification
evidencing each grant of a Stock Option) of the aggregate shares of
Common Stock obtained from exercises of a Stock Option (which percentage
may be satisfied out of particular exercises as determined by the
Administrator and set forth in the written agreement or notification
evidencing each grant of a Stock Option) shall not be transferable prior
to the earliest to occur of: the termination of the relevant Stock
Option term (or such shorter period as may be determined by the
Administrator and set forth in the written agreement or notification
evidencing the grant of the Stock Option); the Participant's retirement,
death or Disability; or termination of the Participant's employment with
the Company and its subsidiaries."
3. The term "Committee" is hereby replaced by the term "Administrator"
throughout the Plan, except as follows:
(i) Paragraph 2(f) is hereby amended so as to read in its entirety as
follows:
" "Committee" means the Human Resources Committee of the Board,
which at all times will consist of not less than two directors (all
of whom are Outside Directors) appointed by the Board, each of whom
will be a "disinterested person" within the meaning of Rule 16b-3
and an "outside director" within the meaning of Section 162(m) of
the Code. The action of a majority of the members of the Committee
(but not less than two members) will be the act of the Committee.
"Administrator" means (i) in the context of Awards made to, or the
administration (or interpretation of any provision) of the Plan as
it relates to any Participant who is subject to Section 16 of the
Exchange Act (or any successor section to the same or similar
effect) ("Section 16"), the Committee, (ii) in the context of Awards
made to, or the administration (or interpretation of any provision)
of the Plan as it relates to, any Participant who is not subject to
Section 16, the Chief Executive Officer of the Company and (iii) to
the extent administration of the Plan has been assumed by the Board
pursuant to a resolution of the Board, the Board.";
A-1
<PAGE> 33
(ii) Paragraph 2(y): the clause "or the Committee" is hereby deleted;
(iii) Paragraph 14(a) is hereby amended so as to read in its entirety as
follows:
"This Plan shall be administered by the Administrator.";
(iv) The second sentence of Paragraph 14(b) is hereby amended so as to
read in its entirety as follows:
"Neither the Board, the Committee, the Chief Executive Officer nor
any member of the Board or the Committee will, in connection with
the administration of the Plan as the Administrator, be liable for
any such action or determination taken or made in good faith;" and
(v) Paragraph 16(b): the term "Committee" is hereby replaced by the
term "Board".
4. The last sentence of Paragraph 2(y), and Schedule A to the Plan, are
hereby deleted.
5. There is hereby inserted at the end of clause (i) of the first sentence
of Paragraph 11 the following clause:
", unless otherwise provided in the written agreement evidencing an
Award," and
there is hereby inserted in clause (1) of the first sentence of Paragraph 11,
immediately after the words "Qualifying Event" and before the parenthetical
reference, the following clause:
"or, if the written agreement evidencing an Award so provides, for a
period of 30 calendar days commencing upon the date of such Change in
Control".
6. Paragraph 2(d) is hereby amended to read in its entirety as follows:
"Change in Control" means the occurrence of one of the events described
in subclause (a), (b), (c) or (d) of clause (i) of the first sentence of
Paragraph 11."
The foregoing amendments to the Plan are effective April 27, 1995;
provided, however, that any such amendment that without approval by the
stockholders of the Company would result in the Plan no longer satisfying the
requirements of Rule 16b-3 shall only be effective upon approval thereof by the
stockholders of the Company within one year following April 27, 1995.
A-2
<PAGE> 34
COMMON STOCK PROXY
CONTINENTAL AIRLINES, INC.
ANNUAL MEETING OF STOCKHOLDERS JUNE 5, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby authorizes Gordon M. Bethune, Jeffery A. Smisek and
Scott R. Peterson, and each of them, with full power of substitution, to
represent and vote the shares of the undersigned in Continental Airlines, Inc.
as directed and, in their sole discretion, on all other matters that may
properly come before the Annual Meeting of Stockholders to be held on June 5,
1995, and at any adjournment or adjournments thereof, as if the undersigned
were present and voting thereat. The undersigned acknowledges receipt of the
notice of annual meeting and proxy statement with respect to such Annual
Meeting and certifies that, to the knowledge of the undersigned, all equity
securities of the Company owned of record or beneficially by the undersigned
are owned and controlled only by U.S. Citizens (as defined in the proxy
statement), except as indicated on the reverse side hereof.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE EXECUTE AND
RETURN THIS PROXY, WHICH MAY BE REVOKED AT ANY TIME PRIOR TO ITS USE.
Nominees for Director:
Thomas J. Barrack, Jr., Gordon M. Bethune, David Bonderman, Gregory D.
Brenneman, Joel H. Cowan, Patrick Foley, Rowland C. Frazee, C.C., Hollis L.
Harris, Dean C. Kehler, Robert L. Lumpkins, Douglas H. McCorkindale, David
E. Mitchell, O.C., Richard W. Pogue, William S. Price, Donald L. Sturm,
Claude I. Taylor, O.C., Karen Hastie Williams, Charles A. Yamarone
This proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder(s). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE ELECTION OF DIRECTORS NOMINATED BY THE BOARD OF DIRECTORS
(PROPOSAL 1) AND "FOR" PROPOSALS 2 AND 3.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2 AND 3.
______________
SEE REVERSE
SIDE
______________
<PAGE> 35
/X/ Please mark your
votes as in this example.
SHARES IN YOUR NAME
1. ELECTION OF DIRECTORS: FOR WITHHELD
See Reverse Side. / / / /
2. Approval of First FOR AGAINST ABSTAIN
Amendment to the / / / / / /
1994 Incentive Equity
Plan
3. Ratification of FOR AGAINST ABSTAIN
appointment / / / / / /
of independent auditors
For, except vote withheld from
the following nominee(s):
______________________________
THIS FORM OF PROXY RELATES TO BOTH CLASS A AND CLASS B COMMON STOCK. IF YOU
RECEIVED TWO PROXY CARDS, PLEASE EXECUTE AND RETURN EACH.
/ / Please mark this box ONLY if any Class A or Class B common stock
owned of record or beneficially by you is owned or controlled by
Foreigners (as defined in the proxy statement), and indicate the
number and class so owned or controlled by Foreigners:
Class A __________
Class B __________
SIGNATURE(S) __________________________________________ DATE ______________
SIGNATURE(S) __________________________________________ DATE ______________
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
