<PAGE>
As filed with the Securities and Exchange Commission on October 2, 1996
REGISTRATION NO. 333-12171
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------------
CONTINENTAL AIRLINES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 4512 74-2099724
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
2929 ALLEN PARKWAY, SUITE 2010
HOUSTON, TEXAS 77019
(713) 834-2950
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS PRINCIPAL EXECUTIVE OFFICES)
----------------------------------------
JEFFERY A. SMISEK, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
CONTINENTAL AIRLINES, INC.
2929 ALLEN PARKWAY, SUITE 2010
HOUSTON, TEXAS 77019
(713) 834-2950
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES OF CORRESPONDENCE TO:
MICHAEL L. RYAN, ESQ.
CLEARY, GOTTLIEB, STEEN & HAMILTON
ONE LIBERTY PLAZA
NEW YORK, NEW YORK 10006
----------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement of the Securities
becomes effective.
----------------------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
----------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
CONTINENTAL AIRLINES, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN THE PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS IN FORM S-4
<TABLE>
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<S> <C>
ITEM LOCATION IN PROSPECTUS
---- ----------------------
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus...................................... Facing Page of the Registration Statement; Cross Reference
Sheet; Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus............................. Available Information; Outside Back Cover Page of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information................... Prospectus Summary; Risk Factors; The Company; Selected
Financial Data
4. Terms of the Transaction.......................... Prospectus Summary; Risk Factors; The Exchange Offer;
Description of New Certificates; Plan of Distribution; Certain
Federal Income Tax Considerations
5. Pro Forma Financial Information................... Not Applicable
6. Material Contracts With the Company
Being Acquired.................................. Not Applicable
7. Additional Information Requred for
Reoffering by Persons and Parties
Deemed to be Underwriters....................... Not Applicable
8. Interests of Named Experts and Counsel............ Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..................................... Not Applicable
10. Information with Respect to S-3
Registrants..................................... Prospectus Summary; The Company; Recent Developments
11. Incorporation of Certain Information by
Reference....................................... Available Information; Incorporation of Certain Documents by
Reference
12. Information with Respect to S-2 or S-3
Registrants..................................... Not Applicable
13. Incorporation of Certain Information by
Reference....................................... Not Applicable
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants............... Not Applicable
15. Information with Respect to S-3
Companies....................................... Not Applicable
16. Information with Respect or S-2 to S-3
Companies....................................... Not Applicable
17. Information with Respect to Companies
Other Than S-3 or S-2 Companies................. Not Applicable
18. Information if Proxies, Consents or
Authorizations Are to be Solicited.............. Not Applicable
19. Information if Proxies, Consents or
Authorizations Are Not to be
Solicited or in an Exchange Offer............... Prospectus Summary; The Exchange Offer; Description of New
Certificates
</TABLE>
<PAGE>
********************************************************************************
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE *
* SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR *
* MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT *
* BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL *
* OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE *
* SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE *
* UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS *
* OF ANY SUCH STATE. *
********************************************************************************
SUBJECT TO COMPLETION--DATED OCTOBER 2, 1996
PROSPECTUS
Continental Airlines, Inc.
Offer to Exchange Pass Through Certificates, Series 1996-2,
which have been registered under the Securities Act of 1933, as amended,
for any and all outstanding Pass Through Certificates, Series 1996-2
The Exchange Offer will expire at 5:00 p.m., New York City time,
on November 1, 1996, unless extended.
Pass Through Certificates, Series 1996-2 (the "New Certificates"),
which have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which this Prospectus
is a part, are hereby offered, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying letter of transmittal (the "Letter
of Transmittal" and, together with this Prospectus, the "Exchange Offer"), in
exchange for an equal principal amount of outstanding Pass Through Certificates,
Series 1996-2 (the "Old Certificates"), of which $171,749,000 aggregate
principal amount is outstanding as of the date hereof. The New Certificates and
the Old Certificates are collectively referred to herein as the "Certificates."
Any and all Old Certificates that are validly tendered and not
withdrawn on or prior to 5:00 P.M., New York City time, on the date the Exchange
Offer expires, which will be November 1, 1996 (30 calendar days following the
commencement of the Exchange Offer) unless the Exchange Offer is extended (such
date, including as extended, the "Expiration Date") will be accepted for
exchange. Tenders of Old Certificates may be withdrawn at any time prior to 5:00
P.M., New York City time on the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Certificates being tendered
for exchange. However, the Exchange Offer is subject to certain customary
conditions which may be waived by the Company and to the terms of the
Registration Rights Agreement (as defined herein). Old Certificates may be
tendered only in integral multiples of $1,000. See "The Exchange Offer."
The New Certificates will be entitled to the benefits of the same
Pass-Through Trust Agreements (as defined herein) which govern the Old
Certificates and will govern the New Certificates. The form and terms of the New
Certificates are the same in all material respects as the form and terms of the
Old Certificates, except that the New Certificates do not contain terms with
respect to the interest rate step-up provisions and the New Certificates have
been registered under the Securities Act and therefore will not bear legends
restricting the transfer thereof. See "The Exchange Offer" and "Description of
New Certificates."
Each Certificate represents a fractional undivided interest in one of
the four Continental Airlines 1996-2 Pass Through Trusts (the "Class A Trust",
the "Class B Trust", the "Class C Trust" and the "Class D Trust" and,
collectively, the "Trusts") formed pursuant to four separate pass through trust
agreements (the "Pass Through Trust Agreements") between Continental and
Wilmington Trust Company (the "Trustee"), as trustee under each Trust. Pursuant
to an Intercreditor Agreement (as defined herein), (i) the Certificates of the
Class B Trust are subordinated in right of payment to the Certificates of the
Class A Trust, (ii) the Certificates of the Class C Trust are subordinated in
right of payment to the Certificates of the Class B Trust and (iii) the
Certificates of the Class D Trust are subordinated in right of payment to the
Certificates of the Class C Trust. Payments of interest on the Certificates
issued by each Trust (other than the Class D Trust) are supported by separate
liquidity facilities for the benefit of the
(continued on next page)
----------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PARTICIPANTS IN THE EXCHANGE OFFER, SEE "RISK FACTORS" BEGINNING ON PAGE 26 OF
THIS PROSPECTUS.
----------------------
<TABLE>
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<S> <C> <C> <C>
Final Expected
Pass Through Certificates Principal Amount Interest Rate Distribution Date
- ------------------------- ---------------- ------------- -----------------
1996-2A.................... $ 82,513,000 7.75% July 2, 2014
1996-2B.................... $ 35,363,000 8.56% July 2, 2014
1996-2C.................... $ 35,363,000 10.22% July 2, 2014
1996-2D.................... $ 18,510,000 11.50% April 2, 2008
------------
TOTAL $171,749,000
============
</TABLE>
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------------
The date of this Prospectus is October 2, 1996
<PAGE>
(continued from cover page)
holders of such Certificates, each such facility provided initially by De
Nationale Investeringsbank N.V. ("DNIB"), in an amount sufficient to pay
interest thereon at the applicable interest rate for such Trust on six
successive quarterly distribution dates.
All of the Equipment Notes held in each Trust will accrue interest at the
applicable rate per annum for such Trust, payable on January 2, April 2, July 2
and October 2 of each year commencing on July 2, 1996. Such interest will be
passed through to Certificateholders (as defined herein) of such Trust on each
such date, in each case subject to the Intercreditor Agreement (as defined
herein). See "Description of New Certificates--General" and "--Payments and
Distributions." The New Certificates will accrue interest at the applicable per
annum rate for such Trust, from the last date on which interest was paid on the
Old Certificates surrendered in exchange therefor. See "The Exchange
Offer--Interest on New Certificates."
Scheduled principal payments on the Equipment Notes held in each Trust will
be passed through to the Certificateholders of each such Trust on January 2,
April 2, July 2 and October 2 in certain years, commencing on October 2, 1996,
in the case of each of the Class A Trust, the Class B Trust and the Class C
Trust and July 2, 1996, in the case of the Class D Trust, in accordance with the
principal repayment schedule set forth below under "Description of New
Certificates--Pool Factors" and "Description of the Equipment Notes--Principal
and Interest Payments", in each case subject to the Intercreditor Agreement.
Under each Pass Through Trust Agreement, an Event of Default will occur if
the Trustee fails to pay within 10 business days of the due date thereof: (i)
the outstanding Pool Balance (as defined herein) of the applicable Class of
Certificates on the Final Maturity Date (as defined herein) for such Class or
(ii) interest due on such Certificates on any distribution date (unless the
Subordination Agent (as defined herein) shall have made an Interest Drawing (as
defined herein) in an amount sufficient to pay such interest and shall have
distributed such amount to the Certificateholders entitled thereto).
Each Class of New Certificates will be represented by a single, permanent
global Certificate in fully registered form and will be deposited with the
Trustee as custodian for and registered in the name of a nominee of DTC.
Beneficial interests in the permanent global Certificates will be shown on, and
transfers thereof will be effected through, records maintained by DTC and its
participants.
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission"), as set forth in no-action letters issued to third
parties, including Exxon Capital Holdings Corporation, SEC No-Action Letter
(available April 13, 1989) (the "Exxon Capital Letter"), Morgan Stanley & Co.
Incorporated, SEC No-Action Letter (available June 5, 1991) (the "Morgan Stanley
Letter") and Shearman & Sterling, SEC No-Action Letter (available July 2, 1993)
(the "Shearman & Sterling Letter") (collectively, the "Exchange Offer No-Action
Letters"), the Company believes that the New Certificates issued pursuant to the
Exchange Offer may be offered for resale, resold or otherwise transferred by
holders thereof (other than a broker-dealer who acquires such New Certificates
directly from the Trustee for resale pursuant to Rule 144A under the Securities
Act or any other available exemption under the Securities Act or any holder that
is an "affiliate" of the Company as defined under Rule 405 of the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Certificates are
acquired in the ordinary course of such holders business and such holders are
not engaged in, and do not intend to engage in, a distribution of such New
Certificates and have no arrangement with any person to participate in a
distribution of such New Certificates. By tendering the Old Certificates in
exchange for New Certificates, each holder, other than a broker-dealer, will
represent to the Company that: (i) it is not an affiliate of the Company (as
defined under Rule 405 of the Securities Act) nor a broker-dealer tendering Old
Certificates acquired directly from the Company for its own account; (ii) any
New Certificates to be received by it will be acquired in the ordinary course of
its business; and (iii) it is not engaged in, and does not intend to engage in,
a distribution of such New Certificates and has no arrangement or understanding
to participate in a distribution of the New Certificates. If a holder of Old
Certificates is engaged in or intends to engage in a distribution of the New
Certificates or has any arrangement or understanding with respect to the
distribution of the New Certificates to be acquired pursuant to the Exchange
Offer, such holder may not rely on the applicable interpretations of the staff
of the Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. Each broker-dealer that receives New Certificates for its own
account pursuant to the Exchange Offer (a "Participating Broker-Dealer") must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Certificates. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a Participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of New
Certificates received in exchange for Old Certificates where such Old
Certificates were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities. Pursuant to the
Registration Rights Agreement, the Company has agreed that starting on the
Expiration Date it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale. See "Plan of
Distribution."
The Company will not receive any proceeds from this offering. The Company
has agreed to pay the expenses of the Exchange Offer. No underwriter is being
utilized in connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD CERTIFICATES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES AND BLUE SKY LAWS OF SUCH JURISDICTION.
Prior to this Exchange Offer, there has been no public market for the Old
Certificates or New Certificates. If such a market were to develop, the New
Certificates could trade at prices that may be higher or lower than their
principal amount. Neither Continental nor any Trust has applied or intends to
apply for listing of the New Certificates on any national securities exchange or
for quotation of the New
2
<PAGE>
Certificates through the National Association of Securities Dealers Automated
Quotation System. One or more of Morgan Stanley & Co. Incorporated, CS First
Boston Corporation and FIELDSTONE FPCG SERVICES, L.P. (the "Initial Purchasers")
have previously made a market in the Old Certificates and Continental has been
advised that Morgan Stanley & Co. Incorporated and CS First Boston Corporation
presently intend to make a market in the New Certificates, as permitted by
applicable laws and regulations, after consummation of the Exchange Offer. None
of the Initial Purchasers is obligated, however, to make a market in the Old
Certificates or the New Certificates and any such market making activity may be
discontinued at any time without notice at the sole discretion of each Initial
Purchaser. There can be no assurance as to the liquidity of the public market
for the New Certificates or that any active public market for the New
Certificates will develop or continue. If an active public market does not
develop or continue, the market prices and liquidity of the New Certificates may
be adversely affected. See "Risk Factors--Absence of a Public Market for the New
Certificates."
3
<PAGE>
AVAILABLE INFORMATION
Continental is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information may be
inspected and copied at the following public reference facilities maintained by
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549; Seven World Trade Center, 13th Floor, New York, New York
10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material may also be obtained from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of prescribed rates. The
Commission maintains a Web site at http://www.sec.gov containing reports, proxy
statements and other information regarding registrants that file electronically
with the Commission, including Continental. In addition, reports, proxy
statements and other information concerning Continental may be inspected and
copied at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005.
Continental is the successor to Continental Airlines Holdings, Inc.
("Holdings"), which merged with and into Continental on April 27, 1993.
Holdings had also been subject to the informational requirements of the Exchange
Act.
This Prospectus constitutes a part of a registration statement on Form S-4
(together with all amendments and exhibits, the "Registration Statement") filed
by Continental with the Commission, through the Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR"), under the Securities Act, with respect
to the New Certificates offered hereby. This Prospectus omits certain of the
information contained in the Registration Statement, and reference is hereby
made to the Registration Statement for further information with respect to
Continental and Holdings and the securities offered hereby. Although statements
concerning and summaries of certain documents are included herein, reference is
made to the copy of such document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. These documents may be
inspected without charge at the office of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and copies may be obtained at fees
and charges prescribed by the Commission.
REPORTS TO PASS THROUGH CERTIFICATEHOLDERS
Wilmington Trust Company, in its capacity as Pass Through Trustee under
each of the Trusts, will provide the certificateholders of each Trust certain
periodic reports concerning the distributions made from such Trust. See
"Description of New Certificates--Reports to Certificateholders."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 0-9781) are
hereby incorporated by reference in this Prospectus: (i) Continental's Annual
Report on Form 10-K for the year ended December 31, 1995 (as amended by Forms
10-K/A1 and 10-K/A2 filed on March 8, 1996 and April 10, 1996, respectively),
(ii) Continental's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1996 and June 30, 1996, and (iii) Continental's Current Reports on Form 8-K,
filed on January 31, 1996, March 26, 1996, May 7, 1996, June 27, 1996, July
22, 1996, September 16, 1996 and October 2, 1996.
All reports and any definitive proxy or information statements filed by
Continental pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the termination of the
offering of the securities offered hereby shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated herein by reference, or contained in this Prospectus, shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or
4
<PAGE>
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE TO
ANY PERSON TO WHOM A PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST OF
SUCH PERSON, FROM CONTINENTAL AIRLINES, INC., 2929 ALLEN PARKWAY, SUITE 2010,
HOUSTON, TEXAS 77019, ATTENTION: SECRETARY, TELEPHONE (713) 834-2950. IN ORDER
TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY
OCTOBER 25, 1996.
5
<PAGE>
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
detailed information and financial statements (including the notes thereto)
appearing elsewhere in this Prospectus. Prospective investors should consider
carefully the matters discussed under the caption "Risk Factors." Unless
otherwise stated or unless the context otherwise requires, references to
"Continental" or the "Company" include Continental Airlines, Inc. and its
predecessors and subsidiaries. Information contained in this Prospectus relating
to the outstanding principal amount of the Certificates and Equipment Notes is
provided as of the date of the issuance of the Old Certificates without giving
effect to any intervening payments of principal on the Certificates or Equipment
Notes. See "Description of the New Certificates--Pool Factors."
THE COMPANY
Continental Airlines, Inc. is a major United States air carrier
engaged in the business of transporting passengers, cargo and mail. Continental
is the fifth largest United States airline (as measured by revenue passenger
miles in the first six months of 1996) and, together with its wholly owned
subsidiary, Continental Express, Inc. ("Express"), and its 91%-indirect owned
subsidiary, Continental Micronesia, Inc. ("CMI"), serves 190 airports worldwide.
The Company operates its route system primarily through domestic hubs
at Newark, Houston Intercontinental and Cleveland, and a Pacific hub on the
neighboring islands of Guam and Saipan. Each of Continentals three U.S. hubs is
located in a large business and population center, contributing to a high volume
of "origin and destination" traffic. The Guam/Saipan hub is strategically
located to provide service from Japanese and other Asian cities to popular
resort destinations in the western Pacific. Continental is the primary carrier
at each of these hubs, accounting for 52%, 79%, 53% and 72% of all daily jet
departures, respectively.
Continental directly serves 133 U.S. cities, with additional cities
(principally in the western and southwestern United States) connected to
Continental's route system under agreements with America West Airlines, Inc.
("America West"). Internationally, Continental flies to 57 destinations and
offers additional connecting service through alliances with foreign carriers.
Continental operates 59 weekly departures to five European cities and markets
service to four other cities through code-sharing agreements. Continental
recently announced new service from Newark to Lisbon, Portugal, which is
scheduled to commence May 1, 1997. Continental is one of the leading airlines
providing service to Mexico and Central America, serving more destinations in
Mexico than any other United States airline. In addition, Continental flies to
four cities in South America. Through its Guam/Saipan hub, Continental provides
extensive service in the western Pacific, including service to more Japanese
cities than any other United States carrier.
The Company is a Delaware corporation. Its executive offices are
located at 2929 Allen Parkway, Suite 2010, Houston, Texas 77019, and its
telephone number is (713) 834-2950.
THE EXCHANGE OFFER
Registration Rights Agreement......... The Old Certificates were issued on
May 20, 1996 to the Initial
Purchasers. The Initial Purchasers
placed the Old Certificates with
institutional investors. In connection
therewith, the Company, the Trustee,
as trustee under each of the Trusts,
and the Initial Purchasers entered
into the Registration Rights Agreement
providing, among other things, for the
Exchange Offer. See "The Exchange
Offer."
The Exchange Offer.................... New Certificates are being offered in
exchange for an equal principal amount
of Old Certificates. As of the date
hereof, $171,749,000 aggregate
principal amount of Old Certificates
are outstanding. Old Certificates may
be tendered only in integral multiples
of $1000.
6
<PAGE>
Resale of New Certificates............ Based on interpretations by the staff
of the Commission, as set forth in no-
action letters issued to third
parties, including the Exchange Offer
No-Action Letters, the Company
believes that the New Certificates
issued pursuant to the Exchange Offer
may be offered for resale, resold or
otherwise transferred by holders
thereof (other than a broker-dealer
who acquires such New Certificates
directly from the Trustee for resale
pursuant to Rule 144A under the
Securities Act or any other available
exemption under the Securities Act or
any holder that is an "affiliate" of
the Company as defined under Rule 405
of the Securities Act), without
compliance with the registration and
prospectus delivery provisions of the
Securities Act, provided that such New
Certificates are acquired in the
ordinary course of such holders'
business and such holders are not
engaged in, and do not intend to
engage in, a distribution of such New
Certificates and have no arrangement
with any person to participate in a
distribution of such New Certificates.
By tendering the Old Certificates in
exchange for New Certificates, each
holder, other than a broker-dealer,
will represent to the Company that:
(i) it is not an affiliate of the
Company (as defined under Rule 405 of
the Securities Act) nor a broker-
dealer tendering Old Certificates
acquired directly from the Company for
its own account; (ii) any New
Certificates to be received by it were
acquired in the ordinary course of its
business; and (iii) it is not engaged
in, and does not intend to engage in,
a distribution of such New
Certificates and has no arrangement or
understanding to participate in a
distribution of the New Certificates.
If a holder of Old Certificates is
engaged in or intends to engage in a
distribution of the New Certificates
or has any arrangement or
understanding with respect to the
distribution of the New Certificates
to be acquired pursuant to the
Exchange Offer, such holder may not
rely on the applicable interpretations
of the staff of the Commission and
must comply with the registration and
prospectus delivery requirements of
the Securities Act in connection with
any secondary resale transaction. Each
Participating Broker-Dealer that
receives New Certificates for its own
account pursuant to the Exchange Offer
must acknowledge that it will deliver
a prospectus in connection with any
resale of such New Certificates. The
Letter of Transmittal states that by
so acknowledging and by delivering a
prospectus, a Participating Broker-
Dealer will not be deemed to admit
that it is an "underwriter" within the
meaning of the Securities Act. This
Prospectus, as it may be amended or
supplemented from time to time, may be
used by a Participating Broker-Dealer
in connection with resales of New
Certificates received in exchange for
Old Certificates where such Old
Certificates were acquired by such
Participating Broker-Dealer as a
result of market-making activities or
other trading activities. The Company
has agreed that, starting on the
Expiration Date and ending on the
close of business 180 days after the
Expiration Date, it will make this
Prospectus available to any
Participating Broker-Dealer for use in
connection with any such resale. See
"Plan of Distribution." To comply with
the securities laws of certain
jurisdictions, it may be necessary to
qualify for sale or
7
<PAGE>
register the New Certificates prior to
offering or selling such New
Certificates. The Company has agreed,
pursuant to the Registration Rights
Agreement and subject to certain
specified limitations therein, to
register or qualify the New
Certificates for offer or sale under
the securities or "blue sky" laws of
such jurisdictions as may be necessary
to permit the holders of New
Certificates to trade the New
Certificates without any restrictions
or limitations under the securities
laws of the several states of the
United States.
Consequences of Failure to Exchange
Old Certificates...................... Upon consummation of the Exchange
Offer, subject to certain exceptions,
holders of Old Certificates who do not
exchange their Old Certificates for
New Certificates in the Exchange Offer
will no longer be entitled to
registration rights and will not be
able to offer or sell their Old
Certificates, unless such Old
Certificates are subsequently
registered under the Securities Act
(which, subject to certain limited
exceptions, the Company will have no
obligation to do), except pursuant to
an exemption from, or in a transaction
not subject to, the Securities Act and
applicable state securities laws. See
"Risk Factors--Risk Factors Relating
to the Certificates and the Offering--
Consequences of Failure to Exchange"
and "The Exchange Offer--Terms of the
Exchange Offer."
Expiration Date....................... 5:00 p.m., New York City time, on
November 1, 1996 (30 calendar days
following the commencement of the
Exchange Offer), unless the Exchange
Offer is extended, in which case the
term "Expiration Date" means the
latest date and time to which the
Exchange Offer is extended.
Interest on the New Certificates...... The New Certificates will accrue
interest at the applicable per annum
rate for such Trust set forth on the
cover page of this Prospectus, from
the last date on which interest was
paid on the Old Certificates
surrendered in exchange therefor.
Interest on the New Certificates is
payable on January 2, April 2, July 2
and October 2 of each year commencing
July 2, 1996, subject to the terms of
the Intercreditor Agreement.
Conditions to the Exchange Offer...... The Exchange Offer is not conditioned
upon any minimum principal amount of
Old Certificates being tendered for
exchange. However, the Exchange Offer
is subject to certain customary
conditions, which may be waived by the
Company. See "The Exchange Offer--
Conditions." Except for the
requirements of applicable federal and
state securities laws, there are no
federal or state regulatory
requirements to be complied with or
obtained by the Company in connection
with the Exchange Offer.
Procedures for Tendering Old
Certificates.......................... Each holder of Old Certificates
wishing to accept the Exchange Offer
must complete, sign and date the
Letter of Transmittal, or a facsimile
thereof, in accordance with the
instructions contained herein and
therein, and mail or otherwise deliver
such Letter of Transmittal, or such
facsimile, together with the Old
Certificates to be exchanged and any
other required documentation to the
Exchange Agent (as defined herein) at
the address set forth herein
8
<PAGE>
or effect a tender of Old Certificates
pursuant to the procedures for book-
entry transfer as provided for herein.
See "The Exchange Offer--Procedures
for Tendering" and "--Book Entry
Transfer."
Guaranteed Delivery Procedures........ Holders of Old Certificates who wish
to tender their Old Certificates and
whose Old Certificates are not
immediately available or who cannot
deliver their Old Certificates and a
properly completed Letter of
Transmittal or any other documents
required by the Letter of Transmittal
to the Exchange Agent prior to the
Expiration Date may tender their Old
Certificates according to the
guaranteed delivery procedures set
forth in "The Exchange Offer--
Guaranteed Delivery Procedures."
Withdrawal Rights..................... Tenders of Old Certificates may be
withdrawn at any time prior to 5:00
p.m., New York City time, on the
Expiration Date. To withdraw a tender
of Old Certificates, a written or
facsimile transmission notice of
withdrawal must be received by the
Exchange Agent at its address set
forth herein under "The Exchange
Offer--Exchange Agent" prior to 5:00
p.m., New York City time, on the
Expiration Date.
Acceptance of Old Certificates and
Delivery of New Certificates.......... Subject to certain conditions, any and
all Old Certificates which are
properly tendered in the Exchange
Offer prior to 5:00 p.m., New York
City time, on the Expiration Date will
be accepted for exchange. The New
Certificates issued pursuant to the
Exchange Offer will be delivered
promptly following the Expiration
Date. See "The Exchange Offer--Terms
of the Exchange Offer."
Certain Tax Considerations............ The exchange of New Certificates for
Old Certificates should not be a sale
or exchange or otherwise a taxable
event for Federal income tax purposes.
See "Certain Federal Income Tax
Considerations."
Exchange Agent........................ Wilmington Trust Company is serving as
exchange agent (the "Exchange Agent")
in connection with the Exchange Offer.
Fees and Expenses..................... All expenses incident to the
Company'ss consummation of the
Exchange Offer and compliance with the
Registration Rights Agreement will be
borne by the Company. See "The
Exchange Offer--Fees and Expenses."
Use of Proceeds....................... There will be no cash proceeds payable
to Continental from the issuance of
the New Certificates pursuant to the
Exchange Offer. The proceeds from the
sale of the Old Class A, B, C and D
Certificates were used to purchase the
Series A, B, C and D Equipment Notes
issued by (i) the related Owner
Trustees in connection with the
refinancing of the indebtedness
incurred by the Owner Trustees to
finance the purchase of each of the
Leased Aircraft and (ii) Continental,
as owner of the Owned Aircraft. The
Equipment Notes issued in respect of
the Leased Aircraft represent in the
aggregate the entire debt portion
currently outstanding of the leveraged
lease transactions relating the Leased
Aircraft. Continental received cash
proceeds from the sale of the Old
Certificates, representing that
portion of the total proceeds from
the sale of the Old Certificates as
was used to
9
<PAGE>
purchase the Equipment Notes issued
with respect to the Owned Aircraft.
See "Use of Proceeds."
SUMMARY OF TERMS OF NEW CERTIFICATES
The Exchange Offer relates to the exchange of up to $171,749,000 aggregate
principal amount of Old Certificates for up to an equal aggregate principal
amount of New Certificates. The New Certificates will be entitled to the
benefits of the same Pass Through Trust Agreements that govern the Old
Certificates and will govern the New Certificates. The form and terms of the New
Certificates are the same in all material respects as the form and terms of the
Old Certificates, except that the New Certificates do not contain terms with
respect to the interest rate step-up provisions and the New Certificates have
been registered under the Securities Act and therefore will not bear legends
restricting the transfer thereof. See "Description of New Certificates."
Trusts................................ Each of the Continental Airlines 1996-
2A Pass Through Trust, the Continental
Airlines 1996-2B Pass Through Trust,
the Continental Airlines 1996-2C Pass
Through Trust and the Continental
Airlines 1996-2D Pass Through Trust
has been formed pursuant to one of the
four separate Pass Through Trust
Agreements that were entered into
between the Company and Wilmington
Trust Company, as trustee under each
Trust. Each Trust is a separate
entity.
New Certificates Offered.............. Pass Through Certificates issued by
each Trust, representing fractional
undivided interests in such Trust. The
New Certificates issued by the Class A
Trust, the Class B Trust, the Class C
Trust and the Class D Trust are
referred to herein as "Class A
Certificates", "Class B Certificates",
"Class C Certificates", and "Class D
Certificates", respectively.
Subordination Agent................... Wilmington Trust Company, as
subordination agent under the
Intercreditor Agreement (the
"Subordination Agent").
Liquidity Provider.................... De Nationale Investeringsbank N.V., a
bank organized under the laws of The
Netherlands. DNIB has provided three
separate liquidity facilities for the
benefit of the holders of Class A
Certificates, Class B Certificates and
Class C Certificates, respectively.
10
<PAGE>
SUMMARY OF TERMS OF CERTIFICATES
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
---------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Aggregate Face Amount........ $82,513,000 $35,363,000 $35,363,000 $18,510,000
Initial Loan to Aircraft
Value (cumulative)(1)........ 35.0% 50.0% 65.0% 72.9%
Expected Principal
Distribution Window
(in years)................... 0.4-18.1 0.4-18.1 0.4-18.1 0.1-11.9
Initial Average Life
(in years)................... 10.3 10.3 10.3 7.1
Regular Distribution Dates... January 2, January 2, January 2, January 2,
April 2, April 2, April 2, April 2,
July 2 & July 2 & July 2 & July 2 &
October 2 October 2 October 2 October 2
Final Expected Regular
Distribution Date............ July 2, 2014 July 2, 2014 July 2, 2014 April 2, 2008
Final Maturity Date.......... January 2, 2016 January 2, 2016 January 2, 2016 April 2, 2008
Minimum Denomination......... $ 100,000 $ 100,000 $ 100,000 $ 100,000
(S) 1110 Protection(2)....... Yes Yes Yes Yes
Liquidity Facility Coverage.. 6 quarterly 6 quarterly 6 quarterly None
interest interest interest
payments payments payments
Initial Liquidity Facility
Amount(3).................... $ 9,592,136 $ 4,540,609 $ 5,421,148 None
</TABLE>
(1) Assumes an aggregate appraised Aircraft value of $235,753,333.
(2) The benefits of Section 1110 of the U.S. Bankruptcy Code are available to
the Loan Trustees.
(3) For each Class of Certificates (other than the Class D Certificates), the
initial amount of the Liquidity Facility covers six consecutive quarterly
interest payments (without regard to any future payments of principal on
such Certificates). In aggregate for Class A, B and C Certificates, the
initial amount of Liquidity Facilities will be $19,553,893.
11
<PAGE>
EQUIPMENT NOTES AND THE AIRCRAFT
Set forth below is certain information about the Equipment Notes to be
held in the Trusts and the Aircraft securing such Equipment Notes:
<TABLE>
<CAPTION>
OUTSTANDING
AIRCRAFT EQUIPMENT PRINCIPAL
REGISTRATION AIRCRAFT NOTE AMOUNT OF APPRAISED
NUMBER AIRCRAFT TYPE DELIVERY DATE MATURITY DATE EQUIPMENT NOTES VALUE
- -------------- ------------- ------------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
N12114 Boeing 757-224 July 1995 January 2, 2013 $ 37,652,850.00 $ 51,650,000
N14115 Boeing 757-224 August 1995 January 2, 2013 37,798,650.00 51,850,000
N12116 Boeing 757-224 March 1996 April 2, 2014 37,386,771.20 52,593,333
N19117 Boeing 757-224 April 1996 July 2, 2014 37,310,876.80 52,660,000
N33637 Boeing 737-524 April 1996 April 2, 2008 21,599,852.00 27,000,000
--------------- ------------
$171,749,000.00 $235,753,333
=============== ============
</TABLE>
The appraised value of each Aircraft set forth above is based upon the
lesser of the average and median fair market value of such Aircraft as appraised
by three independent appraisal and consulting firms: Aircraft Information
Services, Inc. ("AISI"), BK Associates, Inc. ("BK") and Morten Beyer and
Associates, Inc. ("MBA") (collectively, the "Appraisers") as of March 26, 1996.
See "Risk Factors--Appraisals and Realizable Value of Aircraft" and "Description
of the Aircraft and the Appraisals."
LOAN TO AIRCRAFT VALUE RATIOS
The following table sets forth loan to Aircraft value ratios ("LTVs")
for each Class of Certificates as of the date of the issuance of the Old
Certificates and the Regular Distribution Dates specified therein. The LTVs for
each Class of Certificates were obtained for each such Regular Distribution Date
by dividing (i) the expected Pool Balance of such Class of Certificates together
in each case with the expected Pool Balance of all other Classes of Certificates
senior in right of payment to such Class of Certificates under the Intercreditor
Agreement determined immediately after giving effect to the distributions
expected to be made on such Regular Distribution Date, by (ii) the assumed value
of all of the Aircraft (the "Assumed Aggregate Aircraft Value") on such Regular
Distribution Date based on the assumptions set forth below.
The table is based on the assumption that the value of each Aircraft
included in the Assumed Aggregate Aircraft Value opposite May 20, 1996
depreciates by approximately 2% of the initial appraised value per year until
the fifteenth year after the year of delivery of such Aircraft and by
approximately 4% of the initial appraised value per year thereafter. Other
rates or methods of depreciation would result in materially different LTVs and
no assurance can be given (i) that the depreciation rates and method assumed for
the purpose of the table are the ones most likely to occur or (ii) as to the
actual future value of any Aircraft. Although the table is compiled on an
aggregate basis, it should be noted that, since the Equipment Notes are not
cross-collateralized with respect to the Aircraft, the excess proceeds realized
from the disposition of any particular Aircraft would not be available to offset
shortfalls on the Equipment Notes relating to any other Aircraft. Therefore,
upon the occurrence of an Indenture Default, even if the Aircraft as a group
could be sold for more than the total amounts payable in respect of all of the
outstanding Equipment Notes, if certain Aircraft were sold for less than the
total amount payable in respect of the related Equipment Notes, there would not
be sufficient proceeds to pay all Classes of Certificates in full. See
"Description of the Equipment Notes--Loan to Value Ratios of Equipment Notes"
for additional information regarding LTVs for the Equipment Notes issued in
respect of each Aircraft, which may be more relevant in a default situation than
the aggregate values shown in the following table. Thus, the table should not be
considered a forecast or prediction of expected or likely LTVs but simply a
mathematical calculation based on one set of assumptions.
12
<PAGE>
<TABLE>
<CAPTION>
ASSUMED
AGGREGATE CLASS A CLASS A CLASS B CLASS B CLASS C CLASS C
AIRCRAFT CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
DATE VALUE(1) POOL BALANCE LTV POOL BALANCE LTV POOL BALANCE LTV
--------------- ------------ ------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
May 20, 1996 $235,753,333 $82,513,000 35.0% $35,363,000 50.0% $35,363,000 65.0%
April 2, 1997 230,996,022 80,211,435 34.7 34,376,604 49.6 34,376,604 64.5
April 2, 1998 226,238,710 78,298,749 34.6 33,556,878 49.4 33,556,878 64.3
April 2, 1999 221,481,399 76,732,939 34.6 32,885,813 49.5 32,885,813 64.3
April 2, 2000 216,724,087 74,696,896 34.5 32,013,218 49.2 32,013,218 64.0
April 2, 2001 211,966,776 70,171,427 33.1 30,073,725 47.3 30,073,725 61.5
April 2, 2002 207,209,464 64,361,692 31.1 27,583,834 44.4 27,583,834 57.7
April 2, 2003 202,452,152 59,256,220 29.3 25,395,768 41.8 25,395,768 54.4
April 2, 2004 197,694,841 56,106,628 28.4 24,045,938 40.5 24,045,938 52.7
April 2, 2005 192,937,529 51,029,240 26.4 21,869,909 37.8 21,869,909 49.1
April 2, 2006 188,180,218 46,648,812 24.8 19,992,575 35.4 19,992,575 46.0
April 2, 2007 183,422,906 41,230,376 22.5 17,670,379 32.1 17,670,379 41.7
April 2, 2008 158,145,595 32,311,412 20.4 13,847,748 29.2 13,847,748 37.9
April 2, 2009 153,928,283 27,084,981 17.6 11,607,849 25.1 11,607,849 32.7
April 2, 2010 149,710,971 21,778,620 14.5 9,333,694 20.8 9,333,694 27.0
April 2, 2011 143,381,415 13,837,522 9.7 5,930,367 13.8 5,930,367 17.9
April 2, 2012 134,946,792 5,653,696 4.2 2,423,013 6.0 2,423,013 7.8
April 2, 2013 65,257,067 2,378,146 3.6 1,019,205 5.2 1,019,205 6.8
April 2, 2014 30,542,800 423,321 1.4 181,423 2.0 181,423 2.6
CLASS D CLASS D
CERTIFICATES CERTIFICATES
DATE POOL BALANCE LTV
-------------- ------------ ------------
May 20, 1996 $18,510,000 72.9%
April 2, 1997 18,219,435 72.4
April 2, 1998 18,037,450 72.2
April 2, 1999 16,172,624 71.6
April 2, 2000 12,443,551 69.8
April 2, 2001 8,928,294 65.7
April 2, 2002 8,641,881 61.9
April 2, 2003 8,321,082 58.5
April 2, 2004 7,961,770 56.7
April 2, 2005 7,559,320 53.0
April 2, 2006 7,108,555 49.8
April 2, 2007 6,603,672 45.3
April 2, 2008 0 37.9
April 2, 2009 0 32.7
April 2, 2010 0 27.0
April 2, 2011 0 17.9
April 2, 2012 0 7.8
April 2, 2013 0 6.8
April 2, 2014 0 2.6
</TABLE>
(1) The Assumed Aggregate Aircraft Value set forth opposite May 20, 1996 (but
not the Assumed Aggregate Aircraft Values for subsequent dates) was
determined based upon the lesser of the average and median fair market value
of all Aircraft as appraised by the Appraisers as of March 26, 1996 (see
"Description of the Aircraft and the Appraisals"). No assurance can be given
that such value represents the realizable value of any Aircraft. See "Risk
Factors--Risk Factors Relating to the Certificates and the Offering--
Appraisals and Realizable Value of Aircraft" and "Description of the
Aircraft and the Appraisals."
13
<PAGE>
CASH FLOW STRUCTURE
Set forth below is a diagram illustrating the structure for the
offering of the Certificates and certain cash flows.
[CASH FLOW STRUCTURE CHART APPEARS HERE]
- ------------------
* Each Leased Aircraft is subject to a separate Lease and the related
Indenture; the Owned Aircraft is subject to a separate Indenture.
** Liquidity Facilities are available with respect to the Class A Certificates,
the Class B Certificates and the Class C Certificates.
14
<PAGE>
Trust Property........................ The property of each Trust (the "Trust
Property") consists of (i) Equipment
Notes issued (a) on a recourse basis
by Continental in connection with the
financing of the Owned Aircraft and
(b) on a nonrecourse basis by each of
the Owner Trustees in four separate
leveraged lease transactions to
refinance the current indebtedness of
the related Owner Trustee, originally
incurred to finance the purchase of
each of the Leased Aircraft leased by
the related Owner Trustee to
Continental, (ii) the rights of such
Trust under the Intercreditor
Agreement (including all monies
receivable in respect of such rights),
(iii) except for the Class D Trust,
all monies receivable under the
Liquidity Facility for such Trust and
(iv) funds from time to time deposited
with the Trustee in accounts relating
to such Trust. The Equipment Notes
with respect to the Owned Aircraft
were issued in four series under an
Indenture (the "Owned Aircraft
Indenture") between Continental and
the indenture trustee thereunder (the
"Owned Aircraft Trustee"). The
Equipment Notes with respect to each
Leased Aircraft were issued in four
series under an Indenture (each, a
"Leased Aircraft Indenture" and
together with the other Leased
Aircraft Indentures and the Owned
Aircraft Indenture, the "Indentures")
between the applicable Owner Trustee
and the indenture trustee thereunder
(the "Leased Aircraft Trustee" and
together with the other Leased
Aircraft Trustees and the Owned
Aircraft Trustee, the "Loan
Trustees"). Each Trust has acquired,
pursuant to a certain Note Purchase
Agreement (the "Note Purchase
Agreement") and certain Refunding
Agreements (each, a "Refunding
Agreement" and together with the other
Refunding Agreements and the Note
Purchase Agreement, the "Financing
Agreements"), those Equipment Notes
having an interest rate equal to the
interest rate applicable to the
Certificates to be issued by such
Trust. The maturity dates of the
Equipment Notes acquired by each Trust
will occur on or before the final
expected Regular Distribution Date
applicable to the Certificates to be
issued by such Trust. The aggregate
original principal amount of the
Equipment Notes to be held in each
Trust is the same as the aggregate
original face amount of the
Certificates to be issued by such
Trust.
Certificates; Denominations........... The New Certificates of each Trust
will be issued in a minimum
denomination of $1,000 and integral
multiples thereof. See "Description of
the New Certificates--General."
Regular Distribution Dates............ January 2, April 2, July 2 and October
2, commencing July 2, 1996.
Special Distribution Dates............ Any Business Day on which a Special
Payment is to be distributed.
Record Dates.......................... The fifteenth day preceding a Regular
Distribution Date or a Special
Distribution Date.
Distributions......................... All payments of principal, premium (if
any) and interest received by the
Trustee on the Equipment Notes held in
each Trust will be distributed by the
Trustee to the holders of the
Certificates (the
"Certificateholders") of such Trust on
the Regular Distribution Dates
referred to above, subject to the
provisions of the Intercreditor
Agreement. Payments on the Equipment
Notes held in each Trust are scheduled
to be received in specified amounts by
the Trustee of such Trust on January
2, April 2, July 2 and October 2,
commencing on July 2, 1996, and to be
distributed to the Certificateholders
of such Trust on the corresponding
Regular Distribution Date, subject to
the provisions of the Intercreditor
Agreement. Payments of principal,
premium (if any) and interest
resulting from the early redemption or
purchase (if any)
15
<PAGE>
of the Equipment Notes held in any
Trust will be distributed on a Special
Distribution Date after not less than
20 days' notice from the Trustee to
the Certificateholders of such Trust,
subject to the provisions of the
Intercreditor Agreement. For a
discussion of distributions upon an
Indenture Default, see "Description of
the New Certificates--Indenture
Defaults and Certain Rights Upon an
Indenture Default."
Events of Default..................... Events of default under each Pass
Through Trust Agreement (each, a "PTC
Event of Default") are the failure to
pay within 10 Business Days of the due
date thereof: (i) the outstanding Pool
Balance of the applicable Class of
Certificates on the Final Maturity
Date for such Class or (ii) interest
due on such Certificates on any
distribution date (unless in the case
of the Class A, B or C Certificates
the Subordination Agent shall have
made an Interest Drawing with respect
thereto in an amount sufficient to pay
such interest and shall have
distributed such amount to the
Certificateholders entitled thereto).
The Final Maturity Dates for each of
the Class A, B and C Certificates is
January 2, 2016, and the Final
Maturity Date for the Class D
Certificates is April 2, 2008. Any
failure to make expected principal
distributions on any Class of
Certificates on any Regular
Distribution Date (other than the
Final Maturity Date) will not
constitute a PTC Event of Default with
respect to such Certificates.
Purchase Rights of
Certificateholders.................... Upon the occurrence and during the
continuation of a Triggering Event (as
defined below), (i) the Class B
Certificateholders shall have the
right to purchase all, but not less
than all, of the Class A Certificates,
(ii) the Class C Certificateholders
shall have the right to purchase all,
but not less than all, of the Class A
Certificates and the Class B
Certificates and (iii) the Class D
Certificateholders shall have the
right to purchase all, but not less
than all, of the Class A Certificates,
the Class B Certificates and the Class
C Certificates, in each case at a
purchase price equal to the Pool
Balance of the relevant Class or
Classes of Certificates plus accrued
and unpaid interest thereon to the
date of purchase without premium but
including any other amounts due to the
Certificateholders of such Class or
Classes.
"Triggering Event" means (x) the
occurrence of an Indenture Default
under all Indentures resulting in a
PTC Event of Default with respect to
the most senior Class of Certificates
then outstanding, (y) the acceleration
of all of the outstanding Equipment
Notes or (z) certain bankruptcy or
insolvency events involving
Continental.
Equipment Notes
(a) Interest......................... The Equipment Notes held in each Trust
accrue interest at the applicable rate
per annum for such Trust set forth on
the cover page of this Prospectus,
payable on January 2, April 2, July 2
and October 2 of each year commencing
on July 2, 1996, and such interest
payments will be passed through to
Certificateholders of such Trust on
each such date until the final
distribution date for such
Certificates, in each case, subject to
the Intercreditor Agreement. Interest
is calculated on the basis of a 360-
day year consisting of twelve 30-day
months. See "Description of the
Equipment Notes--Principal and
Interest Payments". The interest rates
for the Equipment Notes are subject to
change under certain circumstances
described in "Exchange Offer--Terms of
the Exchange Offer" to the same extent
as the interest rates for the Old
Certificates. The New Certificates do
16
<PAGE>
not contain terms with respect to
interest rate step-up provisions of
the Old Certificates.
(b) Principal........................ Scheduled principal payments on the
Equipment Notes held in each Trust
will be passed through to the
Certificateholders of each such Trust
on January 2, April 2, July 2 and
October 2 in certain years, commencing
on October 2, 1996, in the case of
each of the Class A Trust, the Class B
Trust and the Class C Trust and on
July 2, 1996, in the case of the Class
D Trust, in accordance with the
principal repayment schedule set forth
below under "Description of New
Certificates--Pool Factors" and
"Description of the Equipment Notes--
Principal and Interest Payments", in
each case, subject to the
Intercreditor Agreement.
(c) Redemption and Purchase
Mandatory Redemption............. If an Event of Loss occurs with
respect to any Aircraft and such
Aircraft is not replaced by
Continental under the related Lease
(in the case of a Leased Aircraft) or
under the Owned Aircraft Indenture (in
the case of the Owned Aircraft), the
Equipment Notes issued with respect to
such Aircraft will be redeemed in
whole, in each case at a price equal
to the aggregate unpaid principal
thereof, together with accrued
interest thereon to, but not
including, the date of redemption, but
without any premium.
Optional Redemption and
Purchase......................... All of the Equipment Notes issued with
respect to any Aircraft may be
redeemed prior to maturity at a price
equal to the aggregate unpaid
principal thereof, together with
accrued interest thereon to, but not
including, the date of redemption,
plus, if such redemption is made prior
to September 22, 2006 (in the case of
the Equipment Notes held by the Class
A Trust, the Class B Trust or the
Class C Trust) or June 26, 2003 (in
the case of the Equipment Notes held
by the Class D Trust) (each, a
"Premium Termination Date"), a Make-
Whole Premium (as defined herein). See
"Description of the Equipment Notes--
Redemption" for a description of the
manner of computing such Make-Whole
Premium and the circumstances under
which the Equipment Notes may be so
redeemed.
If, with respect to a Leased Aircraft,
(x) one or more Lease Events of
Default shall have occurred and be
continuing, (y) in the event of a
bankruptcy proceeding involving
Continental, (i) during the Section
1110 Period (as defined herein), the
trustee in such proceeding or
Continental does not agree to perform
its obligations under the related
Lease or (ii) at any time after
agreeing to perform such obligations,
such trustee or Continental ceases to
perform such obligations or (z) the
Loan Trustee with respect to such
Equipment Notes shall take action or
notify the applicable Owner Trustee
that it intends to take action to
foreclose the lien of the related
Leased Aircraft Indenture, then in
each case the Equipment Notes issued
with respect to such Leased Aircraft
may be purchased by the Owner Trustee
or Owner Participant on the applicable
purchase date at a price equal to the
aggregate unpaid principal thereof,
together with accrued interest thereon
to, but not including, the purchase
date, but without any premium
(provided that a premium shall be
payable if such Equipment Notes are to
be purchased pursuant to clause (x)
above when a Lease Event of Default
shall have occurred and be continuing
for less than 120 days). Continental,
as owner of the Owned Aircraft, has no
comparable right under the Owned
Aircraft Indenture to purchase the
Equipment Notes under such
17
<PAGE>
circumstances.
(d) Security......................... The Equipment Notes issued with
respect to each Aircraft are secured
by a security interest in such
Aircraft and, in the case of each
Leased Aircraft, by an assignment to
the related Loan Trustee of certain of
the related Owner Trustees rights
under the Lease with respect to such
Aircraft, including the right to
receive payments of rent thereunder,
with certain exceptions. The Equipment
Notes are not cross-collateralized
and, consequently, the Equipment Notes
issued in respect of any one Aircraft
are not secured by any of the other
Aircraft or the Leases related
thereto. There are no cross-default
provisions in the Indentures or in the
Leases. Consequently, events resulting
in an Indenture Default under any
particular Indenture may or may not
result in an Indenture Default
occurring under any other Indenture,
and a Lease Event of Default under any
particular Lease will not constitute a
Lease Event of Default under any other
Lease. If the Equipment Notes issued
with respect to one or more Aircraft
are in default and the Equipment Notes
issued with respect to the remaining
Aircraft are not in default, no
remedies will be exercisable under the
Indentures with respect to such
remaining Aircraft. See "Description
of the Equipment Notes--Security and
Indenture Defaults, Notice and
Waiver".
Although the Equipment Notes issued in
respect of the Leased Aircraft are not
obligations of, or guaranteed by,
Continental, the amounts
unconditionally payable by Continental
for lease of the Leased Aircraft will
be sufficient to pay in full when due
all amounts required to be paid on the
Equipment Notes issued in respect of
the Leased Aircraft. The Equipment
Notes issued in respect of the Owned
Aircraft are direct obligations of
Continental. See "Description of the
Equipment Notes--General".
(e) Section 1110 Protection.......... Cleary, Gottlieb, Steen & Hamilton,
counsel to Continental, has advised
(x) the Leased Aircraft Trustees that
the Owner Trustee, as lessor under the
Lease relating to each Leased
Aircraft, and the related Leased
Aircraft Trustee, as assignee of such
Owner Trustee's rights under such
Lease pursuant to the related Leased
Aircraft Indenture, are entitled to
the benefits of Section 1110 of the
U.S. Bankruptcy Code with respect to
the airframe and engines comprising
the related Leased Aircraft and (y)
the Owned Aircraft Trustee that it is
entitled to the benefits of Section
1110 of the U.S. Bankruptcy Code with
respect to the airframe and engines
comprising the Owned Aircraft. See
"Description of the Equipment Notes--
Remedies" for a description of that
opinion and certain assumptions
contained therein.
(f) Ranking.......................... Series B Equipment Notes issued in
respect of any Aircraft are
subordinated in right of payment to
Series A Equipment Notes issued in
respect of such Aircraft; Series C
Equipment Notes issued in respect of
such Aircraft are subordinated in
right of payment to such Series B
Equipment Notes; and Series D
Equipment Notes issued in respect of
such Aircraft are subordinated in
right of payment to such Series C
Equipment Notes. On each Distribution
Date, (i) payments of interest and
principal due on Series A Equipment
Notes issued in respect of any
Aircraft will be made prior to
payments of interest and principal due
on Series B Equipment Notes issued in
respect of such Aircraft, (ii)
payments of interest and principal due
on such Series B Equipment Notes will
be made prior to payments of interest
and principal due on Series C
Equipment Notes issued in respect of
such Aircraft and (iii) payments of
interest and principal due on such
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Series C Equipment Notes will be made
prior to payments of interest and
principal due on Series D Equipment
Notes issued in respect of such
Aircraft.
(g) Owner Participant................ Gaucho-2 Inc., a wholly owned
subsidiary of The Boeing Company
("Boeing"), is currently the owner
participant ("Owner Participant") with
respect to all of the four leveraged
leases for the Leased Aircraft. The
Owner Participant and certain of its
affiliates have various business
relationships with Continental,
including as a supplier of certain
equipment and services to Continental.
The Owner Participant has the right to
sell, assign or otherwise transfer its
interests as Owner Participant in any
or all of such leveraged leases,
subject to the terms and conditions of
the relevant Participation Agreement
and related documents.
Liquidity Facilities.................. The Subordination Agent and the
Liquidity Provider entered into a
revolving credit agreement (each, a
"Liquidity Facility") with respect to
each Trust (other than the Class D
Trust). Under each of the Liquidity
Facilities, the Liquidity Provider
will, if necessary, make advances
("Interest Drawings") in an aggregate
amount (the "Required Amount")
sufficient to pay interest on the
Class A, B or C Certificates, as the
case may be, on up to six successive
quarterly Regular Distribution Dates
(without regard to any future payments
of principal on such Certificates) at
the respective interest rates shown on
the cover page of this Prospectus
(plus an additional margin specified
by the Registration Rights Agreement,
if applicable) for such Certificates
(the "Stated Interest Rates"). The
initial amount available under the
Liquidity Facilities for the Class A
Certificates, the Class B Certificates
and the Class C Certificates is
$9,592,136, $4,540,609 and $5,421,148,
respectively. An Interest Drawing
under the relevant Liquidity Facility
will be made promptly after any
Regular Distribution Date if, after
giving effect to the subordination
provisions of the Intercreditor
Agreement, there are insufficient
funds available to the Subordination
Agent to pay interest on any Class A,
B or C Certificates; provided,
however, that on any date the maximum
amount available under such Liquidity
Facility to fund any shortfall in
interest due on such Certificates will
not exceed an amount equal to the then
Required Amount of such Liquidity
Facility. The Liquidity Facility for
any Class of Certificates does not
provide for drawings thereunder to pay
for principal of or premium on the
Certificates of such Class, any
interest on the Certificates of such
Class in excess of the Stated Interest
Rates, or principal of or interest or
premium on the Certificates of any
other Class.
Upon each Interest Drawing under any
Liquidity Facility, the Subordination
Agent will be obligated to reimburse
(to the extent that the Subordination
Agent has available funds therefor)
the Liquidity Provider for the amount
of such drawing. Such reimbursement
obligation and any other amounts owing
to the Liquidity Provider under each
Liquidity Facility or certain other
agreements (the "Liquidity
Obligations") will rank pari passu
with the Liquidity Obligations
relating to all other Liquidity
Facilities and will rank senior to the
Certificates in right of payment. Upon
reimbursement in full of the Interest
Drawings, together with any accrued
interest thereon, under any Liquidity
Facility, the amount available under
such Liquidity Facility will be
reinstated to the then Required Amount
of such Liquidity Facility; provided
that the amount will not be so
reinstated if (i) a Liquidity Event of
Default shall have occurred and be
continuing and (ii) less than 65% of
the
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aggregate outstanding principal amount
of all Equipment Notes are Performing
Equipment Notes.
"Performing Equipment Note" means an
Equipment Note with respect to which
no payment default has occurred and is
continuing; provided that in the event
of a bankruptcy proceeding involving
Continental under the U.S. Bankruptcy
Code, (i) any payment default existing
during the 60-day period under Section
1110(a)(1)(A) of the U.S. Bankruptcy
Code (or such longer period as may
apply under Section 1110(b) of the
U.S. Bankruptcy Code) (the "Section
1110 Period") shall not be taken into
consideration, unless during the
Section 1110 Period the trustee in
such proceeding or Continental does
not agree to perform its obligations
under the Lease related to such
Equipment Note (in the case of a
Leased Aircraft) or under the Owned
Aircraft Indenture (in the case of the
Owned Aircraft) and (ii) any payment
default occurring after the date of
the order of relief in such proceeding
shall not be taken into consideration
if such payment default is cured under
Section 1110(a)(1)(B) of the U.S.
Bankruptcy Code before the later of 30
days after the date of such default or
the expiration of the Section 1110
Period.
If at any time the short-term
unsecured debt rating of any Liquidity
Provider issued by either Rating
Agency (or if DNIB is such Liquidity
Provider and does not have a published
short-term unsecured debt rating
issued by Standard & Poor's, with
respect to Standard & Poor's only, the
long-term unsecured debt rating of
DNIB issued by Standard & Poor's) is
lower than the Threshold Rating, the
Liquidity Facility for the related
Class of Certificates will be required
to be replaced by another similar
facility to be provided by a financial
institution having such unsecured debt
ratings issued by both Rating Agencies
which are equal to or higher than the
Threshold Rating. If such Liquidity
Facility is not replaced within 10
days after notice of the downgrading,
such Liquidity Facility will be drawn
in full (the "Downgrade Drawing") and
the proceeds will be deposited into a
cash collateral account (the "Cash
Collateral Account") for the related
Class of Certificates and used for the
same purposes and under the same
circumstances and subject to the same
conditions as cash payments of
Interest Drawings under such Liquidity
Facility would be used.
Upon receipt by the Subordination
Agent of a Termination Notice with
respect to any Liquidity Facility from
the Liquidity Provider (given as
described in "Description of the
Liquidity Facilities--Liquidity Events
of Default"), the Subordination Agent
shall request a final drawing (the
"Final Drawing") under such Liquidity
Facility in an amount equal to all
available and undrawn amounts
thereunder and shall hold the proceeds
thereof in the Cash Collateral Account
for the related Trust as cash
collateral to be used for the same
purposes and under the same
circumstances, and subject to the same
conditions, as cash payments of
Interest Drawings under such Liquidity
Facility would be used.
Continental may, at its option, with
or without cause, arrange for a
replacement facility to replace the
Liquidity Facility for any Trust,
subject to certain conditions. If such
replacement facility is provided at
any time after a Downgrade Drawing
under such Liquidity Facility, the
funds on deposit in the Cash
Collateral Account for such Trust will
be returned to the
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Liquidity Provider being replaced.
Notwithstanding the subordination
provisions of the Intercreditor
Agreement, the holders of the
Certificates issued by each Trust
(other than the Class D Trust) will be
entitled to receive and retain the
proceeds of drawings under the
Liquidity Facility for such Trust. See
"Description of the Liquidity
Facilities".
Liquidity Provider.................... De Nationale Investeringsbank N.V., a
bank organized under the laws of The
Netherlands. DNIB has provided three
separate liquidity facilities for the
benefit of the holders of Class A
Certificates, Class B Certificates and
Class C Certificates, respectively.
Intercreditor Agreement
(a) Subordination.................... The Trusts, the Liquidity Providers
and the Subordination Agent have
entered into an agreement (the
"Intercreditor Agreement") which
provides as follows:
(i) All payments made in respect of
the Equipment Notes and certain other
payments will be made to the
Subordination Agent, which will
distribute such payments in accordance
with the provisions of paragraphs (ii)
and (iii) below.
(ii) On any Regular Distribution Date
or Special Distribution Date (each, a
"Distribution Date"), so long as no
Triggering Event shall have occurred
(whether or not continuing), all
payments received by the Subordination
Agent in respect of the Equipment
Notes and certain other payments shall
be distributed in the following order:
(1) payment of the Liquidity
Obligations; (2) payment of Expected
Distributions to the holders of Class
A Certificates; (3) payment of
Expected Distributions to the holders
of Class B Certificates; (4) payment
of Expected Distributions to the
holders of Class C Certificates; (5)
payment of Expected Distributions to
the holders of Class D Certificates;
and (6) payment of certain fees and
expenses of the Subordination Agent
and the Trustees.
"Expected Distributions" means, with
respect to the Certificates of any
Trust on any Distribution Date (the
"Current Distribution Date") the sum
of (x) accrued and unpaid interest on
such Certificates and (y) the
difference between (A) the Pool
Balance of such Certificates as of the
immediately preceding Distribution
Date and (B) the Pool Balance of such
Certificates as of the Current
Distribution Date, calculated on the
basis that the principal of the
Equipment Notes held in such Trust has
been paid when due (whether at stated
maturity, upon redemption, prepayment
or acceleration or otherwise) and such
payments have been distributed to the
holders of such Certificates.
(iii) Upon the occurrence of a
Triggering Event and at all times
thereafter, all payments received by
the Subordination Agent in respect of
the Equipment Notes and certain other
payments shall be distributed in the
following order: (1) to the
Subordination Agent, the Trustee and
certain other parties in payment of
the Administration Expenses (as
defined herein) and to the Liquidity
Provider in payment of the Liquidity
Obligations; (2) to the holders of
Class A Certificates in payment of
Adjusted Expected Distributions; (3)
to the holders of Class B Certificates
in payment of Adjusted Expected
Distributions; (4) to the holders of
Class C Certificates
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<PAGE>
in payment of Adjusted Expected
Distributions; and (5) to the holders
of Class D Certificates in payment of
Adjusted Expected Distributions.
"Adjusted Expected Distributions"
means, with respect to the
Certificates of any Trust on any
Distribution Date (the "Current
Distribution Date"), the sum of (x)
accrued and unpaid interest on such
Certificates and (y) the greater of:
(A) the difference between (x) the
Pool Balance of such Certificates
as of the immediately preceding
Distribution Date and (y) the Pool
Balance of such Certificates as of
the Current Distribution Date
calculated on the basis that (i)
the principal of the Equipment
Notes other than Performing
Equipment Notes (the "Non-
Performing Equipment Notes") held
in such Trust has been paid in
full and such payments have been
distributed to the holders of such
Certificates and (ii) the
principal of the Performing
Equipment Notes has been paid when
due (but without giving effect to
any acceleration of Performing
Equipment Notes) and such payments
have been distributed to the
holders of such Certificates, and
(B) the amount of the excess, if any,
of (i) the Pool Balance of such
Class of Certificates as of the
immediately preceding Distribution
Date, over (ii) the Aggregate LTV
Collateral Amount for such Class
of Certificates for the Current
Distribution Date;
provided that, until the date of the
initial LTV Appraisals, clause (B)
shall not apply.
"Aggregate LTV Collateral Amount" for
any Class of Certificates for any
Distribution Date means the sum of the
applicable LTV Collateral Amounts for
each Aircraft, minus the Pool Balance
for each Class of Certificates, if
any, senior to such Class, after
giving effect to any distribution of
principal on such Distribution Date on
such senior Class or Classes.
"LTV Collateral Amount" of any
Aircraft for any Class of Certificates
means, as of any Distribution Date,
the lesser of (i) the LTV Ratio for
such Class of Certificates multiplied
by the Appraised Current Market Value
of such Aircraft and (ii) the
outstanding principal amount of the
Equipment Notes secured by such
Aircraft after giving effect to any
principal payments of such Equipment
Notes on or before such Distribution
Date.
"LTV Ratio" means for the Class A
Certificates 35.0%, for the Class B
Certificates 50.0%, for the Class C
Certificates 65.0% and for the Class D
Certificates 72.9%.
"Appraised Current Market Value" of
any Aircraft means the lower of the
average and the median of the most
recent three Appraisals of such
Aircraft. After a Triggering Event
occurs and any Equipment Note becomes
a Non-Performing Equipment Note, the
Subordination Agent shall obtain
Appraisals for the Aircraft (the "LTV
Appraisals") as soon as practicable
and additional LTV Appraisals on or
prior to each anniversary of the date
of such initial LTV Appraisals;
provided that if the Controlling Party
reasonably objects to the appraised
value of the Aircraft shown in such
LTV Appraisals, the Controlling Party
shall have the right to obtain or
cause to
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<PAGE>
be obtained substitute LTV Appraisals
(including LTV Appraisals based upon
physical inspection of the Aircraft).
(b) Intercreditor Rights............. Pursuant to the Intercreditor
Agreement, the Trustees and the
Liquidity Provider have agreed that,
with respect to any Indenture at any
given time, the Loan Trustee will be
directed (a) in taking, or refraining
from taking, any action thereunder by
the holders of at least a majority of
the outstanding principal amount of
the Equipment Notes issued thereunder
as long as no Indenture Default has
occurred and is continuing thereunder
and (b) subject to certain conditions,
in exercising remedies thereunder
(including acceleration of such
Equipment Notes or foreclosing the
lien on the Aircraft securing such
Equipment Notes) by the Controlling
Party insofar as an Indenture Default
thereunder has occurred and is
continuing.
"Controlling Party" with respect to
any Indenture means: (w) the Class A
Trustee; (x) upon payment of Final
Distributions to the holders of Class
A Certificates, the Class B Trustee;
(y) upon payment of Final
Distributions to the holders of Class
B Certificates, the Class C Trustee;
and (z) upon payment of Final
Distributions to the holders of Class
C Certificates, the Class D Trustee.
See "Description of the New
Certificates--Indenture Defaults and
Certain Rights Upon an Indenture
Default" for a description of the
rights of the Certificateholders of
each Trust to direct the respective
Trustees. Notwithstanding the
foregoing, at any time after 18 months
from the earlier to occur of (x) the
date on which the entire available
amount under any Liquidity Facility
shall have been drawn (for any reason
other than a Downgrade Drawing) and
remain unreimbursed and (y) the date
on which all Equipment Notes shall
have been accelerated, the Liquidity
Provider shall have the right to
become the Controlling Party with
respect to such Indenture; provided
that if there is more than one
Liquidity Provider, the Liquidity
Provider with the greatest amount of
unreimbursed Liquidity Obligations
shall have such right. For purposes of
giving effect to the foregoing, the
Trustees (other than the Controlling
Party) have irrevocably agreed (and
the Certificateholders (other than the
Certificateholders represented by the
Controlling Party) shall be deemed to
agree by virtue of their purchase of
Certificates) to exercise their voting
rights as directed by the Controlling
Party. For a description of certain
limitations on the Controlling Partys
rights to exercise remedies, see
"Description of the Equipment Notes--
Remedies".
"Final Distributions" means, with
respect to the Certificates of any
Trust on any Distribution Date, the
sum of (x) accrued and unpaid interest
on such Certificates and (y) the Pool
Balance of such Certificates as of the
immediately preceding Distribution
Date.
(i) Upon the occurrence and during
the continuation of any Indenture
Default under any Indenture, the
Controlling Party may accelerate
and sell all (but not less than
all) of the Equipment Notes
issued under such Indenture to
any person, subject to the
provisions of paragraph (ii)
below. The proceeds of such sale
will be distributed pursuant to
the provisions of the
Intercreditor Agreement.
(ii) So long as any Certificates are
outstanding, during nine months
after the earlier of (x) the
acceleration of the Equipment
Notes under any Indenture or (y)
the bankruptcy or insolvency of
Continental, without
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<PAGE>
the consent of each Trustee, (a)
no Aircraft subject to the lien
of such Indenture or such
Equipment Notes may be sold, if
the net proceeds from such sale
would be less than the Minimum
Sale Price for such Aircraft or
such Equipment Notes, and (b)
with respect to any Leased
Aircraft, the amount and payment
dates of rentals payable by
Continental under the Lease for
such Leased Aircraft may not be
adjusted, if, as a result of such
adjustment, the discounted
present value of all such rentals
would be less than 75% of the
discounted present value of the
rentals payable by Continental
under such Lease before giving
effect to such adjustment, in
each case, using the weighted
average interest rate of the
Equipment Notes issued under such
Indenture as the discount rate.
"Minimum Sale Price" means, with respect
to any Aircraft or the Equipment Notes
issued in respect of such Aircraft, at
any time, the lesser of (1) 75% of the
Appraised Current Market Value of such
Aircraft and (2) the aggregate
outstanding principal amount of such
Equipment Notes, plus accrued and unpaid
interest thereon.
Certificates; Book-Entry
Registration.......................... The New Certificates of each Trust will
be represented by a single permanent
global Certificate in definitive, fully
registered form and registered in the
name of Cede & Co. ("Cede"), as nominee
of The Depository Trust Company ("DTC").
See "Description of the New
Certificates--Book Entry; Delivery
and Form."
Method of Distribution................ The persons in whose names the
Certificates are registered will be
treated as the owners of such
Certificates for the purpose of
receiving payments of principal of and
interest on such Certificates and for
all other purposes whatsoever.
Therefore, none of the Trustee,
Continental, the Loan Trustee, the
Liquidity Provider, the Owner
Participant or the Owner Trustee has any
direct responsibility or liability for
distributions or payments to owners of
beneficial interests in the Certificates
(the "Certificate Owners").
Distributions by the Trustee in respect
of Certificates registered in the name
of Cede, as nominee of DTC, including
the final distribution of principal with
respect to such Certificates of any
Trust, will be made in same-day funds to
DTC. DTC will in turn make distributions
in same-day funds to those participants
in DTC who are credited with ownership
of such Certificates ("DTC
Participants") in amounts proportionate
to the amount of each such DTC
Participants respective holdings of
beneficial interests in such
Certificates. Corresponding payments by
the DTC Participants to beneficial
owners of such Certificates will be the
responsibility of such DTC Participants
and will be made in accordance with
customary industry practices.
Distributions by the Trustee to
Certificateholders in respect of
Certificates issued in definitive form,
other than the final distribution, will
be made by check mailed to each such
Certificateholder of record on the
applicable record date at its address
appearing on the register. The final
distribution with respect to the
Certificates of any Trust will be made
only upon surrender and presentation
thereof to the Trustee. See "Description
of the New Certificates--Book-Entry;
Delivery and Form".
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<PAGE>
Trustee.......................... Wilmington Trust Company will act as Trustee
and as paying agent and registrar for the
Certificates of each Trust. Wilmington Trust
Company will also act as Loan Trustee, as
paying agent and registrar for each Series of
Equipment Notes and as Subordination Agent
under the Intercreditor Agreement.
Federal Income Tax Consequences.. The exchange of New Certificates for Old
Certificates should not be a sale or exchange
or otherwise a taxable event for Federal
income tax purposes.
ERISA Considerations............. In general, employee benefit plans subject to
Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
or Section 4975 of the Internal Revenue Code
of 1986, as amended (the "Code") (or entities
which may be deemed to hold the assets of any
such plan) (collectively, "Plans") will be
eligible to purchase the Class A
Certificates. Plans will not be eligible to
purchase Class B, Class C or Class D
Certificates, except that such Certificates
may be acquired with the assets of an
insurance company general account that may be
deemed to constitute Plan assets if the
conditions of Prohibited Transaction Class
Exemption ("PTCE") 95-60 are satisfied.
Holders of Class B, Class C or Class D
Certificates that tender such Old
Certificates in exchange for New Certificates
will be deemed to have represented and
warranted that either (i) no Plan assets have
been used to purchase such Certificate or
(ii) the purchase and holding of such
Certificate is exempt from the prohibited
transaction restrictions of ERISA and Section
4975 of the Code pursuant to PTCE 95-60. See
"ERISA Considerations" and "Transfer
Restrictions". Each Plan fiduciary (and each
fiduciary for a governmental or church plan
subject to rules similar to those imposed on
Plans under ERISA) should consult with its
legal advisor concerning an investment in any
of the Certificates.
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<PAGE>
RISK FACTORS
Holders of Old Certificates should carefully consider the following
risk factors, as well as other information set forth in this Prospectus, before
tendering their Old Certificates in the Exchange Offer. The risk factors set
forth below (other than "--Risk Factors Relating to the Certificates--
Consequences of Failure to Exchange") are generally applicable to the Old
Certificates as well as the New Certificates.
RISK FACTORS RELATING TO THE COMPANY
Continental's History of Operating Losses
Although Continental recorded net income of $224 million in 1995 and
$255 million in the six months ended June 30, 1996, it had experienced
significant operating losses in the previous eight years. In the long term,
Continental's viability depends on its ability to sustain profitable results of
operations.
Leverage and Liquidity
Continental has successfully negotiated a variety of agreements to
increase its liquidity during 1995 and 1996. Nevertheless, Continental remains
more leveraged and has significantly less liquidity than certain of its
competitors, several of whom have available lines of credit and/or significant
unencumbered assets. Accordingly, Continental may be less able than certain of
its competitors to withstand a prolonged recession in the airline industry.
As of June 30, 1996, Continental and its consolidated subsidiaries had
approximately $1.7 billion (including current maturities) of long-term
indebtedness and capital lease obligations and had approximately $867 million of
minority interest, Continental-obligated mandatorily redeemable preferred
securities of subsidiary trust, redeemable warrants, redeemable preferred stock
and common stockholders' equity. Common stockholders' equity reflects the
adjustment of the Company's balance sheet and the recording of assets and
liabilities at fair market value as of April 27, 1993 in accordance with fresh
start reporting.
During the first and second quarters of 1995, in connection with
negotiations with various lenders and lessors, Continental ceased or reduced
contractually required payments under various agreements, which produced a
significant number of events of default under debt, capital lease and operating
lease agreements. Through agreements reached with the various lenders and
lessors, Continental has cured all of these events of default. The last such
agreement was put in place during the fourth quarter of 1995.
As of June 30, 1996, Continental had approximately $825 million of
cash and cash equivalents, including restricted cash and cash equivalents of
$104 million. Continental does not have general lines of credit and has
significant encumbered assets.
Continental had firm commitments with The Boeing Company ("Boeing") to
take delivery of 43 new jet aircraft during the years 1997 through 2002 with an
estimated aggregate cost of $2.6 billion. Continental has recently amended the
terms of its commitments with Boeing to take delivery of a total of 61 jet
aircraft during the years 1997 through 2003 with options for an additional 23
aircraft. The estimated aggregate cost of the firm-commitment aircraft is $2.7
billion. These amendments changed the aircraft mix and timing of delivery of
aircraft, in order to more closely match Continentals anticipated future
aircraft needs. In addition, the Company took delivery of three Beech 1900-D
aircraft in the second quarter of 1996 and an additional four such aircraft are
scheduled to be delivered later in 1996. The Company currently anticipates that
the firm financing commitments available to it with respect to its acquisition
of new aircraft from Boeing and Beech Acceptance Corporation ("Beech") will be
sufficient to fund all new aircraft deliveries scheduled during 1996, and that
it will have remaining financing commitments from aircraft manufacturers of $676
million for jet aircraft deliveries beyond 1996. However, the Company believes
that further financing will be needed to satisfy the remaining amount of such
capital commitments. There can be no assurance that sufficient financing will be
available for all aircraft and other capital expenditures not covered by firm
financing commitments. Continental has also entered into letters of
26
<PAGE>
intent or agreements with several outside parties to lease four DC10-30 aircraft
and to purchase three DC10-30 aircraft and two MD-80 aircraft. These nine
aircraft are expected to be delivered by mid-year 1997, and Continental expects
to finance the aircraft to be purchased from available cash or from third-party
sources. The Company's wholly-owned subsidiary, Continental Express, Inc.
("Express"), recently announced an order for EMB-145 regional jets. Express'
order, which is for 25 firm aircraft and 175 option aircraft, is structured so
that Express will lease, under operating leases, the aircraft it takes under the
aircraft order, and neither Express nor Continental will have any obligation to
take aircraft which are not financed by a third party and leased to Express.
Continental will guarantee Express' obligations under the operating leases.
For 1996, Continental expects to incur cash expenditures under
operating leases relating to aircraft of approximately $568 million, compared
with $521 million for 1995, and approximately $229 million relating to
facilities and other rentals, the same amount as for 1995. In addition,
Continental has capital requirements relating to compliance with regulations
that are discussed below. See "--Regulatory Matters."
CMI recently consummated a $320 million secured term loan financing
with a group of banks and other financial institutions. The loan was made in two
tranches--a $180 million five-year amortizing term loan and a $140 million
seven-year amortization extended loan. Each tranche bears interest at a floating
rate. The loan is secured by the stock of CMI and substantially all its
unencumbered assets, consisting primarily of CMI's route authorities, and is
guaranteed by Continental and Air Micronesia, Inc. (CMI's parent company).
CMI used the net proceeds of the financing to prepay $160 million in
principal amount of indebtedness to an affiliate of General Electric Company
(General Electric Company and affiliates, collectively "GE") and to pay
transaction costs, and Continental used the $136 million in proceeds received by
it as an indirect dividend from CMI, together with approximately $28 million of
cash on hand, to prepay approximately $164 million in principal amount of
indebtedness to GE. The bank financing does not contain any restrictive
covenants at the Continental parent level, and none of the assets of Continental
Airlines, Inc. (other than its stock in Air Micronesia, Inc.) is pledged in
connection with the new financing.
The bank financing contains significant financial covenants relating
to CMI, including maintenance of a minimum fixed charge coverage ratio, a
minimum consolidated net worth and minimum liquidity, and covenants restricting
CMI's leverage, its incurrence of certain indebtedness and its pledge of assets.
The financial covenants also limit the ability of CMI to pay dividends to
Continental.
On July 2, 1996, the Company announced its plan to expand its gates
and related facilities in Terminal B as well as planned improvements at Terminal
C at Continental's Houston Intercontinental Airport hub. The expansion is
expected to cost approximately $115 million, which the Company expects will be
funded principally by the issuance of tax-exempt debt by the applicable
municipal authority. In connection therewith, the Company expects to enter into
long-term leases (or amendments to existing leases) with the applicable
municipal authority containing rental payments sufficient to service the related
tax-exempt debt.
Aircraft Fuel
Since fuel costs constitute a significant portion of Continental's
operating costs (approximately 12.5% for the year ended December 31, 1995 and
12.8% for the six months ended June 30, 1996), significant changes in fuel costs
would materially affect the Company's operating results. Jet fuel prices have
recently increased. Fuel prices continue to be susceptible to international
events, and the Company cannot predict near or longer-term fuel prices. The
Company has entered into petroleum option contracts to provide some short-term
protection (currently approximately six months) against a sharp increase in jet
fuel prices. In the event of a fuel supply shortage resulting from a disruption
of oil imports or otherwise, higher fuel prices or curtailment of scheduled
service could result.
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<PAGE>
Certain Tax Matters
The Company's United States federal income tax return reflects net
operating loss carryforwards ("NOLs") of $2.5 billion, subject to audit by the
Internal Revenue Service, of which $1.2 billion are not subject to the
limitations of Section 382 of the Internal Revenue Code ("Section 382"). As a
result, the Company will not pay United States federal income taxes (other than
alternative minimum tax) until it has recorded approximately an additional $1.2
billion of taxable income following December 31, 1995. For financial reporting
purposes, Continental began accruing tax expense on its income statement during
the second quarter of 1996. Section 382 imposes limitations on a corporations
ability to utilize NOLs if it experiences an "ownership change". In general
terms, an ownership change may result from transactions increasing the ownership
of certain stockholders in the stock of a corporation by more than 50 percentage
points over a three-year period. The sale of the Company's common stock in the
Secondary Offering (as defined in and described under "Recent Developments")
gave rise to an increase in percentage ownership by certain stockholders for
this purpose. Based upon the advice of its counsel, Cleary, Gottlieb, Steen &
Hamilton, the Company believes that such percentage increase did not give rise
to an ownership change under Section 382. However, no assurance can be given
that future transactions, whether within or outside the control of the Company,
will not cause a change in ownership, thereby substantially limiting the
potential utilization of the NOLs in a given future year. In the event that an
ownership change should occur, utilization of Continental's NOLs would be
subject to an annual limitation under Section 382 determined by multiplying the
value of the Company's stock (including both common and preferred stock) at the
time of the ownership change by the applicable long-term tax exempt rate (which
was 5.80% for August 1996). Unused annual limitations may be carried over to
later years, and the amount of the limitation may under certain circumstances be
increased by the built-in gains in assets held by the Company at the time of the
change that are recognized in the five-year period after the change. Under
current conditions, if an ownership change were to occur, Continental's NOL
utilization would be limited to approximately $90 million per year.
In connection with the Company's 1993 reorganization under Chapter 11
of the U.S. bankruptcy code effective April 27, 1993 (the "Reorganization") and
the recording of assets and liabilities at fair market value under the American
Institute of Certified Public Accountants' Statement of Position 90-7--
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7"), the Company recorded a deferred tax liability at April 27, 1993,
net of the amount of the Company's estimated realizable NOLs as required by
Statement of Financial Accounting Standards No. 109--"Accounting for Income
Taxes". Realization of a substantial portion of the Company's NOLs will require
the completion during the five-year period following the Reorganization of
transactions resulting in recognition of built-in gains for federal income tax
purposes. The Company has consummated one such transaction, which had the effect
of realizing approximately 40% of the built-in gains required to be realized
over the five-year period, and currently intends to consummate one or more
additional transactions. If the Company were to determine in the future that not
all such transactions will be completed, an adjustment to the net deferred tax
liability of up to $116 million would be charged to income in the period such
determination was made.
CMI
CMI's operating profit margins have consistently been greater than the
Company's margins overall. In addition to its non-stop service between Honolulu
and Tokyo, CMI's operations focus on the neighboring islands of Guam and Saipan,
resort destinations that cater primarily to Japanese travelers. Because the
majority of CMI's traffic originates in Japan, its results of operations are
substantially affected by the Japanese economy and changes in the value of the
yen as compared to the dollar. Appreciation of the yen against the dollar during
1993 and 1994 increased CMIs profitability and a decline of the yen against the
dollar may be expected to decrease it. The yen has declined against the dollar
during 1996 as compared to 1995. To reduce the potential negative impact on
CMI's dollar earnings, CMI from time to time purchases average rate options as a
hedge against a portion of its expected net yen cash flow position. Any
significant and sustained decrease in traffic or yields to and from Japan could
materially adversely affect Continental's consolidated profitability.
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Principal Stockholders
As of July 31, 1996, Air Canada held approximately 10.0% of the common
equity interests and 4.0% of the general voting power of the Company, and Air
Partners, L.P. ("Air Partners") held approximately 9.8% of the common equity
interests and 39.3% of the general voting power of the Company. In addition,
assuming exercise of all of the warrants held by Air Partners, approximately
23.3% of the common equity interests and 52.1% of the general voting power would
be held by Air Partners. As discussed in "Recent Developments," Air Canada has
announced its intention to divest its interest in the Company during December
1996 or early 1997, subject to market conditions. At any time after January 1,
1997, shares of Class A common stock may be freely converted into an equal
number of shares of Class B common stock. Such conversion would effectively
increase the relative voting power of those Class A stockholders who do not
convert. See "Recent Developments."
Various provisions in the Company's Amended and Restated Certificate
of Incorporation (the "Certificate of Incorporation") and Bylaws (the "Bylaws")
currently provide Air Partners with the right to elect one-third of the
directors in certain circumstances; these provisions could have the effect of
delaying, deferring or preventing a change in control of the Company. See
"Recent Developments."
RISK FACTORS RELATING TO THE AIRLINE INDUSTRY
Industry Conditions and Competition
The airline industry is highly competitive and susceptible to price
discounting. The Company has in the past both responded to discounting actions
taken by other carriers and initiated significant discounting actions itself.
Continental's competitors include carriers with substantially greater financial
resources, as well as smaller carriers with lower cost structures. Airline
profit levels are highly sensitive to, and during recent years have been
severely impacted by, changes in fuel costs, fare levels (or "average yield")
and passenger demand. Passenger demand and yields have been adversely affected
by, among other things, the general state of the economy, international events
and actions taken by carriers with respect to fares. From 1990 to 1993, these
factors contributed to the domestic airline industry's incurring unprecedented
losses. Although fare levels have increased recently, significant industry-wide
discounts could be reimplemented at any time, and the introduction of broadly
available, deeply discounted fares by a major United States airline would likely
result in lower yields for the entire industry and could have a material adverse
effect on the Company's operating results.
The airline industry has consolidated in past years as a result of
mergers and liquidations and may further consolidate in the future. Among other
effects, such consolidation has allowed certain of Continental's major
competitors to expand (in particular) their international operations and
increase their market strength. Furthermore, the emergence in recent years of
several new carriers, typically with low cost structures, has further increased
the competitive pressures on the major United States airlines. In many cases,
the new entrants have initiated or triggered price discounting. Aircraft,
skilled labor and gates at most airports continue to be readily available to
start-up carriers. Although management believes that Continental is better able
than some of its major competitors to compete with fares offered by start-up
carriers because of its lower cost structure, competition with new carriers or
other low cost competitors on Continental's routes could negatively impact
Continental's operating results.
Regulatory Matters
In the last several years, the United States Federal Aviation
Administration (the "FAA") has issued a number of maintenance directives and
other regulations relating to, among other things, retirement of older aircraft,
collision avoidance systems, airborne windshear avoidance systems, noise
abatement, commuter aircraft safety and increased inspections and maintenance
procedures to be conducted on older aircraft. The Company expects to continue
incurring expenses for the purpose of complying with the FAA's noise and aging
aircraft regulations. In addition, several airports have recently sought to
increase substantially the rates charged to
29
<PAGE>
airlines, and the ability of airlines to contest such increases has been
restricted by federal legislation, U.S. Department of Transportation regulations
and judicial decisions.
Management believes that the Company benefited significantly from the
expiration of the aviation trust fund tax (the "ticket tax") on December 31,
1995, although the amount of any such benefit resulting directly from the
expiration of the ticket tax cannot precisely be determined. In early August
1996, the Congress approved legislation reinstating the ticket tax until
December 31, 1996, and the ticket tax was reinstated on August 27, 1996.
Management believes that the reimposition of the ticket tax has a negative
impact on the Company, although the amount of such negative impact directly
resulting from the reimposition of the ticket tax cannot be precisely
determined.
Additional laws and regulations have been proposed from time to time
that could significantly increase the cost of airline operations by imposing
additional requirements or restrictions on operations, including various new
safety requirements recently proposed. Laws and regulations have also been
considered that would prohibit or restrict the ownership and/or transfer of
airline routes or takeoff and landing slots. Also, the availability of
international routes to United States carriers is regulated by treaties and
related agreements between the United States and foreign governments that are
amendable. Continental cannot predict what laws and regulations may be adopted
or their impact, but there can be no assurance that laws or regulations
currently proposed or enacted in the future will not adversely affect the
Company.
RISK FACTORS RELATING TO THE CERTIFICATES AND THE OFFERING
Consequences of Failure to Exchange
Holders of Old Certificates who do not exchange their Old Certificates
for New Certificates pursuant to the Exchange Offer will continue to be subject
to the restrictions on transfer of such Old Certificates as set forth in the
legend thereon as a consequence of the issuance of the Old Certificates pursuant
to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Old Certificates may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the Old
Certificates under the Securities Act. To the extent that Old Certificates are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Old Certificates could be adversely affected.
Appraisals and Realizable Value of Aircraft
Appraisals in respect of the Aircraft (without physical inspection
thereof) have been prepared by AISI, BK and MBA. According to the appraisals of
the three firms, the Aircraft had an aggregate appraised value of $239,360,000,
$229,500,000 and $241,860,000, respectively, in each case as of March 26, 1996.
See "Description of the Aircraft and the Appraisals". However, an appraisal is
only an estimate of value and should not be relied upon as a measure of
realizable value; the proceeds realized upon a sale of any Aircraft may be less
than the appraised value thereof. The value of the Aircraft in the event of the
exercise of remedies under the applicable Indenture will depend on market and
economic conditions, the availability of buyers, the condition of the Aircraft
and other factors. Accordingly, there can be no assurance that the proceeds
realized upon any such exercise with respect to the Equipment Notes and the
Aircraft pursuant to the applicable Pass Through Trust Agreement and the
applicable Indenture would be sufficient to satisfy in full payments due on the
Certificates.
Priority of Distributions; Subordination
Pursuant to the Intercreditor Agreement to which the Trusts, the
Subordination Agent and the Liquidity Providers are parties, on each
Distribution Date, so long as no Triggering Event shall have occurred, all
payments received by the Subordination Agent will be distributed in the
following order: (1) payment of the Liquidity Obligations to the Liquidity
Providers; (2) payment of Expected Distributions to the holders of Class A
Certificates; (3) payment of Expected Distributions to the holders of Class B
Certificates; (4) payment of
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<PAGE>
Expected Distributions to the holders of Class C Certificates; (5) payment of
Expected Distributions to the holders of Class D Certificates; and (6) payment
of certain fees and expenses of the Subordination Agent and the Trustees.
In addition, upon the occurrence of a Triggering Event and at all
times thereafter, all payments received by the Subordination Agent in respect of
the Equipment Notes and certain other payments will be distributed under the
Intercreditor Agreement in the following order: (1) to the Subordination Agent,
the Trustee and certain other parties in payment of the Administration Expenses
and to the Liquidity Providers in payment of the Liquidity Obligations; (2) to
the holders of Class A Certificates in payment of Adjusted Expected
Distributions; (3) to the holders of Class B Certificates in payment of Adjusted
Expected Distributions; (4) to the holders of Class C Certificates in payment of
Adjusted Expected Distributions; and (5) to the holders of Class D Certificates
in payment of Adjusted Expected Distributions.
The priority of distributions after a payment default under any
Equipment Note will have the effect in certain circumstances of requiring the
distribution to more senior Classes of Certificates of payments received in
respect of one or more junior series of Equipment Notes. If this should occur,
the interest accruing on the remaining Equipment Notes would in the aggregate be
less than the interest accruing on the remaining Certificates because such
Certificates include a relatively greater proportion of junior Classes with
relatively higher interest rates. As a result of this possible interest
shortfall, the holders of one or more junior Classes of Certificates may not
receive the full amount due them after a payment default under any Equipment
Note even if all Equipment Notes are eventually paid in full.
Control over Collateral; Sale of Collateral
Pursuant to the Intercreditor Agreement, the Trustees and the
Liquidity Provider have agreed that, with respect to any Indenture at any given
time, the Loan Trustee will be directed (a) in taking, or refraining from
taking, any action thereunder by the holders of at least a majority of the
outstanding principal amount of the Equipment Notes issued thereunder as long as
no Indenture Default has occurred and is continuing thereunder and (b) subject
to certain conditions, in exercising remedies thereunder (including
acceleration of such Equipment Notes or foreclosing the lien on the Aircraft
securing such Equipment Notes) insofar as an Indenture Default has occurred and
is continuing by the Controlling Party. See "Description of the New
Certificates--Indenture Defaults and Certain Rights Upon an Indenture Default"
for a description of the rights of the Certificateholders of each Trust to
direct the respective Trustees. Notwithstanding the foregoing, at any time after
18 months from the earlier to occur of (x) the date on which the entire
available amount under any Liquidity Facility shall have been drawn (for any
reason other than a Downgrade Drawing) and remain unreimbursed and (y) the date
on which all Equipment Notes shall have been accelerated, the Liquidity Provider
shall have the right to elect to become the Controlling Party with respect to
such Indenture. For purposes of giving effect to the foregoing, the Trustees
(other than the Controlling Party) shall irrevocably agree (and the
Certificateholders (other than the Certificateholders represented by the
Controlling Party) shall be deemed to agree by virtue of their purchase of
Certificates) to exercise their voting rights as directed by the Controlling
Party. For a description of certain limitations on the Controlling Party's
rights to exercise remedies, see "Description of the Equipment Notes--Remedies".
Upon the occurrence and during the continuation of any Indenture
Default under any Indenture, the Controlling Party may accelerate and, subject
to the provisions of the immediately following sentence, sell all (but not less
than all) of the Equipment Notes issued under such Indenture to any person. So
long as any Certificates are outstanding, during nine months after the earlier
of (x) the acceleration of the Equipment Notes under any Indenture or (y) the
bankruptcy or insolvency of Continental, without the consent of each Trustee,
(a) no Aircraft subject to the lien of such Indenture or such Equipment Notes
may be sold, if the net proceeds from such sale would be less than the Minimum
Sale Price for such Aircraft or such Equipment Notes, and (b) with respect to
any Leased Aircraft, the amount and payment dates of rentals payable by
Continental under the Lease for such Leased Aircraft may not be adjusted, if, as
a result of such adjustment, the discounted present value of all such rentals
would be less than 75% of the discounted present value of the rentals payable by
Continental under such Lease before giving effect to such adjustment, in each
case, using the weighted average interest rate of the Equipment Notes issued
under such Indenture as the discount rate.
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Other Business Relationships with Owner Participant
Gaucho-2 Inc., a wholly owned subsidiary of Boeing, is currently the
Owner Participant with respect to all of the four leveraged leases for the
Leased Aircraft. Boeing and certain of its affiliates have various business
relationships with Continental, including as a supplier of certain equipment and
services to Continental. Due to such relationships, Gaucho-2 Inc. as the Owner
Participant may have interests different from those of any other owner
participant without such business relationships.
Absence of a Public Market for the New Certificates
Prior to the Exchange Offer, there has been no public market for the
Old Certificates or the New Certificates. Neither Continental nor any Trust
intends to apply for listing of the New Certificates on any securities exchange
or for quotation of New Certificates on The Nasdaq Stock Market's National
Market or otherwise. Certain of the Initial Purchasers have previously made a
market in the Old Certificates and Continental has been advised that Morgan
Stanley & Co. Incorporated and CS First Boston Corporation presently intend to
make a market in the New Certificates, as permitted by applicable laws and
regulations, after consummation of the Exchange Offer. None of the Initial
Purchasers is obligated, however, to make a market in the Old Certificates or
the New Certificates and any such market making activity may be discontinued at
any time without notice at the sole discretion of each Initial Purchaser. There
can be no assurance as to the liquidity of the public market for the New
Certificates or that any active public market for the Certificates will develop
or continue. If an active public market does not develop, the market price and
liquidity of the Certificates may be adversely affected.
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RECENT DEVELOPMENTS
STOCK SPLIT
On June 26, 1996, the Board of Directors of the Company declared a
two-for-one stock split (the "Stock Split") pursuant to which (a) one share of
the Company's Class A common stock was issued for each share of Class A common
stock outstanding on July 2, 1996 (the "Record Date") and (b) one share of the
Company's Class B common stock was issued for each share of Class B common stock
outstanding on the Record Date. Shares issuable pursuant to the Stock Split were
distributed on or about July 16, 1996.
CORPORATE GOVERNANCE
On June 26, 1996, at the Company's annual meeting of stockholders (the
"Annual Meeting"), the Company's stockholders approved changes proposed by the
Company to its Certificate of Incorporation, which, together with amendments to
the Company's Bylaws previously approved by the Company's Board of Directors
(collectively, the "Amendments"), generally eliminate special classes of
directors (except for Air Partners' right to elect one-third of the directors in
certain circumstances as described below) and supermajority provisions, and make
a variety of other modifications aimed at streamlining the Company's corporate
governance structure. The amendments to the Company's Certificate of
Incorporation included elimination of Class C common stock, par value $.01 per
share (the "Class C common stock"), of the Company as an authorized class of
capital stock and changed the rights of holders of Class D common stock, par
value $.01 per share (the "Class D common stock"), with respect to election of
directors--holders of Class D common stock will now be entitled to elect one-
third of the directors. Pursuant to the Certificate of Incorporation, Class D
common stock is solely issuable to Air Partners and certain of its affiliates.
There is currently no Class D common stock outstanding. The Amendments, as a
whole, reflect the reduction of Air Canada's equity interest in the Company, as
described below, and the decision of the former directors designated by Air
Canada not to stand for reelection, along with the expiration of various
provisions of the Company's Certificate of Incorporation and Bylaws specifically
included at the time of the Company's reorganization in 1993.
The Amendments also provide that, at any time after January 1, 1997,
shares of Class A common stock may be freely converted into an equal number of
shares of Class B common stock. Under agreements put in place at the time of
the Company's reorganization in 1993, and designed in part to ensure compliance
with the foreign ownership limitations applicable to United States air carriers,
in light of the substantial stake in the Company then held by Air Canada,
holders of Class A common stock were not permitted under the Company's
Certificate of Incorporation to convert their shares to Class B common stock.
In recent periods, the market price of Class A common stock has generally been
below the market price of Class B common stock, which the Company believes is
attributable in part to the reduced liquidity present in the trading market for
Class A common stock. A number of Class A stockholders requested that the
Company provide for free convertibility of Class A common stock into Class B
common stock, and in light of the reduction of Air Canada's equity stake, the
Company determined that the restriction was no longer necessary. Any such
conversion would effectively increase the relative voting power of those Class A
stockholders who do not convert.
On April 19, 1996, the Company's Board of Directors approved certain
agreements (the "Agreements") with its two major stockholders, Air Canada and
Air Partners. The Agreements contain a variety of arrangements intended
generally to reflect the intention that Air Canada has expressed to the Company
of divesting its investment in Continental during December 1996 or early 1997,
subject to market conditions. Air Canada has indicated to the Company that its
original investment in Continental has become less central to Air Canada in
light of other initiatives it has undertaken -- particularly expansion within
Canada and exploitation of the 1995 Open Skies agreement to expand Air Canada's
own flights into the U.S. Because of these initiatives Air Canada has determined
it appropriate to redeploy the funds invested in the Company into other uses in
Air Canada's business. The Agreements also reflect the distribution by Air
Partners, effective March 29, 1996, to its investors (the "AP Investors") of all
of the shares of the Class B common stock held by Air Partners and the desire of
some of the AP Investors to realize the increase in value of their investment in
the Company by selling all or a portion of their shares of Class B common stock.
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Among other things, the Agreements required the Company to file a
registration statement under the Securities Act to permit the sale by Air Canada
of 2,200,000 shares of Class B common stock held by it and by certain of the AP
Investors of an aggregate of 1,730,240 (each on a pre-Stock Split basis) such
shares pursuant to an underwritten public offering arranged by the Company (the
"Secondary Offering"). The Secondary Offering was completed on May 14, 1996. The
Agreements provided for the following additional steps to be taken in connection
with the completion of the Secondary Offering:
. in light of its reduced equity stake in the Company, Air Canada was
no longer entitled to designate nominees to the Board of Directors
of the Company, caused the four then-present or former members of
the Air Canada board who served as directors of Continental to
decline nomination for reelection as directors and converted all of
its Class A common stock to Class B common stock;
. Air Canada and Air Partners entered into a number of agreements
restricting, prior to December 16, 1996, further disposition of the
common stock of the Company held by either of them; and
. each of the existing Stockholders' Agreement and the registration
rights agreement (the "Original Registration Rights Agreement")
among the parties was modified in a number of respects to reflect,
among other matters, the changing composition of the respective
equity interests of the parties.
After such sale and the conversion by Air Canada of its Class A common
stock into Class B common stock, Air Canada holds approximately 10.0% of the
common equity interests and 4.0% of the general voting power of the Company, and
Air Partners holds approximately 9.8% of the common equity interests and 39.3%
of the general voting power of the Company. If all of the warrants held by Air
Partners were exercised, approximately 23.3% of the common equity interests and
52.1% of the general voting power would be held by Air Partners.
The Company and Air Canada also entered into a memorandum of
understanding, subject to the fulfillment of certain conditions, regarding
modifications to certain of the Company's existing "synergy" agreements with Air
Canada, which covered items such as maintenance and ground facilities, and
resolved certain outstanding commercial issues under the agreements. In May
1996, the Company entered into an agreement with Air Partners for the sale by
Air Partners to the Company from time to time at Air Partners' election for the
one-year period beginning August 15, 1996, of up to an aggregate of $50 million
in intrinsic value (then-current Class B common stock price minus exercise
price) of Air Partners' Class B Warrants pursuant to the Warrant Purchase
Agreement. The purchase price would be payable in cash. The Board of Directors
has authorized the Company to publicly issue up to $50 million in net proceeds
of Class B common stock in connection with any such purchase and the Company has
filed a shelf registration statement with respect thereto that has been declared
effective by the Commission. In connection with this agreement, the Company has
reclassified $50 million from common equity to redeemable warrants.
Because certain aspects of the Agreements raised issues under the
change in control provisions of certain of the Company's employment agreements
and employee benefit plans, these agreements and plans were modified to provide
a revised change of control definition that the Company believes is appropriate
in light of the prospective changes to its equity ownership structure. In
connection with the modifications, payments were made to certain employees,
benefits were granted to certain employees and options equal to 10% of the
amount of the options previously granted to each optionee were granted (subject
to certain conditions) to substantially all employees holding outstanding
options.
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USE OF PROCEEDS
There will be no cash proceeds payable to Continental from the
issuance of the New Certificates pursuant to the Exchange Offer. The proceeds
from the sale of the Old Certificates were used to purchase the Equipment Notes
issued by (i) the related Owner Trustees in connection with the refinancing of
the indebtedness incurred by the Owner Trustees to finance the purchase of each
of the Leased Aircraft and (ii) Continental, as owner of the Owned Aircraft.
The Equipment Notes issued in respect of the Leased Aircraft represent in the
aggregate the entire debt portion currently outstanding of the leveraged lease
transactions relating to the Leased Aircraft. Continental received cash
proceeds from the sale of the Old Certificates, representing that portion of the
total proceeds from the sale of the Old Certificates as was used to purchase
Equipment Notes issued with respect to the Owned Aircraft.
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SELECTED FINANCIAL DATA
The following tables set forth selected financial data of (i) the
Company for the three and six months ended June 30, 1996 and 1995, the years
ended December 31, 1995 and 1994 and the period from April 28, 1993 through
December 31, 1993 and (ii) Holdings for the period from January 1, 1993 through
April 27, 1993. The consolidated financial data of both the Company, for the
years ended December 31, 1995 and 1994 and for the period from April 28, 1993
through December 31, 1993, and Holdings, for the period from January 1, 1993
through April 27, 1993, are derived from their respective audited consolidated
financial statements. On April 27, 1993, in connection with the Reorganization,
the Company adopted fresh start reporting in accordance with SOP 90-7. A
vertical black line is shown in the table below to separate Continental's post-
reorganized consolidated financial data from the pre-reorganized consolidated
financial data of Holdings since they have not been prepared on a consistent
basis of accounting. The consolidated financial data of the Company for the
three and six months ended June 30, 1996 and 1995 are derived from its unaudited
consolidated financial statements, which include all adjustments (consisting
solely of normal recurring accruals) that the Company considers necessary for
the presentation of the financial position and results of operations for these
periods. Operating results for the six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996. The Company's selected consolidated financial data should be
read in conjunction with, and are qualified in their entirety by reference to,
the consolidated financial statements, including the notes thereto, incorporated
by reference herein.
<TABLE>
<CAPTION>
PERIOD FROM | PERIOD FROM
REORGANIZATION | JANUARY 1,
THREE MONTHS ENDED SIX MONTHS YEAR ENDED (APRIL 28, | 1993
JUNE 30, ENDED JUNE 30, DECEMBER 31, 1993) THROUGH | THROUGH
------------------ ----------------- ----------------- DECEMBER 31, | APRIL 27,
1996 1995 1996 1995 1995 1994 1993 | 1993
---- ---- ---- ---- ---- ---- ---- | ----
(In millions of dollars, except per share data) |
STATEMENT OF OPERATIONS (unaudited) (unaudited) |
DATA: |
<S> <C> <C> <C> <C> <C> <C> <C> |<C>
Operating Revenue: |
Passenger................. $1,519 $1,355 $2,894 $2,595 $5,302 $ 5,036 $3,493 | $1,622
Cargo, mail and other..... 120 123 234 292 523 634 417 | 235
------ ------ ------ ------ ------ -------- ------ | ------
1,639 1,478 3,128 2,887 5,825 5,670 3,910 | 1,857
------ ------ ------ ------ ------ -------- ------ | ------
Operating Expenses: |
Wages, salaries and |
related costs......... 378 357 742 723 1,432(1) 1,532 1,000 | 502
Aircraft fuel............. 180 168 357 337 681 741 540 | 272
Aircraft rentals.......... 127 124 251 247 497 433 261 | 154
Commissions............... 137 131 263 250 489 439 378 | 175
Maintenance, materials |
and repairs........... 119 101 231 198 429 495 363 | 184
Other rentals and landing |
fees.................. 85 93 169 185 356 392 258 | 120
Depreciation and |
amortization......... 67 65 132 129 253 258 162 | 77
Other..................... 317 330 634 680 1,303 1,391 853 | 487
------ ------ ------ ------ ------ -------- ------ | ------
1,410 1,369 2,779 2,749 5,440 5,681 3,815 | 1,971
------ ------ ------ ------ ------ -------- ------ | ------
Operating Income (Loss).... 229 109 349 138 385 (11) 95 | (114)
------ ------ ------ ------ ------ -------- ------ | ------
Nonoperating Income |
(Expense): |
Interest expense.......... (42) (56) (89) (110) (213) (241) (165) | (52)
Interest capitalized...... -- 3 1 4 6 17 8 | 2
Interest income........... 10 8 19 13 31 23 14 | --
Reorganization items, net. -- -- -- -- -- -- -- | (818)
Other, net................ 9 117 21 108 101 (439)(2) (4) | 5
------ ------ ------ ------ ------ -------- ------ | ------
(23) 72 (48) 15 (75) (640) (147) | (863)
------ ------ ------ ------ ------ -------- ------ | ------
Income (Loss) before |
Income Taxes, Minority |
Interest and |
Extraordinary Gain........ 206 181 301 153 310 (651) (52) | (977)
Net Income (Loss).......... $ 167 $ 102 $ 255 $ 72 $ 224 $ (613) $ (39) | $2,640 (3)
Earnings (Loss) per Common |
and Common Equivalent |
Share(4).................. $2.53 $1.51 $3.90 $1.15 $3.60 $(11.88) $(1.17) | N.M. (5)
====== ====== ====== ====== ====== ======== ====== |
Earnings (Loss) per Common |
Share Assuming Full |
Dilution(4)............... $2.04 $1.49 $3.25 $1.10 $3.15 $(11.88) $(1.17) | N.M. (5)
====== ====== ====== ====== ====== ======== ====== |
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, DECEMBER 31,
1996 1995
--------- -------------
<S> <C> <C>
BALANCE SHEET DATA: (In millions of dollars)
(unaudited)
Cash and Cash Equivalents, including restricted Cash and
Cash Equivalents of $104 and $144, respectively(6)............ $ 825 $ 747
Other Current Assets........................................... 702 568
Total Property and Equipment, Net.............................. 1,436 1,461
Routes, Gates and Slots, Net................................... 1,502 1,531
Other Assets, Net.............................................. 485 514
------ ------
Total Assets.................................................. $4,950 $4,821
====== ======
Current Liabilities............................................ $2,108 $1,984
Long-term Debt and Capital Leases.............................. 1,435 1,658
Deferred Credits and Other Long-term Liabilities............... 540 564
Minority Interest.............................................. 28 27
Continental-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust holding solely Convertible
Subordinated Debentures(7).................................... 242 242
Redeemable Warrants(8)......................................... 50 --
Redeemable Preferred Stock..................................... 43 41
Common Stockholders' Equity.................................... 504 305
------ ------
Total Liabilities and Stockholders' Equity.................... $4,950 $4,821
====== ======
- -------------------
</TABLE>
(1) Includes a $20 million cash payment in 1995 by the Company in connection
with a 24-month collective bargaining agreement entered into by the Company
and the Independent Association of Continental Pilots.
(2) Includes a provision of $447 million recorded in the fourth quarter of 1994
associated with the planned early retirement of certain aircraft and closed
or underutilized airport and maintenance facilities and other assets.
(3) Reflects a $3.6 billion extraordinary gain from extinguishment of debt.
(4) On June 26, 1996, the Company announced the Stock Split with respect to the
Company's Class A common stock and Class B common stock. Accordingly, the
earnings per share information has been restated to give effect to the
Stock Split.
(5) Historical per share data for Holdings is not meaningful since the Company
has been recapitalized and has adopted fresh start reporting as of April
27, 1993.
(6) Restricted cash and cash equivalents agreements relate primarily to
workers' compensation claims and the terms of certain other agreements. In
addition, CMI is required by loan agreements to maintain certain minimum
consolidated net worth and liquidity levels, which effectively restrict the
amount of cash available to Continental from CMI.
(7) The sole assets of the Trust are Convertible Subordinated Debentures, with
an aggregate principal amount of $250 million, which bear interest at the
rate of 8-1/2% per annum and mature on December 1, 2020. Upon repayment,
the Continental-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust will be mandatorily redeemed.
(8) The Company has agreed to repurchase up to $50 million of intrinsic value
(then-current Class B common stock price minus exercise price) of Class B
Warrants at the election of Air Partners during the one year period
commencing August 15, 1996.
37
<PAGE>
THE EXCHANGE OFFER
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and reference is made to the
provisions of the Registration Rights Agreement, which has been filed as an
exhibit to the Registration Statement and a copy of which is available as set
forth under the heading "Available Information."
TERMS OF THE EXCHANGE OFFER
General
In connection with the issuance of the Old Certificates pursuant to a
Purchase Agreement dated as of May 9, 1996, between the Company and the Initial
Purchasers, the Initial Purchasers and their respective assignees became
entitled to the benefits of the Registration Rights Agreement.
Under the Registration Rights Agreement, the Company is obligated to
use its best efforts to (i) file the Registration Statement of which this
Prospectus is a part for a registered exchange offer with respect to an issue of
new certificates identical in all material respects to the Old Certificates
within 120 calendar days after May 20, 1996, the date the Old Certificates were
issued (the "Issue Date"), (ii) to cause the Registration Statement to become
effective within 60 days after filing of the Registration Statement, (iii) to
cause the Registration Statement to remain effective until the closing of the
Exchange Offer and (iv) to consummate the Exchange Offer within 30 calendar days
after the date the Registration Statement is declared effective by the
Commission. The Company will keep the Exchange Offer open for a period of not
less than 30 calendar days. The Exchange Offer being made hereby, if commenced
and consummated within the time periods described in this paragraph, will
satisfy those requirements under the Registration Rights Agreement.
Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal (which together constitute the
Exchange Offer), all Old Certificates validly tendered and not withdrawn prior
to 5:00 p.m., New York City time, on the Expiration Date will be accepted for
exchange. New Certificates of the same class will be issued in exchange for an
equal principal amount of outstanding Old Certificates accepted in the Exchange
Offer. Old Certificates may be tendered only in integral multiples of $1000.
This Prospectus, together with the Letter of Transmittal, is being sent to all
registered holders as of September 27, 1996. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Certificates being tendered
for exchange. However, the obligation to accept Old Certificates for exchange
pursuant to the Exchange Offer is subject to certain conditions as set forth
herein under "--Conditions."
Old Certificates shall be deemed to have been accepted as validly
tendered when, as and if the Trustee has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders of Old Certificates for the purposes of receiving the New Certificates
and delivering New Certificates to such holders.
Based on interpretations by the staff of the Commission, as set forth
in no-action letters issued to third parties, including the Exchange Offer No-
Action Letters, the Company believes that the New Certificates issued pursuant
to the Exchange Offer may be offered for resale, resold or otherwise transferred
by holders thereof (other than a broker-dealer who acquires such New
Certificates directly from the Trustee for resale pursuant to Rule 144A under
the Securities Act or any other available exemption under the Securities Act or
any holder that is an "affiliate" of the Company as defined under Rule 405 of
the Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Certificates
are acquired in the ordinary course of such holders' business and such holders
are not engaged in, and do not intend to engage in, a distribution of such New
Certificates and have no arrangement with any person to participate in a
distribution of such New Certificates. By tendering the Old Certificates in
exchange for New Certificates, each holder, other than a broker-dealer, will
represent to the Company that: (i) it is not an affiliate of the Company (as
defined under Rule 405 of the Securities Act) nor a broker-dealer tendering Old
Certificates
38
<PAGE>
acquired directly from the Company for its own account; (ii) any New
Certificates to be received by it will be acquired in the ordinary course of its
business; and (iii) it is not engaged in, and does not intend to engage in, a
distribution of such New Certificates and has no arrangement or understanding to
participate in a distribution of the New Certificates. If a holder of Old
Certificates is engaged in or intends to engage in a distribution of the New
Certificates or has any arrangement or understanding with respect to the
distribution of the New Certificates to be acquired pursuant to the Exchange
Offer, such holder may not rely on the applicable interpretations of the staff
of the Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. Each Participating Broker-Dealer that receives New Certificates for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Certificates. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of New Certificates
received in exchange for Old Certificates where such Old Certificates were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities. The Company has agreed that, starting on
the Expiration Date and ending on the close of business 180 days after the
Expiration Date, it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale. See "Plan of
Distribution."
In the event that any changes in law or the applicable interpretations
of the staff of the Commission do not permit Continental to effect the Exchange
Offer, if the Registration Statement is not declared effective within 60
calendar days after the filing thereof with the Commission under certain
circumstances or the Exchange Offer is not consummated within 30 days after the
effectiveness of the Registration Statement under certain other circumstances,
at the request of a holder not eligible to participate in the Exchange Offer or
under certain other circumstances described in the Registration Rights
Agreement, Continental will, in lieu of effecting the registration of the New
Certificates pursuant to the Registration Statement and at no cost to the
holders of Old Certificates, (a) as promptly as practicable, file with the
Commission a shelf registration statement (the "Shelf Registration Statement")
covering resales of the Old Certificates, (b) use its best efforts to cause the
Shelf Registration Statement to be declared effective under the Securities Act
by the 180th calendar day after the Issue Date and (c) use its best efforts to
keep effective the Shelf Registration Statement for a period of three years
after its effective date (or for such shorter period as shall end when all of
the Old Certificates covered by the Shelf Registration Statement have been sold
pursuant thereto or may be freely sold pursuant to Rule 144 under the Securities
Act).
In the event that neither the consummation of the Exchange Offer nor
the declaration by the Commission of the Shelf Registration Statement to be
effective (each a "Registration Event") occurs on or prior to the 180th calendar
day following the Issue Date, the interest rate per annum borne by the Equipment
Notes and passed through to holders of Old Certificates shall be increased by
0.50% effective from and including January 2, 1997, to but excluding the date on
which a Registration Event occurs. In the event that the Shelf Registration
Statement ceases to be effective at any time, during the period the Company is
required to keep such Shelf Registration Statement effective, for more than 60
days, whether or not consecutive, during any 12-month period, the interest rate
per annum borne by the Equipment Notes shall be increased by 0.50% from the 61st
day of the applicable 12-month period such Shelf Registration Statement ceases
to be effective until such time as the Shelf Registration Statement again
becomes effective.
Upon consummation of the Exchange Offer, subject to certain
exceptions, holders of Old Certificates who do not exchange their Old
Certificates for New Certificates in the Exchange Offer will no longer be
entitled to registration rights and will not be able to offer or sell their Old
Certificates, unless such Old Certificates are subsequently registered under the
Securities Act (which, subject to certain limited exceptions, the Company will
have no obligation to do), except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. See "Risk Factors--Risk Factors Relating to the Certificates--Consequences
of Failure to Exchange."
39
<PAGE>
Expiration Date; Extensions; Amendments; Termination
The term "Expiration Date" shall mean November 1, 1996 (30 calendar
days following the commencement of the Exchange Offer), unless the Company, in
its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended. Notwithstanding any extension of the Exchange Offer, if the Exchange
Offer is not consummated by November 16, 1996, the interest rate borne by the
Equipment Notes and passed through to the Certificateholders is subject to
increase. See "--General."
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders of Old Certificates an announcement thereof, each prior to 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. Such announcement may state that the Company is
extending the Exchange Offer for a specified period of time.
The Company reserves the right (i) to delay acceptance of any Old
Certificates, to extend the Exchange Offer or to terminate the Exchange Offer
and not permit acceptance of Old Certificates not previously accepted if any of
the conditions set forth herein under "--Conditions" shall have occurred and
shall not have been waived by the Company, by giving oral or written notice of
such delay, extension or termination to the Exchange Agent, or (ii) to amend the
terms of the Exchange Offer in any manner deemed by it to be advantageous to the
holders of the Old Certificates. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the Exchange Agent. If the Exchange Offer is amended
in a manner determined by the Company to constitute a material change, the
Company will promptly disclose such amendment in a manner reasonably calculated
to inform the holders of the Old Certificates of such amendment.
Without limiting the manner in which the Company may choose to make
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
INTEREST ON THE NEW CERTIFICATES
The New Certificates will accrue interest at the applicable per annum
rate for such Trust set forth on the cover page of this Prospectus, from the
last date on which interest was paid on the Old Certificates surrendered in
exchange therefor. Interest on the New Certificates is payable on January 2,
April 2, July 2 and October 2 of each year commencing upon the consummation of
the Exchange Offer, subject to the terms of the Intercreditor Agreement.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date
the Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, either (i) certificates for such Old
Certificates must be received by the Exchange Agent along with the Letter of
Transmittal, (ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Certificates, if such procedure is available, into
the Exchange Agent's account at The Depository Trust Company (the" Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer described
below, must be received by the Exchange Agent prior to the Expiration Date or
(iii) the holder must comply with the guaranteed delivery procedures described
below. THE METHOD OF DELIVERY OF OLD CERTIFICATES, LETTERS OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
40
<PAGE>
TRANSMITTAL OR OLD CERTIFICATES SHOULD BE SENT TO THE COMPANY. Delivery of all
documents must be made to the Exchange Agent at its address set forth below.
Holders may also request their respective brokers, dealers, commercial banks,
trust companies or nominees to effect such tender for such holders.
The tender by a holder of Old Certificates will constitute an
agreement between such holder and the Company in accordance with the terms and
subject to the conditions set forth herein and in the Letter of Transmittal.
Only a holder of Old Certificates may tender such Old Certificates in
the Exchange Offer. The term "holder" with respect to the Exchange Offer means
any person in whose name Old Certificates are registered on the books of the
Company or any other person who has obtained a properly completed bond power
from the registered holder.
Any beneficial owner whose Old Certificates are registered in the name
of a broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on his behalf. If such beneficial owner wishes
to tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Old Certificates, either
make appropriate arrangements to register ownership of the Old Certificates in
such owners name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution") unless the Old
Certificates tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Certificates listed therein, such Old Certificates
must be endorsed or accompanied by bond powers and a proxy which authorizes such
person to tender the Old Certificates on behalf of the registered holder, in
each case as the name of the registered holder or holders appears on the Old
Certificates.
If the Letter of Transmittal or any Old Certificates or bond powers
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and withdrawal of the tendered Old Certificates will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old
Certificates not properly tendered or any Old Certificates which, if accepted,
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the absolute right to waive any irregularities or conditions of tender
as to particular Old Certificates. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the instructions in the Letter
of Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Certificates must be
cured within such time as the Company shall determine. Neither the Company, the
Exchange Agent nor any other person shall be under any duty to give notification
of defects or irregularities with respect to tenders of Old Certificates, nor
shall any of them incur any liability for failure to give such notification.
Tenders of Old Certificates will not be deemed to have been made until such
irregularities have been cured or waived. Any Old Certificates received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost to
such holder by the Exchange Agent to the tendering holders of Old
41
<PAGE>
Certificates, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion,
subject to the provisions of the Indenture, to (i) purchase or make offers for
any Old Certificates that remain outstanding subsequent to the Expiration Date
or, as set forth under "--Conditions," to terminate the Exchange Offer in
accordance with the terms of the Registration Rights Agreement and (ii) to the
extent permitted by applicable law, purchase Old Certificates in the open
market, in privately negotiated transactions or otherwise. The terms of any
such purchases or offers could differ from the terms of the Exchange Offer.
ACCEPTANCE OF OLD CERTIFICATES FOR EXCHANGE; DELIVERY OF NEW CERTIFICATES
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, all Old Certificates properly tendered will be accepted, promptly after
the Expiration Date, and the New Certificates will be issued promptly after
acceptance of the Old Certificates. See "--Conditions" below. For purposes of
the Exchange Offer, Old Certificates shall be deemed to have been accepted
validly tendered for exchange when, as and if the Company has given oral or
written notice thereof to the Exchange Agent.
In all cases, issuance of New Certificates for Old Certificates that
are accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Old Certificates
or a timely Book-Entry Confirmation of such Old Certificates into the Exchange
Agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed Letter of Transmittal and all other required documents. If any
tendered Old Certificates are not accepted for any reason set forth in the terms
and conditions of the Exchange Offer or if Old Certificates are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted or
nonexchanged Old Certificates will be returned without expense to the tendering
holder thereof (or, in the case of Old Certificates tendered by book-entry
transfer procedures described below, such nonexchanged Old Certificates will be
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with
respect to the Old Certificates at the Book-Entry Transfer Facility for purposes
of the Exchange Offer within two business days after the date of this
Prospectus. Any financial institution that is a participant in the Book-Entry
Transfer Facility's systems may make book-entry delivery of Old Certificates by
causing the Book-Entry Transfer Facility to transfer such Old Certificates into
the Exchange Agent's account at the Book-Entry Transfer Facility in accordance
with such Book-Entry Transfer Facility's procedures for transfer. However,
although delivery of Old Certificates may be effected through book-entry
transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or
facsimile thereof with any required signature guarantees and any other required
documents must, in any case, be transmitted to and received by the Exchange
Agent at one of the addresses set forth below under "--Exchange Agent" on or
prior to the Expiration Date or the guaranteed delivery procedures described
below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Certificates desires to tender such
Old Certificates, and the Old Certificates are not immediately available, or
time will not permit such holder's Old Certificates or other required documents
to reach the Exchange Agent before the Expiration Date, or the procedures for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if (i) the tender is made through an Eligible Institution, (ii) prior
to the Expiration Date, the Exchange Agent receives from such Eligible
Institution a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form
provided by the Company (by facsimile transmission, mail or hand delivery),
setting forth the name and address of the holder of Old Certificates and the
amount of Old Certificates tendered, stating that the tender is being made
thereby and guaranteeing that within three New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of Guaranteed Delivery,
the certificates for all
42
<PAGE>
physically tendered Old Certificates, in proper form for transfer, or a Book-
Entry Confirmation, as the case may be, and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent and (iii) the certificates for all physically tendered Old
Certificates, in proper form for transfer, or a Book-Entry Confirmation, as the
case may be, and all other documents required by the Letter of Transmittal are
received by the Exchange Agent within three NYSE trading days after the date of
execution of the Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of Old Certificates may be withdrawn at any time prior to 5:00
p.m., New York City time on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must
be received by the Exchange Agent prior to 5:00 p.m., New York City time on the
Expiration Date at one of the addresses set forth below under "--Exchange
Agent." Any such notice of withdrawal must specify the name of the person having
tendered the Old Certificates to be withdrawn, identify the Old Certificates to
be withdrawn (including the principal amount of such Old Certificates) and
(where certificates for Old Certificates have been transmitted) specify the name
in which such Old Certificates are registered, if different from that of the
withdrawing holder. If certificates for Old Certificates have been delivered or
otherwise identified to the Exchange Agent, then, prior to the release of such
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Old Certificates have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Old Certificates and otherwise comply with the
procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties. Any
Old Certificates so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Certificates which have
been tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Certificates tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Certificates will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Certificates) as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Certificates may be retendered by
following one of the procedures described under "--Procedures for Tendering" and
"--Book-entry Transfer" above at any time on or prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, Old Certificates
will not be required to be accepted for exchange, nor will New Certificates be
issued in exchange for, any Old Certificates and the Company may terminate or
amend the Exchange Offer as provided herein before the acceptance of such Old
Certificates, if because of any change in law, or applicable interpretations
thereof by the Commission, the Company determines that it is not permitted to
effect the Exchange Offer, and the Company has no obligation to, and will not
knowingly, permit acceptance of tenders of Old Certificates from affiliates of
the Company (within the meaning of Rule 405 under the Securities Act) or from
any other holder or holders who are not eligible to participate in the Exchange
Offer under applicable law or interpretations thereof by the Commission, or if
the New Certificates to be received by such holder or holders of Old
Certificates in the Exchange Offer, upon receipt, will not be tradable by such
holder without restriction under the Securities Act and the Exchange Act and
without material restrictions under the "blue sky" or securities laws of
substantially all of the states of the United States.
43
<PAGE>
EXCHANGE AGENT
Wilmington Trust Company has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
By Mail, Overnight Delivery: By Hand:
Wilmington Trust Company Wilmington Trust Company
1100 North Market Street 1105 North Market Street, 1st Floor
Wilmington, Delaware 19890-0001 Wilmington, Delaware 19890
Attention: Jill Rylee Attention: Corporate Trust Operations
Facsimile Transmission:
(302) 651-1079
Confirm by Telephone:
(302) 651-8869
Jill Rylee
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will
be borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone, telecopy or in person by officers and regular
employees of the Company.
The Company will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company, however,
will pay the Exchange Agent reasonable and customary fees for its services and
will reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of the Prospectus and related documents to
the beneficial owners of the Old Certificates, and in handling or forwarding
tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer will
be paid by the Company, including fees and expenses of the Exchange Agent and
Trustee and accounting, legal, printing and related fees and expenses.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Certificates pursuant to the Exchange Offer. If, however,
certificates representing New Certificates or Old Certificates for principal
amounts not tendered or accepted for exchange are to be delivered to, or are to
be registered or issued in the name of, any person other than the registered
holder of the Old Certificates tendered, or if tendered Old Certificates are
registered in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Old Certificates pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
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<PAGE>
DESCRIPTION OF THE NEW CERTIFICATES
The New Certificates will be issued pursuant to four separate Pass
Through Trust Agreements. The following summary describes certain terms of the
Certificates and the Pass Through Trust Agreements. The summary does not
purport to be complete and reference is made to all of the provisions of the
Certificates and the Pass Through Trust Agreements, which have been filed as
exhibits to the Registration Statement and copies of which are available as set
forth under the heading "Available Information." Except as otherwise indicated,
the following summary relates to each of the Trusts and the Certificates issued
by each Trust. The terms and conditions governing each of the Trusts are
substantially the same, except as described under "--Subordination" below and
except that the principal amount, the interest rate, scheduled repayments of
principal, and maturity date applicable to the Equipment Notes held by each
Trust and the final Distribution Date applicable to each Trust will differ.
Citations to the relevant sections of the Pass Through Trust Agreements appear
below in parentheses unless otherwise indicated. Copies of the Pass Through
Trust Agreements are available from the Trustee. Information contained in this
Prospectus relating to the outstanding principal amount of the Certificates and
Equipment Notes is provided as of the date of the issuance of the Old
Certificates without giving effect to any intervening payments of principal on
the Certificates or Equipment Notes. See "--Pool Factors."
GENERAL
The New Certificates of each Trust will be issued in fully registered
form only. Each New Certificate will represent a fractional undivided interest
in the Trust created by the Pass Through Trust Agreement pursuant to which such
Certificate is issued. The Trust Property consists of (i) the Equipment Notes
held in such Trust, all monies at any time paid thereon and all monies due and
to become due thereunder, (ii) the rights of such Trust under the Intercreditor
Agreement (including all monies receivable in respect of such rights), (iii)
except for the Class D Trust, all monies receivable under the Liquidity Facility
for such Trust and (iv) funds from time to time deposited with the Trustee in
accounts relating to such Trust. The New Certificates represent pro rata shares
of the Equipment Notes and other property held in the related Trust and will be
issued only in minimum denominations of $1,000 and integral multiples thereof.
(Section 3.01).
The Certificates represent interests in the respective Trusts and all
payments and distributions thereon will be made only from the Trust Property.
(Section 3.11) The Certificates do not represent an interest in or obligation of
Continental, the Trustees, any of the Loan Trustees or Owner Trustees in their
individual capacities, any Owner Participant, or any affiliate of any thereof.
The existence of each Trust will not limit the liability that Certificate
holders of such Trust would otherwise incur if such holders owned directly the
corresponding Equipment Notes or incurred directly the obligations of such
Trust.
SUBORDINATION
Pursuant to the Intercreditor Agreement to which the Trusts, the
Subordination Agent and the Liquidity Providers are parties, on each
Distribution Date, so long as no Triggering Event shall have occurred, all
payments received by the Subordination Agent will be distributed in the
following order: (1) payment of the Liquidity Obligations to the Liquidity
Providers; (2) payment of Expected Distributions to the holders of Class A
Certificates; (3) payment of Expected Distributions to the holders of Class B
Certificates; (4) payment of Expected Distributions to the holders of Class C
Certificates; (5) payment of Expected Distributions to the holders of Class D
Certificates; and (6) payment of certain fees and expenses of the Subordination
Agent and the Trustees.
In addition, upon the occurrence of a Triggering Event and at all
times thereafter, all payments received by the Subordination Agent in respect of
the Equipment Notes and certain other payments will be distributed under the
Intercreditor Agreement in the following order: (1) to the Subordination Agent,
the Trustees and certain other parties in payment of the Administration Expenses
and to the Liquidity Providers in payment of the Liquidity Obligations; (2) to
the holders of Class A Certificates in payment of; (3) to the holders of Class
B Certificates in payment of Adjusted Expected Distributions; (4) to the holders
of Class C Certificates in payment of Adjusted Expected Distributions; and (5)
to the holders of Class D Certificates in payment of Adjusted Expected
Distributions.
For purposes of calculating Expected Distributions or Adjusted
Expected Distributions, any premium paid on the Equipment Notes held in any
Trust that has not been distributed to the Certificateholders of
45
<PAGE>
such Trust (other than such premium or a portion thereof applied to the payment
of interest on the Certificates of such Trust or the reduction of the Pool
Balance of such Trust) shall be added to the amount of Expected Distributions or
Adjusted Expected Distributions.
The priority of distributions after a payment default under any
Equipment Note will have the effect in certain circumstances of requiring the
distribution to more senior Classes of Certificates of payments received in
respect of one or more junior series of Equipment Notes. If this should occur,
the interest accruing on the remaining Equipment Notes would in the aggregate be
less than the interest accruing on the remaining Certificates because such
Certificates include a relatively greater proportion of junior Classes with
relatively higher interest rates. As a result of this possible interest
shortfall, the holders of one or more junior Classes of Certificates may not
receive the full amount due them after a payment default under any Equipment
Note even if all Equipment Notes are eventually paid in full.
PAYMENTS AND DISTRIBUTIONS
Payments of principal, premium (if any) and interest with respect to
the Equipment Notes or other Trust Property held in each Trust will be
distributed by the Trustee to Certificateholders of such Trust on the date
receipt of such payment is confirmed, except in the case of certain types of
Special Payments (as defined herein).
The Equipment Notes held in each Trust accrue interest at the
applicable rate per annum for such Trust set forth on the cover page of this
Prospectus, payable on January 2, April 2, July 2 and October 2 of each year
commencing on July 2, 1996 and such interest payments will be passed through to
Certificateholders of such Trust on each such date until the final Distribution
Date for such Trust, in each case, subject to the Intercreditor Agreement.
Interest is calculated on the basis of a 360-day year consisting of twelve 30-
day months. The interest rates for the Certificates are subject to change under
certain circumstances. See "The Exchange Offer--Terms of the Exchange Offer."
Payments of interest on the Certificates to be issued by each Trust (other than
the Class D Trust) will be supported by a separate Liquidity Facility to be
provided by DNIB (the "Liquidity Provider") for the benefit of the holders of
such Certificates in an aggregate amount (the "Required Amount") sufficient to
pay interest thereon at the Stated Interest Rate for such Trust on up to six
successive quarterly Distribution Dates. Notwithstanding the subordination
provisions of the Intercreditor Agreement, the holders of the Certificates to be
issued by each Trust (other than the Class D Trust) will be entitled to receive
and retain the proceeds of drawings under the Liquidity Facility for such Trust.
See "Description of the Liquidity Facilities".
Payments of principal on the Equipment Notes held in each Trust are
scheduled to be received by the Trustee on January 2, April 2, July 2 or October
2, in certain years depending upon the terms of the Equipment Notes held in such
Trust, commencing October 2, 1996 in the case of each of the Class A Trust, the
Class B Trust and the Class C Trust and on July 2, 1996 in the case of the Class
D Trust. Scheduled payments of interest and principal on the Equipment Notes are
herein referred to as "Scheduled Payments", and January 2, April 2, July 2 and
October 2 of each year are herein referred to as "Regular Distribution Dates".
See "Description of the Equipment Notes--Principal and Interest Payments". The
Final Maturity Date for each of the Class A, B and C Certificates is January 2,
2016 and the Final Maturity Date for the Class D Certificates is April 2, 2008.
The Trustee of each Trust will distribute, subject to the
Intercreditor Agreement, on each Regular Distribution Date to the
Certificateholders of such Trust all Scheduled Payments, the receipt of which is
confirmed by the Trustee on such Regular Distribution Date. Each
Certificateholder of each Trust will be entitled to receive a pro rata share of
any distribution in respect of Scheduled Payments of principal and interest made
on the Equipment Notes held in such Trust. Each such distribution of Scheduled
Payments will be made by the Trustee of each Trust to the Certificateholders of
record of such Trust on the Record Date applicable to such Scheduled Payment
subject to certain exceptions. (Sections 4.01 and 4.02) If a Scheduled Payment
is not received by the Trustee on a Regular Distribution Date but is received
within five days thereafter, it will be distributed to such holders of record on
the date received. If it is received after such five-day period, it will be
treated as a Special Payment (as defined below) and distributed as described
below.
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<PAGE>
Any payment in respect of, or any proceeds of, any Equipment Note or
the Trust Indenture Estate under (and as defined in) each Indenture (other than
a Scheduled Payment) (each, a "Special Payment") will be distributed on, in the
case of an early redemption or a purchase of the Equipment Notes relating to one
or more Aircraft, the date of such early redemption or purchase (which shall be
a Business Day), and otherwise on the Business Day specified for distribution of
such Special Payment pursuant to a notice delivered by the Trustee as soon as
practicable after the Trustee has received funds for such Special Payment, in
each case subject to the Intercreditor Agreement. The Trustee will mail notice
to the Certificateholders of the applicable Trust not less than 20 days prior to
the Special Distribution Date on which any Special Payment is scheduled to be
distributed by the Trustee stating such anticipated Special Distribution Date.
(Section 4.02(c)) Each distribution of a Special Payment, other than a final
distribution, on a Special Distribution Date for any Trust will be made by the
Trustee to the Certificateholders of record of such Trust on the Record Date
applicable to such Special Payment. See "--Indenture Defaults and Certain Rights
Upon an Indenture Default" and "Description of the Equipment Notes--Redemption".
Each Pass Through Trust Agreement requires that the Trustee establish
and maintain, for the related Trust and for the benefit of the
Certificateholders of such Trust, one or more accounts (the "Certificate
Account") for the deposit of payments representing Scheduled Payments on the
Equipment Notes held in such Trust. Each Pass Through Trust Agreement also
requires that the Trustee establish and maintain, for the related Trust and for
the benefit of the Certificateholders of such Trust, one or more accounts (the
"Special Payments Account") for the deposit of payments representing Special
Payments, which account shall be non-interest bearing except in certain
circumstances where the Trustee may invest amounts in such account in certain
permitted investments. Pursuant to the terms of each Pass Through Trust
Agreement, the Trustee is required to deposit any Scheduled Payments relating to
the applicable Trust received by it in the Certificate Account of such Trust and
to deposit any Special Payments so received by it in the Special Payments
Account of such Trust. (Section 4.01) All amounts so deposited will be
distributed by the Trustee on a Regular Distribution Date or a Special
Distribution Date, as appropriate. (Section 4.02)
Distributions by the Trustee from the Certificate Account or the
Special Payments Account of each Trust on a Regular Distribution Date or a
Special Distribution Date in respect of Certificates issued by such Trust in
definitive form will be made to each Certificateholder of record of such
Certificates on the applicable Record Date. (Section 4.02) The final
distribution for each Trust, however, will be made only upon presentation and
surrender of the Certificates for such Trust at the office or agency of the
Trustee specified in the notice given by the Trustee of such final distribution.
The Trustee will mail such notice of the final distribution to the
Certificateholders of such Trust, specifying the date set for such final
distribution and the amount of such distribution. (Section 11.01) See
"--Termination of the Trusts" below. Distributions in respect of Certificates
issued in global form will be made as described in "--Book Entry; Delivery and
Form" below.
If any Regular Distribution Date or Special Distribution Date is not a
Business Day, distributions scheduled to be made on such Regular Distribution
Date or Special Distribution Date will be made on the next succeeding Business
Day without additional interest.
POOL FACTORS
Unless there has been an early redemption, purchase, or a default
in the payment of principal or interest, in respect of one or more issues of
the Equipment Notes held in a Trust, as described in "--Indenture Defaults and
Certain Rights Upon an Indenture Default" and "Description of the Equipment
Notes--Redemption", the Pool Factor with respect to each Trust will decline in
proportion to the scheduled repayments of principal on the Equipment Notes held
in such Trust as described below in "Description of the Equipment Notes--
General". In the event of such redemption, purchase or default, the Pool Factor
and the Pool Balance of each Trust so affected will be recomputed after giving
effect thereto and notice thereof will be mailed to the Certificateholders of
such Trust. Each Trust will have a separate Pool Factor.
The "Pool Balance" for each Trust or for the Certificates issued by
any Trust indicates, as of any date, the original aggregate face amount of the
Certificates of such Trust less the aggregate amount of all
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<PAGE>
payments made in respect of the Certificates of such Trust other than payments
made in respect of interest or premium thereon or reimbursement of any costs and
expenses in connection therewith. The Pool Balance for each Trust as of any
Regular Distribution Date or Special Distribution Date shall be computed after
giving effect to the payment of principal, if any, on the Equipment Notes or
other Trust Property held in such Trust and the distribution thereof to be made
on that date.
The "Pool Factor" for each Trust as of any Regular Distribution Date
or Special Distribution Date is the quotient (rounded to the seventh decimal
place) computed by dividing (i) the Pool Balance by (ii) the original aggregate
face amount of the Certificates of such Trust. The Pool Factor for each Trust as
of any Regular Distribution Date or Special Distribution Date shall be computed
after giving effect to the payment of principal, if any, on the Equipment Notes
or other Trust Property held in such Trust and the distribution thereof to be
made on that date. Assuming that no early redemption or purchase, or default, in
respect of any Equipment Notes shall have occurred, the Pool Factor for each
Trust will be 1.0000000 on the date of issuance of the Certificates; thereafter,
the Pool Factor for each Trust will decline as described herein to reflect
reductions in the Pool Balance of such Trust. The amount of a
Certificateholder's pro rata share of the Pool Balance of a Trust can be
determined by multiplying the par value of the holder's Certificate of such
Trust by the Pool Factor for such Trust as of the applicable Regular
Distribution Date or Special Distribution Date. Notice of the Pool Factor and
the Pool Balance for each Trust will be mailed to Certificateholders of such
Trust on each Regular Distribution Date and Special Distribution Date.
As of the date of sale by the Trustee of the Certificates, assuming
all Equipment Notes shall have been purchased by the Trusts and assuming that no
early redemption or purchase, or default in the payment of principal, in respect
of any Equipment Notes shall occur, the Scheduled Payments of principal on the
Equipment Notes held in the Class A Trust, the Class B Trust, the Class C Trust
and the Class D Trust, and the resulting Pool Factors for such Trusts after
taking into account each Scheduled Payment, are set forth below:
<TABLE>
<CAPTION>
1996-2A 1996-2B 1996-2C 1996-2D
TRUST TRUST TRUST TRUST
EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT 1996-2D
NOTES 1996-2A NOTES 1996-2B NOTES 1996-2C NOTES TRUST
SCHEDULED TRUST SCHEDULED TRUST SCHEDULED TRUST SCHEDULED EXPECTED
PAYMENTS OF EXPECTED PAYMENTS OF EXPECTED PAYMENTS OF EXPECTED PAYMENTS OF POOL
DATE PRINCIPAL POOL FACTOR PRINCIPAL POOL FACTOR PRINCIPAL POOL FACTOR PRINCIPAL FACTOR
---- ------------ ------------ ---------- ------------ ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
May 20, 1996 $ 0 1.0000000 $ 0 1.0000000 $ 0 $ 0 1.0000000
July 2, 1996 0 1.0000000 0 1.0000000 0 1.0000000 37,717 0.9979624
October 2, 1996 16,953 0.9997945 7,265 0.9997945 7,265 0.9997945 81,906 0.9935374
January 2, 1997 1,931,687 0.9763838 827,866 0.9763840 827,866 0.9763840 84,260 0.9889853
April 2, 1997 352,925 0.9721066 151,264 0.9721066 151,264 0.9721066 86,683 0.9843022
July 2, 1997 0 0.9721066 0 0.9721066 0 0.9721066 43,581 0.9819478
October 2, 1997 0 0.9721066 0 0.9721066 0 0.9721066 44,834 0.9795257
January 2, 1998 1,783,882 0.9504872 764,521 0.9504873 764,521 0.9504873 46,122 0.9770339
April 2, 1998 128,804 0.9489262 55,206 0.9489262 55,206 0.9489262 47,448 0.9744705
July 2, 1998 0 0.9489262 0 0.9489262 0 0.9489262 48,813 0.9718334
October 2, 1998 0 0.9489262 0 0.9489262 0 0.9489262 50,216 0.9691205
January 2, 1999 1,513,831 0.9305796 648,787 0.9305797 648,787 0.9305797 51,660 0.9663296
April 2, 1999 51,979 0.9299497 22,278 0.9299497 22,278 0.9299497 1,714,138 0.8737236
July 2, 1999 0 0.9299497 0 0.9299497 0 0.9299497 54,673 0.8707699
October 2, 1999 0 0.9299497 0 0.9299497 0 0.9299497 56,245 0.8677313
January 2, 2000 2,036,043 0.9052743 872,595 0.9052744 872,595 0.9052744 3,558,630 0.6754768
April 2, 2000 0 0.9052743 0 0.9052744 0 0.9052744 59,525 0.6722610
July 2, 2000 0 0.9052743 0 0.9052744 0 0.9052744 61,237 0.6689527
October 2, 2000 0 0.9052743 0 0.9052744 0 0.9052744 62,997 0.6655493
January 2, 2001 3,797,527 0.8592509 1,627,517 0.8592512 1,627,517 0.8592512 3,132,426 0.4963204
April 2, 2001 727,943 0.8504287 311,975 0.8504291 311,975 0.8504291 258,597 0.4823497
July 2, 2001 421,668 0.8453184 180,715 0.8453188 180,715 0.8453188 68,588 0.4786443
October 2, 2001 2,016,729 0.8208771 864,312 0.8208777 864,312 0.8208777 70,560 0.4748323
January 2, 2002 1,782,956 0.7992689 764,129 0.7992695 764,129 0.7992695 72,589 0.4709107
April 2, 2002 1,588,382 0.7800188 680,735 0.7800196 680,735 0.7800196 74,676 0.4668763
July 2, 2002 1,302,015 0.7642393 558,006 0.7642402 558,006 0.7642402 76,823 0.4627260
October 2, 2002 2,148,391 0.7382023 920,739 0.7382034 920,739 0.7382034 79,031 0.4584563
January 2, 2003 441,808 0.7328479 189,351 0.7328489 189,351 0.7328489 81,304 0.4540639
April 2, 2003 1,213,258 0.7181440 519,969 0.7181452 519,969 0.7181452 83,641 0.4495452
July 2, 2003 801,572 0.7084295 343,531 0.7084308 343,531 0.7084308 86,046 0.4448966
October 2, 2003 0 0.7084295 0 0.7084308 0 0.7084308 88,520 0.4401144
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
1996-2A 1996-2B 1996-2C 1996-2D
TRUST TRUST TRUST TRUST
EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT 1996-2D
NOTES 1996-2A NOTES 1996-2B NOTES 1996-2C NOTES TRUST
SCHEDULED TRUST SCHEDULED TRUST SCHEDULED TRUST SCHEDULED EXPECTED
PAYMENTS OF EXPECTED PAYMENTS OF EXPECTED PAYMENTS OF EXPECTED PAYMENTS OF POOL
DATE PRINCIPAL POOL FACTOR PRINCIPAL POOL FACTOR PRINCIPAL POOL FACTOR PRINCIPAL FACTOR
---- ------------ ------------ ---------- ------------ ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 2, 2004 $2,302,628 0.6805233 $ 986,845 0.6805246 $ 986,845 0.6805246 $ 91,064 0.4351946
April 2, 2004 45,391 0.6799732 19,455 0.6799745 19,455 0.6799745 93,683 0.4301334
July 2, 2004 0 0.6799732 0 0.6799745 0 0.6799745 96,376 0.4249267
October 2, 2004 0 0.6799732 0 0.6799745 0 0.6799745 99,147 0.4195703
January 2, 2005 5,061,720 0.6186287 2,169,314 0.6186303 2,169,314 0.6186303 101,997 0.4140600
April 2, 2005 15,669 0.6184388 6,716 0.6184404 6,716 0.6184404 104,930 0.4083912
July 2, 2005 0 0.6184388 0 0.6184404 0 0.6184404 107,946 0.4025594
October 2, 2005 0 0.6184388 0 0.6184404 0 0.6184404 111,050 0.3965599
January 2, 2006 4,380,428 0.5653511 1,877,334 0.5653529 1,877,334 0.5653529 114,242 0.3903880
April 2, 2006 0 0.5653511 0 0.5653529 0 0.5653529 117,527 0.3840386
July 2, 2006 0 0.5653511 0 0.5653529 0 0.5653529 120,906 0.3775067
October 2, 2006 0 0.5653511 0 0.5653529 0 0.5653529 124,382 0.3707870
January 2, 2007 5,418,436 0.4996834 2,322,196 0.4996855 2,322,196 0.4996855 127,958 0.3638741
April 2, 2007 0 0.4996834 0 0.4996855 0 0.4996855 131,637 0.3567624
July 2, 2007 0 0.4996834 0 0.4996855 0 0.4996855 135,421 0.3494463
October 2, 2007 0 0.4996834 0 0.4996855 0 0.4996855 139,315 0.3419199
January 2, 2008 5,679,532 0.4308514 2,434,205 0.4308507 2,434,205 0.4308507 6,181,496 0.0079654
April 2, 2008 3,239,432 0.3915918 1,388,426 0.3915886 1,388,426 0.3915886 147,440 0.0000000
July 2, 2008 0 0.3915918 0 0.3915886 0 0.3915886 0 0.0000000
October 2, 2008 0 0.3915918 0 0.3915886 0 0.3915886 0 0.0000000
January 2, 2009 5,226,431 0.3282511 2,239,899 0.3282484 2,239,899 0.3282484 0 0.0000000
April 2, 2009 0 0.3282511 0 0.3282484 0 0.3282484 0 0.0000000
July 2, 2009 0 0.3282511 0 0.3282484 0 0.3282484 0 0.0000000
October 2, 2009 0 0.3282511 0 0.3282484 0 0.3282484 0 0.0000000
January 2, 2010 5,306,362 0.2639417 2,274,155 0.2639395 2,274,155 0.2639395 0 0.0000000
April 2, 2010 0 0.2639417 0 0.2639395 0 0.2639395 0 0.0000000
July 2, 2010 0 0.2639417 0 0.2639395 0 0.2639395 0 0.0000000
October 2, 2010 0 0.2639417 0 0.2639395 0 0.2639395 0 0.0000000
January 2, 2011 7,941,098 0.1677011 3,403,328 0.1676998 3,403,328 0.1676998 0 0.0000000
April 2, 2011 0 0.1677011 0 0.1676998 0 0.1676998 0 0.0000000
July 2, 2011 0 0.1677011 0 0.1676998 0 0.1676998 0 0.0000000
October 2, 2011 0 0.1677011 0 0.1676998 0 0.1676998 0 0.0000000
January 2, 2012 7,085,877 0.0818252 3,036,804 0.0818246 3,036,804 0.0818246 0 0.0000000
April 2, 2012 1,097,949 0.0685189 470,550 0.0685183 470,550 0.0685183 0 0.0000000
July 2, 2012 0 0.0685189 0 0.0685183 0 0.0685183 0 0.0000000
October 2, 2012 0 0.0685189 0 0.0685183 0 0.0685183 0 0.0000000
January 2, 2013 2,077,835 0.0433370 890,501 0.0433366 890,501 0.0433366 0 0.0000000
April 2, 2013 1,197,716 0.0288215 513,307 0.0288212 513,307 0.0288212 0 0.0000000
July 2, 2013 0 0.0288215 0 0.0288212 0 0.0288212 0 0.0000000
October 2, 2013 0 0.0288215 0 0.0288212 0 0.0288212 0 0.0000000
January 2, 2014 1,177,888 0.0145463 504,809 0.0145462 504,809 0.0145462 0 0.0000000
April 2, 2014 776,937 0.0051304 332,973 0.0051303 332,973 0.0051303 0 0.0000000
July 2, 2014 423,321 0.0000000 181,423 0.0000000 181,423 0.0000000 0 0.0000000
</TABLE>
49
<PAGE>
REPORTS TO CERTIFICATEHOLDERS
On each Regular Distribution Date and Special Distribution Date, the
applicable Trustee will include with each distribution of a Scheduled Payment or
Special Payment, respectively, to Certificateholders of the related Trust a
statement, giving effect to such distribution to be made on such Regular
Distribution Date or Special Distribution Date, setting forth the following
information (per $1,000 aggregate principal amount of Certificate for such
Trust, as to (i) and (ii) below):
(i) the amount of such distribution allocable to principal and the
amount allocable to premium (if any);
(ii) the amount of such distribution allocable to interest; and
(iii) the Pool Balance and the Pool Factor for such Trust. (Section
4.03)
With respect to the Certificates registered in the name of Cede, as
nominee for DTC, on the record date prior to each Distribution Date, the
applicable Trustee will request from DTC a Securities Position Listing setting
forth the names of all DTC Participants reflected on DTCs books as holding
interests in the Certificates on such record date. On each Distribution Date,
the applicable Trustee will mail to each such DTC Participant the statement
described above and will make available additional copies as requested by such
DTC Participant for forwarding to holders of Certificates.
In addition, after the end of each calendar year, the applicable
Trustee will prepare for each Certificateholder of each Trust at any time during
the preceding calendar year a report containing the sum of the amounts
determined pursuant to clauses (i) and (ii) above with respect to the Trust for
such calendar year or, in the event such person was a Certificateholder during
only a portion of such calendar year, for the applicable portion of such
calendar year, and such other items as are readily available to such Trustee and
which a Certificateholder shall reasonably request as necessary for the purpose
of such Certificateholder's preparation of its U.S. federal income tax returns.
(Section 4.03) Such report and such other items shall be prepared on the basis
of information supplied to the applicable Trustee by the DTC Participants and
shall be delivered by such Trustee to such DTC Participants to be available for
forwarding by such DTC Participants to Certificate Owners in the manner
described above.
With respect to the Certificates issued in definitive form, the
applicable Trustee will prepare and deliver the information described above to
each Certificateholder of record of each Trust as the name of such
Certificateholder appears on the records of the registrar of the Certificates.
INDENTURE DEFAULTS AND CERTAIN RIGHTS UPON AN INDENTURE DEFAULT
An event of default under an Indenture (an "Indenture Default") will,
with respect to the Leased Aircraft Indentures, include an event of default
under the related Lease (a "Lease Event of Default"). Since the Equipment Notes
issued under an Indenture may be held in more than one Trust, a continuing
Indenture Default under such Indenture would affect the Equipment Notes held by
each such Trust. There are no cross-default provisions in the Indentures or in
the Leases. Consequently, events resulting in an Indenture Default under any
particular Indenture may or may not result in an Indenture Default under any
other Indenture, and a Lease Event of Default under any particular Lease will
not constitute a Lease Event of Default under any other Lease. If an Indenture
Default occurs in fewer than all of the Indentures, notwithstanding the
treatment of Equipment Notes issued under any Indenture under which an Indenture
Default has occurred, payments of principal and interest on the Equipment Notes
issued pursuant to Indentures with respect to which an Indenture Default has not
occurred will continue to be distributed to the holders of the Certificates as
originally scheduled, subject to the Intercreditor Agreement. See "Description
of the Intercreditor Agreement--Priority of Distributions".
With respect to each Leased Aircraft, the applicable Owner Trustee and
Owner Participant will, under the related Leased Aircraft Indenture, have the
right under certain circumstances to cure Indenture Defaults
50
<PAGE>
that result from the occurrence of a Lease Event of Default under the related
Lease. If the Owner Trustee or the Owner Participant exercises any such cure
right, the Indenture Default will be deemed to have been cured.
In the event that the same institution acts as Trustee of multiple
Trusts, in the absence of instructions from the Certificateholders of any such
Trust, such Trustee could be faced with a potential conflict of interest upon an
Indenture Default. In such event, each Trustee has indicated that it would
resign as Trustee of one or all such Trusts, and a successor trustee would be
appointed in accordance with the terms of the applicable Pass Through Trust
Agreement.
Upon the occurrence and continuation of any Indenture Default under
any Indenture, the Controlling Party may accelerate and sell all (but not less
than all) of the Equipment Notes issued under such Indenture to any person,
subject to certain limitations. The proceeds of such sale will be distributed
pursuant to the provisions of the Intercreditor Agreement. Any proceeds
received by the applicable Trustee upon any such sale shall be deposited in the
applicable Special Payments Account and shall be distributed to the
Certificateholders of such Trust on a Special Distribution Date. (Sections 4.01
and 4.02) The market for Equipment Notes at the time of the existence of any
Indenture Default may be very limited and there can be no assurance as to the
price at which they could be sold. If such Trustee sells any such Equipment
Notes for less than their outstanding principal amount, the Certificateholders
will receive a smaller amount of principal distributions than anticipated and
will not have any claim for the shortfall against Continental, any Liquidity
Provider, any Owner Trustee, any Owner Participant or any Trustee.
Any amount, other than Scheduled Payments received on a Regular
Distribution Date, distributed to the Trustee of any Trust by the Subordination
Agent on account of the Equipment Notes or other Trust Property held in such
Trust following an Indenture Default under any Indenture shall be deposited in
the Special Payments Account for such Trust and shall be distributed to the
Certificateholders of such Trust on a Special Distribution Date. (Section 4.02)
In addition, if, following an Indenture Default under any Leased Aircraft
Indenture relating to a Leased Aircraft, the applicable Owner Trustee exercises
its option to redeem or purchase the outstanding Equipment Notes issued under
such Leased Aircraft Indenture, the price paid by such Owner Trustee for the
Equipment Notes issued under such Leased Aircraft Indenture and distributed to
such Trust by the Subordination Agent shall be deposited in the Special Payments
Account for such Trust and shall be distributed to the Certificateholders of
such Trust on a Special Distribution Date. (Section 4.02)
Any funds representing payments received with respect to any defaulted
Equipment Notes held in a Trust, or the proceeds from the sale of any Equipment
Notes held by the Trustee in the Special Payments Account for such Trust shall,
to the extent practicable, be invested and reinvested by such Trustee in certain
permitted investments pending the distribution of such funds on a Special
Distribution Date. (Section 4.04) Such permitted investments are defined as
obligations of the United States or agencies or instrumentalities thereof the
payment of which is backed by the full faith and credit of the United States and
which mature in not more than 60 days or such lesser time as is required for the
distribution of any such funds on a Special Distribution Date. (Section 1.01)
Each Pass Through Trust Agreement provides that the Trustee of the
related Trust shall, within 90 days after the occurrence of any Indenture
Default, give to the Certificateholders of such Trust notice, transmitted by
mail, of all uncured or unwaived defaults with respect to such Trust known to
it, provided that, except in the case of default in the payment of principal,
premium, if any, or interest on any of the Equipment Notes or other Trust
Property held in such Trust, the applicable Trustee shall be protected in
withholding such notice if it in good faith determines that the withholding of
such notice is in the interests of such Certificateholders. (Section 7.02)
Each Pass Through Trust Agreement contains a provision entitling the
Trustee of the related Trust, subject to the duty of such Trustee during a
default to act with the required standard of care, to be offered reasonable
security or indemnity by the holders of the Certificates of such Trust before
proceeding to exercise any right or power under such Pass Through Trust
Agreement at the request of such Certificateholders. (Section 7.03(e))
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In certain cases, the holders of the Certificates of a Trust
evidencing fractional undivided interests aggregating not less than a majority
in interest of such Trust may on behalf of the holders of all the Certificates
of such Trust waive any past default under the related Pass Through Trust
Agreement or, if the Trustee of such Trust is the Controlling Party, may direct
the Trustee to instruct the applicable Loan Trustee to waive any past Indenture
Default with respect to such Trust and thereby annul any direction given by such
holders to such Loan Trustee with respect thereto, except (i) a default in the
deposit of any Scheduled Payment or Special Payment or in the distribution
thereof, (ii) a default in payment of the principal, premium, if any, or
interest with respect to any of the Equipment Notes held in such Trust and (iii)
a default in respect of any covenant or provision of the related Pass Through
Trust Agreement that cannot be modified or amended without the consent of each
Certificateholder of such Trust affected thereby. (Section 6.05) Each Indenture
provides that, with certain exceptions, the holders of the majority in aggregate
unpaid principal amount of the Equipment Notes issued thereunder may on behalf
of all such holders waive any past default or Indenture Default thereunder.
Notwithstanding the foregoing provisions of this paragraph, however, pursuant to
the Intercreditor Agreement, only the Controlling Party will be entitled to
waive any such past default or Indenture Default.
PURCHASE RIGHTS OF CERTIFICATEHOLDERS
Upon the occurrence and during the continuation of a Triggering Event,
(i) the Class B Certificateholders shall have the right to purchase all, but not
less than all, of the Class A Certificates, (ii) the Class C Certificateholders
shall have the right to purchase all, but not less than all, of the Class A
Certificates and the Class B Certificates and (iii) the Class D
Certificateholders shall have the right to purchase all, but not less than all,
of the Class A Certificates, the Class B Certificates and the Class C
Certificates, in each case at a purchase price equal to the Pool Balance of the
relevant Class or Classes of Certificates plus accrued and unpaid interest
thereon to the date of purchase without premium but including any other amounts
due to the Certificateholders of such Class or Classes.
PTC EVENT OF DEFAULT
A PTC Event of Default is defined under each Pass Through Trust
Agreement as the failure to pay within 10 Business Days of the due date thereof:
(i) the outstanding Pool Balance of the applicable Class of Certificates on the
Final Maturity Date for such Class or (ii) interest due on such Certificates on
any Distribution Date (unless the Subordination Agent shall have made an
Interest Drawing with respect thereto in an amount sufficient to pay such
interest and shall have distributed such amount to the Certificateholders
entitled thereto). Any failure to make expected principal distributions on any
Class of Certificates on any Regular Distribution Date (other than the Final
Maturity Date) will not constitute a PTC Event of Default with respect to such
Certificates. A PTC Event of Default with respect to the most senior Class of
Certificates resulting from an Indenture Default under all Indentures will
constitute a Triggering Event.
MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
Continental is prohibited from consolidating with or merging into any
other corporation or transferring substantially all of its assets as an entirety
to any other corporation unless (i) the surviving successor or transferee
corporation shall (a) be a "citizen of the United States" as defined in Section
40102(a)(15) of Title 49 of the United States Code, as amended, relating to
aviation (the "Aviation Act"), (b) be a United States certificated air carrier
and (c) expressly assume all of the obligations of Continental contained in the
Pass Through Trust Agreements, the Financing Agreements, the Indentures, the
Participation Agreements and the Leases, and any other operative documents; (ii)
immediately after giving effect to such transaction, no Lease Event of Default,
in the case of Leased Aircraft, or Indenture Event of Default, in the case of
the Owned Aircraft, shall have occurred and be continuing; and (iii) Continental
shall have delivered a certificate and an opinion or opinions of counsel
indicating that such transaction complies with such conditions. (Section 5.02;
Leases, Section 13.2; Owned Aircraft Indenture, Section 4.09)
The Pass Through Trust Agreements and the Indentures do not contain
any covenants or provisions which may afford the applicable Trustee or
Certificateholders protection in the event of a highly
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leveraged transaction, including transactions effected by management or
affiliates, which may or may not result in a change in control of Continental.
MODIFICATIONS OF THE PASS THROUGH TRUST AGREEMENTS AND CERTAIN OTHER AGREEMENTS
Each Pass Through Trust Agreement contains provisions permitting the
execution of supplemental trust agreements, without the consent of the holders
of any of the Certificates of such Trust, (i) to evidence the succession of
another corporation to Continental and the assumption by such corporation of
Continental's obligations under such Pass Through Trust Agreement, (ii) to add
to the covenants of Continental for the benefit of holders of such Certificates
or to surrender any right or power in such Pass Through Trust Agreement
conferred upon Continental, (iii) to correct or supplement any defective or
inconsistent provision of such Pass Through Trust Agreement or to modify any
other provisions with respect to matters or questions arising thereunder,
provided such action shall not materially adversely affect the interests of the
holders of such Certificates, or to cure any ambiguity or correct any mistake,
(iv) to add to such Pass Through Trust Agreement such other provisions as may be
expressly permitted by the Trust Indenture Act and (v) to provide for a
successor Trustee or to add to or change any provision of such Pass Through
Trust Agreement as shall be necessary to facilitate the administration of the
Trust thereunder by more than one Trustee. In addition, each Pass Through Trust
Agreement provides that the Trustee will be permitted to enter into any
amendment or supplement to the Intercreditor Agreement or the Liquidity
Facilities, without the consent of the holders of any Certificates, to cure any
ambiguity or correct any mistake or to correct or supplement any defective or
inconsistent provision thereof or to modify any other provision with respect to
matters or questions arising thereunder; provided that such action shall not
materially adversely affect the interests of the Certificateholders. (Section
9.01)
Each Pass Through Trust Agreement also contains provisions permitting
the execution, with the consent of the holders of the Certificates of the
related Trust evidencing fractional undivided interests aggregating not less
than a majority in interest of such Trust, and with the consent of the
applicable Owner Trustee (such consent not to be unreasonably withheld), of
supplemental trust agreements adding any provisions to or changing or
eliminating any of the provisions of such Pass Through Trust Agreement or
modifying the rights of the Certificateholders, except that no such supplemental
trust agreement may, without the consent of the holder of each Certificate so
affected thereby, (a) reduce in any manner the amount of, or delay the timing
of, any receipt by the Trustee of payments on the Equipment Notes or other Trust
Property held in such Trust or distributions in respect of any Certificate
related to such Trust, or change the date or place of any payment in respect of
any Certificate, or make distributions payable in coin or currency other than
that provided for in such Certificates, or impair the right of any
Certificateholder of such Trust to institute suit for the enforcement of any
such payment when due, (b) permit the disposition of any Equipment Note held in
such Trust, except as provided in such Pass Through Trust Agreement, or
otherwise deprive any Certificateholder of the benefit of the ownership of the
applicable Equipment Notes, (c) alter the priority of distributions specified in
the Intercreditor Agreement, (d) reduce the percentage of the aggregate
fractional undivided interests of the Trust provided for in such Pass Through
Trust Agreement, the consent of the holders of which is required for any such
supplemental trust agreement or for any waiver provided for in such Pass Through
Trust Agreement or (e) modify any of the provisions relating to the rights of
the Certificateholders in respect of the waiver of events of default or receipt
of payment. (Section 9.02)
TERMINATION OF THE TRUSTS
The obligations of Continental and the applicable Trustee with respect
to a Trust will terminate upon the distribution to Certificateholders of such
Trust of all amounts required to be distributed to them pursuant to the
applicable Pass Through Trust Agreement and the disposition of all property held
in such Trust. The applicable Trustee will send to each Certificateholder of
record of such Trust notice of the termination of such Trust, the amount of the
proposed final payment and the proposed date for the distribution of such final
payment for such Trust. The final distribution to any Certificateholder of such
Trust will be made only upon surrender of such Certificateholder's Certificates
at the office or agency of the applicable Trustee specified in such notice of
termination. (Section 11.01)
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THE TRUSTEES
The Trustee for each Trust is Wilmington Trust Company. With certain
exceptions, the Trustees make no representations as to the validity or
sufficiency of the Pass Through Trust Agreements, the Certificates, the
Equipment Notes, the Indentures, the Leases or other related documents.
(Sections 7.04 and 7.15) The Trustee of any Trust shall not be liable, with
respect to the Certificates of such Trust, for any action taken or omitted to be
taken by it in good faith in accordance with the direction of the holders of a
majority in principal amount of outstanding Certificates of such Trust. Subject
to certain provisions, the Trustees shall be under no obligation to exercise any
of their rights or powers under any Pass Through Trust Agreement at the request
of any holders of Certificates issued thereunder unless there shall have been
offered to the Trustees indemnity satisfactory to them. (Section 7.03(d)) Each
Pass Through Trust Agreement provides that the Trustees in their individual or
any other capacity may acquire and hold Certificates issued thereunder and,
subject to certain conditions, may otherwise deal with Continental and with any
Owner Trustee with the same rights they would have if they were not the
Trustees. (Section 7.05)
Any Trustee may resign with respect to any or all of the Trusts of
which it is the Trustee at any time, in which event Continental will be
obligated to appoint a successor trustee. If any Trustee ceases to be eligible
to continue as Trustee with respect to a Trust or becomes incapable of acting as
Trustee or becomes insolvent, Continental may, with the consent of the Owner
Participants for the Leased Aircraft (which consent shall not be unreasonably
withheld), remove such Trustee, or any holder of the Certificates of such Trust
for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the removal of such
Trustee and the appointment of a successor trustee. Any resignation or removal
of the Trustee with respect to a Trust and appointment of a successor trustee
for such Trust does not become effective until acceptance of the appointment by
the successor trustee. (Sections 7.09 and 7.10)
Each Pass Through Trust Agreement provides that Continental or the
Owner Participant will pay the applicable Trustee's fees and expenses. (Section
7.07)
BOOK-ENTRY; DELIVERY AND FORM
The New Certificates of each Trust will be represented by a single,
permanent global Certificate, in definitive, fully registered form without
interest coupons (the "Global Certificates"), to be deposited with the Trustee
as custodian for DTC and registered in the name of Cede, as nominee of DTC.
DTC has advised Continental as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of the New York Banking law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provision of Section 17A of the Exchange Act. DTC was created to hold securities
for its participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
Upon the issuance of the Global Certificates, DTC or its custodian
credited, on its internal system, the respective principal amount of the
individual beneficial interests represented by such Global Certificates to the
accounts of persons who have accounts with such depositary. Ownership of
beneficial interests Global Certificates is limited to persons who have accounts
with DTC ("participants") or persons who hold interests through participants.
Ownership of beneficial interests in the Global Certificates is shown on, and
the transfer of that ownership is effected only through, records maintained by
DTC or its nominee (with respect to interests of participants) and the records
of participants (with respect to interests of persons other than participants).
The laws of some states require that certain purchasers of securities take
physical delivery of such securities. Such limits and such laws may limit the
market for beneficial interests in the Global Certificates.
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Qualified institutional buyers may hold their interests in the Global
Certificates directly through DTC if they are participants in such system, or
directly through organizations which are participants in such system.
So long as DTC or its nominee is the registered owner or holder of the
Global Certificates, DTC or such nominee, as the case may be, will be considered
the sole record owner or holder of the Certificates represented by such Global
Certificates for all purposes under the related Pass Through Trust Agreements No
beneficial owners of an interest in the Global Certificates will be able to
transfer that interest except in accordance with DTC's applicable procedures, in
addition to those provided for under the Pass Through Trust Agreements and, if
applicable, Euroclear or Cedel.
Payments of the principal of, premium, if any, and interest on the
Global Certificates will be made to DTC or its nominee, as the case may be, as
the registered owner thereof. Neither Continental, the Trustee, nor any paying
agent will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in the
Global Certificates or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
Continental expects that DTC or its nominee, upon receipt of any
payment of principal, premium, if any, or interest in respect of the Global
Certificates will credit participants' accounts with payments in amounts
proportionate to their respective beneficial ownership interests in the
principal amount of such Global Certificates, as shown on the records of DTC or
its nominee. Continental also expects that payments by participants to owners of
beneficial interests in such Global Certificates held through such participants
will be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers registered in the names
of nominees for such customers. Such payments will be the responsibility of such
participants.
Neither Continental nor the Trustee has any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
If DTC is at any time unwilling or unable to continue as a depositary
for the Global Certificates and a successor depositary is not appointed by
within 90 days, the Trusts will issue certificates in definitive, fully
registered form in exchange for the Global Certificates.
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DESCRIPTION OF THE LIQUIDITY FACILITIES
The following summary describes certain terms of the Liquidity
Facilities and certain provisions of the Intercreditor Agreement relating to the
Liquidity Facilities. The summary does not purport to be complete and reference
is made to the provisions of the Liquidity Facilities and such provisions of the
Intercreditor Agreement. The provisions of the Liquidity Facilities are
substantially identical except as otherwise indicated. Copies of such documents
are filed as exhibits to the Registration Statement and are available as set
forth under the heading "Available Information."
GENERAL
With respect to the Certificates of each Trust (other than the Class D
Trust), the Subordination Agent has entered into a Liquidity Facility with the
Liquidity Provider pursuant to which the Liquidity Provider will make one or
more advances to the Subordination Agent to pay interest on such Certificates
subject to certain limitations. The Liquidity Facility for any Trust is
intended to enhance the likelihood of timely receipt by the Certificateholders
of such Trust of the interest payable on the Certificates of such Trust at the
Stated Interest Rate therefor on up to six consecutive quarterly Regular
Distribution Dates. If interest payment defaults occur which exceed the amount
covered by or available under the Liquidity Facility for any Trust, the
Certificateholders of such Trust will bear their allocable share of the
deficiencies to the extent that there are no other sources of funds. Although
DNIB is the initial Liquidity Provider for each of the Class A Trust, the Class
B Trust and the Class C Trust, DNIB may be replaced by one or more other
entities with respect to the Trusts under certain circumstances. Therefore, if
DNIB is no longer the sole Liquidity Provider, the Liquidity Provider for any
Trust may be different from the Liquidity Provider for any other Trust.
DRAWINGS
The initial stated amount available under the Liquidity Facilities for
the Class A Trust, the Class B Trust and the Class C Trust is $9,592,136,
$4,540,609 and $5,421,148, respectively. Except as otherwise provided below,
the Liquidity Facility for each Trust enables the Subordination Agent to make
Interest Drawings thereunder promptly after any Regular Distribution Date to pay
interest then due and payable on the Certificates of such Trust at the Stated
Interest Rate for such Trust to the extent that the amount, if any, available to
the Subordination Agent on such Regular Distribution Date is not sufficient to
pay such interest; provided, however, that the maximum amount available to be
drawn under such Liquidity Facility on any Regular Distribution Date to fund any
shortfall of interest on such Certificates will not exceed an amount equal to
the then Required Amount of such Liquidity Facility. The Liquidity Facility for
any Trust does not provide for drawings thereunder to pay for principal of or
premium on the Certificates of such Trust or any interest on the Certificates of
such Trust in excess of the Stated Interest Rate for such Trust or more than six
quarterly installments of interest thereon or principal of or interest or
premium on the Certificates of any other Trust. (Liquidity Facilities, Section
2.02; Intercreditor Agreement, Section 3.6(b))
Each payment by the Liquidity Provider under each Liquidity Facility
reduces pro tanto the amount available to be drawn under such Liquidity
Facility, subject to reinstatement as hereinafter described. With respect to
any Interest Drawings under the Liquidity Facility for any Trust, upon
reimbursement of the Liquidity Provider in full for the amount of such Interest
Drawings plus interest thereon, the amount available to be drawn under such
Liquidity Facility in respect of interest on the Certificates of such Trust
shall be reinstated to an amount not to exceed the then Required Amount of such
Liquidity Facility; provided, however, that such Liquidity Facility shall not be
so reinstated at any time after (i) a Liquidity Event of Default shall have
occurred and be continuing and (ii) less than 65% of the then aggregate
outstanding principal amount of all Equipment Notes are Performing Equipment
Notes. With respect to any other drawings under such Liquidity Facility,
amounts available to be drawn thereunder are not subject to reinstatement. The
Required Amount of the Liquidity Facility for any Trust will be automatically
reduced from time to time to an amount equal to the next six successive interest
payments due on the Certificates of such Trust (without regard to expected
future payment of principal of such Certificates) at the Stated Interest Rate
for such Trust. (Liquidity Facilities, Section 2.04(a); Intercreditor
Agreement, Section 3.6(j))
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If at any time the short-term unsecured debt rating of the Liquidity
Provider for any Trust then issued by either Rating Agency (or, if DNIB is such
Liquidity Provider and does not have a published unsecured short-term debt
rating issued by Standard & Poor's, with respect to Standard & Poor's only, the
unsecured long-term debt rating of DNIB issued by Standard & Poor's) is lower
than the Threshold Rating, the Liquidity Facility for such Trust will be
required to be replaced by a Replacement Facility (as defined below). In the
event that such Liquidity Facility is not replaced with a Replacement Facility
within 10 days after notice of the downgrading and as otherwise provided in the
Intercreditor Agreement, the Subordination Agent shall request the Downgrade
Drawing in an amount equal to all available and undrawn amounts thereunder and
shall hold the proceeds thereof in the Cash Collateral Account for such Trust as
cash collateral to be used for the same purposes and under the same
circumstances as cash payments of Interest Drawings under such Liquidity
Facility would be used. (Liquidity Facilities, Section 2.02(c); Intercreditor
Agreement, Section 3.6(c))
A "Replacement Facility" for any Trust means an irrevocable liquidity
facility in substantially the form of the initial Liquidity Facility for such
Trust, including reinstatement provisions, or in such other form (which may
include a letter of credit) as shall permit the Rating Agencies to confirm in
writing their respective ratings then in effect for the Certificates (before
downgrading of such ratings, if any, as a result of the downgrading of the
Liquidity Provider), in a face amount equal to the amount of interest payable on
the Certificates of such Trust (at the Stated Interest Rate for such Trust, and
without regard to expected future principal payments) on the six Regular
Distribution Dates following the date of replacement of such Liquidity Facility
and issued by a Person having unsecured short-term debt ratings issued by both
Rating Agencies which are equal to or higher than the Threshold Rating.
(Intercreditor Agreement, Section 1.1)
"Threshold Rating" means the short-term unsecured debt rating of P-1
by Moody's and A-1 by Standard & Poor's (provided that, so long as DNIB is the
Liquidity Provider and does not have a published short-term unsecured debt
rating issued by Standard & Poor's, the Threshold Rating with respect to
Standard & Poor's shall be its long-term unsecured debt rating of AA-).
The Liquidity Facility for each Trust provides that the Liquidity
Provider's obligations thereunder will expire on the earliest of (i) January 17,
2016; (ii) the date on which such Liquidity Facility is surrendered to the
Liquidity Provider together with a certification that all of the Certificates of
such Trust have been paid in full; (iii) the date such Liquidity Facility is
surrendered to the Liquidity Provider together with a certification that a
Replacement Facility has been substituted for such Liquidity Facility; (iv) the
fifth Business Day following receipt by the Subordination Agent of a Termination
Notice from the Liquidity Provider (see "--Liquidity Events of Default"); and
(v) the date on which no amount is or may (by reason of reinstatement) become
available for drawing under such Liquidity Facility. (Liquidity Facilities,
Section 2.02(b); Intercreditor Agreement, Section 3.6(d))
Continental may, at its option, arrange for a replacement facility at
any time to replace the Liquidity Facility for any Trust, provided that if DNIB
is the Liquidity Provider being replaced, (i) it must be replaced with respect
to all three Liquidity Facilities, (ii) DNIB may not be replaced prior to May
20, 2001 except for cause or for its ceasing to meet the Threshold Ratings and
(iii) from May 20, 2001 to May 20, 2006, if DNIB is replaced other than for
cause or for its ceasing to meet the Threshold Ratings, Continental must pay a
replacement fee to DNIB equal to 0.30% of the then current Required Amount under
each Liquidity Facility. "With cause" and "for cause" means a failure by DNIB to
perform any agreement, covenant or condition required to be performed by it
under any Liquidity Facility or a failure by DNIB to perform any material
agreement, covenant or condition required to be performed by it under the
Intercreditor Agreement. If such replacement facility is provided at any time
after the Downgrade Drawing under such Liquidity Facility, the funds on deposit
in the Cash Collateral Account for such Trust will be returned to the Liquidity
Provider being replaced. (Intercreditor Agreement, Section 3.6(e))
The Intercreditor Agreement provides that, upon receipt by the
Subordination Agent of a Termination Notice with respect to any Liquidity
Facility from the Liquidity Provider (given as described in "--Liquidity Events
of Default"), the Subordination Agent shall request a final drawing (the "Final
Drawing") under such Liquidity Facility in an amount equal to all available and
undrawn amounts thereunder and shall hold the
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proceeds thereof in the Cash Collateral Account for the related Trust as cash
collateral to be used for the same purposes and under the same circumstances,
and subject to the same conditions, as cash payments of Interest Drawings under
such Liquidity Facility would be used. (Liquidity Facilities, Section 2.02(d);
Intercreditor Agreement, Section 3.6(i))
Drawings under any Liquidity Facility will be made by delivery by the
Subordination Agent of a certificate in the form required by such Liquidity
Facility. Upon receipt of such a certificate, the Liquidity Provider is
obligated to make payment of the drawing requested thereby in immediately
available funds. Upon payment by the Liquidity Provider of the amount specified
in any drawing under any Liquidity Facility, the Liquidity Provider will be
fully discharged of its obligations under such Liquidity Facility with respect
to such drawing and will not thereafter be obligated to make any further
payments under such Liquidity Facility in respect of such drawing to the
Subordination Agent or any other person or entity who makes a demand for payment
in respect of interest on the related Certificates.
REIMBURSEMENT OF DRAWINGS
Amounts drawn under any Liquidity Facility by reason of an Interest
Drawing or the Final Drawing will be immediately due and payable, together with
interest on the amount of such drawing at a rate equal to the applicable LIBOR
plus 1.75% per annum; provided that the Subordination Agent will be obligated to
reimburse such amounts only to the extent that the Subordination Agent has
available funds therefor.
The amount drawn under the Liquidity Facility for any Trust by reason
of the Downgrade Drawing will be treated as follows: (i) such amount will be
released on any Regular Distribution Date to the Liquidity Provider to the
extent that such amount exceeds the Required Amount minus any unreimbursed
Interest Drawings under such Liquidity Facility; (ii) any portion of such amount
withdrawn from the Cash Collateral Account for such Certificates to pay interest
on such Certificates will be treated in the same way as Interest Drawings; and
(iii) the balance of such amount will be invested in Eligible Investments. The
Downgrade Drawing under any Liquidity Facility will bear interest at a rate
equal to the applicable LIBOR plus 0.60% per annum. (Liquidity Facilities,
Section 2.06)
LIQUIDITY EVENTS OF DEFAULT
Events of Default under each Liquidity Facility (each, a "Liquidity
Event of Default") consist of: (i) the acceleration of all the Equipment Notes;
and (ii) certain bankruptcy or similar events involving Continental. (Liquidity
Facilities, Section 1.01)
If (i) any Liquidity Event of Default occurs under any Liquidity
Facility and (ii) less than 65% of the aggregate outstanding principal amount of
all Equipment Notes are Performing Equipment Notes, the Liquidity Provider may,
in its discretion, give a notice of termination of the related Liquidity
Facility and accelerate the reimbursement obligations thereunder (a "Termination
Notice") the effect of which shall be to cause (i) such Liquidity Facility to
expire on the fifth Business Day after the date on which such Termination Notice
is received by the Subordination Agent, (ii) any Drawing remaining unreimbursed
as of the date of termination to be automatically converted into a Final Drawing
under such Liquidity Facility, and (iii) all amounts owing to the Liquidity
Provider automatically to become accelerated. Notwithstanding the foregoing,
the Subordination Agent will be obligated to pay amounts owing to the Liquidity
Provider only to the extent of funds available therefor after giving effect to
the payments in accordance with the provisions set forth under "Description of
the Intercreditor Agreement--Priority of Distributions". (Liquidity Facilities,
Section 6.01)
Upon the circumstances described below under "Description of the
Intercreditor Agreement--Intercreditor Rights", the Liquidity Provider may
become the Controlling Party with respect to the exercise of remedies under the
Indentures. (Intercreditor Agreement, Section 2.6(c))
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LIQUIDITY PROVIDER
The Liquidity Provider is De Nationale Investeringsbank N.V., which is
a wholesale bank, organized under the laws of The Netherlands, specializing in
long-term lending, equity investments, capital market transactions and various
types of financial consulting and brokerage activities. DNIB had total assets
of approximately NLG 18 billion (approximately $10.7 billion) as of December 31,
1995 and is the tenth largest bank in The Netherlands in terms of assets.
DNIB is active both in The Netherlands and abroad with branch offices
in London and Belgium and subsidiary banks in Singapore and the Netherlands
Antilles. In the last few years approximately 50% of new credit grants went to
borrowers abroad. The shares of DNIB are traded on the Amsterdam Stock
Exchange. The State of The Netherlands owns 50.3% of the banks shares, with the
remaining shares held by institutional and retail investors. DNIB's strategy and
policy are guided by its independent management.
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DESCRIPTION OF THE INTERCREDITOR AGREEMENT
The following summary describes certain provisions of the
Intercreditor Agreement. The summary does not purport to be complete and
reference is made to the provisions of the Intercreditor Agreement, which has
been filed as an exhibit to the Registration Statement and is available as set
forth under the heading "Available Information."
INTERCREDITOR RIGHTS
Controlling Party
Pursuant to the Intercreditor Agreement, the Trustees and the
Liquidity Provider have agreed that, with respect to any Indenture at any given
time, the Loan Trustee will be directed (a) in taking, or refraining from
taking, any action thereunder by the holders of at least a majority of the
outstanding principal amount of the Equipment Notes issued thereunder (provided
that, for so long as the Subordination Agent is the registered holder of the
Equipment Notes, the Subordination Agent shall act with respect to this clause
(a) in accordance with the directions of the Trustees), so long as no Indenture
Default shall have occurred and be continuing thereunder and (b) after the
occurrence and during the continuance of an Indenture Default thereunder, in
taking, or refraining from taking, any action thereunder, including exercising
remedies thereunder (including acceleration of such Equipment Notes or
foreclosing the lien on the Aircraft securing such Equipment Notes), by the
Controlling Party, subject to the limitations described below. See "Description
of the New Certificates--Indenture Defaults and Certain Rights Upon an Indenture
Default" for a description of the rights of the Certificateholders of each Trust
to direct the respective Trustees. Notwithstanding the foregoing, at any time
after 18 months from the earlier to occur of (x) the date on which the entire
available amount under any Liquidity Facility shall have been drawn (for any
reason other than a Downgrade Drawing) and remain unreimbursed and (y) the date
on which all Equipment Notes shall have been accelerated, the Liquidity Provider
shall have the right to elect to become the Controlling Party with respect to
such Indenture; provided that if there is more than one Liquidity Provider, the
Liquidity Provider with the greatest amount of unreimbursed Liquidity
Obligations shall have such right. For purposes of giving effect to the
foregoing, the Trustees (other than the Controlling Party) shall irrevocably
agree (and the Certificateholders (other than the Certificateholders represented
by the Controlling Party) shall be deemed to agree by virtue of their purchase
of Certificates) to exercise their voting rights as directed by the Controlling
Party. (Intercreditor Agreement, Section 2.6) For a description of certain
limitations on the Controlling Partys rights to exercise remedies, see
"Description of the Equipment Notes--Remedies".
Sale of Equipment Notes or Aircraft
Upon the occurrence and during the continuation of any Indenture
Default under any Indenture, the Controlling Party may accelerate and, subject
to the provisions of the immediately following sentence, sell all (but not less
than all) of the Equipment Notes issued under such Indenture to any person. So
long as any Certificates are outstanding, during nine months after the earlier
of (x) the acceleration of the Equipment Notes under any Indenture or (y) the
bankruptcy or insolvency of Continental, without the consent of each Trustee,
(a) no Aircraft subject to the lien of such Indenture or such Equipment Notes
may be sold, if the net proceeds from such sale would be less than the Minimum
Sale Price for such Aircraft or such Equipment Notes, and (b) with respect to
any Leased Aircraft, the amount and payment dates of rentals payable by
Continental under the Lease for such Leased Aircraft may not be adjusted, if, as
a result of such adjustment, the discounted present value of all such rentals
would be less than 75% of the discounted present value of the rentals payable by
Continental under such Lease before giving effect to such adjustment, in each
case, using the weighted average interest rate of the Equipment Notes issued
under such Indenture as the discount rate.
The Subordination Agent may from time to time during the continuance
of an Indenture Default (and before the occurrence of a Triggering Event)
commission Appraisals with respect to the related Aircraft at the request of the
Controlling Party. (Intercreditor Agreement, Section 4.1)
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PRIORITY OF DISTRIBUTIONS
So long as no Triggering Event shall have occurred, the payments in
respect of the Equipment Notes and certain other payments received on any
Distribution Date will be promptly distributed by the Subordination Agent on
such Distribution Date in the following order of priority:
(i) to pay the Liquidity Obligations (other than any interest accrued
thereon or the principal amount of any Drawing) (the "Liquidity
Expenses") to the Liquidity Provider;
(ii) to pay interest accrued on the Liquidity Obligations to the
Liquidity Provider;
(iii) to pay or reimburse the Liquidity Provider for the Liquidity
Obligations (other than amounts payable pursuant to clauses (i)
and (ii) above) and, if applicable, to replenish each Cash
Collateral Account up to the Required Amount;
(iv) to pay Expected Distributions to the holders of Class A
Certificates;
(v) to pay Expected Distributions to the holders of Class B
Certificates;
(vi) to pay Expected Distributions to the holders of Class C
Certificates;
(vii) to pay Expected Distributions to the holders of Class D
Certificates; and
(viii) to pay certain fees and expenses of the Subordination Agent and
the Trustees.
"Expected Distributions" means, with respect to the Certificates of
any Trust on any Distribution Date (the "Current Distribution Date") the sum of
(x) accrued and unpaid interest on such Certificates and (y) the difference
between (A) the Pool Balance of such Certificates as of the immediately
preceding Distribution Date and (B) the Pool Balance of such Certificates as of
the Current Distribution Date, calculated on the basis that the principal of the
Equipment Notes held in such Trust has been paid when due (whether at stated
maturity, upon redemption, prepayment or acceleration or otherwise) and such
payments have been distributed to the holders of such Certificates.
Subject to the terms of the Intercreditor Agreement, upon the
occurrence of a Triggering Event and at all times thereafter, all funds received
by the Subordination Agent in respect of the Equipment Notes and certain other
payments will be promptly distributed by the Subordination Agent in the
following order of priority:
(i) to pay certain out-of-pocket costs and expenses actually incurred
by the Subordination Agent or any Trustee or to reimburse any
Certificateholder or the Liquidity Provider in respect of
payments made to the Subordination Agent or any Trustee in
connection with the protection or realization of the value of the
Equipment Notes or any Trust Indenture Estate (the
"Administration Expenses");
(ii) to the Liquidity Provider, to pay the Liquidity Expenses;
(iii) to the Liquidity Provider, to pay interest accrued on the
Liquidity Obligations;
(iv) to the Liquidity Provider, to pay the outstanding amount of all
Liquidity Obligations and, if applicable, so long as at least 65%
of the aggregate outstanding principal amount of all Equipment
Notes are Performing Equipment Notes, to replenish each Cash
Collateral Account up to the Required Amount for the related
Class of Certificates;
(v) to pay certain fees, taxes, charges and other amounts payable to
the Subordination Agent, any Trustee or any Certificateholder;
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(vi) to pay Adjusted Expected Distributions to the holders of Class A
Certificates;
(vii) to pay Adjusted Expected Distributions to the holders of Class B
Certificates;
(viii) to pay Adjusted Expected Distributions to the holders of Class C
Certificates; and
(ix) to pay to the holders of Class D Certificates.
"Adjusted Expected Distributions" means, with respect to the
Certificates of any Trust on any Current Distribution Date, the sum of (x)
accrued and unpaid interest on such Certificates and (y) the greater of:
(A) the difference between (x) the Pool Balance of such Certificates as
of the immediately preceding Distribution Date and (y) the Pool Balance of
such Certificates as of the Current Distribution Date calculated on the
basis that (i) the principal of the Equipment Notes other than Performing
Equipment Notes (the "Non-Performing Equipment Notes") held in such Trust
has been paid in full and such payments have been distributed to the
holders of such Certificates and (ii) the principal of the Performing
Equipment Notes has been paid when due (but without giving effect to any
acceleration of Performing Equipment Notes) and such payments have been
distributed to the holders of such Certificates, and
(B) the amount of the excess, if any, of (i) the Pool Balance of such
Class of Certificates as of the immediately preceding Distribution Date,
over (ii) the Aggregate LTV Collateral Amount for such Class of
Certificates for the Current Distribution Date;
provided that, until the date of the initial LTV Appraisals, clause (B) shall
not apply.
"Aggregate LTV Collateral Amount" for any Class of Certificates for
any Distribution Date means the sum of the applicable LTV Collateral Amounts for
each Aircraft, minus the Pool Balance for each Class of Certificates, if any,
senior to such Class, after giving effect to any distribution of principal on
such Distribution Date on such senior Class or Classes.
"LTV Collateral Amount" of any Aircraft for any Class of Certificates
means, as of any Distribution Date, the lesser of (i) the LTV Ratio for such
Class of Certificates multiplied by the Appraised Current Market Value of such
Aircraft and (ii) the outstanding principal amount of the Equipment Notes
secured by such Aircraft after giving effect to any principal payments of such
Equipment Notes on or before such Distribution Date.
"LTV Ratio" means for the Class A Certificates 35.0%, for the Class B
Certificates 50.0%, for the Class C Certificates 65.0% and for the Class D
Certificates 72.9%.
"Appraised Current Market Value" of any Aircraft means the lower of
the average and the median of the most recent three Appraisals of such Aircraft.
After a Triggering Event occurs and any Equipment Note becomes a Non-Performing
Equipment Note, the Subordination Agent shall obtain Appraisals for the Aircraft
(the "LTV Appraisals") as soon as practicable and additional LTV Appraisals on
or prior to each anniversary of the date of such initial LTV Appraisals;
provided that if the Controlling Party reasonably objects to the appraised value
of the Aircraft shown in such Appraisals, the Controlling Party shall have the
right to obtain or cause to be obtained substitute LTV Appraisals (including LTV
Appraisals based upon physical inspection of the Aircraft).
"Appraisal" means a fair market value appraisal (which may be a
"desktop" appraisal) performed by any Appraiser or any other nationally
recognized appraiser on the basis of an arm's-length transaction between an
informed and willing purchaser under no compulsion to buy and an informed and
willing seller under no compulsion to sell and both having knowledge of all
relevant facts.
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Certain amounts payable to the Trustees, the Subordination Agent and
the Liquidity Provider, including fees and expenses of the Trustees and the
Subordination Agent and indemnification obligations of Continental, will not be
entitled to the benefits of the lien of the Indentures. Consequently, if a
default occurs in the payment of any such amounts, and to the extent that such
amounts are distributed to any such party in accordance with the priorities of
distribution described above, the holders of one or more junior Classes of
Certificates may not receive the full amount due them even if all Equipment
Notes are eventually paid in full, and any unpaid amounts will be unsecured
claims against Continental.
Interest Drawings under the Liquidity Facility and withdrawals from
the Cash Collateral Account, in each case in respect of interest on the
Certificates of any Trust (other than the Class D Trust), will be distributed to
the Trustee for such Trust, notwithstanding the priority of distributions set
forth in the Intercreditor Agreement and otherwise described herein. All
amounts on deposit in the Cash Collateral Account for any Trust which are in
excess of the Required Amount and all investment earnings on such amounts on
deposit in the Cash Collateral Account will be paid to the Liquidity Provider.
VOTING OF EQUIPMENT NOTES
In the event that the Subordination Agent, as the registered holder of
any Equipment Note, receives a request for its consent to any amendment,
modification or waiver under such Equipment Note or the related Indenture (or,
if applicable, the Lease, the Participation Agreement or other related
document), (i) if no Indenture Default shall have occurred and be continuing,
the Subordination Agent shall request instructions from the Trustees and the
consent of the Liquidity Provider (which consent shall not be unreasonably
withheld or delayed) and shall vote or consent in accordance with the vote of
the Trustees and the instructions of the Liquidity Provider and (ii) if any
Indenture Default shall have occurred and be continuing with respect to such
Indenture, the Subordination Agent will exercise its voting rights as directed
by the Controlling Party. (Intercreditor Agreement, Section 9.1)
THE SUBORDINATION AGENT
Wilmington Trust Company is the Subordination Agent under the
Intercreditor Agreement. Continental and its affiliates may from time to time
enter into banking and trustee relationships with the Subordination Agent and
its affiliates. The Subordination Agent's address is Wilmington Trust Company,
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001,
Attention: Corporate Trust Administration.
The Subordination Agent may resign at any time, in which event a
successor Subordination Agent will be appointed as provided in the Intercreditor
Agreement. The Controlling Party may remove the Subordination Agent for cause
as provided in the Intercreditor Agreement. In such circumstances, a successor
Subordination Agent will be appointed as provided in the Intercreditor
Agreement. Any resignation or removal of the Subordination Agent and
appointment of a successor Subordination Agent does not become effective until
acceptance of the appointment by the successor Subordination Agent.
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DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS
THE AIRCRAFT
The Aircraft are comprised of four Boeing 757-200 aircraft and one
Boeing 737-500 aircraft. The Aircraft are designed to be in compliance with
Stage III noise level standards, which constitute the most restrictive
regulatory standards currently in effect in the United States for aircraft noise
abatement. The table below sets forth certain additional information for the
Aircraft.
<TABLE>
<CAPTION>
AIRCRAFT
REGISTRATION AIRCRAFT ENGINE DELIVERY APPRAISED VALUE
------------ -------- ------ -------- ----------- --------------- ----------
NUMBER TYPE TYPE DATE AISI BK MBA
------------ -------- ------ -------- ----------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
N12114 757-200 RB211-535E4B July 1995 $ 51,650,000 $ 50,250,000 $ 54,010,000
N14115 757-200 RB211-535E4B August 1995 51,850,000 50,250,000 54,240,000
N12116 757-200 RB211-535E4B March 1996 52,600,000 51,000,000 54,180,000
N19117 757-200 RB211-535E4B April 1996 52,750,000 51,000,000 54,230,000
N33637 737-500 CFM56-3B1 April 1996 30,510,000 27,000,000 25,200,000
------------ ------------ ------------
TOTAL $239,360,000 $229,500,000 $241,860,000
============ ============ ============
</TABLE>
APPRAISED VALUE
The appraised values set forth in the foregoing chart were determined
by the following three independent aircraft appraisal and consulting firms:
AISI, BK and MBA. Each Appraiser was asked to provide its opinion as to the
fair market value of each Aircraft as of March 26, 1996. As part of this
process, all three Appraisers performed "desk-top" appraisals without any
physical inspection of the Aircraft. The Appraisers have delivered letters
summarizing their respective appraisals, copies of which are annexed to this
Prospectus as Appendix II.
An appraisal is only an estimate of value and should not be relied
upon as a measure of realizable value; the proceeds realized upon a sale of any
Aircraft may be less than the appraised value thereof. The value of the
Aircraft in the event of the exercise of remedies under the applicable Indenture
will depend on market and economic conditions, the availability of buyers, the
condition of the Aircraft and other similar factors. Accordingly, there can be
no assurance that the proceeds realized upon any such exercise with respect to
the Equipment Notes and the Aircraft pursuant to the applicable Indenture would
be as appraised or sufficient to satisfy in full payments due on the Equipment
Notes issued thereunder.
DESCRIPTION OF THE EQUIPMENT NOTES
The statements under this caption are summaries and do not purport to
be complete. The summaries make use of terms defined in and reference is made
to all of the provisions of the Equipment Notes, the Indentures, the Leases, the
Participation Agreements, the Trust Agreements and the Financing Agreements.
Except as otherwise indicated, the following summaries relate to the Equipment
Notes, the Indenture, the Lease, the Participation Agreement, the Trust
Agreement and the Financing Agreement relating to each Aircraft, forms of which
are filed as exhibits to the Registration Statement and are available as set
forth under the heading "Available Information."
GENERAL
The Equipment Notes were issued in four series with respect to each
Aircraft. The Equipment Notes with respect to each Leased Aircraft were issued
under a separate Leased Aircraft Indenture between First Security Bank of Utah,
National Association, as Owner Trustee of a trust for the benefit of the Owner
Participant who is the beneficial owner of such Aircraft, and Wilmington Trust
Company, as Loan Trustee. The Equipment Notes with respect to the Owned
Aircraft were issued under the Owned Aircraft Indenture between Continental and
Wilmington Trust Company, as Owned Aircraft Trustee.
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The related Owner Trustee leases each Leased Aircraft to Continental
pursuant to a separate Lease between such Owner Trustee and Continental with
respect to such Leased Aircraft. Under each Lease, Continental is obligated to
make or cause to be made rental and other payments to the related Loan Trustee
on behalf of the related Owner Trustee, which rental and other payments will be
at least sufficient to pay in full when due all payments required to be made on
the Equipment Notes issued with respect to such Leased Aircraft. The Equipment
Notes issued with respect to the Leased Aircraft are not, however, direct
obligations of, or guaranteed by, Continental. Continental's rental obligations
under each Lease and the Equipment Notes issued with respect to the Owned
Aircraft are general obligations of Continental.
Gaucho-2 Inc., a wholly-owned subsidiary of The Boeing Company, is
currently the Owner Participant with respect to all of the four leveraged leases
for the Leased Aircraft. Gaucho-2 Inc. has the right to sell, assign or
otherwise transfer its interests as Owner Participant in any or all of such
leveraged leases, subject to the terms and conditions of the relevant
Participation Agreement and related documents.
SUBORDINATION
Series B Equipment Notes issued in respect of any Aircraft are
subordinated in right of payment to Series A Equipment Notes issued in respect
of such Aircraft; Series C Equipment Notes issued in respect of such Aircraft
are subordinated in right of payment to such Series B Equipment Notes; and
Series D Equipment Notes issued in respect of such Aircraft are subordinated in
right of payment to such Series C Equipment Notes. On each Equipment Note
payment date, (i) payments of interest and principal due on Series A Equipment
Notes issued in respect of any Aircraft will be made prior to payments of
interest and principal due on Series B Equipment Notes issued in respect of such
Aircraft, (ii) payments of interest and principal due on such Series B Equipment
Notes will be made prior to payments of interest and principal due on Series C
Equipment Notes issued in respect of such Aircraft and (iii) payments of
interest and principal due on such Series C Equipment Notes will be made prior
to payments of interest and principal due on Series D Equipment Notes issued in
respect of such Aircraft.
PRINCIPAL AND INTEREST PAYMENTS
Subject to the provisions of the Intercreditor Agreement, interest
paid on the Equipment Notes held in each Trust will be passed through to the
Certificateholders of such Trust on the dates and at the rate per annum set
forth on the cover page of this Prospectus until the final expected Regular
Distribution Date for such Trust. Subject to the provisions of the
Intercreditor Agreement, principal paid on the Equipment Notes held in each
Trust will be passed through to the Certificateholders of such Trust in
scheduled amounts on the dates set forth herein until the final expected Regular
Distribution Date for such Trust.
The aggregate original principal amounts of the Equipment Notes issued
with respect to each Aircraft, as such Equipment Notes will be held in each of
the Trusts, are as follows:
<TABLE>
<CAPTION>
AIRCRAFT TRUST TRUST TRUST TRUST
REGISTRATION 1996-2A EQUIPMENT 1996-2B EQUIPMENT 1996-2C EQUIPMENT 1996-2D EQUIPMENT
NUMBER NOTES NOTES NOTES NOTES(1) TOTAL(1)
------------ ------------------ ----------------- ----------------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
N12114 $18,077,500 $ 7,747,500 $ 7,747,500 $ 4,080,350 $ 37,652,850
N14115 18,147,500 7,777,500 7,777,500 4,096,150 37,798,650
N12116 18,407,667 7,889,000 7,889,000 3,201,104 37,386,771
N19117 18,431,000 7,899,000 7,899,000 3,081,877 37,310,877
N33637 9,449,333 4,050,000 4,050,000 4,050,519 21,599,852
----------- ----------- ----------- ----------- ------------
TOTAL $82,513,000 $35,363,000 $35,363,000 $18,510,000 $171,749,000
=========== =========== =========== =========== ============
</TABLE>
- ---------------
(1) The amounts stated may differ from the actual amounts due to rounding.
Interest is payable on the unpaid principal amount of each Equipment
Note at the rate applicable to such Equipment Note on January 2, April 2, July 2
and October 2 in each year, commencing July 2, 1996.
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Such interest is computed on the basis of a 360-day year of twelve 30-day
months. Under certain circumstances described in "The Exchange Offer--Terms of
the Exchange Offer;", the interest rates for the Equipment Notes may be
increased to the extent described therein.
If any date scheduled for any payment of principal, premium (if any)
or interest with respect to the Equipment Notes is not a Business Day, such
payment will be made on the next succeeding Business Day without any additional
interest.
REDEMPTION
If an Event of Loss occurs with respect to any Aircraft and such
Aircraft is not replaced by Continental under the related Lease (in the case of
a Leased Aircraft) or under the Owned Aircraft Indenture (in the case of the
Owned Aircraft), the Equipment Notes issued with respect to such Aircraft will
be redeemed, in whole, in each case at a price equal to the aggregate unpaid
principal amount thereof, together with accrued interest thereon to, but not
including, the date of redemption, but without premium, on a Special
Distribution Date. (Indentures, Section 2.10(a))
If Continental exercises its right to terminate a Lease under Section
9 of such Lease, the Equipment Notes relating to the related Leased Aircraft
will be redeemed, in whole, on a Special Distribution Date at a price equal to
the aggregate unpaid principal amount thereof, together with accrued interest
thereon to, but not including, the date of redemption, plus, if such redemption
is made prior to the related Premium Termination Date, a Make-Whole
Premium.(Leased Aircraft Indentures, Section 2.10(b)). See "--The Leases--Lease
Termination".
All of the Equipment Notes issued with respect to a Leased Aircraft
may be redeemed prior to maturity at any time after December 31, 2000 (in the
case of the two Leased Aircraft with registration numbers N12114 and N14115) and
at any time after December 31, 2001 (in the case of the two Leased Aircraft with
registration numbers N12116 and N19117) as part of a refunding or refinancing
thereof under Section 13 of the applicable Participation Agreement, and all of
the Equipment Notes issued with respect to the Owned Aircraft may be redeemed
prior to maturity at any time at the option of Continental, in each case at a
price equal to the aggregate unpaid principal thereof, together with accrued
interest thereon to, but not including, the date of redemption, plus, if such
redemption is made prior to the related Premium Termination Date, a Make-Whole
Premium. (Indentures, Section 2.11)
If notice of such a redemption shall have been given in connection
with a refinancing of Equipment Notes with respect to a Leased Aircraft, such
notice may be revoked not later than three days prior to the proposed redemption
date. (Leased Aircraft Indentures, Section 2.12)
If, with respect to a Leased Aircraft, (x) one or more Lease Events of
Default shall have occurred and be continuing, (y) in the event of a bankruptcy
proceeding involving Continental, (i) during the Section 1110 Period, the
trustee in such proceeding or Continental does not agree to perform its
obligations under the related Lease or (ii) at any time after agreeing to
perform such obligations, such trustee or Continental ceases to perform such
obligations or (z) the Leased Aircraft Trustee with respect to such Equipment
Notes shall take action or notify the applicable Owner Trustee that it intends
to take action to foreclose the lien of the related Indenture, then in each case
the Equipment Notes issued with respect to such Leased Aircraft may be purchased
by the Owner Trustee or Owner Participant on the applicable purchase date at a
price equal to the aggregate unpaid principal thereof, together with accrued
interest thereon to, but not including, the date of redemption, but without any
premium (provided that a Make-Whole Premium shall be payable if such Equipment
Notes are to be purchased pursuant to clause (x) when a Lease Event of Default
shall have occurred and be continuing for less than 120 days). (Leased Aircraft
Indentures, Section 2.14). Continental has no comparable right under the Owned
Aircraft Indenture to purchase the Equipment Notes under such circumstances.
"Make-Whole Premium" means, with respect to any Equipment Note, an
amount (as determined by an independent investment banker of national standing)
equal to the excess, if any, of (a) the
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present value of the remaining scheduled payments of principal and interest to
maturity of such Equipment Note computed by discounting such payments on a
quarterly basis on each Payment Date (assuming a 360-day year of twelve 30-day
months) using a discount rate equal to the Treasury Yield over (b) the
outstanding principal amount of such Equipment Note plus accrued interest to the
date of determination.
For purposes of determining the Make-Whole Premium, "Treasury Yield"
means, at the date of determination with respect to any Equipment Note, the
interest rate (expressed as a quarterly equivalent and as a decimal and, in the
case of United States Treasury bills, converted to a bond equivalent yield)
determined to be the per annum rate equal to the semi-annual yield to maturity
for United States Treasury securities maturing on the Average Life Date of such
Equipment Note and trading in the public securities markets either as determined
by interpolation between the most recent weekly average yield to maturity for
two series of United States Treasury securities, trading in the public
securities markets, (A) one maturing as close as possible to, but earlier than,
the Average Life Date of such Equipment Note and (B) the other maturing as close
as possible to, but later than, the Average Life Date of such Equipment Note, in
each case as published in the most recent H.15(519) or, if a weekly average
yield to maturity for United States securities maturing on its Average Life Date
of such Equipment is reported on the most recent "H.15(519)" such weekly average
yield to maturity as published in such H.15(519). "H.15(519)" means the weekly
statistical release designated as such, or any successor publication, published
by the Board of Governors of the Federal Reserve System. The date of
determination of a Make-Whole Premium shall be the third Business Day prior to
the applicable payment or redemption date and the "most recent H.15(519)" means
the H.5(519) published prior to the close of business on the third Business Day
prior to the applicable payment or redemption date.
"Average Life Date" for any Equipment Note shall be the date which
follows the time of determination by a period equal to the "Remaining Weighted
Average Life" of such Equipment Note. Remaining Weighted Average Life on a given
date with respect to any Equipment Note shall be the number of days equal to the
quotient obtained by dividing (a) the sum of each of the products obtained by
multiplying (i) the amount of each then remaining scheduled payment of principal
of such Equipment Note by (ii) the number of days from and including such
determination date to but excluding the date on which such payment of principal
is scheduled to be made, by (b) the then outstanding principal amount of such
Equipment Note.
SECURITY
The Equipment Notes issued with respect to each Leased Aircraft are
secured by (i) an assignment by the related Owner Trustee to the related Leased
Aircraft Trustee of such Owner Trustee's rights, except for certain limited
rights, under the Lease with respect to the related Aircraft, including the
right to receive payments of rent thereunder, (ii) a mortgage to such Leased
Aircraft Trustee of such Aircraft, subject to the rights of Continental under
such Lease, and (iii) an assignment to such Leased Aircraft Trustee of certain
of such Owner Trustee's rights under the purchase agreement between Continental
and the related manufacturer. Unless and until an Indenture Default with
respect to a Leased Aircraft has occurred and is continuing, the Leased Aircraft
Trustee may not exercise the rights of the Owner Trustee under the related
Lease, except the Owner Trustee's right to receive payments of rent due
thereunder. The assignment by the Owner Trustee to the Leased Aircraft Trustee
of its rights under the related Lease will exclude rights of such Owner Trustee
and the related Owner Participant relating to indemnification by Continental for
certain matters, insurance proceeds payable to such Owner Trustee in its
individual capacity and to such Owner Participant under liability insurance
maintained by Continental under such Lease or by such Owner Trustee or such
Owner Participant, insurance proceeds payable to such Owner Trustee in its
individual capacity or to such Owner Participant under certain casualty
insurance maintained by such Owner Trustee or such Owner Participant under such
Lease and certain reimbursement payments made by Continental to such Owner
Trustee. (Leased Aircraft Indenture, Granting Clause) The Equipment Notes are
not cross-collateralized, and, consequently, the Equipment Notes issued in
respect of any one Aircraft are not secured by any of the other Aircraft or
replacement aircraft (as described in "--The Leases--Events of Loss") or the
Leases related thereto.
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The Equipment Notes issued with respect to the Owned Aircraft are
secured by (i) a mortgage to the Owned Aircraft Trustee of such Aircraft and
(ii) an assignment to the Owned Aircraft Trustee of certain of Continental's
rights under its purchase agreement with the related manufacturer.
Funds, if any, held from time to time by the Loan Trustee with respect
to any Aircraft, including funds held as the result of an Event of Loss to such
Aircraft or, in the case of a Leased Aircraft, termination of the Lease, if any,
relating thereto, will be invested and reinvested by such Loan Trustee, at the
direction of the related Owner Trustee in the case of the Leased Aircraft or
Continental in the case of the Owned Aircraft (except in the case of certain
Indenture Defaults), in investments described in the related Indenture.
LOAN TO VALUE RATIOS OF EQUIPMENT NOTES
The following table sets forth loan to Aircraft value ratios for the
Equipment Notes issued in respect of each Aircraft as of the dates specified and
was obtained by dividing (i) the outstanding balance (assuming no payment
default) of such Equipment Notes determined immediately after giving effect to
the payments scheduled to be made in each such month by (ii) the assumed value
(the "Assumed Aircraft Value") of the Aircraft securing such Equipment Notes.
The table is based on the assumption that the value of each Aircraft
set forth opposite May 20, 1996 depreciates by approximately 2% of the initial
appraised value per year until the fifteenth year after the year of delivery of
such Aircraft and by approximately 4% of the initial appraised value per year
thereafter. Other rates or methods of depreciation would result in materially
different loan to Aircraft value ratios and no assurance can be given (i) that
the depreciation rates and method assumed for the purposes of the table are the
ones most likely to occur or (ii) as to the actual value of any Aircraft. Thus
the table should not be considered a forecast or prediction of expected or
likely loan to Aircraft value ratios but simply a mathematical calculation based
on one set of assumptions.
<TABLE>
<CAPTION>
AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION
NUMBER N12114 NUMBER N14115 NUMBER N12116
------------------------------- -------------------------------- ------------------------------
EQUIPMENT EQUIPMENT EQUIPMENT
NOTE ASSUMED LOAN NOTE ASSUMED LOAN NOTE ASSUMED LOAN
OUTSTANDING AIRCRAFT TO OUTSTANDING AIRCRAFT TO OUTSTANDING AIRCRAFT TO
BALANCE VALUE VALUE BALANCE VALUE VALUE BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS) RATIO
--------- ---------- ---------- -------- ----------- ---------- ----- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
May 20, 1996 $37.65 $51.65 72.9% $37.80 $51.85 72.9% $37.39 $52.59 71.1%
April 2, 1997 36.88 50.60 72.9 37.03 50.79 72.9 36.19 51.54 70.2
April 2, 1998 35.76 49.54 72.2 35.95 49.73 72.3 35.74 50.49 70.8
April 2, 1999 34.36 48.49 70.9 34.60 48.68 71.1 35.02 49.44 70.8
April 2, 2000 32.05 47.43 67.6 32.26 47.62 67.7 33.97 48.39 70.2
April 2, 2001 29.52 46.38 63.6 29.69 46.56 63.8 30.14 47.33 63.7
April 2, 2002 27.61 45.33 60.9 27.85 45.50 61.2 26.10 46.28 56.4
April 2, 2003 25.63 44.27 57.9 25.85 44.44 58.2 23.92 45.23 52.9
April 2, 2004 23.97 43.22 55.5 24.09 43.38 55.5 23.92 44.18 54.1
April 2, 2005 22.32 42.16 52.9 22.42 42.33 53.0 20.73 43.13 48.1
April 2, 2006 20.78 41.11 50.6 20.86 41.27 50.6 18.68 42.07 44.4
April 2, 2007 18.36 40.06 45.8 18.51 40.21 46.0 16.26 41.02 39.6
April 2, 2008 15.95 39.00 40.9 16.06 39.15 41.0 14.40 39.97 36.0
April 2, 2009 13.02 37.95 34.3 13.09 38.09 34.4 12.45 38.92 32.0
April 2, 2010 10.31 36.89 27.9 10.30 37.04 27.8 10.32 37.87 27.2
April 2, 2011 6.01 34.78 17.3 5.73 34.92 16.4 7.12 36.82 19.4
April 2, 2012 1.10 32.68 3.4 0.75 32.80 2.3 3.67 34.71 10.6
April 2, 2013 0.00 0.00 0.0 0.00 0.00 0.0 1.44 32.61 4.4
April 2, 2014 0.00 0.00 0.0 0.00 0.00 0.0 0.00 0.00 0.0
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION
NUMBER N19117 NUMBER N33637
--------------------------------------------------- ----------------------------------------------------
EQUIPMENT NOTE EQUIPMENT NOTE
OUTSTANDING ASSUMED OUTSTANDING ASSUMED
BALANCE AIRCRAFT VALUE LOAN TO VALUE BALANCE AIRCRAFT VALUE LOAN TO VALUE
DATE (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS) RATIO
--------- ------------- -------------- ------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
May 20, 1996 $37.31 $52.66 70.9% $21.60 $27.00 80.0%
April 2, 1997 36.44 51.61 70.6 20.64 26.46 78.0
April 2, 1998 35.78 50.55 70.8 20.22 25.92 78.0
April 2, 1999 34.90 49.50 70.5 19.80 25.38 78.0
April 2, 2000 33.62 48.45 69.4 19.26 24.84 77.5
April 2, 2001 31.23 47.39 65.9 18.66 24.30 76.8
April 2, 2002 28.57 46.34 61.6 18.04 23.76 75.9
April 2, 2003 25.60 45.29 56.5 17.38 23.22 74.8
April 2, 2004 23.52 44.23 53.2 16.67 22.68 73.5
April 2, 2005 20.95 43.18 48.5 15.91 22.14 71.9
April 2, 2006 18.40 42.13 43.7 15.02 21.60 69.5
April 2, 2007 16.07 41.07 39.1 13.97 21.06 66.3
April 2, 2008 13.59 40.02 34.0 0.00 0.00 0.0
April 2, 2009 11.74 38.97 30.1 0.00 0.00 0.0
April 2, 2010 9.52 37.92 25.1 0.00 0.00 0.0
April 2, 2011 6.84 36.86 18.6 0.00 0.00 0.0
April 2, 2012 4.99 34.76 14.3 0.00 0.00 0.0
April 2, 2013 2.97 32.65 9.1 0.00 0.00 0.0
April 2, 2014 0.79 30.54 2.6 0.00 0.00 0.0
</TABLE>
69
<PAGE>
LIMITATION OF LIABILITY
The Equipment Notes issued with respect to the Leased Aircraft are not
direct obligations of, or guaranteed by, Continental, the Owner Participant or
the Owner Trustees in their individual capacity. None of the Owner Trustees,
the Owner Participants or the Loan Trustees, or any affiliates thereof, shall be
personally liable to any holder of an Equipment Note or, in the case of the
Owner Trustees and the Owner Participants, to the Loan Trustees for any amounts
payable under the Equipment Notes or, except as provided in each Indenture, for
any liability under such Indenture. All payments of principal of, premium, if
any, and interest on the Equipment Notes issued with respect to any Aircraft
(other than payments made in connection with an optional redemption or purchase
of Equipment Notes issued with respect to a Leased Aircraft by the related Owner
Trustee or the related Owner Participant) will be made only from the assets
subject to the lien of the Indenture with respect to such Aircraft or the income
and proceeds received by the related Loan Trustee therefrom (including, in the
case of the Leased Aircraft, rent payable by Continental under the Lease with
respect to such Aircraft).
Except as otherwise provided in the Indentures, each Owner Trustee in
its individual capacity shall not be answerable or accountable under the
Indentures or under the Equipment Notes under any circumstances except for its
own willful misconduct or gross negligence. None of the Owner Participants will
have any duty or responsibility under any of the Leased Aircraft Indentures or
the Equipment Notes to the Leased Aircraft Trustees or to any holder of any
Equipment Note.
The Equipment Notes issued with respect to the Owned Aircraft are
direct obligations of Continental.
INDENTURE DEFAULTS, NOTICE AND WAIVER
Indenture Defaults under each Indenture include: (a) in the case of a
Leased Aircraft Indenture, the occurrence of any Lease Event of Default under
the related Lease (other than the failure to make certain indemnity payments and
other payments to the related Owner Trustee or Owner Participant unless a notice
is given by such Owner Trustee that such failure shall constitute an Indenture
Default), (b) the failure by the Owner Trustee (other than as a result of a
Lease default or Lease Event of Default), in the case of a Leased Aircraft
Indenture, or Continental, in the case of the Owned Aircraft Indenture, to pay
any interest or principal or premium, if any, when due, under such Indenture or
under any Equipment Note issued thereunder continued for more than 10 business
days, in the case of a Leased Aircraft Indenture, or 15 days, in the case of the
Owned Aircraft Indenture, (c) the failure by the Owner Participant or the Owner
Trustee, in the case of a Leased Aircraft Indenture, or Continental, in the case
of the Owned Aircraft Indenture, to discharge certain liens, continued after
notice and specified cure periods, (d) any representation or warranty made by
the related Owner Trustee or Owner Participant in the related Participation
Agreement or by Continental, the Owner Trustee or Owner Participant in the
related Financing Agreement or certain related documents furnished to the Loan
Trustee pursuant thereto being false or incorrect when made and continuing to be
material and remaining unremedied after notice and specified cure periods, (e)
failure by Continental or the related Owner Trustee or Owner Participant to
perform or observe any covenant or obligation for the benefit of the Loan
Trustee or holders of Equipment Notes under such Indenture or certain related
documents, continued after notice and specified cure periods, (f) the
registration of the related Aircraft ceasing to be effective as a result of the
Owner Participant (in the case of a Leased Aircraft) or Continental (in the case
of the Owned Aircraft) not being a citizen of the United States (subject to a
cure period in the case of the Owned Aircraft), (g) with respect to the Owned
Aircraft, the lapse or cancellation of insurance required under the Owned
Aircraft Indenture, or the operation by Continental of the Owned Aircraft after
having received notice that such insurance has lapsed or been canceled or (h)
the occurrence of certain events of bankruptcy, reorganization or insolvency of
the related Owner Trustee or Owner Participant (in the case of a Leased
Aircraft) or Continental (in the case of the Owned Aircraft). (Leased Aircraft
Indentures, Section 4.02; Owned Aircraft Indenture, Section 5.01) There are no
cross-default provisions in the Indentures or the Leases. Consequently, events
resulting in an Indenture Default under any particular Indenture may or may not
result in an Indenture Default occurring under any other Indenture, and a Lease
Event of Default under any particular Lease will not constitute a Lease Event of
Default under any other Lease.
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<PAGE>
If Continental fails to make any quarterly basic rental payment due under
any Lease, within a specified period after such failure the applicable Owner
Trustee may furnish to the Loan Trustee the amount due on the Equipment Notes
issued with respect to the related Leased Aircraft, together with any interest
thereon on account of the delayed payment thereof, in which event the Leased
Aircraft Trustee and the holders of outstanding Equipment Notes issued under
such Indenture may not exercise any remedies otherwise available under such
Indenture or such Lease as the result of such failure to make such rental
payment, unless Continental has failed to make a rental payment when due on the
six or more immediately preceding quarterly basic rental payment dates or on any
twelve or more previous quarterly basic rental payment dates (or, for so long as
Gaucho-2 Inc. or any other affiliate of Boeing is the Owner Participant, on the
nine or more immediately preceding quarterly basic rental payment dates or on
any sixteen or more previous quarterly basic rental payment dates). The
applicable Owner Trustee also may cure any other default by Continental in the
performance of its obligations under any Lease which can be cured with the
payment of money. (Leased Aircraft Indentures, Section 4.03)
The holders of a majority in principal amount of the outstanding
Equipment Notes issued with respect to any Aircraft, by notice to the Loan
Trustee, may on behalf of all the holders waive any existing default and its
consequences under the Indenture with respect to such Aircraft, except a default
in the payment of the principal of or interest on any such Equipment Notes or a
default in respect of any covenant or provision of such Indenture that cannot be
modified or amended without the consent of each holder of Equipment Notes
affected thereby. (Leased Aircraft Indentures, Section 4.08; Owned Aircraft
Indenture, Section 5.06)
REMEDIES
If an Indenture Default occurs and is continuing under an Indenture, the
related Loan Trustee or the holders of a majority in principal amount of the
Equipment Notes outstanding under such Indenture may, subject to the applicable
Owner Participant's or Owner Trustee's right to cure, as discussed above,
declare the principal of all such Equipment Notes issued thereunder immediately
due and payable, together with all accrued but unpaid interest thereon. The
holders of a majority in principal amount of Equipment Notes outstanding under
such Indenture may rescind any such declaration at any time before the judgment
or decree for the payment of the money so due shall be entered if (i) there has
been paid to the related Loan Trustee an amount sufficient to pay all principal,
interest, and premium, if any, on any such Equipment Notes, to the extent such
amounts have become due otherwise than by such declaration of acceleration and
(ii) all other Indenture Defaults and potential Indenture Defaults under such
Indenture have been cured or waived. (Leased Aircraft Indentures, Section
4.04(b); Owned Aircraft Indenture, Section 5.02(b))
Each Indenture provides that if an Indenture Default under such Indenture
has occurred and is continuing, the related Loan Trustee may exercise certain
rights or remedies available to it under such Indenture or under applicable law,
including (if, in the case of a Leased Aircraft, the corresponding Lease has
been declared in default) one or more of the remedies under such Indenture or,
in the case of a Leased Aircraft, such Lease with respect to the Aircraft
subject to such Lease. The related Leased Aircraft Trustee's right to exercise
remedies under a Leased Aircraft Indenture is subject, with certain exceptions,
to its having proceeded to exercise one or more of the dispossessory remedies
under the Lease with respect to such Leased Aircraft; provided that the
requirement to exercise such remedies under such Lease shall not apply in
circumstances where such exercise has been involuntarily stayed or prohibited by
applicable law or court order for a continuous period in excess of 60 days or
such other period as may be specified in Section 1110(a)(1)(A) of the U.S.
Bankruptcy Code (the "U.S. Bankruptcy Code") (plus an additional period, if any,
resulting from (i) the trustee in such proceeding assuming, or agreeing to
perform its obligations under, such Lease with the approval of the applicable
court or such Leased Aircraft Trustee's consent to an extension of such period,
(ii) such Leased Aircraft Trustee's failure to give any requisite notice, or
(iii) Continental's assumption of such Lease with the approval of the relevant
court). See "--The Leases--Lease Events of Default." Such remedies may be
exercised by the related Leased Aircraft Trustee to the exclusion of the related
Owner Trustee, subject to certain conditions specified in such Indenture, and
Continental, subject to the terms of such Lease. Any Aircraft sold in the
exercise of such remedies will be free and clear of any rights of those parties,
including the rights of Continental under the Lease with respect to such
Aircraft; provided that no exercise of any remedies by the related Leased
Aircraft Trustee may affect the rights of Continental under any Lease unless a
Lease Event of Default has occurred and is continuing.
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<PAGE>
(Leased Aircraft Indentures, Section 4.04; Leases, Section 15) The Owned
Aircraft Indenture does not contain such limitations on the Owned Aircraft
Trustees ability to exercise remedies upon an Indenture Default under the Owned
Aircraft Indenture.
If a bankruptcy proceeding involving Continental under the U.S.
Bankruptcy Code occurs, all of the rights of the Owner Trustee as lessor under a
particular Lease will be exercised by the Owner Trustee in accordance with the
terms thereof unless (i) during the Section 1110 Period the trustee in such
proceeding or Continental does not agree to perform its obligations under such
Lease, (ii) at anytime after agreeing to perform such obligations, such trustee
or Continental ceases to perform such obligations or (iii) the related Loan
Trustee takes action, or notifies the Owner Trustee that such Loan Trustee
intends to take action, to foreclose the lien of the related Leased Aircraft
Indenture in accordance with the provisions of the immediately preceding
paragraph. The Owner Trustee's exercise of such rights shall be subject to
certain limitations and, in no event, reduce the amount or change the time of
any payment in respect of the Equipment Notes or adversely affect the validity
or enforcement of the lien under the related Leased Aircraft Indenture.
If the Equipment Notes issued in respect of one Aircraft are in default,
the Equipment Notes issued in respect of the other Aircraft may not be in
default, and, if not, no remedies will be exercisable under the applicable
Indentures with respect to such other Aircraft.
Section 1110 of the U.S. Bankruptcy Code provides that the right of
lessors, conditional vendors and holders of security interests with respect to
"equipment" (as defined in Section 1110 of the U.S. Bankruptcy Code) to take
possession of such equipment in compliance with the provisions of a lease,
conditional sale contract or security agreement, as the case may be, is not
affected by (a) the automatic stay provision of the U.S. Bankruptcy Code, which
provision enjoins repossessions by creditors for the duration of the
reorganization period, (b) the provision of the U.S. Bankruptcy Code allowing
the trustee in reorganization to use property of the debtor during the
reorganization period, (c) Section 1129 of the U.S. Bankruptcy Code (which
governs the confirmation of plans of reorganization in Chapter 11 cases) and (d)
any power of the bankruptcy court to enjoin a repossession. Section 1110
provides, however, that the right of a lessor, conditional vendor or holder of a
security interest to take possession of an aircraft in the event of an event of
default may not be exercised for 60 days following the date of commencement of
the reorganization proceedings (unless specifically permitted by the bankruptcy
court) and may not be exercised at all if, within such 60-day period (or such
longer period consented to by the lessor, conditional vendor or holder of a
security interest), the trustee in reorganization agrees to perform the debtor's
obligations that become due on or after such date and cures all existing
defaults (other than defaults resulting solely from the financial condition,
bankruptcy, insolvency or reorganization of the debtor). "Equipment" is defined
in Section 1110 of the U.S. Bankruptcy Code, in part, as "an aircraft, aircraft
engine, propeller, appliance, or spare part (as defined in section 40102 of
title 49) that is subject to a security interest granted by, leased to, or
conditionally sold to a debtor that is a citizen of the United States (as
defined in section 40102 of title 49) holding an air carrier operating
certificate issued by the Secretary of Transportation pursuant to chapter 447 of
title 49 for aircraft capable of carrying 10 or more individuals or 6,000 pounds
or more of cargo."
Cleary, Gottlieb, Steen & Hamilton, counsel to Continental, has advised
(x) the Leased Aircraft Trustees that the right of the Owner Trustee, as lessor
under each of the Leases, and the Leased Aircraft Trustee, as assignee of such
Owner Trustee's rights under each of the Leases pursuant to each of the related
Indentures, to exercise its right to take possession of the respective Aircraft
under each of the Leases is entitled to the benefits of Section 1110 of the U.S.
Bankruptcy Code with respect to the airframe and engines comprising the related
Leased Aircraft and (y) the Owned Aircraft Trustee that the right of the Owned
Aircraft Trustee to exercise its right to take possession of the Owned Aircraft
under the Owned Aircraft Indenture is entitled to the benefits of Section 1110
with respect to the airframe and engines comprising the Owned Aircraft. This
opinion assumes that Continental is and will be a citizen of the United States
holding an air carrier operating certificate issued by the Secretary of
Transportation pursuant to chapter 447 of title 49 of the U.S. Code for aircraft
capable of carrying 10 or more individuals or 6,000 pounds or more of cargo. For
a description of certain limitations on the Loan Trustees exercise of rights
contained in the Indenture, see"--Indenture Defaults, Notice and Waiver."
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The opinion of Cleary, Gottlieb, Steen & Hamilton did not address the
possible replacement of an Aircraft after an Event of Loss in the future, the
consummation of which is conditioned upon the contemporaneous delivery of an
opinion of counsel to the effect that the related Loan Trustee's entitlement to
Section 1110 benefits should not be diminished as a result of such replacement.
See"--The Leases--Events of Loss". The opinion of Cleary, Gottlieb, Steen &
Hamilton also does not address the availability of Section 1110 with respect to
any possible sublessee of a Leased Aircraft subleased by Continental or to any
possible lessee of the Owned Aircraft if it is leased by Continental.
If an Indenture Default under any Indenture occurs and is continuing, any
sums held or received by the related Loan Trustee may be applied to reimburse
such Loan Trustee for any tax, expense or other loss incurred by it and to pay
any other amounts due to such Loan Trustee prior to any payments to holders of
the Equipment Notes issued under such Indenture. (Indentures, Section 3.03)
In the event of bankruptcy, insolvency, receivership or like proceedings
involving an Owner Participant, it is possible that, notwithstanding that the
applicable Leased Aircraft is owned by the related Owner Trustee in trust, such
Leased Aircraft and the related Lease and Equipment Notes might become part of
such proceeding. In such event, payments under such Lease or on such Equipment
Notes might be interrupted and the ability of the related Leased Aircraft
Trustee to exercise its remedies under the related Leased Aircraft Indenture
might be restricted, although such Leased Aircraft Trustee would retain its
status as a secured creditor in respect of the related Lease and the related
Leased Aircraft.
MODIFICATION OF INDENTURES AND LEASES
Without the consent of holders of a majority in principal amount of the
Equipment Notes outstanding under any Indenture, the provisions of such
Indenture and the related Lease, the Participation Agreement and the Trust
Agreement corresponding thereto may not be amended or modified, except to the
extent indicated below.
Certain provisions of any Leased Aircraft Indenture, and of the Lease (so
long as no Indenture Default has occurred and is continuing), the Participation
Agreement, and the Trust Agreement related thereto, may be amended or modified
by the parties thereto without the consent of any holders of the Equipment Notes
outstanding under such Indenture. In the case of each Lease, such provisions
include, among others, provisions relating to (i) the return to the related
Owner Trustee of the related Leased Aircraft at the end of the term of such
Lease and (ii) the renewal of such Lease and the option of Continental at the
end of the term of such Lease to purchase the related Leased Aircraft. (Leased
Aircraft Indentures, Section 9.01) In addition, any Indenture may be amended
without the consent of the holders of Equipment Notes, to, among other things,
cure any defect or inconsistency in such Indenture or the Equipment Notes issued
thereunder provided that such change does not adversely affect the interests of
any such holder or to cure any ambiguity or correct any mistake. (Leased
Aircraft Indentures, Section 9.01; Owned Aircraft Indenture, Section 10.01)
Without the consent of the holder of each Equipment Note outstanding
under any Indenture affected thereby, no amendment or modification of such
Indenture may among other things (a) reduce the principal amount of, or premium,
if any, or interest payable on, any Equipment Notes issued under such Indenture
or change the date on which any principal or premium, if any, or interest is due
and payable, (b) create any security interest with respect to the property
subject to the lien of such Indenture, except as provided in such Indenture, or
deprive any holder of an Equipment Note issued under such Indenture of the lien
of such Indenture upon the property subject thereto or (c) reduce the percentage
in principal amount of outstanding Equipment Notes issued under such Indenture
necessary to modify or amend any provision of such Indenture or to waive
compliance therewith. (Leased Aircraft Indentures, Section 9.01(b); Owned
Aircraft Indenture, Section 10.01(a))
OWNER PARTICIPANT'S RIGHT TO RESTRUCTURE
So long as Gaucho-2 Inc. or any affiliate of The Boeing Company is the
Owner Participant with respect to the leveraged lease of any Leased Aircraft,
subject to certain conditions, such Owner Participant will
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<PAGE>
have the right to restructure such leveraged lease transaction using a "cross-
border lease", a tax lease or head-lease/sublease structure and any other type
of transaction. In no event, however, shall any such restructuring (i) change
the terms and conditions of the rights and obligations of any holder of
Equipment Notes under the relevant Operative Agreements or any holder of
Certificates or (ii) expose any such holder to any additional risks. As a
precondition to any such restructuring, the Owner Participant will be obligated
to deliver to the Leased Aircraft Trustee an appropriate officer's certificate
as to the satisfaction of the foregoing conditions and obtain a written
confirmation from the Rating Agencies prior to the implementation of such
restructuring to the effect that such restructuring will not adversely affect
the ratings of the Certificates. (Participation Agreements, Section 15)
INDEMNIFICATION
Continental is required to indemnify each Loan Trustee, each Owner
Participant and each Owner Trustee for certain losses, claims and other matters.
Continental is required under certain circumstances to indemnify each Owner
Participant against the loss of depreciation deductions and certain other
benefits allowable for certain income tax purposes with respect to the related
Leased Aircraft. Each Owner Participant is required to indemnify the related
Loan Trustee and the holders of the Equipment Notes issued with respect to the
Leased Aircraft in which such Owner Participant has an interest for certain
losses that may be suffered as a result of the failure of such Owner Participant
to discharge certain liens or claims on or against the assets subject to the
lien of the related Indenture.
THE LEASES AND CERTAIN PROVISIONS OF THE OWNED AIRCRAFT INDENTURE
Each Leased Aircraft is leased to Continental by the relevant Owner
Trustee under the relevant Lease. The Owned Aircraft is owned by Continental.
Lease Term Rentals and Payments
Each Leased Aircraft has been leased separately by the relevant Owner
Trustee to Continental for a term commencing on the date on which the Aircraft
was acquired by the Owner Trustee and expiring on a date not earlier than the
latest maturity date of the relevant Equipment Notes, unless terminated prior to
the originally scheduled expiration date as permitted by the applicable Lease.
The quarterly basic rent payment under each Lease is payable by Continental on
each related Lease Payment Date (as defined below) (or, if such day is not a
business day, on the next business day), and has been assigned by the Owner
Trustee under the corresponding Indenture to provide the funds necessary to make
payments of principal and interest due from the Owner Trustee on the Equipment
Notes issued under such Indenture. In certain cases, the quarterly basic rent
payments under the Leases may be adjusted, but each Lease provides that under no
circumstances will rent payments by Continental be less than the scheduled
payments on the related Equipment Notes. In addition, the amount of basic rent
may be increased in an amount necessary to pay additional interest due on the
Equipment Notes on the relevant Lease Payment Date as a result of the resetting
of the rate of interest on the Equipment Notes as required by the terms
thereof--for example, if certain terms of the Registration Rights Agreement
require such a resetting. See "Exchange Offer;". Any balance of each such
quarterly basic rent payment under each Lease, after payment of amounts due on
the Equipment Notes issued under the Indenture corresponding to such Lease, will
be paid over to the Owner Trustee. (Leases, Section 3; Leased Aircraft
Indentures, Section 3.01)
"Lease Payment Date" means, with respect to each Lease, January 2, April
2, July 2 or October 2 during the term of such Lease.
Quarterly payments of interest and principal under the Equipment Notes
issued by Continental under the Owned Aircraft Indenture are payable each
January 2, April 2, July 2 and October 2 (or, if such day is not a business day,
on the next business day). The amount of such quarterly payment may be increased
in an amount equal to any increase in the amount of interest due on such
Equipment Notes on the relevant payment date as a result of the resetting of the
rate of interest on such Equipment Notes as required by certain terms of the
Registration Rights Agreement. (Owned Aircraft Indenture, Section 2.02)
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Maintenance
Under the terms of each Lease, Continental's obligations in respect of
each Leased Aircraft will be those of a lessee under a "net lease". Accordingly,
under each Lease Continental is obligated, among other things and at its
expense, to keep each Aircraft duly registered and insured, to pay all costs of
operating the Aircraft and to maintain, service, repair and overhaul the
Aircraft so as to keep it in as good an operating condition as when delivered to
Continental, ordinary wear and tear excepted, and in such condition as required
to maintain the airworthiness certificate for the Aircraft in good standing at
all times. (Leases, Sections 7.1 and 8.1 and Annex C.) The Owned Aircraft
Indenture imposes comparable maintenance, service and repair obligations (as
well as comparable registration and insurance obligations discussed below) on
Continental with respect to the Owned Aircraft. (Owned Aircraft Indenture,
Section 4.02)
Possession, Sublease and Transfer
Each Aircraft may be operated by Continental or under lease, sublease or
interchange arrangements, subject to certain restrictions. Normal interchange
and pooling agreements with respect to any Engine are permitted with U.S. air
carriers and foreign air carriers in countries with which the United States
maintains normal diplomatic relations and which recognize and give effect to the
rights of lessors and mortgagees. In the case of a Leased Aircraft, subleases
for a term of up to 60 months are also permitted with solvent U.S. air carriers
and with certain specified foreign air carriers, so long as they are solvent,
subject to a reasonably satisfactory opinion that such country would give effect
to the title of the Owner Trustee in and to the Aircraft and would give effect
to the priority and validity of the lien of the Indenture as if such country
were a party to the Convention on the International Recognition of Rights in
Aircraft (Geneva 1948) ("the Convention"). (Leases, Section 7). With respect to
the Owned Aircraft, so long as no Indenture Event of Default exists under the
Owned Aircraft Indenture, Continental is permitted to lease the Owned Aircraft
or Engines to (a) certain specified foreign air carriers, so long as they are
solvent; (b) any other foreign air carriers, so long as they are solvent,
organized under the laws of a country (other than Taiwan) with which the United
States maintains normal diplomatic relations and the Loan Trustee receives an
opinion of counsel regarding the enforceability of the lien under the Owned
Aircraft Indenture or (c) any U.S. air carrier, so long as it is solvent,
subject, in each case, to certain conditions. (Aircraft Indenture, Section 4.02)
It is uncertain to what extent the relevant Loan Trustee's security interest
would be recognized in an Aircraft located in a country that is not a party to
the Convention, and to what extent such security interest would be recognized in
a jurisdiction adhering to the Convention if the Aircraft is registered in a
jurisdiction not a party to the Convention. Moreover, in the case of an
Indenture Event of Default, the ability of the related Loan Trustee to realize
upon its security interest in an Aircraft could be adversely affected as a legal
or practical matter if such Aircraft were registered or located outside the
United States.
Registration
Continental is required to keep each Aircraft duly registered under the
Transportation Code with the FAA, except (in the case of a Leased Aircraft) if
the relevant Owner Trustee or the relevant Owner Participant fails to meet the
applicable citizenship requirements, and to record each Lease (in the case of a
Leased Aircraft) and Indenture and certain other documents under the
Transportation Code. (Leases, Section 7; Owned Aircraft Indenture, Section
4.02(e)) Such recordation of the Indenture and other documents with respect to
each Aircraft will give the relevant Loan Trustee a first-priority, perfected
security interest in such Aircraft whenever it is located in the United States
or any of its territories and possessions. The Convention provides that such
security interest will also be recognized, with certain limited exceptions, in
those jurisdictions that have ratified or adhere to the Convention. (Leases,
Section 7.1.1; Owned Aircraft Indenture, Section 4.02(e))
So long as no Lease default or Lease Event of Default exists, Continental
has the right to register the Leased Aircraft subject to such Lease in a country
other than the United States at its own expense in connection with a permitted
sublease of the Aircraft to certain specified foreign air carriers, subject to
certain conditions set forth in the related Participation Agreement. These
conditions include a requirement that the country of registration recognizes the
interests of lessors, owner participants and mortgagees and provides
substantially equivalent protection to such interests as provided by law in the
United States. (Leases,
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Section 7.1.2; Participation Agreements, Section 8.7.12) The Owned Aircraft
Indenture contains comparable provisions with respect to registration of the
Owned Aircraft in connection with a permitted lease of the Owned Aircraft.
(Owned Aircraft Indenture, Section 4.02(e))
Liens
Continental is required to maintain each Aircraft free of any liens,
other than the rights of the relevant Loan Trustee, the holders of the related
Equipment Notes, Continental and, with respect to a Leased Aircraft, the Owner
Participant and Owner Trustee arising under the applicable Indenture, the Lease
(in the case of a Leased Aircraft) or the other operative documents related
thereto, and other than certain limited liens permitted under such documents,
including (i) liens for taxes either not yet due or being contested in good
faith by appropriate proceedings; (ii) materialmens, mechanics' and other
similar liens arising in the ordinary course of business and securing
obligations that either are not yet delinquent or are being contested in good
faith by appropriate proceedings; and (iii) judgment liens so long as such
judgment is discharged or vacated within 30 days or the execution of such
judgment is stayed pending appeal and discharged, vacated or reversed within 30
days after expiration of such stay; provided that in the case of each of the
liens described in the foregoing clauses (i), (ii) and (iii), such liens and
proceedings do not involve any material risk of the sale, forfeiture or loss of
such Aircraft or any interest therein or any discernible risk of criminal
liability or any material risk of civil penalty against the relevant Loan
Trustee or (in the case of a Leased Aircraft) the relevant Owner Trustee or
Owner Participant. (Leases, Section 6; Owned Aircraft Indenture, Section 4.01)
Replacement of Parts; Alterations
Continental is obligated to replace all parts at its expense that may
from time to time be incorporated or installed in or attached to any Aircraft
and that may become lost, damaged beyond repair, worn out, stolen, seized,
confiscated or rendered permanently unfit for use (other than severable parts
added at the option of Continental and obsolete or unsuitable parts that
Continental is permitted to remove to the extent described below). Continental
or any permitted sublessee has the right, at its own expense, to make such
alterations, modifications and additions with respect to each Aircraft as it
deems desirable in the proper conduct of its business and to remove parts which
it deems to be obsolete or no longer suitable or appropriate for use; provided
that such alteration, modification, addition or removal does not diminish the
value, utility, performance or the remaining useful life of the related
Aircraft, Airframe or Engine or adversely affect the commercial use of the
Aircraft for passenger service in the United States or invalidate the Aircraft's
airworthiness certificate, except that the value of the Aircraft may be reduced
by the removal of obsolete or unsuitable parts so long as the aggregate original
cost of all such parts removed from any one Aircraft and not replaced shall not
exceed $250,000 for each Aircraft. (Leases, Section 8.1 and Annex C; Owned
Aircraft Indenture, Section 4.04(d))
Insurance
Continental is required to maintain, at its expense (or at the expense of
a permitted lessee, in the case of the Owned Aircraft, or a permitted sublessee,
in the case of a Leased Aircraft), all-risk aircraft hull insurance covering
each Aircraft, at all times in an amount not less than the stipulated loss value
of the Aircraft (which exceeds the aggregate outstanding principal amount of the
Equipment Notes related to such Aircraft, together with accrued interest
thereon), and all-risk property damage insurance covering Engines and parts
while removed from an aircraft in an amount not less than the replacement cost
of such Engines and parts. All insurance proceeds with respect to a total loss
of an Aircraft, Airframe or Engine and all insurance proceeds in excess of
$3,000,000 per occurrence with respect to repairable damage to an Aircraft,
Airframe or Engine are payable to the relevant Owner Trustee (in the case of a
Leased Aircraft) or to the applicable Loan Trustee, for so long as the relevant
Indenture shall be in effect. Insurance proceeds of up to $3,000,000 per
occurrence with respect to repairable damage to an Aircraft, Airframe or Engine
are payable directly to Continental so long as a default or an Indenture Event
of Default does not exist with respect to the Owned Aircraft Indenture or (in
the case of a Leased Aircraft) the Owner Trustee has not notified the insurance
underwriters that a Lease default or a Lease Event of Default exists. So long as
the loss does not constitute an Event of Loss (as defined below),
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insurance proceeds will be applied to repair or replace the property. (Leases,
Sections 11.1 and 11.5 and Annex D; Owned Aircraft Indenture, Section 4.06)
In addition, Continental is obligated to maintain comprehensive airline
liability insurance at its expense (or at the expense of a permitted lessee, in
the case of the Owned Aircraft, or a permitted sublessee, in the case of a
Leased Aircraft), including, without limitation, third-party and passenger
liability and property damage, cargo and products liability and contractual
liability insurance with respect to each Aircraft. Such liability insurance
shall be of the type usually carried by prudent major United States commercial
air carriers and cover the kind of risks against which prudent United States
commercial air carriers customarily insure. Such liability insurance shall be
underwritten by nationally or internationally recognized insurers of substantial
financial capacity used by other major United States commercial air carriers.
The amount of such liability insurance coverage per occurrence shall be not less
than the amount of comprehensive airline liability insurance from time to time
applicable to aircraft owned or leased and operated by Continental of the same
type as such Aircraft. Continental (but no permitted sublessee) shall have the
right to self-insure any Leased Aircraft to the extent of any applicable minimum
amount per aircraft (or, if applicable, per annum or other period) hull or
liability insurance deductible imposed by the insurer providing such aircraft
hull or liability insurance, which are commensurate with the standard
deductibles in the airline insurance industry available to major U.S. airlines.
(Leases, Section 11.1 and Annex D, Section A) With respect to the Owned
Aircraft, Continental may self-insure in such amounts as are then self-insured
with respect to similar owned or leased aircraft in its fleet, but the amount of
such self-insurance in the aggregate may not exceed 50% of the largest
replacement value of any single aircraft on which Continental carries insurance
or 1 1/2% of the aggregate insurable value (during the preceding calendar year)
of all aircraft on which Continental carries insurance, whichever is less,
unless an insurance broker of national standing shall certify that the standard
among all other major U.S. airlines is a higher level of self-insurance, in
which case Continental may self-insure the Owned Aircraft to such higher level.
(Owned Aircraft Indenture, Section 4.06(d))
Continental is also required to maintain war-risk, hijacking or allied
perils insurance if it (or any permitted sublessee or lessee) operates any
Aircraft, Airframe or Engine in any area of recognized or threatened hostilities
or if Continental (or any permitted sublessee or lessee) maintains such
insurance with respect to other aircraft on the same routes or areas or if the
Aircraft is operated outside the United States or Canada. Continental (but no
permitted sublessee or lessee) may self-insure to the extent of any hull or
liability insurance deductible imposed by the insurer, provided such deductibles
are commensurate with standard deductibles in the aircraft insurance industry.
(Leases, Annex D, Section H; Owned Aircraft Indenture, Section 4.06)
In respect of each Aircraft, Continental is required to cause the
relevant Loan Trustee and holders of the Equipment Notes and (in the case of the
Leased Aircraft) the relevant Owner Participant and Owner Trustee, in its
individual capacity and as owner of such Aircraft, and certain other parties to
be named as additional insured parties under all liability, hull and property
and war risk, hijacking and allied perils insurance policies required with
respect to such Aircraft. In addition, the insurance policies maintained under
the Leases and the Owned Aircraft Indenture will be required to provide that, in
respect of the interests of such additional insured persons, the insurance shall
not be invalidated or impaired by any act or omission of Continental or any
other person and to insure the respective interests of such additional insured
persons, regardless of any breach or violation of any representation, warranty,
declaration, term or condition contained in such policies by Continental, any
permitted sublessee or any other person. (Leases, Annex D, Section D; Owned
Aircraft Indenture, Section 4.06)
Lease Termination
Unless a Lease default or Lease Event of Default shall have occurred and
be continuing, Continental may terminate any Lease on any Lease Payment Date
occurring after the tenth anniversary of the date on which such Lease commenced
and on or before one year prior to the date on which such Lease is scheduled to
expire, if it determines that the Leased Aircraft subject to such Lease is
economically obsolete or surplus to its requirements. Such determination must be
made on a nondiscriminatory basis with respect to the Aircraft subject to such
Lease and all similar aircraft operated by Continental which could also be
terminated. Continental is
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required to give notice of its intention to exercise its right of termination
described in this paragraph at least six months prior to the proposed date of
termination (which notice may be withdrawn up to 25 days prior to such proposed
date if Continental determines that no bid for such Aircraft of a reasonable
amount has been received); provided that Continental may give only three such
termination notices. In such a situation, if the Owner Trustee elects (subject
to the rights of Continental to purchase the Aircraft as described below) to
sell such Aircraft, Continental is required to use best reasonable efforts to
sell such Aircraft as an agent for such Owner Trustee. If the Owner Trustee
elects to accept any bid, such Owner Trustee shall sell such Aircraft on the
date of termination to the highest cash bidder. If such sale occurs, the
Equipment Notes related thereto are required to be prepaid. The net proceeds of
such sale shall be payable to the applicable Owner Trustee. If the net proceeds
to be received from such sale are less than the termination value for such
Aircraft (which is set forth in a schedule to each Lease), Continental is
required to pay to the applicable Owner Trustee an amount equal to the excess,
if any, of the applicable termination value for such Aircraft over such net
proceeds. Upon payment of termination value for such Aircraft and an amount
equal to the Make-Whole Premium, if any, payable on such date of payment,
together with certain additional amounts and together with all accrued and
unpaid interest thereon, the lien of the relevant Indenture shall be released,
the relevant Lease shall terminate, and the obligation of Continental thereafter
to make scheduled rent payments under such Lease shall cease. However, certain
payment obligations of Continental shall survive the termination of the Lease.
If such Aircraft is not sold by the proposed termination date, such Lease,
including all of Continental's obligations thereunder, shall continue in effect,
and the Equipment Notes related thereto will not be prepaid. (Leases, Section 9;
Leased Aircraft Indentures, Section 2.10(b))
The Owner Trustee has the option to retain title to the Leased Aircraft
if Continental has given a notice of termination under the Lease. In such event,
such Owner Trustee shall pay to the applicable Loan Trustee an amount sufficient
to prepay the outstanding Equipment Notes issued with respect to such Aircraft,
and Continental shall pay to the Owner Trustee an amount equal to the excess, if
any, of the termination value of such Aircraft over the highest bona fide cash
bid made for such Aircraft, together with the Make-Whole Premium, if any, on
such Equipment Notes and all other amounts due and payable to the Owner Trustee
and Owner Participant under such Lease, the related Participation Agreement or
any other related operative document. (Leases, Section 9; Leased Aircraft
Indentures, Section 2.10(b))
Events of Loss
If an Event of Loss occurs with respect to the Airframe or the Airframe
and Engines of an Aircraft, Continental must elect within 20 days after such
occurrence either to make payment with respect to such Event of Loss or to
replace such Airframe and any such Engines. Not later than the first business
day following the sixty-first day following the date of occurrence of such Event
of Loss, or, if earlier, the second business day following the receipt of the
insurance proceeds in respect of such Event of Loss, Continental must either (i)
pay to the applicable Owner Trustee (in the case of a Leased Aircraft) or to the
Owned Aircraft Trustee (in the case of the Owned Aircraft) the stipulated loss
value of such Aircraft, together with certain additional amounts, but, in any
case, without any Make-Whole Premium or (ii) unless a Lease default or any Lease
Event of Default under the relevant Lease (in the case of a Leased Aircraft) or
a default or Indenture Event of Default under the Owned Aircraft Indenture (in
the case of the Owned Aircraft) shall have occurred and be continuing,
substitute an aircraft (or airframe and one or more engines, as the case may be)
for the Aircraft, Airframe or Engine(s) that suffered such Event of Loss.
(Leases, Sections 10.1.1 and 10.1.2; Leased Aircraft Indentures, Section
2.10(a); Owned Aircraft Indenture, Sections 2.10 and 4.05(a))
If Continental elects to replace an Aircraft (or Airframe or Airframe and
one or more Engines, as the case may be) that suffered such Event of Loss, it
shall, in the case of a Leased Aircraft, convey to the related Owner Trustee
title to an aircraft (or airframe or airframe and one or more engines, as the
case may be), and (i) in the case of any replacement airframe for a Leased
Aircraft, such airframe must be (a) manufactured by Boeing under a certain
purchase agreement between The Boeing Company and Continental and (b) delivered
under such agreement after the Airframe to be replaced was delivered to
Continental, (ii) such replacement airframe or airframe and engines must be the
same model as the Airframe or Airframe and Engines to be replaced or an improved
model, with performance and durability characteristics and a value, utility and
remaining useful life at
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least equal to, and in at least as good an operating condition as, the Airframe
or Airframe and Engines to be replaced (assuming that such Airframe and such
Engines were of the value and utility and in the condition and repair required
by the terms of the related Lease, immediately prior to the occurrence of such
Event of Loss). In the case of the Owned Aircraft, any replacement airframe and
engines must be of the same series as the Airframe or Engines or an improved
model of the manufacturer thereof and must have a value and utility at least
equal to, and be in as good operating condition and repair as, the Airframe and
Engines to be replaced (assuming such Airframe and Engines were in the condition
required by the terms of the Owned Aircraft Indenture). Continental is also
required to provide to the relevant Loan Trustee and (in the case of a Leased
Aircraft) the relevant Owner Trustee and Owner Participant (a) a certification
as to compliance with the foregoing requirements from a qualified aircraft
appraiser, together with a certified report setting forth such appraiser's
opinion as to the fair market value of such replacement airframe or engine and
(b) reasonably acceptable opinions of counsel to the effect that (i) Continental
or such Owner Trustee, as the case may be, will acquire good title to such
replacement airframe and, if applicable, replacement engine, free and clear of
all liens (other than permitted liens), (ii) such replacement airframe and, if
applicable, engine will be made subject to the applicable Indenture to the same
extent as the Airframe and, if applicable, Engine replaced thereby, (iii) in the
case of a Leased Aircraft, such Owner Trustee and Loan Trustee (as assignee of
lessor's rights and interests under the Lease) or the Owned Aircraft Trustee, in
the case of the Owned Aircraft, will be entitled to receive the benefits and
protections of Section 1110 of the U.S. Bankruptcy Code with respect to any such
replacement airframe and (to the extent such opinion can be rendered, in view of
applicable law) such replacement engine and (iv) such replacement airframe has
been duly registered and each supplement to such Lease or Indenture, as
applicable, has been duly recorded. (Leases, Sections 10.1.3 and 10.3; Owned
Aircraft Indenture, Section 4.05(c))
If Continental elects not to replace such Aircraft, then upon payment of
the outstanding principal amount of the Equipment Notes issued with respect to
such Aircraft (in the case of the Owned Aircraft) or the stipulated loss value
for such Aircraft (in the case of a Leased Aircraft), together with all
additional amounts then due and unpaid with respect to such Aircraft, which must
be at least sufficient to pay in full as of the date of payment thereof the
aggregate unpaid principal amount under such Equipment Notes together with
accrued but unpaid interest thereon and all other amounts due and owing in
respect of such Equipment Notes, the lien of the Indenture and (in the case of a
Leased Aircraft) the Lease relating to such Aircraft shall terminate with
respect to such Aircraft, the obligation of Continental thereafter to make the
scheduled rent payments (in the case of a Leased Aircraft) or interest and
principal payments (in the case of the Owned Aircraft) with respect thereto
shall cease and (in the case of a Leased Aircraft) the related Owner Trustee
shall transfer all of its right, title and interest in and to the related
Aircraft to Continental. The stipulated loss value and other payments made under
the Leases or the Owned Aircraft Indenture, as the case may be, by Continental
shall be deposited with the applicable Loan Trustee. Amounts in excess of the
amounts due and owing under the Equipment Notes issued with respect to such
Aircraft will be distributed by such Loan Trustee to the applicable Owner
Trustee or to Continental, as the case may be. (Leases, Section 10.1.2; Leased
Aircraft Indentures, Sections 2.06 and 3.02; Owned Aircraft Indenture, Sections
2.10 and 4.05(a)(ii))
If the Owned Aircraft Trustee (in the case of the Owned Aircraft) or the
Owner Trustee and the Leased Aircraft Trustee (in the case of a Leased Aircraft)
are not entitled to Section 1110 benefits with respect to any replacement
airframe or engine or if certain Lease defaults or any Lease Event of Default
(in the case of a Leased Aircraft) or any Indenture Event of Default (in the
case of the Owned Aircraft) has occurred and is continuing, Continental shall
not be entitled to replace such Airframe and shall be required instead to pay
the stipulated loss value applicable to such Airframe and the related Engines,
plus certain additional amounts (in the case of the Leased Aircraft) or the
outstanding principal amount of, and accrued interest on, the Equipment Notes
issued with respect to such Aircraft (in the case of the Owned Aircraft).
(Leases, Section 10.3.2; Owned Aircraft Indenture, Sections 2.10 and 4.05(e))
If an Event of Loss occurs with respect to an Engine alone, Continental
will be required to replace such Engine within 60 days after the occurrence of
such Event of Loss with another engine, free and clear of all liens (other than
certain permitted liens). Such replacement engine shall be the same make and
model as the Engine to be replaced, suitable for installation and use on the
Aircraft, and having performance and durability characteristics and a value and
utility at least equal to, and in at least as good an operating condition as,
the
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Engine to be replaced (assuming that such Engine was of the value and utility
and in the condition and repair required by the terms of the relevant Lease or
the Owned Aircraft Indenture, as the case may be, immediately prior to the
occurrence of the Event of Loss). (Leases, Section 10.2; Owned Aircraft
Indenture, Section 4.05(a)(ii))
An Event of Loss with respect to an Aircraft, Airframe or any Engine
means any of the following events with respect to such property: (i) the
destruction of such property, damage to such property beyond practical or
economic repair or rendition of such property permanently unfit for normal use;
(ii) the actual or constructive total loss of such property or any damage to
such property or requisition of title or use of such property which results in
an insurance settlement with respect to such property on the basis of a total
loss or a constructive or compromised total loss; (iii) any loss of such
property or loss of use of such property for a period of 90 days or more as a
consequence of any theft, hijacking or disappearance of such property; (iv) any
seizure, condemnation, confiscation, taking or requisition of title to such
property by any governmental entity or purported non-U.S. governmental entity;
(v) any seizure, condemnation, confiscation, taking or requisition of use of
such property that continues until the earliest to occur of (A) the last day of
the Lease term (in the case of a Leased Aircraft) or the maturity date of the
Equipment Notes (in the case of the Owned Aircraft), (B) the date on which the
Aircraft is modified in such a manner as would render conversion of such
property for use in normal commercial passenger service impractical or
uneconomical, (C) the date on which such property is operated or located in any
area excluded from coverage by any insurance policy required to be maintained by
the related Lease (in the case of a Leased Aircraft) or the Owned Aircraft
Indenture (in the case of the Owned Aircraft) (unless an indemnity from the U.S.
Government is obtained in lieu of such insurance), and (D) the date that is 90
days following the commencement of such loss of use (unless such loss of use
results from action by the U.S. Government); or (vi) as a result of any law,
rule, regulation, order or other action by the FAA or any governmental entity,
the use of such property in the normal course of Continental's business of
passenger air transportation is prohibited for 180 days (or 360 days, if
Continental diligently implements all steps which are necessary or desirable to
permit the normal use of such property by it) or for a period expiring on the
last day of the Lease term, whichever is earlier. (Leases, Annex A; Owned
Aircraft Indenture, Annex A)
Purchase Options under the Leases
So long as no Lease default or Lease Event of Default has occurred and is
continuing, Continental has the option to purchase any Leased Aircraft on the
last business day of the original Lease or on the last business day of either of
the two one-year renewal terms at a purchase price equal to the fair market
sales value of such Aircraft. The fair market sales value of such Aircraft shall
be determined not more than 170 days nor less than 150 days prior to the date of
purchase by mutual agreement of Continental and the Owner Trustee or, if they
are unable to agree, by an appraisal. Continental may exercise its purchase
option by delivering an irrevocable notice to the Owner Trustee not more than
180 days nor less than 120 days prior to the proposed date of purchase. The
Owner Trustee shall not be under any obligation to sell such Aircraft to
Continental if the fair market sales value of such Aircraft is determined to be
less than a certain minimum residual value amount. Upon receipt by the Owner
Trustee of payment of the applicable fair market sales value of such Aircraft
and all other amounts due and payable by Continental under the relevant Lease,
Participation Agreement and any other related operative document, the Owner
Trustee shall transfer title to such Aircraft to Continental, provided that all
related Equipment Notes have previously been paid in full. (Leases, Section
17.3; Leased Aircraft Indentures, Section 10.01)
The holder of the Equipment Notes issued under a Leased Aircraft
Indenture does not have any right to amounts payable by Continental in
connection with its exercise of purchase options for the related Leased Aircraft
to the extent that all amounts payable by the relevant Owner Trustee to such
holder under such Equipment Notes, such Indenture and related operative
agreements have been paid in full.
Events of Default under the Leases
Lease Events of Default under each Lease include, among other things, (i)
failure by Continental to make any payment of basic rent, renewal rent,
stipulated loss value or termination value under such Lease
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within five business days after the same shall have become due, or failure by
Continental to pay any other amount due under such Lease or under any other
related operative document within five business days from and after the date of
any written demand therefor from the Owner Trustee; (ii) failure by Continental
to make any excluded payment within five business days after written notice that
such failure constitutes a Lease Event of Default is given by the relevant Owner
Participant to Continental and the relevant Loan Trustee; (iii) failure by
Continental to carry and maintain insurance on and in respect of the Aircraft,
Airframe and Engines subject to such Lease, in accordance with the provisions of
such Lease or the operation of the Aircraft, Airframe or Engines subject to such
Lease at any time when such insurance is not in effect; (iv) failure by
Continental to maintain its corporate existence except as permitted by the
Lease, or the winding up, liquidation or dissolution of Continental; (v) failure
to maintain the registration of the Aircraft with the FAA or with a permitted
foreign registry, failure to record the Indenture or maintain the Indenture of
record as a first-priority, perfected mortgage (subject to permitted liens) or
operation of the Aircraft in any area excluded by insurance coverage required by
such Lease or in any recognized or threatened area of hostilities unless fully
covered by war-risk insurance, as required by Section 11 of such Lease (subject
to certain exceptions); (vi) breach of the covenants in such Lease pertaining to
possession, interchange and pooling of Engines and subleasing; (vii) breach of
certain prohibitions against attempted assignments by Continental of its
obligations under such Lease and against the merger of Continental with any
other person, except as expressly permitted by such Lease; and (viii) failure by
Continental to perform or observe any other covenant or agreement to be
performed or observed by it under such Lease or the related Participation
Agreement or any other related operative document (other than (a) the agreement
by Continental to treat the Lease as a lease for U.S. Federal income tax
purposes and (b) nonpayment provisions under the related tax indemnity agreement
between Continental and the Owner Participant), and such failure shall continue
unremedied for a period of 30 days (or such other shorter applicable period)
after written notice of such failure by the applicable Owner Trustee or Loan
Trustee; (ix) (a) any representation or warranty made by Continental in such
Lease or the related Participation Agreement or in any other related operative
document (other than in the related tax indemnity agreement between Continental
and the Owner Participant) shall prove to have been untrue, inaccurate or
misleading in any material respect at the time made, (b) such representation or
warranty is material at the time in question and (c) the same shall remain
uncured for more than 30 days after the date of written notice thereof to
Continental; and (x) the occurrence of certain voluntary events of bankruptcy,
reorganization or insolvency of Continental or the occurrence of involuntary
events of bankruptcy, reorganization or insolvency which shall continue
undismissed or unstayed for a period of 60 days. (Leases, Section 14)
Indenture Events of Default under the Owned Aircraft Indenture are
discussed above under "--Indenture Defaults, Notice and Waiver".
Remedies Exercisable upon Events of Default under the Lease
If a Lease Event of Default has occurred and is continuing, the
applicable Owner Trustee may (or, so long as the Indenture shall be in effect,
the applicable Loan Trustee may, subject to the terms of the Indenture) exercise
one or more of the remedies provided in such Lease with respect to the related
Aircraft. These remedies include the right to repossess and use or operate such
Aircraft, to rescind or terminate such Lease, to sell or re-lease such Aircraft
free and clear of Continental's rights, except as set forth in the Lease, and
retain the proceeds, and to require Continental to pay, as liquidated damages
any due and unpaid basic rent or renewal rent plus an amount equal to the excess
of the termination value for such Aircraft (specified in schedules to such
Lease) over, at such Owner Trustee's (or, subject to the terms of the relevant
Leased Aircraft Indenture, the Leased Aircraft Trustee's) option, any of (i) the
discounted fair market rental value of such Aircraft for the remainder of the
term of the Lease relating to such Aircraft (using a discount rate equal to 10
per cent per annum), (ii) the fair market sales value of such Aircraft or (iii)
if such Aircraft has been sold, the net sales proceeds from the sale of such
Aircraft (unless such Aircraft is sold at a private sale to the Owner Trustee,
Loan Trustee, Owner Participant or any of their affiliates, in which case the
fair market sales value shall be used). (Leases, Section 15; Indenture,
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Section 4.04) If the Loan Trustee has validly terminated such Lease, the Loan
Trustee may not sell or lease or otherwise afford the use of such Aircraft to
Continental or any of its affiliates. (Leased Aircraft Indentures, Sections 4.03
and 4.04)
Remedies under the Owned Aircraft Indenture are discussed above under
"--Remedies".
Notwithstanding that an Indenture Event of Default has occurred and is
continuing, so long as the Equipment Notes thereunder have not been accelerated
or the Loan Trustee has not taken action or notified the Owner Trustee that it
intends to take action to foreclose the lien of a Leased Aircraft Indenture or
otherwise commence the exercise of any significant remedy under such Indenture
or the related Lease, the Leased Aircraft Trustee may not, without the consent
of the Owner Trustee, enter into any amendment, modification, waiver or consent
in respect of any of the provisions of the related Lease, which consent shall
not be unreasonably withheld if no right or interest of the relevant Owner
Trustee or Owner Participant would be diminished or impaired thereby. (Leased
Aircraft Indentures, Section 5.02)
Transfer of Owner Participant Interests
Subject to certain restrictions, each Owner Participant may transfer all
or any part of, or grant participations in, its interest in the related Leased
Aircraft. (Participation Agreements, Section 12.1.1)
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
EXCHANGE OF OLD CERTIFICATES FOR NEW CERTIFICATES
The following summary describes the principal U.S. federal income tax
consequences to Certificateholders of the exchange of the Old Certificates for
New Certificates. This summary is intended to address the beneficial owners of
Certificates that are citizens or residents of the United States, corporations,
partnerships or other entities created or organized in or under the laws of the
United States or any State, or estates or trusts the income of which is subject
to U.S. federal income taxation regardless of its source that will hold the
Certificates as capital assets.
The exchange of Old Certificates for New Certificates (the "Exchange")
pursuant to the Exchange Offer will not be a taxable event for U.S. federal
income tax purposes. As a result, a holder of an Old Certificate whose Old
Certificate is accepted in an Exchange Offer will not recognize gain on the
Exchange. A tendering holder's tax basis in the New Certificates will be the
same as such holder's tax basis in its Old Certificates. A tendering holder's
holding period for the New Certificates received pursuant to the Exchange Offer
will include its holding period for the Old Certificates surrendered therefor.
ALL HOLDERS OF OLD CERTIFICATES ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE AND LOCAL TAX CONSEQUENCES
OF THE EXCHANGE OF OLD CERTIFICATES FOR NEW CERTIFICATES AND OF THE OWNERSHIP
AND DISPOSITION OF NEW CERTIFICATES RECEIVED IN THE EXCHANGE OFFER IN LIGHT OF
THEIR OWN PARTICULAR CIRCUMSTANCES.
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ERISA CONSIDERATIONS
IN GENERAL
ERISA imposes certain requirements on employee benefit plans subject to
ERISA ("ERISA Plans"), and on those persons who are fiduciaries with respect to
ERISA Plans. Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including, but not limited to, the requirement of investment
prudence and diversification and the requirement that an ERISA Plan's
investments be made in accordance with the documents governing the Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit certain
transactions involving the assets of an ERISA Plan (as well as those plans that
are not subject to ERISA but which are subject to Section 4975 of the Code, such
as individual retirement accounts (together with ERISA Plans, ("Plans")) and
certain persons (referred to as "parties in interest" or "disqualified persons")
having certain relationships to such Plans, unless a statutory or administrative
exemption is applicable to the transaction. A party in interest or disqualified
person who engages in a prohibited transaction may be subject to excise taxes
and other penalties and liabilities under ERISA and the Code.
The Department of Labor has promulgated a regulation, 29 CFR Section
2510.3-101 (the "Plan Asset Regulation"), describing what constitutes the assets
of a Plan with respect to the Plan's investment in an entity for purposes of
ERISA and Section 4975 of the Code. Under the Plan Asset Regulation, if a Plan
invests (directly or indirectly) in a Certificate, the Plan's assets will
include both the Certificate and an undivided interest in each of the underlying
assets of the corresponding Trust, including the Equipment Notes held by such
Trust, unless it is established that equity participation in the Trust by
employee benefit plans (including Plans and entities whose underlying assets
include plan assets by reason of an employee benefit plan's investment in the
entity) is not "significant" within the meaning of the Plan Asset Regulation. In
this regard, the extent to which there is equity participation in a particular
Trust by, or on behalf of, employee benefit plans will not be monitored. If the
assets of a Trust are deemed to constitute the assets of a Plan, transactions
involving the assets of such Trust could be subject to the prohibited
transaction provisions of ERISA and Section 4975 of the Code unless a statutory
or administrative exemption is applicable to the transaction.
The fiduciary of a Plan that proposes to purchase and hold any
Certificates should consider, among other things, whether such purchase and
holding may involve (i) the direct or indirect extension of credit to a party in
interest or a disqualified person, (ii) the sale or exchange of any property
between a Plan and a party in interest or a disqualified person, and (iii) the
transfer to, or use by or for the benefit of, a party in interest or a
disqualified person, of any Plan assets. In addition, whether or not the assets
of a Trust are deemed to be Plan assets under the Plan Asset Regulation, if
Certificates are purchased by a Plan and Certificates of a subordinate Class are
held by a party in interest or a disqualified person with respect to such Plan,
or vice versa, the exercise by the holder of the subordinate Class of
Certificates of its right to purchase the senior Classes of Certificates upon
the occurrence and during the continuation of a Triggering Event could be
considered to constitute a prohibited transaction unless a statutory or
administrative exemption were applicable. Depending on the identity of the Plan
fiduciary making the decision to acquire or hold Certificates on behalf of a
Plan, Prohibited Transaction Class Exemption ("PTCE") 91-38 (relating to
investments by bank collective investment funds), PTCE 84-14 (relating to
transactions effected by a "qualified professional asset manager"), PTCE 95-60
(relating to investments by an insurance company general account), PTCE 96-23
(relating to transactions directed by an in-house professional asset manager) or
PTCE 90-1 (relating to investments by insurance company pooled separate
accounts) (collectively, the "Class Exemptions") could provide an exemption from
the prohibited transaction provisions of ERISA and Section 4975 of the Code with
respect to such exercise of rights. However, there can be no assurance that any
of these Class Exemptions or any other exemption will be available with respect
to any particular transaction involving the Certificates.
Governmental plans and certain church plans, while not subject to the
fiduciary responsibility provisions of ERISA or the provisions of Section 4975
of the Code, may nevertheless be subject to state or other
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federal laws that are substantially similar to the foregoing provisions of ERISA
and the Code. Fiduciaries of any such plans should consult with their counsel
before purchasing any Certificates.
Any Plan fiduciary which proposes to cause a Plan to purchase any
Certificates should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and
Section 4975 of the Code to such an investment, and to confirm that such
purchase and holding will not constitute or result in a non-exempt prohibited
transaction or any other violation of an applicable requirement of ERISA.
CLASS A CERTIFICATES
An individual exemption may apply to the purchase, holding and secondary
market sale of Class A Certificates by Plans, provided that certain specified
conditions are met. In particular, the Department of Labor has issued individual
administrative exemptions to certain of the Initial Purchasers which are
substantially the same as the administrative exemption issued to Morgan Stanley
& Co., Incorporated, Prohibited Transaction Exemption 90-24 (55 Fed. Reg. 20,548
(1990)) (the "Underwriter Exemption"), which generally exempts from the
application of certain, but not all, of the prohibited transaction provisions of
Section 406 of ERISA and Section 4975 of the Code certain transactions relating
to the initial purchase, holding and subsequent secondary market sale of pass-
through certificates which represent an interest in a trust, the assets of which
include equipment notes secured by leases, provided that certain conditions set
forth in the Underwriter Exemption are satisfied.
The Underwriter Exemption sets a number of general and specific
conditions which must be satisfied for a transaction involving the initial
purchase, holding or secondary market sale of Class A Certificates to be
eligible for exemptive relief thereunder. In particular, the acquisition of
Class A Certificates by a Plan must be on terms that are at least as favorable
to the Plan as they would be in an arm's-length transaction with an unrelated
party; the rights and interests evidenced by the Certificates must not be
subordinated to the rights and interests evidenced by other Certificates of the
same trust estate; the Certificates at the time of acquisition by the Plan must
be rated in one of the three highest generic rating categories by Moody's,
Standard & Poor's, Duff & Phelps Inc. or Fitch Investors Service, Inc.; and the
investing Plan must be an accredited investor as defined in Rule 501(a)(1) of
Regulation D of the Commission under the Securities Act.
The Underwriter Exemption does not apply to the Class B, Class C or Class
D Certificates. Even if all of the conditions of the Underwriter Exemption are
satisfied with respect to the Class A Certificates, no assurance can be given
that the Exemption would apply with respect to all transactions involving the
Class A Certificates or the assets of the Class A Trust. In particular, it
appears that the Underwriter Exemption would not apply to the purchase by Class
B Certificateholders, Class C Certificateholders or Class D Certificateholders
of Class A Certificates in connection with the exercise of their rights upon the
occurrence and during the continuance of a Triggering Event. Therefore, the
fiduciary of a Plan considering the purchase of a Class A Certificate should
consider the availability of the exemptive relief provided by the Exemption, as
well as the availability of any other exemptions with respect to transactions to
which the Exemption may not apply.
CLASS B, CLASS C AND CLASS D CERTIFICATES
The Class B, Class C and Class D Certificates may not be acquired with
the assets of a Plan, except that such Certificates may be acquired with the
assets of an insurance company general account that may be deemed to constitute
Plan assets, provided that the conditions of PTCE 95-60 are satisfied at the
time of the acquisition (and during the holding) of such Certificates. By its
acceptance of a Class B Certificate, Class C Certificate or Class D Certificate,
each Certificateholder will be deemed to have represented and warranted that
either (i) no Plan assets have been used to purchase such Certificate or (ii)
the purchase and holding of such Certificate is exempt from the prohibited
transaction restrictions of ERISA and the Code pursuant to PTCE 95-60. See
"Transfer Restrictions".
Each Plan fiduciary (and each fiduciary for a governmental or church plan
subject to rules similar to those imposed on Plans under ERISA) should consult
with its legal advisor concerning an investment in any of the Certificates.
85
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Certificates for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Certificates. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Certificates received in
exchange for Old Certificates where such Old Certificates were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that, starting on the Expiration Date and ending on the close of business
180 days after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until such date all broker-dealers effecting transactions
in the New Certificates may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New
Certificates by broker-dealers. New Certificates received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Certificates or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Certificates. Any broker-dealer that resells New Certificates that were received
by it for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such New Certificates may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit of any such resale of New Certificates and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
Starting on the Expiration Date, the Company will promptly send
additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any broker-dealer that requests such documents in the Letter of
Transmittal. The Company has agreed to pay all expenses incident to the Exchange
Offer (including the expenses of one counsel for the Holders of the Notes) other
than commissions or concessions of any brokers or dealers and will indemnify the
Holders of the New Certificates (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Certificates and certain United States Federal
income taxation matters with respect to Section 382 will be passed upon for
Continental by Cleary, Gottlieb, Steen & Hamilton, New York, New York.
EXPERTS
The consolidated financial statements (including schedules) of
Continental Airlines, Inc. appearing in Continental Airlines, Inc.'s Annual
Report (Form 10-K) as of December 31, 1995 and 1994, and for the two years ended
December 31, 1995 and the period of April 28, 1993 through December 31, 1993,
and the consolidated statements of operations, redeemable and non-redeemable
preferred stock and common stockholders' equity and cash flows of Continental
Airlines Holdings, Inc. for the period of January 1, 1993 through April 27,
1993, incorporated by reference in this Prospectus have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon included
therein and incorporated herein by reference, in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
86
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- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REVERENCE IN THIS
PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE EXCHANGE AGENT. NEITHER THIS PROSPECTUS NOR
THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS, NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR
BOTH TOGETHER, NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AT ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THEREOF.
TABLE OF CONTENTS
<TABLE>
PAGE
----
<S> <C>
AVAILABLE INFORMATION............................................4
REPORTS TO PASS THROUGH CERTIFICATEHOLDERS.......................4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..................4
PROSPECTUS SUMMARY...............................................6
RISK FACTORS....................................................26
RECENT DEVELOPMENTS.............................................33
USE OF PROCEEDS.................................................35
SELECTED FINANCIAL DATA.........................................36
THE EXCHANGE OFFER..............................................38
DESCRIPTION OF THE NEW CERTIFICATES.............................45
DESCRIPTION OF THE LIQUIDITY FACILITIES.........................56
DESCRIPTION OF THE INTERCREDITOR AGREEMENT......................60
DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS..................64
DESCRIPTION OF THE EQUIPMENT NOTES..............................64
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES....................83
ERISA CONSIDERATIONS............................................84
PLAN OF DISTRIBUTION............................................86
LEGAL MATTERS...................................................86
EXPERTS.........................................................86
</TABLE>
- --------------------------------------------------------------------------------
CONTINENTAL AIRLINES, INC.
OFFER TO EXCHANGE
PASS THROUGH CERTIFICATES, SERIES 1996-2,
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
PASS THROUGH CERTIFICATES, SERIES 1996-2
PROSPECTUS
OCTOBER 2, 1996
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Company's Certificate of Incorporation and Bylaws provide that the
Company will indemnify each of its directors and officers to the full extent
permitted by the laws of the State of Delaware and may indemnify certain other
persons as authorized by the Delaware General Corporation Law (the "GCL").
Section 145 of the GCL provides as follows:
"(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b). Such
determination shall be made (1) by a majority vote of the board of directors who
are not parties to such action, suit or proceeding, even though less than a
quorum, or (2) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (3) by the stockholders.
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<PAGE>
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative, or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of undertaking
by or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this section. Such expenses (including attorneys'
fees) incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent for such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporations obligation to advance expenses (including attorneys'
fees)."
The Certificate of Incorporation and Bylaws also limit the personal
liability of directors to the Company and its stockholders for monetary damages
resulting from certain breaches of the directors fiduciary duties. The bylaws of
the Company provide as follows:
II-2
<PAGE>
"No Director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the. . . GCL, or (iv) for any
transaction from which the Director derived any improper personal benefit. If
the GCL is amended to authorize corporate action further eliminating or limiting
the personal liability of Directors, then the liability of Directors of the
Corporation shall be eliminated or limited to the full extent permitted by the
GCL, as so amended."
The Company maintains directors' and officers' liability insurance.
Item 21. Exhibits.
Exhibit
Number Exhibit Description
- ------- -------------------
4.1** Form of New 7.75% Continental Airlines Pass Through Certificate
Series 1996-2A (included in Exhibit 4.5)
4.2** Form of New 8.56% Continental Airlines Pass Through Certificate
Series 1996-2B (included in Exhibit 4.6)
4.3** Form of New 10.22% Continental Airlines Pass Through Certificate
Series 1996-2C (included in Exhibit 4.7)
4.4** Form of New 11.50% Continental Airlines Pass Through Certificate
Series 1996-2D (included in Exhibit 4.8)
4.5** Pass Through Trust Agreement, dated as of May 20, 1996, between
Continental Airlines, Inc., and Wilmington Trust Company, as
Trustee, relating to the formation of Continental Airlines
1996-2A Pass Through Trust
4.6** Pass Through Trust Agreement, dated as of May 20, 1996, between
Continental Airlines, Inc., and Wilmington Trust Company, as
Trustee, relating to the formation of Continental Airlines
1996-2B Pass Through Trust
4.7** Pass Through Trust Agreement, dated as of May 20, 1996, between
Continental Airlines, Inc., and Wilmington Trust Company, as
Trustee, relating to the formation of Continental Airlines
1996-2C Pass Through Trust
4.8** Pass Through Trust Agreement, dated as of May 20, 1996, between
Continental Airlines, Inc., and Wilmington Trust Company, as
Trustee, relating to the formation of Continental Airlines
1996-2D Pass Through Trust
4.9** Revolving Credit Agreement, dated May 20, 1996, between
Wilmington Trust Company, as Subordination Agent, as agent and
trustee for the Continental Airlines 1996-2A Pass Through Trust,
as Borrower and DNIB as Liquidity Provider
4.10** Revolving Credit Agreement, dated May 20, 1996, between
Wilmington Trust Company, as Subordination Agent, as agent and
trustee for the Continental Airlines 1996-2B Pass Through Trust,
as Borrower and DNIB as Liquidity Provider
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<PAGE>
4.11** Revolving Credit Agreement, dated May 20, 1996, between
Wilmington Trust Company, as Subordination Agent, as agent and
trustee for the Continental Airlines 1996-2C Pass Through Trust,
as Borrower and DNIB as Liquidity Provider
4.12** Intercreditor Agreement dated as of May 20, 1996, among
Wilmington Trust Company, as Trustee under the Continental
Airlines Pass Through Trust 1996-2A, Continental Airlines Pass
Through Trust 1996-2B, Continental Airlines Pass Through Trust
1996-2C and Continental Pass Through Trust 1996-2D, DNIB, as
Class A Liquidity Provider, Class B Liquidity Provider, Class C
Liquidity Provider, and Wilmington Trust Company, as
Subordination Agent and Trustee
4.13** Registration Rights Agreement, dated as of May 20, 1996, among
Continental Airlines, Inc., Wilmington Trust Company, as Trustee
under Continental Airlines Pass Through Trust 1996-2A,
Continental Airlines Pass Through Trust 1996-2B, Continental
Airlines Pass Through Trust 1996-2C, Continental Airlines Pass
Through Trust 1996-2D, and the Initial Purchasers
4.14*** Form of Refunding Agreement 114 & 115, dated as of May 20, 1996,
among Continental Airlines, Inc., as Lessee, First Security Bank
of Utah, National Association, as Owner Trustee, Wilmington Trust
Company, as Pass Through Trustee under each of the Continental
Airlines 1996-2 Pass Through Trust Agreements, Fleet National
Bank, formerly named Shawmut Bank Connecticut, National
Association, as Original Pass Through Trustee and Loan
Participant, Gaucho-2 Inc., as Owner Participant, Rolls-Royce
PLC, as Guarantor, Wilmington Trust Company, as Subordination
Agent, Wilmington Trust Company, as Loan Trustee, and Morgan
Stanley & Co. Incorporated, as Aero Trust Certificateholder
4.15*** Form of Amended and Restated Participation Agreement 114 & 115
dated as of July 1, 1995, among Continental Airlines, Inc., as
Lessee, Gaucho-2 Inc., as Owner Participant, Wilmington Trust
Company, as Subordination Agent under the Intercreditor Agreement
and as Loan Participant, First Security Bank of Utah, National
Association, as Owner Trustee, and Wilmington Trust Company, as
Loan Trustee
4.16*** Form of Amended and Restated Lease Agreement 114 & 115 dated as
of July 1, 1995 between First Security Bank of Utah, National
Association, as Owner Trustee and as Lessor and Continental
Airlines, Inc., as Lessee
4.17*** Form of Amended and Restated Trust Indenture and Mortgage 114 &
115, dated as of May 20, 1996, between First Security Bank of
Utah, National Association, as Owner Trustee, and Wilmington
Trust Company, as Loan Trustee
4.18*** Form of Trust Agreement 114 & 115 Amendment No. 1 dated May 20,
1996 between Gaucho-2 Inc. as Owner Participant and First
Security Bank of Utah, National Association, as Owner
Trustee
II-4
<PAGE>
4.19*** Form of Refunding Agreement 116 & 117, dated as of May 20, 1996,
among Continental Airlines, Inc., as Lessee, First Security Bank
of Utah, National Association, as Owner Trustee, Wilmington Trust
Company, as Pass Through Trustee under each of the Continental
Airlines 1996-2 Pass Through Trust Agreements, The Boeing
Company, as Loan Participant, Gaucho-2 Inc., as Owner
Participant, Wilmington Trust Company, as Subordination Agent,
and Wilmington Trust Company, as Loan Trustee
4.20*** Form of Participation Agreement 116 & 117 Amendment No. 1
dated May 20, 1996, among Continental Airlines, Inc., as Lessee,
Gaucho-2 Inc., as Owner Participant, Wilmington Trust Company, as
Subordination Agent under the Intercreditor Agreement and as Loan
Participant, First Security Bank of Utah, National Association,
as Owner Trustee and Wilmington Trust Company, as Loan
Trustee
4.21*** Form of Lease Agreement 116 & 117 Amendment No. 1 dated May 20,
1996 between First Security Bank of Utah, National Association,
as Owner Trustee and Lessor and Continental Airlines, Inc., as
Lessee
4.22*** Form of Amended and Restated Trust Indenture and Mortgage 116 &
117, dated as of May 20, 1996, between First Security Bank of
Utah, National Association, as Owner Trustee, and Wilmington
Trust Company, as Loan Trustee
4.23** Note Purchase Agreement 637 dated May 20, 1996 among Continental
Airlines, Inc. as Owner, Wilmington Trust Company as Pass Through
Trustee under each of the Continental Airlines 1996-2 Pass
Through Trust Agreements, Wilmington Trust Company, as
Subordination Agent and Wilmington Trust Company as Loan
Trustee
4.24** Trust Indenture and Mortgage 637 dated May 20, 1996 between
Continental Airlines, Inc., as Owner, and Wilmington Trust
Company, as Loan Trustee
4.25** Trust Indenture and Mortgage 637 Supplement No. 1 dated May 20,
1996 between Continental Airlines, Inc., as Owner, and Wilmington
Trust Company, as Loan Trustee
4.26*** Form of Series A Equipment Note, dated May 20, 1996, 1996, by
First Security Bank of Utah, National Association, as Owner
trustee, payable to Wilmington Trust Company, as Subordination
Agent under the Intercreditor Agreement
4.27*** Form of Series B Equipment Note, dated May 20, 1996, by First
Security Bank of Utah, National Association, as Owner trustee,
payable to Wilmington Trust Company, as Subordination Agent under
the Intercreditor Agreement
4.28*** Form of Series C Equipment Note, dated May 20, 1996, by First
Security Bank of Utah, National Association, as Owner trustee,
payable to Wilmington Trust Company, as Subordination Agent under
the Intercreditor Agreement
4.29*** Form of Series D Equipment Note, dated May 20, 1996, by First
Security Bank of Utah, National Association, as Owner trustee,
payable to Wilmington Trust Company, as Subordination Agent under
the Intercreditor Agreement
5.1** Opinion of Cleary, Gottlieb, Steen & Hamilton relating to
validity of New Certificates
II-5
<PAGE>
12.1 Computation of Ratio of Earnings to Fixed Charges (incorporated
by reference to the Company's Registration Statement
(File No. 333-07899))
23.1** Consent of Ernst & Young LLP
23.2** Consent of Cleary, Gottlieb, Steen & Hamilton (included in its
opinion filed as exhibit 5.1)
23.3** Consent of Aircraft Information Services, Inc.
23.4** Consent of BK Associates, Inc.
23.5** Consent of Morten Beyer and Associates, Inc.
23.6** Consent of Cleary, Gottlieb, Steen & Hamilton
24.1* Power of Attorney of Lloyd M. Bentsen, Jr.
25.1** Statement of Eligibility of Wilmington Trust Company for the
1996-2A Pass Through Certificates, on Form T-1
25.2** Statement of Eligibility of Wilmington Trust Company for the
1996-2B Pass Through Certificates, on Form T-1
25.3** Statement of Eligibility of Wilmington Trust Company for the
1996-2C Pass Through Certificates, on Form T-1
25.4** Statement of Eligibility of Wilmington Trust Company for the
1996-2D Pass Through Certificates, on Form T-1
99.1** Form of Letter of Transmittal
99.2** Form of Notice of Guaranteed Delivery
99.3** Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees
99.4** Form of Letter to Clients
- -------------
* Filed herewith. All other Powers of Attorney of the officers and
directors have been previously filed.
** Previously filed.
*** Previously filed. With respect to such Exhibits, separate agreements
have been entered into with respect to each Aircraft. Except for differences in
designations, dollar amounts, interest rates, percentages, final distribution
dates, Aircraft Registration numbers, Manufacturer's Serial Numbers for Aircraft
and Engines and the like, as applicable, there are no material details in which
any such agreements not filed herewith differ from the corresponding Exhibit for
the forms of such documents.
Item 22. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section l0(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration (or the most recent post-
effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the
II-6
<PAGE>
registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and
of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii)
shall not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to section 13
or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plans annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant, pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by any such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
or not such indemnification is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b))(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-4 and has duly caused this Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on October 2, 1996.
CONTINENTAL AIRLINES, INC.
By: /s/ Jeffery A. Smisek
____________________________
Jeffery A. Smisek
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities indicated, on October 2, 1996.
Signature Title
--------- -----
*
- ------------------------
Gordon M. Bethune President, Chief Executive Officer (Principal
Executive Officer) and Director
*
- ------------------------ Senior Vice President and Chief Financial
Lawrence W. Kellner Officer (Principal Financial Officer)
*
- ------------------------ Staff Vice President and Controller
Michael P. Bonds (Principal Accounting Officer)
*
- ------------------------ Director
Thomas J. Barrack, Jr.
*
- ------------------------ Director
Lloyd M. Bentsen, Jr.
*
- ------------------------ Director
David Bonderman
*
- ------------------------ Director
Gregory D. Brenneman
*
- ------------------------ Director
Patrick Foley
*
- ------------------------ Director
Douglas H. McCorkindale
*
- ------------------------ Director
George G.C. Parker
*
- ------------------------ Director
Richard W. Pogue
II-9
<PAGE>
*
- ------------------------ Director
William S. Price III
*
- ------------------------ Director
Donald L. Sturm
*
- ------------------------ Director
Karen Hastie Williams
*
- ------------------------ Director
Charles A. Yamarone
*By: /s/ Jeffery A. Smisek
- ----------------------------
Jeffery A. Smisek,
Attorney-in-fact
II-10
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Description
- ------- -------------------
4.1** Form of New 7.75% Continental Airlines Pass Through Certificate
Series 1996-2A (included in Exhibit 4.5)
4.2** Form of New 8.56% Continental Airlines Pass Through Certificate
Series 1996-2B (included in Exhibit 4.6)
4.3** Form of New 10.22% Continental Airlines Pass Through Certificate
Series 1996-2C (included in Exhibit 4.7)
4.4** Form of New 11.50% Continental Airlines Pass Through Certificate
Series 1996-2D (included in Exhibit 4.8)
4.5** Pass Through Trust Agreement, dated as of May 20, 1996, between
Continental Airlines, Inc., and Wilmington Trust Company, as
Trustee, relating to the formation of Continental Airlines
1996-2A Pass Through Trust
4.6** Pass Through Trust Agreement, dated as of May 20, 1996, between
Continental Airlines, Inc., and Wilmington Trust Company, as
Trustee, relating to the formation of Continental Airlines
1996-2B Pass Through Trust
4.7** Pass Through Trust Agreement, dated as of May 20, 1996, between
Continental Airlines, Inc., and Wilmington Trust Company, as
Trustee, relating to the formation of Continental Airlines
1996-2C Pass Through Trust
4.8** Pass Through Trust Agreement, dated as of May 20, 1996, between
Continental Airlines, Inc., and Wilmington Trust Company, as
Trustee, relating to the formation of Continental Airlines
1996-2D Pass Through Trust
4.9** Revolving Credit Agreement, dated May 20, 1996, between
Wilmington Trust Company, as Subordination Agent, as agent and
trustee for the Continental Airlines 1996-2A Pass Through Trust,
as Borrower and DNIB as Liquidity Provider
4.10** Revolving Credit Agreement, dated May 20, 1996, between
Wilmington Trust Company, as Subordination Agent, as agent and
trustee for the Continental Airlines 1996-2B Pass Through Trust,
as Borrower and DNIB as Liquidity Provider
4.11** Revolving Credit Agreement, dated May 20, 1996, between
Wilmington Trust Company, as Subordination Agent, as agent and
trustee for the Continental Airlines 1996-2C Pass Through Trust,
as Borrower and DNIB as Liquidity Provider
4.12** Intercreditor Agreement dated as of May 20, 1996, among
Wilmington Trust Company, as Trustee under the Continental
Airlines Pass Through Trust 1996-2A, Continental Airlines Pass
Through Trust 1996-2B, Continental Airlines Pass Through Trust
1996-2C and Continental Pass Through Trust 1996-2D, DNIB, as
Class A Liquidity Provider, Class B Liquidity Provider, Class C
Liquidity Provider, and Wilmington Trust Company, as
Subordination Agent and Trustee
<PAGE>
4.13** Registration Rights Agreement, dated as of May 20, 1996, among
Continental Airlines, Inc., Wilmington Trust Company, as Trustee
under Continental Airlines Pass Through Trust 1996-2A,
Continental Airlines Pass Through Trust 1996-2B, Continental
Airlines Pass Through Trust 1996-2C, Continental Airlines Pass
Through Trust 1996-2D, and the Initial Purchasers
4.14*** Form of Refunding Agreement 114 & 115, dated as of May 20, 1996,
among Continental Airlines, Inc., as Lessee, First Security Bank
of Utah, National Association, as Owner Trustee, Wilmington
Trust Company, as Pass Through Trustee under each of the
Continental Airlines 1996-2 Pass Through Trust Agreements, Fleet
National Bank, formerly named Shawmut Bank Connecticut, National
Association, as Original Pass Through Trustee and Loan
Participant, Gaucho-2 Inc., as Owner Participant, Rolls-Royce
PLC, as Guarantor, Wilmington Trust Company, as Subordination
Agent, Wilmington Trust Company, as Loan Trustee, and Morgan
Stanley & Co. Incorporated, as Aero Trust Certificateholder
4.15*** Form of Amended and Restated Participation Agreement 114 & 115
dated as of July 1, 1995, among Continental Airlines, Inc., as
Lessee, Gaucho-2 Inc., as Owner Participant, Wilmington Trust
Company, as Subordination Agent under the Intercreditor
Agreement and as Loan Participant, First Security Bank of Utah,
National Association, as Owner Trustee, and Wilmington Trust
Company, as Loan Trustee
4.16*** Form of Amended and Restated Lease Agreement 114 & 115 dated as
of July 1, 1995 between First Security Bank of Utah, National
Association, as Owner Trustee and as Lessor and Continental
Airlines, Inc., as Lessee
4.17*** Form of Amended and Restated Trust Indenture and Mortgage 114 &
115, dated as of May 20, 1996, between First Security Bank of
Utah, National Association, as Owner Trustee, and Wilmington
Trust Company, as Loan Trustee
4.18*** Form of Trust Agreement 114 & 115 Amendment No. 1 dated May 20,
1996 between Gaucho-2 Inc. as Owner Participant and First
Security Bank of Utah, National Association, as Owner
Trustee
4.19*** Form of Refunding Agreement 116 & 117, dated as of May 20, 1996,
among Continental Airlines, Inc., as Lessee, First Security Bank
of Utah, National Association, as Owner Trustee, Wilmington
Trust Company, as Pass Through Trustee under each of the
Continental Airlines 1996-2 Pass Through Trust Agreements, The
Boeing Company, as Loan Participant, Gaucho-2 Inc., as Owner
Participant, Wilmington Trust Company, as Subordination Agent,
and Wilmington Trust Company, as Loan Trustee
4.20*** Form of Participation Agreement 116 & 117 Amendment No. 1 dated
May 20, 1996, among Continental Airlines, Inc., as Lessee,
Gaucho-2 Inc., as Owner Participant, Wilmington Trust Company,
as Subordination Agent under the Intercreditor Agreement and as
Loan Participant, First Security Bank of Utah, National
Association, as Owner Trustee and Wilmington Trust Company, as
Loan Trustee
4.21*** Form of Lease Agreement 116 & 117 Amendment No. 1 dated May 20,
1996 between First Security Bank of Utah, National Association,
as Owner Trustee and Lessor and Continental Airlines, Inc., as
Lessee
<PAGE>
4.22*** Form of Amended and Restated Trust Indenture and Mortgage 116 &
117, dated as of May 20, 1996, between First Security Bank of
Utah, National Association, as Owner Trustee, and Wilmington
Trust Company, as Loan Trustee
4.23** Note Purchase Agreement 637 dated May 20, 1996 among Continental
Airlines, Inc. as Owner, Wilmington Trust Company as Pass
Through Trustee under each of the Continental Airlines 1996-2
Pass Through Trust Agreements, Wilmington Trust Company, as
Subordination Agent and Wilmington Trust Company as Loan
Trustee
4.24** Trust Indenture and Mortgage 637 dated May 20, 1996 between
Continental Airlines, Inc., as Owner, and Wilmington Trust
Company, as Loan Trustee
4.25** Trust Indenture and Mortgage 637 Supplement No. 1 dated May 20,
1996 between Continental Airlines, Inc., as Owner, and
Wilmington Trust Company, as Loan Trustee
4.26*** Form of Series A Equipment Note, dated May 20, 1996, 1996, by
First Security Bank of Utah, National Association, as Owner
trustee, payable to Wilmington Trust Company, as Subordination
Agent under the Intercreditor Agreement
4.27*** Form of Series B Equipment Note, dated May 20, 1996, by First
Security Bank of Utah, National Association, as Owner trustee,
payable to Wilmington Trust Company, as Subordination Agent
under the Intercreditor Agreement
4.28*** Form of Series C Equipment Note, dated May 20, 1996, by First
Security Bank of Utah, National Association, as Owner trustee,
payable to Wilmington Trust Company, as Subordination Agent
under the Intercreditor Agreement
4.29*** Form of Series D Equipment Note, dated May 20, 1996, by First
Security Bank of Utah, National Association, as Owner trustee,
payable to Wilmington Trust Company, as Subordination Agent
under the Intercreditor Agreement
5.1** Opinion of Cleary, Gottlieb, Steen & Hamilton relating to
validity of New Certificates
12.1 Computation of Ratio of Earnings to Fixed Charges (incorporated
by reference to the Company's Registration Statement
(File No.333-07899))
23.1** Consent of Ernst & Young LLP
23.2** Consent of Cleary, Gottlieb, Steen & Hamilton (included in its
opinion filed as exhibit 5.1)
23.3** Consent of Aircraft Information Services, Inc.
23.4** Consent of BK Associates, Inc.
23.5** Consent of Morten Beyer and Associates, Inc.
23.6** Consent of Cleary, Gottlieb, Steen & Hamilton
24.1* Power of Attorney of Lloyd M. Bentsen, Jr.
25.1** Statement of Eligibility of Wilmington Trust Company for the
1996-2A Pass Through Certificates, on Form T-1
25.2** Statement of Eligibility of Wilmington Trust Company for the
1996-2B Pass Through Certificates, on Form T-1
<PAGE>
25.3** Statement of Eligibility of Wilmington Trust Company for the
1996-2C Pass Through Certificates, on Form T-1
25.4** Statement of Eligibility of Wilmington Trust Company for the
1996-2D Pass Through Certificates, on Form T-1
99.1** Form of Letter of Transmittal
99.2** Form of Notice of Guaranteed Delivery
99.3** Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees
99.4** Form of Letter to Clients
- -----------------
* Filed herewith. All other Powers of Attorney of the officers and
directors have been previously filed.
** Previously Filed.
*** Previously filed. With respect to such Exhibits, separate agreements have
been entered into with respect to each Aircraft. Except for differences in
designations, dollar amounts, interest rates, percentages, final distribution
dates, Aircraft Registration numbers, Manufacturers Serial Numbers for Aircraft
and Engines and the like, as applicable, there are no material details in which
any such agreements not filed herewith differ from the corresponding Exhibit for
the forms of such documents.
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
The undersigned director of Continental Airlines, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint Lawrence W.
Kellner, Jeffery A. Smisek and Scott R. Peterson, or any of them, as the
undersigned's true and lawful attorneys in-fact and agents to do any and all
things in the undersigned's name and behalf in the undersigned's capacity as a
director of the Company, and to execute any and all instruments for the
undersigned and in the undersigned's name and capacity as a director that such
person or persons may deem necessary or advisable to enable the Company to
comply with the Securities Act of 1933, as amended, and any rules, regulations
or requirements of the Securities and Exchange Commission in connection with
that certain Registration Statement on Form S-4 relating to the Continental
Airlines Pass Through Certificates, Series 1996-2 (the "Registration
Statement"), including specifically, but not limited to, power and authority to
sign for the undersigned in the capacity as a director of the Company the
Registration Statement, and any and all amendments thereto, including post-
effective amendments, and the undersigned does hereby ratify and confirm all
that such person or persons shall do or cause to be done by virtue hereof.
/s/ Lloyd M. Bentsen
------------------------
Lloyd M. Bentsen
Dated and effective as of September 16, 1996
