<PAGE>
As filed with the Securities and Exchange Commission on July 25, 1996
REGISTRATION NO. 333-04827
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
AMENDMENT NO. 2
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
REGISTRANT'S 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
OF THE SECURITIES TO THE PUBLIC:
As soon as practicable after this Registration Statement 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: [_]
------------------------------
<TABLE>
---------------------------------
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED UNIT PRICE (1) FEE/(2)/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pass Through Certificates $ 290,000 100% $ 290,000 $ 100
====================================================================================================================================
(1) Estimated solely for the purposes of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933, as
amended.
(2) Pursuant to Rule 429, a registration fee of $344,827.59 was previously paid in connection with the registration of up to
$1,000,000,000 in aggregate principal amount of pass through certificates and debt securities under a Registration Statement on
Form S-3 (File No. 33-79688) filed by the Registrant.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONTINENTAL AIRLINES, INC.
CROSS-REFERENCE SHEET
<C> <S> <C>
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN THE PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS IN FORM S-4
ITEM
----
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
Required 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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>
SUBJECT TO COMPLETION--DATED JULY 25, 1996
PROSPECTUS
Continental Airlines, Inc.
Offer to Exchange Pass Through Certificates, Series 1996,
which have been registered under the Securities Act of 1933, as amended,
for any and all outstanding Pass Through Certificates, Series 1996
The Exchange Offer will expire at 5:00 p.m., New York City time, on
August 28, 1996, unless extended.
Pass Through Certificates, Series 1996 (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 (the "Old Certificates"), of which $489,267,000 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 August 28, 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."
(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 27 OF
THIS PROSPECTUS.
--------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Final Expected
Pass Through Certificates Principal Amount Interest Rate Distribution Date
------------------------- ---------------- ------------- -----------------
1996-A................... $269,518,000 6.94% October 15, 2013
1996-B................... $ 94,332,000 7.82% October 15, 2013
1996-C................... $ 74,117,000 9.50% October 15, 2013
1996-D................... $ 51,300,000 12.48% October 15, 2013
------------
TOTAL $489,267,000
--------------------
</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 July __ , 1996
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ 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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
<PAGE>
Each Certificate represents a fractional undivided interest in one of the
four Continental Airlines 1996 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 holders of such Certificates, each such facility provided
initially by Credit Suisse, acting through its New York branch, in an amount
sufficient to pay interest thereon at the applicable interest rate for such
Trust on six successive quarterly distribution dates. The Certificates issued by
the Class D Trust were acquired by the Owner Participant (as defined herein) or
its affiliate.
The property of the Trusts includes, among other things, equipment notes
(the "Equipment Notes") issued on a nonrecourse basis by the trustees of
separate owner trusts (each, an "Owner Trustee") in connection with 18 separate
leveraged lease transactions that refinanced the indebtedness of such Owner
Trustees, originally incurred to finance the purchase of nine Boeing 737-524
aircraft and nine Boeing 757-224 aircraft (collectively, the "Aircraft") which
have been leased to Continental. The Equipment Notes in respect of each Aircraft
were issued in four series. Each Trust has purchased one series of the Equipment
Notes issued with respect to each of the Aircraft such that all of the Equipment
Notes held in each Trust will have an interest rate corresponding to the
interest rate applicable to the Certificates issued by such Trust. The maturity
dates of the Equipment Notes acquired by each Trust will occur on or before the
final expected distribution date applicable to the Certificates issued by such
Trust. The Equipment Notes issued with respect to each Aircraft are secured by a
security interest in such Aircraft and an assignment of the lease relating
thereto, including the right to receive rentals payable with respect to such
Aircraft by Continental. Although neither the Certificates nor the Equipment
Notes are direct obligations of, or guaranteed by, Continental, the amounts
unconditionally payable by Continental for lease of the Aircraft will be
sufficient to pay in full when due all amounts required to be paid on the
Equipment Notes held in the Trusts.
All of the Equipment Notes held in each Trust will accrue interest at the
applicable rate per annum for such Trust, payable on January 15, April 15, July
15 and October 15 of each year commencing on April 15, 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. 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 15,
April 15, July 15 and October 15 in certain years, commencing on January 15,
1997, in the case of each of the Class A Trust, the Class B Trust and the Class
C Trust and January 15, 1999, 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).
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 Series
A Notes is engaged in or intends to engage in a distribution of the Series B
Notes or has any arrangement or understanding with respect to the distribution
of the Series B Notes 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 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."
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.
2
<PAGE>
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 Certificates through the National Association of
Securities Dealers Automated Quotation System. One or more of CS First Boston
Corporation, Morgan Stanley & Co. Incorporated, Lehman Brothers, Merrill Lynch &
Co. and FIELDSTONE FPCG SERVICES, L.P. (the "Initial Purchasers") have
previously made a market in the Old Certificates and Continental has been
advised by the Initial Purchasers that one or more of them intends 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 Contintental. 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 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 Report on Form 10-Q for the quarter ended March 31,
1996, (iii) Continental's Current Reports on Form 8-K, filed on January 31,
1996, March 26, 1996, May 7, 1996, June 27, 1996 and July 22, 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 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 DELIVER OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY
AUGUST __, 1996.
4
<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 or incorporated by reference 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. All route, fleet, traffic
and similar information appearing in this Prospectus is as of or for the period
ended April 30, 1996, unless otherwise stated herein.
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 three months of 1996) and, together with its wholly owned subsidiary,
Continental Express, Inc. ("Express"), and its 91%-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 Guam and
Saipan. Each of Continental's 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 131 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 59 destinations and
offers additional connecting service through alliances with foreign carriers.
Continental operates 66 weekly departures to six European cities and markets
service to eight other cities through code-sharing agreements. 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, including service
between Newark and Bogota, Colombia, with service on to Quito, Ecuador which
began in June 1996. 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 January 31, 1996 to the Initial Purchasers
and the Owner Participant. 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, $489,267,000 aggregate principal amount
of Old Certificates are outstanding. Old Certificates may be tendered only in
integral
5
<PAGE>
multiples of $1000.
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 Series
A Notes is engaged in or intends to engage in a distribution of the Series B
Notes or has any arrangement or understanding with respect to the distribution
of the Series B Notes 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
6
<PAGE>
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 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--
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 August 28, 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 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 15, April 15,
July 15 and October 15 of each year commencing April 15, 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
7
<PAGE>
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 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's 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 and C Certificates were used to purchase the Series A, B and
C Equipment Notes
8
<PAGE>
issued by the related Owner Trustees in connection with the refinancing of the
indebtedness incurred by the Owner Trustees to finance the purchase of each
Aircraft. Such Equipment Notes, together with the Series D Equipment Notes
contributed to the Class D Trust by the Owner Participant, represent in the
aggregate the entire debt portion currently outstanding of the leveraged lease
transactions relating to all of the Aircraft. Continental did not receive any of
the proceeds from the original sale of the Old Certificates. See "Use of
Proceeds."
SUMMARY OF TERMS OF NEW CERTIFICATES
The Exchange Offer relates to the exchange of up to $489,267,000
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 Indenture which governs 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."
For additional information concerning the New Certificates, see "Description of
New Certificates."
Trusts
Each of the Continental Airlines 1996-A Pass Through Trust, the Continental
Airlines 1996-B Pass Through Trust, the Continental Airlines 1996-C Pass Through
Trust and the Continental Airlines 1996-D Pass Through Trust was formed pursuant
to one of the four separate Pass Through Trust Agreements entered into between
the Company and Wilmington Trust Company, as trustee under each Trust. Each
Trust is a separate entity.
Certificates Offered
Pass Through Certificates issued by each Trust, representing fractional
undivided interests in such Trust. The 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
Initially, Credit Suisse, a bank organized under the laws of Switzerland, acting
through its New York branch ("Credit Suisse"). Credit Suisse has provided three
separate liquidity facilities for the benefit of the holders of Class A
Certificates, Class B Certificates and Class C Certificates, respectively.
Trust Property
The property of each Trust (the "Trust Property") consists of (i) Equipment
Notes issued on a nonrecourse basis by each of the Owner Trustees in 18 separate
leveraged lease transactions that refinanced the indebtedness of the related
Owner Trustee, originally
9
<PAGE>
incurred to finance the purchase of each of nine Boeing 737-524 Aircraft and
nine Boeing 757-224 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 each Aircraft were issued in
four series under an Indenture (each, an "Indenture") between the applicable
Owner Trustee and the indenture trustee thereunder (the "Loan Trustee"). Each
Trust has acquired, pursuant to certain Refunding Agreements (each, a "Refunding
Agreement"), 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 held in each Trust is the same as the aggregate original face amount of
the Certificates issued by such Trust.
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 $269,518,000 $94,332,000 $74,117,000 $51,300,000
Initial Loan to Aircraft Value
(cumulative)(1) 39.9% 53.9% 64.8% 72.4%
Expected Principal Distribution
Window (in years) 1.0-17.7 1.0-17.7 1.0-17.7 3.0-17.7
Initial Average Life (in years) 10.0 10.0 10.0 11.4
Regular Distribution Dates January 15, April 15, January 15, April 15 January 15, April 15 January 15, April 15
July 15 & July 15 & July 15 & July 15 &
October 15 October 15 October 15 October 15
Final Expected Regular
Distribution Date October 15, 2013 October 15, 2013 October 15, 2013 October 15, 2013
Final Maturity Date April 15, 2015 April 15, 2015 April 15, 2015 April 15, 2015
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 payments interest payments interest payments
Initial Liquidity Facility
Amount (3) $30,078,208.80 $11,772,633.60 $11,117,550.00 None
</TABLE>
- -------------------
(1) Assumes an aggregate appraised Aircraft Value of $675,428,333.
(2) The benefits of Section 1110 of the 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 the first six 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 is $52,968,392.40.
11
<PAGE>
EQUIPMENT NOTES AND THE AIRCRAFT
Set forth below is certain information about the Equipment Notes held in
the Trusts and the Aircraft securing such Equipment Notes:
<TABLE>
<CAPTION>
OUTSTANDING
AIRCRAFT PRINCIPAL AMOUNT OF
REGISTRATION AIRCRAFT MATURITY EQUIPMENT APPRAISED
NUMBER AIRCRAFT TYPE DELIVERY DATE DATE NOTES VALUE
- ----------- ------------- ------------- -------- ------------------ ---------
<S> <C> <C> <C> <C> <C>
N17104 Boeing 757-224 July 1994 October 2013 $ 34,831,833 $ 48,690,000
N17105 Boeing 757-224 August 1994 October 2013 34,950,567 48,839,333
N14106 Boeing 757-224 September 1994 October 2013 35,069,083 48,988,333
N14107 Boeing 757-224 October 1994 October 2013 35,185,433 49,134,000
N21108 Boeing 757-224 November 1994 October 2013 35,303,950 49,283,000
N12109 Boeing 757-224 December 1994 October 2013 35,422,683 49,432,333
N13110 Boeing 757-224 December 1994 October 2013 35,422,683 49,432,333
N18112 Boeing 757-224 February 1995 October 2013 35,670,768 49,730,668
N13113 Boeing 757-224 April 1995 October 2013 35,915,850 50,025,333
N17620 Boeing 737-524 February 1995 October 2012 18,910,750 25,555,000
N19623 Boeing 737-524 January 1995 October 2012 18,875,000 25,441,000
N13624 Boeing 737-524 February 1995 October 2012 18,910,750 25,555,000
N46625 Boeing 737-524 January 1995 October 2012 18,875,000 25,441,000
N32626 Boeing 737-524 April 1995 April 2013 19,058,950 25,783,000
N17627 Boeing 737-524 April 1995 April 2013 19,058,950 25,783,000
N62631 Boeing 737-524 June 1995 July 2013 19,207,150 26,011,000
N16632 Boeing 737-524 July 1995 July 2013 19,281,250 26,125,000
N24633 Boeing 737-524 August 1995 July 2013 19,316,350 26,179,000
------------ ------------
$ 489,267,000 $ 675,428,333
</TABLE>
- ----------------
The appraised value of each Aircraft set forth above is based upon the
lesser of the average or 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 January 3, 1996.
See "Risk Factors--Appraisals and Realizable Value of Aircraft" and "Description
of the Aircraft and the Appraisals".
12
<PAGE>
LOAN TO AIRCRAFT VALUE RATIOS
The following table sets forth loan to Aircraft value ratios ("LTVs") for
each Class of Certificates as of 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 January 1996
depreciates by 2% per year until the fifteenth year after the year of delivery
of such Aircraft and 4% 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--
Security" 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.
<TABLE>
<CAPTION>
Assumed Class A Class B Class C Class D
Regular Aggregate Certificates Class A Certificates Class B Certificates Class C Certificates Class D
Distribution Aircraft Pool Certificates Pool Certificates Pool Certificates Pool Certificates
Date Value (1) Balance LTV Balance LTV Balance LTV Balance LTV
---- --------- ------- --- ------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 1996 $675,428,333 $269,518,000 39.90% $94,332,000 53.87% $74,117,000 64.84% $51,300,000 72.44%
January 1997 661,919,767 264,233,332 39.92 92,482,354 53.89 72,663,725 64.87 51,300,000 72.62
January 1998 648,411,200 259,032,772 39.95 90,662,145 53.93 71,233,578 64.92 51,300,000 72.83
January 1999 634,902,633 250,794,034 39.50 87,778,554 53.33 68,967,944 64.19 47,793,051 71.72
January 2000 621,394,067 239,121,593 38.48 83,693,163 51.95 65,758,043 62.53 46,536,115 70.02
January 2001 607,885,500 225,745,475 37.14 79,011,491 50.13 62,079,627 60.35 46,536,115 68.00
January 2002 594,376,933 206,221,031 34.70 72,177,883 46.84 56,710,436 56.38 46,536,115 64.21
January 2003 580,868,367 185,903,625 32.00 65,066,737 43.21 51,123,181 52.01 46,536,115 60.02
January 2004 567,359,800 169,515,666 29.88 59,330,915 40.34 46,616,514 48.55 46,536,115 56.75
January 2005 553,851,233 152,042,236 27.45 53,215,176 37.06 41,811,345 44.61 45,865,832 52.89
January 2006 540,342,667 135,415,490 25.06 47,395,782 33.83 37,239,014 40.72 35,083,602 47.22
January 2007 526,834,100 118,271,350 22.45 41,395,298 30.31 32,524,401 36.48 22,943,184 40.84
January 2008 513,325,533 91,294,275 17.78 31,953,260 24.01 25,105,747 28.90 17,160,335 32.24
January 2009 499,816,967 69,099,185 13.82 24,184,899 18.66 19,002,151 22.47 13,255,258 25.12
January 2010 479,432,413 56,341,836 11.75 19,719,786 15.86 15,493,909 19.10 11,198,303 21.43
January 2011 452,415,280 39,790,496 8.80 13,926,766 11.87 10,942,324 14.29 9,210,679 16.33
January 2012 426,420,347 20,863,519 4.89 7,302,266 6.61 5,737,445 7.95 7,471,052 9.70
January 2013 337,185,813 2,189,921 0.65 766,473 0.88 602,228 1.06 3,284,825 2.03
</TABLE>
- ------------------
(1) The Assumed Aggregate Aircraft Value set forth opposite January 1996 (but
not the Assumed Aggregate Aircraft Values for subsequent periods) was
determined based upon the lesser of the average or median fair market value
of all Aircraft as appraised by the Appraisers as of January 1996 (see
"Description of the Aircraft and the Appraisals"). No assuance can be given
that such value represents the realizable value of any Aircraft. See "Risk
Factors--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.
[Chart appears here]
* Each Aircraft is subject to a separate Lease and the related Indenture.
14
<PAGE>
Certificates; Denominations
The new Certificates of each Trust will be issued in a minimum denomination of
$1000 and in integral multiples thereof. See "Description of New Certificates--
General".
Regular Distribution Dates
January 15, April 15, July 15 and October 15, commencing April 15, 1996.
Special Distribution Dates
Any Business Day on which 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 15, April 15, July 15 and October 15, commencing on April 15, 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) 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 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, C and D Certificates is April 15,
2015. 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
15
<PAGE>
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, payable on January 15, April 15, July 15 and October
15 of each year commencing on April 15, 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 New Certificates--
General" and "--Payments and Distributions". The interest rates for the
Equipment Notes are subject to increases under certain circumstances described
in "The Exchange Offer--Terms of the Exchange Offer" to the same extent as the
interest rates for the Old Certificates. The New Certificates do 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 15, April
15, July 15 and October 15 in certain years, commencing on January 15, 1997, in
the case of each of the Class A Trust, the Class B Trust and the Class C Trust
and January 15, 1999, 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
(i) The Equipment Notes issued with respect to an Aircraft will be redeemed in
whole upon the occurrence of an Event of Loss with respect to such
Aircraft if such Aircraft is not replaced by Continental under the related
Lease, 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
16
<PAGE>
redemption, but without any premium.
(ii) 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 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.
(iii) If, with respect to an Aircraft, (x) one or more Lease Events of Default
shall have occurred and be continuing, (y) 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 Indenture or otherwise commence the exercise of any significant
remedy under such Indenture or the related Lease or (z) the Equipment
Notes with respect to such Aircraft shall have been accelerated, then in
each case the Equipment Notes issued with respect to such 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) a Lease Event of Default shall have occurred
and be continuing for less than 120 days or (B) the only Lease Event of
Default under the related Lease arises from the cross-default provisions
of such Lease).
(d) Security
The Equipment Notes issued with respect to each Aircraft are secured by a
security interest in such Aircraft and an assignment to the related Loan Trustee
of certain of the related Owner Trustee's 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. 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. However, a Lease Event of
Default under any particular Lease will constitute a Lease Event of Default
under all Leases due to the cross-default provisions in the Leases, and will
consequently result in an Indenture Default under all Indentures. 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
17
<PAGE>
such remaining Aircraft. See "Description of the Equipment Notes--Security" and
"--Indenture Defaults, Notice and Waiver".
Although the Equipment Notes are not obligations of, or guaranteed by,
Continental, the amounts unconditionally payable by Continental for lease of the
Aircraft will be sufficient to pay in full when due all amounts required to be
paid on the Equipment Notes. See "Description of the Equipment Notes--General".
(e) Section 1110 Protection
Cleary, Gottlieb, Steen & Hamilton, counsel to Continental, has advised the Loan
Trustees that the Owner Trustee, as lessor under the Lease relating to each
Aircraft, and the related Loan Trustee, as assignee of such Owner Trustee's
rights under such Lease pursuant to the related Indenture, are entitled to the
benefits of 11 U.S.C. (S)1110 with respect to the airframe and engines
comprising the related Aircraft. See "Description of the Equipment Notes--
Remedies" for a description of that opinion and certain assumptions contained
therein.
The Bankruptcy Reform Act of 1994 (the "Act") amended Section 1110 by, among
other things, providing that the lessor under a lease of aircraft first placed
in service prior to the date of the enactment of the Act will be entitled to the
benefits of Section 1110 if the lessor and the lessee have expressed in the
applicable agreement or in a substantially contemporaneous writing that the
applicable agreement is to be treated as a lease for Federal income tax
purposes. Each of the Leases relating to the four Aircraft placed in service
prior to the enactment of the Act contains such a written statement.
(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 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
General Electric Company is currently the owner participant ("Owner
Participant") with respect to all of the eighteen leveraged leases for the
Aircraft. The Owner Participant or its affiliate acquired all of the Class D
Certificates at the time of their issuance. The Owner Participant and certain of
its affiliates have various business relationships with Continental, including
as a secured lender and a supplier of certain
18
<PAGE>
equipment and services to Continental. Due to such relationships and GE's
capacities as both the Owner Participant and the Class D Certificateholder,
interests of GE may not be consistent with, or may conflict with, interests of
other Certificateholders. General Electric Company 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, and the Class D Certificateholder
will have the right to sell any or all Class D Certificates, subject to the
terms and conditions of the Pass Through Trust Agreement for the Class D Trust.
Liquidity Facilities
The Subordination Agent and the Liquidity Provider have 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 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 (without any penalty or default margin but after
giving pro forma effect to adjustments arising from Registration Defaults,
provided that such adjustments shall cease to apply at such time as the interest
rate borne by such Certificates is no longer subject to increase pursuant to the
terms of the Registration Rights Agreement) on 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 will be $30,078,208.80, $11,772,633.60 and $11,117,550.00,
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 stated 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
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full of the Interest Drawings (but not other Drawings), together with any
accrued interest thereon, under any Liquidity Facility, the amount available
under such Liquidity Facility will be reinstated to the then stated amount of
such Liquidity Facility; provided that the amount will not be so reinstated if
(i) a Triggering Event shall have occurred and be continuing and (ii) less than
65% of the aggregate outstanding principal amount of all Equipment Notes are
Performing Equipment Notes.
If at any time the short-term unsecured debt rating of any Liquidity Provider
issued by either Rating Agency 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
unsecured short-term 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 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. In addition, the Intercreditor Agreement will provide
for the replacement or extension of the Liquidity Facility for any Class of
Certificates which is scheduled to expire prior to the date that is fifteen days
after the Final Maturity Date for such Class. If such Liquidity Facility cannot
be so replaced or extended by the date that is 25 days prior to the then
scheduled expiration date of such Liquidity Facility, such Liquidity Facility
will be drawn in full (the "Non-Extension Drawing") and the proceeds will be
deposited in 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. Each initial Liquidity Facility is scheduled to expire
on January 29, 1997, subject to annual extensions by mutual agreement.
Continental, in consultation with the Subordination Agent, may direct the Owner
Participants (which shall follow such direction unless they have a bona fide,
good faith reason not to) to arrange for a replacement facility at any time to
replace the Liquidity Facility for any Trust. If such replacement facility is
provided at any time after a Downgrade Drawing or Non-Extension 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.
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".
Intercreditor Agreement
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(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)
through (iv) 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 will
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,
subject to the provisions of paragraph (iv) below, all payments received
by the Subordination Agent in respect of the Equipment Notes and certain
other payments will be distributed in the following order: (1) to the
Liquidity Provider in payment of the Liquidity Obligations and certain
other parties in payment of the Administration Expenses (as defined
herein); (2) to the holders of Class A Certificates in payment of Final
Distributions; (3) to the holders of Class B Certificates in payment of
Final Distributions; (4) to the holders of Class C Certificates in
payment of Final Distributions; and (5) to the holders of Class D
Certificates in payment of Final Distributions.
"Final Distributions" means, with respect to the Certificates of any
Trust on any Distribution Date, the sum of (x) accrued and
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unpaid interest on such Certificates and (y) the Pool Balance of such
Certificates as of the immediately preceding Distribution Date.
(iv) Notwithstanding the foregoing paragraph, after the occurrence of a
Triggering Event (whether or not continuing), so long as no PTC Event of
Default shall have occurred and be continuing with respect to the most
senior Class of Certificates outstanding, any regularly scheduled
payment received on any Equipment Notes (the "Performing Equipment
Notes") with respect to which there is no payment default (without
giving effect to any acceleration thereof) shall be distributed as
follows:
(x) interest paid on all of the Performing Equipment Notes (the
"Performing Equipment Notes Interest Payment") will be distributed in
the following order: (1) to the Liquidity Providers in payment of the
Liquidity Obligations and certain other parties in payment of the
Administration Expenses (as defined herein); (2) to the holders of
Class A Certificates in payment of accrued and unpaid interest on the
Class A Certificates; (3) to the holders of Class B Certificates in
payment of accrued and unpaid interest on the Class B Certificates;
(4) to the holders of Class C Certificates in payment of accrued and
unpaid interest on the Class C Certificates; and (5) to the holders
of Class D Certificates; provided that the provisions of this
paragraph (x) will be given effect before distribution of any funds
received in respect of any Equipment Notes other than the Performing
Equipment Notes (the "Non-Performing Equipment Notes");
(y) principal paid in respect of the Performing Equipment Notes (after
paying in full the Liquidity Obligations and the Administration
Expenses) (the "Performing Equipment Notes Principal Payment") will
be distributed in the following order: (1) to the holders of Class A
Certificates in payment of the greater of (A) the Adjusted Expected
Distributions to such holders on such Distribution Date and (B) such
holders' pro rata portion of the Performing Equipment Notes Principal
Payment based on the Adjusted Pool Balance of such Trust; (2) to the
holders of Class B Certificates in payment of the greater of (A) the
Adjusted Expected Distributions to such holders on such Distribution
Date and (B) such holders' pro rata portion of the Performing
Equipment Notes Principal Payment based on the Adjusted Pool Balance
of such Trust; (3) to the holders of Class C Certificates in payment
of the greater of (A) the Adjusted Expected Distributions to such
holders on such Distribution Date and (B) such holders' pro rata
portion of the Performing Equipment Notes Principal Payment based on
the Adjusted Pool Balance of such
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Trust; and (4) to the holders of Class D Certificates; provided that
the provisions of this paragraph (y) will be given effect after
distributing any funds received in respect of any Non-Performing
Equipment Notes;
provided that if the aggregate amount of future scheduled payments in respect of
the Performing Equipment Notes, together with the Performing Equipment Notes
Principal Payment as of such Distribution Date, will be (assuming the
distribution of such amount as contemplated by paragraphs (x) and (y) and that
no further payment will be received at any time from the Non-Performing
Equipment Notes) insufficient to pay interest on any Class of Certificates and
reduce the Pool Balance of such Class of Certificates to zero before the Final
Maturity Date thereof, the amount of distributions to be made to the holders of
such Class of Certificates on such Distribution Date will be increased by the
amount necessary to eliminate such insufficiency prior to making any
distributions to the holders of any Class of Certificates junior to such Class
of Certificates and such increase shall be taken into account for the purpose of
applying this proviso to the holders of any such junior Class of Certificates.
"Adjusted Expected Distribution" for the Certificates of any Trust means, with
respect to any Distribution Date, the sum of (x) accrued and unpaid interest on
such Certificates (after taking into account the distribution of the Performing
Equipment Notes Interest Payment and any funds received in respect of Non-
Performing Equipment Notes on such Distribution Date) plus (y) the amount (which
shall not be less than zero) equal to (A) the Adjusted Pool Balance of such
Trust as of such Distribution Date minus (B) the Pool Balance of such Trust as
of such Distribution Date, calculated on the basis that all payments on the
Equipment Notes held in such Trust have been paid when due (but without giving
effect to any acceleration of Performing Equipment Notes held in such Trust) and
such payments have been distributed to the holders of such Certificates.
"Adjusted Pool Balance" of any Trust means, with respect to any Current
Distribution Date, the Pool Balance of such Trust as of the immediately
preceding Distribution Date minus any amounts received in respect of any Non-
Performing Equipment Notes distributed to the holders of the Certificates of
such Trust on the Current Distribution Date other than in respect of interest or
premium thereon.
(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
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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 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, subject to certain limitations, the Liquidity
Provider shall have the right to direct such Loan Trustee at any time after 18
months from the acceleration of the Equipment Notes under such Indenture, if at
the time of such election the Liquidity Obligations have not been paid in full;
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.
(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
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) the amount and payment dates of rentals
payable by Continental under the Lease for such 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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"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 value of such Aircraft based upon the
most recent appraisal and (2) the aggregate outstanding principal amount
of such Equipment Notes, plus accrued and unpaid interest thereon.
Certificates; Book-Entry Registration
Each New Certificate to be issued will be represented by one or more permanent
global Certificates registered in the name of Cede & Co. ("Cede"), as nominee of
The Depository Trust Company ("DTC"). See "Description of 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
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 Participant's 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 New Certificates--Book-Entry;
Delivery and Form".
Absence of a Public Market for the Certificates
Prior to this Exchange Offer, there has been no public market for the Old
Certificates or the New Certificates. 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 Certificates through the
National Association of Securities Dealers Automated Quotation System. Certain
of the Initial Purchasers have previously made a market in the Old Certificates,
and Continental has been advised by the Initial Purchasers that one or more of
them intends to make a market in the New Certificates, as permitted by
applicable laws and
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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
Certificates or that any active public market for the Certificates will develop.
If an active public market does not develop, the market price and liquidity of
the Certificates may be adversely affected.
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
A fiduciary of any employee benefit plan which is subject to the fiduciary
responsibility provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or of a "plan" subject to Section 4975 of the
Internal Revenue Code of 1986, as amended (the "Code"), or of any governmental
plan which is subject to any federal, state or local law which is substantially
similar to the foregoing provisions of ERISA or the Code which proposes to hold
any Class A Certificates should consult with its own legal counsel with respect
to the applicability of ERISA and the Code to such investment and the
transactions contemplated by the Exchange Offer, including the availability of
any statutory or administrative prohibited transaction exemption. See "ERISA
Considerations".
The Class B Certificates, Class C Certificates and Class D Certificates may not
be held by any Plan or any entity that is using the assets of a Plan to hold its
interest in a Class B Certificate, a Class C Certificate or a Class D
Certificate, and holders of Class B Certificates, Class C Certificates and Class
D Certificates that tender such Old Certificates in exchange for a New
Certificates will be required to make certain representations to that effect.
Notwithstanding the foregoing, the Class B Certificates, the Class C
Certificates and the Class D Certificates may be held with the assets of an
insurance company general account, provided that the conditions of Prohibited
Transaction Class Exemption ("PTCE") 95-60 have been satisfied. Any insurance
company that uses general account assets to hold Class B Certificates, Class C
Certificates or Class D Certificates that tenders such Old Certificates in
exchange for New Certificates will be required to represent that PTCE 95-60
applies to its tender and the holding of such Class B Certificates, Class C
Certificates or Class D Certificates. See "ERISA
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Considerations".
RISK FACTORS
Holders of New Certificates should carefully consider the following risk
factors, as well as other information set forth in this Prospectus, before
tendering their New 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 $88
million in the three months ended March 31, 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 March 31, 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 $702 million of
minority interest, preferred securities of trust, 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 March 31, 1996, Continental had approximately $657 million of cash
and cash equivalents, including restricted cash and cash equivalents of $124
million. Continental does not have general lines of credit and has no
significant unencumbered assets.
Continental had firm commitments with The Boeing Company ("Boeing") to take
delivery of 43 new jet aircraft during the years 1997 through 2002. Continental
has recently amended the terms of these firm commitments with Boeing to take
delivery of 61 new jet aircraft during the years 1997 through 2003. The
estimated aggregate cost of these aircraft is $2.7 billion. The amendments
changed the product mix and timing of delivery of aircraft without significantly
changing the aggregate cost of the prior order, in order to more closely match
Continental's anticipated future aircraft needs. In addition, the Company took
delivery of one Beech 1900-D aircraft in May 1996 and an additional five 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 Beech Acceptance Corporation ("Beech") will
be sufficient to fund all 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
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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 intent with several parties to
lease three DC10-30 aircraft and to purchase three DC10-30 aircraft. These six
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.
For 1996, Continental expects to incur cash expenditures under operating
leases of approximately $586 million, compared with $521 million for 1995,
relating to aircraft 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 entered into a credit agreement with a group of banks and
other financial institutions, whereby CMI borrowed $320 million from such
lenders. The loan is secured by substantially all the assets of CMI, and is
guaranteed by Continental and its Air Micronesia, Inc. subsidiary. 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.
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 the expenses of
the transaction, and Continental used the proceeds received by it as an indirect
dividend of approximately $136 million from CMI, together with approximately $28
million of cash on hand, to prepay approximately $164 million in principal
amount of indebtedness to GE. The new financing does not contain any
restrictive covenants at the Continental Airlines, Inc. level, and none of the
assets of Continental (other than its stock in Air Micronesia, Inc.) is pledged
in connection with the new financing.
The new 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.
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
12.9% for the three months ended March 31, 1996), significant changes in fuel
costs would materially affect the Company's operating results. 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.
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 will be required to begin accruing tax expense on its
income statement once it has realized an additional $122 million of taxable
income following March 31, 1996. Section 382 imposes limitations on a
corporation's 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 herein) as 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 and Hamilton, the Company believes that such percentage increase
will not give rise to an ownership change under Section 382 as a result of the
Secondary Offering. 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. This Section 382 limitation for any post-change year would be
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 is 5.78% for June 1996). Unused
annual limitation may be carried over to later years, and the limitation may
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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 a minimum of
approximately $100 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 CMI's profitability and a decline of the yen against the
dollar may be expected to decrease it. 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.
Principal Stockholders
After the Secondary Offering (as defined herein), which was completed on
May 14, 1996 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,
L.P. ("Air Partners") holds approximately 9.8% of the common equity interests
and 39.4% of the general voting power of the Company. In addition, assuming
exercise of all of the warrants held by Air Partners, approximately 23.4% of the
common equity interests and 52.1% of the general voting power would be held by
Air Partners. At any time after January 1, 1997, shares of Class A common stock
will become freely convertible 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" and
"Description of Capital Stock."
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" and "Description of Capital Stock."
29
<PAGE>
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 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 benefitted 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. Reinstatement of
the ticket tax will result in higher costs to consumers, which may have an
adverse effect on passenger traffic, revenue and margins. The Company is unable
to predict on what terms the ticket tax may be reenacted, although there are
certain provisions currently before Congress to reinstate the ticket tax in the
form existing prior to its expiration.
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. 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 enacted or enacted in the future will not adversely affect the
Company.
30
<PAGE>
RISK FACTORS RELATING TO THE CERTIFICATES
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 $711,760,000,
$652,500,000, and $687,989,000, respectively, in each case as of January 3,
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 shall be 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, subject to the provisions of the next paragraph, 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 Liquidity Providers in payment of the Liquidity
Obligations and certain other parties in payment of the Administration Expenses;
(2) to the holders of Class A Certificates in payment of Final Distributions;
(3) to the holders of Class B Certificates in payment of Final Distributions;
(4) to the holders of Class C Certificates in payment of Final Distributions;
and (5) to the holders of Class D Certificates in payment of Final
Distributions.
Notwithstanding the provisions of the foregoing paragraph, after the
occurrence of a Triggering Event but so long as no PTC Event of Default shall
have occurred and be continuing with respect to the most senior Class of
Certificates outstanding, any regularly scheduled payment received on the
Performing Equipment Notes shall be distributed as follows:
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<PAGE>
(x) the Performing Equipment Notes Interest Payment will be distributed in
the following order: (1) to the Liquidity Providers in payment of the
Liquidity Obligations and certain other parties in payment of the
Administration Expenses; (2) to the holders of Class A Certificates in payment
of accrued and unpaid interest on the Class A Certificates; (3) to the holders
of Class B Certificates in payment of accrued and unpaid interest on the Class
B Certificates; (4) to the holders of Class C Certificates in payment of
accrued and unpaid interest on the Class C Certificates; and (5) to the
holders of Class D Certificates; provided that the provisions of this
paragraph (x) will be given effect before distribution of any funds received
in respect of any Non-Performing Equipment Notes;
(y) the Performing Equipment Notes Principal Payment will be distributed in
the following order: (1) to the holders of Class A Certificates in payment of
the greater of (A) the Adjusted Expected Distributions to such holders on such
Distribution Date and (B) such holders' pro rata portion of the Performing
Equipment Notes Principal Payment based on the Adjusted Pool Balance of such
Trust; (2) to the holders of Class B Certificates in payment of the greater of
(A) the Adjusted Expected Distributions to such holders on such Distribution
Date and (B) such holders' pro rata portion of the Performing Equipment Notes
Principal Payment based on the Adjusted Pool Balance of such Trust; (3) to the
holders of Class C Certificates in payment of the greater of (A) the Adjusted
Expected Distributions to such holders on such Distribution Date and (B) such
holders' pro rata portion of the Performing Equipment Notes Principal Payment
based on the Adjusted Pool Balance of such Trust; and (4) to the holders of
Class D Certificates; provided that the provisions of this paragraph (y) will
be given effect after distributing any funds received in respect of any Non-
Performing Equipment Notes;
provided that if the aggregate amount of future scheduled payments in respect of
the Performing Equipment Notes, together with the Performing Equipment Notes
Principal Payment as of such Distribution Date, will be (assuming the
distribution of such amount as contemplated by paragraphs (x) and (y) and that
no further payment will be received at any time from the Non-Performing
Equipment Notes) insufficient to pay interest on any Class of Certificates and
reduce the Pool Balance of such Class of Certificates to zero before the Final
Maturity Date thereof, the amount of distributions to be made to the holders of
such Class of Certificates on such Distribution Date will be increased by the
amount necessary to eliminate such insufficiency prior to making any
distributions to the holders of any Class of Certificates junior to such Class
of Certificates and such increase shall be taken into account for the purpose of
applying this proviso to the holders of any such junior Class of Certificates.
Control over Collateral; Sale of Collateral
Pursuant to the Intercreditor Agreement, the Trustees and the Liquidity
Provider shall agree 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 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, subject to certain limitations, the
Liquidity Provider shall have the right to direct such Loan Trustee at any time
after 18 months from the acceleration of the Equipment Notes under such
Indenture, if at the time of such election the Liquidity Obligations have not
been paid in full. 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.
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<PAGE>
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) the amount and
payment dates of rentals payable by Continental under the Lease for such
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.
Potential Conflict of Interest
General Electric Company is currently the Owner Participant with respect to all
of the eighteen leveraged leases for the Aircraft. The Owner Participant or its
affiliate will also acquire all of the Class D Certificates contemporaneously
with the consummation of the Offering. The Owner Participant and certain of its
affiliates have various business relationships with Continental, including as a
lender and a supplier of certain equipment and services to Continental. Certain
of the obligations of Continental to the Owner Participant with respect to the
Aircraft are currently secured by a pledge of unrelated assets, most of which
assets are also pledged to GE to secure unrelated obligations. Due to such
relationships and GE's capacities as both the Owner Participant and the Class D
Certificateholder, interests of GE may not be consistent with, or may conflict
with, interests of other Certificateholders. General Electric Company 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, and the Class D
Certificateholder will have the right to sell any or all Class D Certificates,
subject to the terms and conditions of the Pass Through Trust Agreement for the
Class D Trust.
Absence of a Public Market for the 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 has
applied or intends to apply for listing of the New Certificates on any national
securities exchange or for quotation of the New Certificates through the
National Association of Securities Dealers Automated Quotation System. Certain
of the Initial Purchasers have previously make a market in the Old Certificates,
and Continental has been advised by the Initial Purchasers that one or more of
them presently intends 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 Certificates or that any active public market for the Certificates will
develop or continue. If an active public market does not develop or continue,
the market prices and liquidity of the Certificates may be adversely affected.
33
<PAGE>
RECENT DEVELOPMENTS
GENERAL
Continental recently announced unaudited second quarter 1996 net income of
$167 million ($2.53 primary and $2.04 fully diluted earnings per share adjusted
for the Company's recent two-for-one stock split), on revenue of $1,639 million.
Continental also reported a cash balance of $825 million at June 30, 1996.
STOCK SPLIT
On June 26, 1996, the Company announced a 2-for-1 stock split with respect
to the Company's Class A common stock and Class B common stock, which will be
distributed on July 16, 1996 to stockholders of record as of July 2, 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 the Company's 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, $.01 par value (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, $.01 par value (the
"Class D common stock") with respect to election of directors--holders of Class
D common stock are now 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.
The Amendments also provide that, at any time after January 1, 1997, shares
of Class A common stock will become freely convertible 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
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 by 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
34
<PAGE>
business. The Agreements also reflect the recent 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.
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 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 is no
longer entitled to designate nominees to the Board of Directors of the
Company, has caused the four 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 have 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
were 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 39.4%
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.
The Company and Air Canada also expect to enter into discussions regarding
modifications to the Company's existing "synergy" agreements with Air Canada,
covering items such as maintenance and ground facilities, with a view to
resolving certain outstanding commercial issues under the agreements and
otherwise modifying the agreements to reflect Continental's and Air Canada's
current needs. The Company has 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 common stock warrants. The
purchase price would be payable in cash. The Board of Directors has authorized
the Company to publicly issue up to $50 million of Class B common stock in
connection with any such purchase. 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
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<PAGE>
amount of the options previously granted to each optionee were granted
(subject to certain conditions) to substantially all employees holding
outstanding options.
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 Series A, B and C Equipment
Notes issued by 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 Aircraft. Such Equipment Notes, together with the Series D Equipment
Notes contributed to the Class D Trust by the Owner Participant, represent in
the aggregate the entire debt portion currently outstanding of the leveraged
lease transactions relating to all of the Aircraft. Continental did not receive
any of the proceeds from the sale of the Old Certificates.
RATIOS OF EARNINGS TO FIXED CHARGES
The following information for the years ended December 31, 1991 and 1992
and for the period January 1, 1993 through April 27, 1993 relates to
Continental's predecessor, Holdings. Information for the period April 28, 1993
through December 31, 1993, for the two years ended December 31, 1994 and 1995
and for the three months ended March 31, 1995 and 1996 relates to Continental.
The information as to Continental has not been prepared on a consistent basis of
accounting with the information as to Holdings due to Continental's adoption,
effective April 27, 1993, of fresh start reporting in accordance with SOP 90-7.
For the years ended December 31, 1991 and 1992, for the periods January 1,
1993 through April 27, 1993 and April 28, 1993 through December 31, 1993, for
the year ended December 31, 1994 and for the three months ended March 31, 1995,
earnings were not sufficient to cover fixed charges. Additional earnings of $316
million, $131 million, $979 million, $60 million, $667 million and $28 million,
respectively, would have been required to achieve ratios of earnings to fixed
charges of 1.0. The ratio of earnings to fixed charges for the year ended
December 31, 1995 was 1.53. The ratio of earnings to fixed charges for the three
months ended March 31, 1996 was 1.70. For purposes of calculating this ratio,
earnings consist of earnings before taxes, minority interest and extraordinary
items plus interest expense (net of capitalized interest), the portion of rental
expense deemed representative of the interest expense and amortization of
previously capitalized interest. Fixed charges consist of interest expense and
the portion of rental expense representative of interest expense.
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<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth selected financial data of (i) the Company
for the three months ended March 31, 1996 and 1995, the two years ended December
31, 1995 and 1994 and for 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 two 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 months ended March 31, 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 three months ended March 31, 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 YEAR ENDED (APRIL 28,1993) 1993
ENDED MARCH 31, DECEMBER 31, THROUGH THROUGH
--------------------- ------------------- DECEMBER 31, APRIL 27,
1996 1995 1995 1994 1993 1993
--------- -------- -------- -------- ------------ ------------
STATEMENT OF OPERATIONS DATA: (IN MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue:
Passenger................................... $1,375 $1,240 $5,302 $5,036 $3,493 $1,622
Cargo, mail and other....................... 114 169 523 634 417 235
------ ------ ------ ------ ------ ------
1,489 1,409 5,825 5,670 3,910 1,857
------ ------ ------ ------ ------ ------
Operating Expenses:
Wages, salaries and related costs........... 364 366 1,432(1) 1,532 1,000 502
Aircraft fuel............................... 177 169 681 741 540 272
Aircraft rentals............................ 124 123 497 433 261 154
Commissions................................. 126 119 489 439 378 175
Maintenance, materials and repairs.......... 112 97 429 495 363 184
Other rentals and landing fees.............. 84 92 356 392 258 120
Depreciation and amortization............... 65 64 253 258 162 77
Other....................................... 317 351 1,303 1,391 853 487
------ ------ ------ ------ ------ ------
1,369 1,381 5,440 5,681 3,815 1,971
------ ------ ------ ------ ------ ------
Operating Income (Loss)....................... 120 28 385 (11) 95 (114)
------ ------ ------ ------ ------ ------
Nonoperating Income (Expense):
Interest expense............................ (47) (53) (213) (241) (165) (52)
Interest capitalized........................ 1 1 6 17 8 2
Interest income............................. 9 6 31 23 14 -
Gain on System One transactions............. - - 108 - - -
Reorganization items, net................... - - - - - (818)
Other, net.................................. 12 (10) (7) (439)(2) (4) 5
------ ------ ------ ------ ------ ------
(25) (56) (75) (640) (147) (863)
------ ------ ------ ------ ------ ------
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Income (Loss) before Income Taxes, Minority
Interest and Extraordinary Gain.............. 95 (28) 310 (651) (52) (977)
Net Income (Loss)............................. $ 88 $ (30) $ 224 $ (613) $ (39) $2,640(3)
Earnings (Loss) per Common and Common
Equivalent Share(4).......................... $ 1.35 $(0.60) $ 3.60 $ 11.88 $(1.17) N.M.(5)
====== ====== ====== ======= ====== ======
Earnings (Loss) per Common
Share Assuming Full Dilution(4).............. $ 1.18 $(0.60) $ 3.15 $(11.88) $(1.17) N.M.(5)
====== ====== ====== ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, DECEMBER 31,
------------- --------------
1996 1995
------------- --------------
BALANCE SHEET DATA: (In millions of dollars)
(unaudited)
<S> <C> <C>
Cash and Cash Equivalents, including restricted
Cash and Cash Equivalents of $124 and $144,
respectively(6)................................... $ 657 $ 747
Other Current Assets............................... 655 568
Total Property and Equipment, Net.................. 1,410 1,461
Routes, Gates and Slots, Net....................... 1,517 1,531
Other Assets, Net.................................. 507 514
------ ------
Total Assets................................... $4,746 $4,821
====== ======
Current Liabilities................................ $2,040 $1,984
Long-term Debt and Capital Leases.................. 1,462 1,658
Deferred Credits and Other Long-term Liabilities... 542 564
Minority Interest.................................. 28 27
Continental-Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trust holding
solely Convertible Subordinated Debentures(7)..... 242 242
Redeemable Preferred Stock......................... 42 41
Common Stockholders' Equity........................ 390 305
------ ------
Total Liabilities and Stockholders' Equity..... $4,746 $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 a 2-for-1 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 its loan agreement with GE to maintain certain
minimum cash balances and net worth 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 of
the Convertible Subordinated Debentures, the Continental-Obligated
Mandatorily Redeemable Preferred Securities of Subsidiary Trust will be
mandatorily redeemed.
38
<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 upon
request to the Trustee.
TERMS OF THE EXCHANGE OFFER
General
In connection with the issuance of the Old Certificates pursuant to a
Purchase Agreement dated as of January 28, 1996, between the Company and the
Initial Purchasers, the Initial Purchasers and the Owner Participant and their
respective assignees became entitled to the benefits of the Registration Rights
Agreement.
Under the Registration Rights Agreement, the Company is obligated 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
January 31, 1996, the date the Old Certificates were issued (the "Issue Date"),
(ii) use its best efforts to cause the Registration Statement to become
effective within 60 days after filing of the Registration Statement and (iii) 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. As of the
date of this Prospectus, $489,267,000 aggregate principal amount of Old
Certificates is outstanding. 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 July 24, 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 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.
39
<PAGE>
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 Series A Notes is engaged in or intends to engage
in a distribution of the Series B Notes or has any arrangement or understanding
with respect to the distribution of the Series B Notes 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 (i) any changes in law or the applicable interpretations
of the staff of the Commission do not permit Continental to effect the Exchange
Offer, (ii) for any reason the Registration Statement is not declared effective
within 60 calendar days after the filing thereof with the Commission or the
Exchange Offer is not consummated within 30 days after the Registration
Statement is declared effective, (iii) any holder of Old Certificates (other
than an Initial Purchaser) is not eligible to participate in the Exchange Offer
or (iv) an Initial Purchaser (with respect to Old Certificates which it acquired
directly from the Company), following consummation of the Exchange Offer, is not
permitted, in the opinion of counsel to such Initial Purchaser, to participate
in the Exchange Offer (and upon request of such Initial Purchaser), Continental
will, at its cost, (a) as promptly as practicable, file with the Commission a
shelf registration statement covering resales of the Old Certificates (the
"Shelf Registration Statement"), (b) use its best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act by the
210th 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 the
Issue 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 either (i) (x) the Registration Statement was not filed
with the Commission on or prior to the 120th calendar day following the Issue
Date, or (y) the Registration Statement has not been declared effective on or
prior to the 60th calendar day following the filing thereof with the Commission
or (z) the Exchange Offer is not consummated on or prior to the 30th calendar
day following the effectiveness of the Registration Statement or (ii) a Shelf
Registration Statement is required to be filed with the Commission pursuant to
the Registration Rights Agreement and such Shelf Registration Statement is not
declared effective on or prior to the 210th calendar day following the Issue
Date (each, a "Registration Default"), the interest rate per annum borne by the
Equipment Notes and passed through to holders of Old Certificates shall be
increased by (1) 0.25% from and including the day following such Registration
Default to but excluding the 90th day following such Registration Default and
(2) 0.50% thereafter; provided, however, that such increase shall cease to be in
effect from and including the date on which such Registration Default has been
cured. 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
40
<PAGE>
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."
Expiration Date; Extensions; Amendments; Termination
The term "Expiration Date" shall mean August 28, 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 August 28, 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 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 15, April 15,
July 15 and October 15 of each year commencing April 15, 1996, subject to the
terms of the Intercreditor Agreement.
41
<PAGE>
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 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 owner's 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.
42
<PAGE>
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 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.
43
<PAGE>
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 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
44
<PAGE>
(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.
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
45
<PAGE>
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 (as hereinafter defined) 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 Certificates have been 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 the provisions of the Certificates and
the Pass Through Trust Agreements, which have been filed as exhibits to the
Registration Statement. 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 will be 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 filed as exhibits to the Registration Statement and are available
from the Trustee.
GENERAL
The Certificates of each Trust have been issued in fully registered form
only. Each Certificate represents 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. Certificates represent pro rata shares of the Equipment
Notes and other property held in the related Trust and have been issued only in
minimum denominations of $100,000 and integral multiples of $1,000 in excess
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) payments 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, subject to the provisions set forth below, 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 Liquidity Provider in payment of the Liquidity Obligations and
certain other parties in payment of the Administration Expenses; (2) to the
holders of Class A Certificates in payment of Final Distributions; (3) to the
holders of Class B Certificates in payment of Final Distributions; (4) to the
holders of Class C Certificates in payment of Final Distributions; and (5) to
the holders of Class D Certificates in payment of Final Distributions.
47
<PAGE>
For purposes of calculating Expected Distributions or Final Distributions,
any premium paid on the Equipment Notes held in any Trust which has not been
distributed to the Certificateholders of 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 Final Distributions.
Notwithstanding the foregoing provisions, after the occurrence of a
Triggering Event but so long as no PTC Event of Default shall have occurred and
be continuing with respect to the most senior Class of Certificates outstanding,
any regularly scheduled payment received on the Performing Equipment Notes shall
be distributed as follows:
(x) the Performing Equipment Notes Interest Payment will be distributed
in the following order: (1) to the Liquidity Providers in payment of the
Liquidity Obligations and certain other parties in payment of the
Administration Expenses; (2) to the holders of Class A Certificates in
payment of accrued and unpaid interest on the Class A Certificates; (3) to
the holders of Class B Certificates in payment of accrued and unpaid
interest on the Class B Certificates; (4) to the holders of Class C
Certificates in payment of accrued and unpaid interest on the Class C
Certificates; and (5) to the holders of Class D Certificates; provided that
the provisions of this paragraph (x) will be given effect before
distribution of any funds received in respect of any Non-Performing
Equipment Notes;
(y) the Performing Equipment Notes Principal Payment will be distributed
in the following order: (1) to the holders of Class A Certificates in
payment of the greater of (A) the Adjusted Expected Distributions to such
holders on such Distribution Date and (B) such holders' pro rata portion of
the Performing Equipment Notes Principal Payment based on the Adjusted Pool
Balance of such Trust; (2) to the holders of Class B Certificates in
payment of the greater of (A) the Adjusted Expected Distributions to such
holders on such Distribution Date and (B) such holders' pro rata portion of
the Performing Equipment Notes Principal Payment based on the Adjusted Pool
Balance of such Trust; (3) to the holders of Class C Certificates in
payment of the greater of (A) the Adjusted Expected Distributions to such
holders on such Distribution Date and (B) such holders' pro rata portion of
the Performing Equipment Notes Principal Payment based on the Adjusted Pool
Balance of such Trust; and (4) to the holders of Class D Certificates;
provided that the provisions of this paragraph (y) will be given effect
after distributing any funds received in respect of any Non-Performing
Equipment Notes;
provided that if the aggregate amount of future scheduled payments in respect of
the Performing Equipment Notes, together with the Performing Equipment Notes
Principal Payment as of such Distribution Date, will be (assuming the
distribution of such amount as contemplated by paragraphs (x) and (y) and that
no further payment will be received at any time from the Non-Performing
Equipment Notes) insufficient to pay interest on any Class of Certificates and
reduce the Pool Balance of such Class of Certificates to zero before the Final
Maturity Date thereof, the amount of distributions to be made to the holders of
such Class of Certificates on such Distribution Date will be increased by the
amount necessary to eliminate such insufficiency prior to making any
distributions to the holders of any Class of Certificates junior to such Class
of Certificates and such increase shall be taken into account for the purpose of
applying this proviso to the holders of any such junior Class of Certificates.
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 will accrue interest at the
applicable rate per annum for such Trust set forth on the cover page of this
Prospectus, payable on January 15, April 15, July 15 and October 15 of
48
<PAGE>
each year commencing on April 15, 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
increases under certain circumstances. See "The Exchange Offer--General".
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 Credit Suisse (the "Liquidity Provider") for the benefit of the
holders of such Certificates in an amount sufficient to pay interest thereon at
the Stated Interest Rate for such Trust on 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 15, April 15, July 15 or
December 15, in certain years depending upon the terms of the Equipment Notes
held in such Trust commencing January 15, 1997, in the case of each of the Class
A Trust, the Class B Trust and the Class C Trust and January 15, 1999, 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 15,
April 15, July 15 and October 15 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 Certificate is April 15,
2015.
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.
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
49
<PAGE>
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".
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 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
50
<PAGE>
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 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-A Trust 1996-B Trust 1996-C Trust 1996-D Trust
Equipment Equipment Equipment Equipment
Notes Notes Notes Notes
Scheduled 1996-A Trust Scheduled 1996-B Trust Scheduled 1996-C Trust Scheduled 1996-D Trust
Regular Payments of Expected Payments of Expected Payments of Expected Payments of Expected
Distribution Dates Principal Pool Factor Principal Pool Factor Principal Pool Factor Principal Pool Factor
- ------------------ ----------- ----------- ----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
April 1996....... 0 1.0000000 0 1.0000000 0 1.0000000 0 1.0000000
July 1996........ 0 1.0000000 0 1.0000000 0 1.0000000 0 1.0000000
October 1996..... 0 1.0000000 0 1.0000000 0 1.0000000 0 1.0000000
January 1997..... 5,284,668 0.9803922 1,849,646 0.9803922 1,453,275 0.9803921 0 1.0000000
April 1997....... 0 0.9803922 0 0.9803922 0 0.9803921 0 1.0000000
July 1997........ 0 0.9803922 0 0.9803922 0 0.9803921 0 1.0000000
October 1997..... 0 0.9803922 0 0.9803922 0 0.9803921 0 1.0000000
January 1998..... 5,200,561 0.9610964 1,820,209 0.9610964 1,430,147 0.9610963 0 1.0000000
April 1998....... 0 0.9610964 0 0.9610964 0 0.9610963 0 1.0000000
July 1998........ 0 0.9610964 0 0.9610964 0 0.9610963 0 1.0000000
October 1998..... 1,881,631 0.9541149 658,583 0.9541149 517,441 0.9541149 0 1.0000000
January 1999..... 6,357,107 0.9305280 2,225,009 0.9305279 1,748,192 0.9305280 3,506,949 0.9316384
April 1999....... 0 0.9305280 0 0.9305279 0 0.9305280 0 0.9316384
July 1999........ 0 0.9305280 0 0.9305279 0 0.9305280 0 0.9316384
October 1999..... 5,151,648 0.9114137 1,803,084 0.9114136 1,416,700 0.9114136 856,524 0.9149467
January 2000..... 6,520,793 0.8872194 2,282,307 0.8872192 1,793,201 0.8872194 400,652 0.9071367
April 2000....... 0 0.8872194 0 0.8872192 0 0.8872194 0 0.9071367
July 2000........ 0 0.8872194 0 0.8872192 0 0.8872194 0 0.9071367
October 2000..... 5,902,865 0.8653178 2,066,003 0.8653178 1,623,289 0.8653177 0 0.9071367
January 2001..... 7,473,253 0.8375896 2,615,670 0.8375895 2,055,126 0.8375896 0 0.9071367
April 2001...... 0 0.8375896 0 0.8375895 0 0.8375896 0 0.9071367
July 2001........ 0 0.8375896 0 0.8375895 0 0.8375896 0 0.9071367
October 2001..... 6,296,432 0.8142278 2,203,755 0.8142278 1,731,518 0.8142276 0 0.9071367
January 2002..... 13,228,012 0.7651475 4,629,853 0.7651474 3,637,674 0.7651475 0 0.9071367
April 2002....... 0 0.7651475 0 0.7651474 0 0.7651475 0 0.9071367
July 2002........ 0 0.7651475 0 0.7651474 0 0.7651475 0 0.9071367
October 2002..... 4,756,545 0.7474992 1,664,791 0.7474992 1,308,051 0.7474990 0 0.9071367
January 2003..... 15,560,862 0.6897633 5,446,355 0.6897631 4,279,204 0.6897632 0 0.9071367
April 2003....... 0 0.6897633 0 0.6897631 0 0.6897632 0 0.9071367
July 2003........ 0 0.6897633 0 0.6897631 0 0.6897632 0 0.9071367
October 2003..... 4,703,788 0.6723107 1,646,326 0.6723104 1,293,542 0.6723105 0 0.9071637
January 2004..... 11,684,171 0.6289586 4,089,496 0.6289585 3,213,125 0.6289585 0 0.9071367
April 2004....... 0 0.6289586 0 0.6289585 0 0.6289585 0 0.9071367
July 2004........ 0 0.6289586 0 0.6289585 0 0.6289585 0 0.9071367
October 2004..... 7,590,687 0.6007947 2,656,749 0.6007947 2,087,434 0.6007944 81,724 0.9055437
January 2005..... 9,882,743 0.5641265 3,458,990 0.5641264 2,717,735 0.5641262 588,558 0.8940708
April 2005....... 0 0.5641265 0 0.5641264 0 0.5641262 1,283,740 0.8690466
July 2005........ 0 0.5641265 0 0.5641264 0 0.5641262 2,939,531 0.8117458
October 2005..... 8,279,727 0.5334060 2,897,911 0.5334061 2,276,920 0.5334056 4,204,644 0.7297840
January 2006..... 8,347,019 0.5024358 2,921,483 0.5024359 2,295,412 0.5024355 2,354,316 0.6838909
April 2006....... 0 0.5024358 0 0.5024359 0 0.5024355 2,972,939 0.6259388
July 2006........ 0 0.5024358 0 0.5024359 0 0.5024355 3,395,369 0.5597523
October 2006..... 12,492,889 0.4560831 4,372,538 0.4560832 3,435,525 0.4560878 3,779,755 0.4860729
January 2007..... 4,651,251 0.4388254 1,627,946 0.4388256 1,279,088 0.4388251 1,992,355 0.4472355
April 2007....... 1,762,951 0.4322843 617,033 0.4322845 484,811 0.4322839 855,654 0.4305561
July 2007........ 0 0.4322843 0 0.4322845 0 0.4322839 84,738 0.4289043
October 2007..... 19,579,916 0.3596364 6,853,032 0.3596365 5,384,436 0.3596362 3,796,117 0.3549059
January 2008..... 5,634,209 0.3387316 1,971,972 0.3387319 1,549,406 0.3387313 1,046,339 0.3345095
April 2008....... 0 0.3387316 0 0.3387319 0 0.3387313 23,463 0.3340521
July 2008........ 0 0.3387316 0 0.3387319 0 0.3387313 0 0.3340521
October 2008..... 17,480,052 0.2738749 6,118,097 0.2738749 4,806,962 0.2738749 3,005,458 0.2754662
January 2009..... 4,715,038 0.2563806 1,650,264 0.2563806 1,296,634 0.2561805 876,156 0.2583871
April 2009....... 0 0.2563806 0 0.2563806 0 0.2561805 0 0.2583871
July 2009........ 0 0.2563806 0 0.2563806 0 0.2561805 0 0.2583871
October 2009..... 9,982,773 0.2193412 3,494,004 0.2193412 2,745,240 0.2193412 1,549,605 0.2281804
January 2010..... 2,774,576 0.2090467 971,109 0.2090466 763,002 0.2090466 507,351 0.2182905
April 2010....... 229,494 0.2081952 80,323 0.2081951 63,111 0.2081951 0 0.2182905
July 2010........ 1,058,899 0.2042663 370,615 0.2042663 291,197 0.2042662 0 0.2182905
October 2010..... 9,714,697 0.1682216 3,400,172 0.1682216 2,671,523 0.1682216 1,425,031 0.1905121
January 2011..... 5,548,251 0.1476358 1,941,909 0.1476357 1,525,754 0.1476358 562,592 0.1795454
April 2011....... 125,922 0.1471686 44,073 0.1471684 34,629 0.1471686 21,726 0.1791219
July 2011........ 1,255,151 0.1425115 439,303 0.1425115 345,166 0.1425116 216,556 0.1749005
October 2011..... 8,481,267 0.1110432 2,968,462 0.1110432 2,332,336 0.1110432 719,133 0.1608823
January 2012..... 9,064,636 0.0774105 3,172,663 0.0774103 2,492,748 0.0774106 782,212 0.1456345
April 2012....... 146,241 0.0768679 51,184 0.0768677 40,216 0.0768680 0 0.1456345
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
1996-A Trust 1996-B Trust 1996-C Trust 1996-D Trust
Equipment Equipment Equipment Equipment
Notes Notes Notes Notes
Scheduled 1996-A Trust Scheduled 1996-B Trust Scheduled 1996-C Trust Scheduled 1996-D Trust
Regular Payments of Expected Payments of Expected Payments of Expected Payments of Expected
Distribution Dates Principal Pool Factor Principal Pool Factor Principal Pool Factor Principal Pool Factor
- ------------------ ----------- ----------- ----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July 2012........ 886,893 0.0735772 310,413 0.0735770 243,895 0.0735774 79,990 0.1440753
October 2012..... 8,153,758 0.0433241 2,853,848 0.0433238 2,242,262 0.0433244 2,748,810 0.0904922
January 2013..... 9,486,707 0.0081253 3,320,348 0.0081253 2,608,844 0.0081254 1,357,427 0.0640317
April 2013....... 0 0.0081253 0 0.0081253 0 0.0081254 717,371 0.0500478
July 2013........ 532,107 0.0061510 186,238 0.0061510 146,329 0.0061511 873,473 0.0330211
October 2013..... 532,107 0.0061510 186,238 0.0061510 146,329 0.0061511 873,473 0.0330211
</TABLE>
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.
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 DTC's 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.
52
<PAGE>
INDENTURE DEFAULTS AND CERTAIN RIGHTS UPON AN INDENTURE DEFAULT
An event of default under an Indenture (an "Indenture Default") will
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. Consequently, events resulting in an Indenture
Default under any particular Indenture may or may not result in an Indenture
Default under any other Indenture. However, a Lease Event of Default under any
Lease will constitute a Lease Event of Default under all Leases due to the
cross-default provisions in the Leases, and will consequently result in an
Indenture Default under all Indentures. 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 Aircraft, the applicable Owner Trustee and Owner
Participant will, under the related Indenture, have the right under certain
circumstances to cure Indenture Defaults 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 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 Indenture relating to
an Aircraft, the applicable Owner Trustee exercises its option to redeem or
purchase the outstanding Equipment Notes issued under such Indenture, the price
paid by such Owner Trustee for the Equipment Notes issued under such 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)
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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 such Trustee in the Special Payments Account for such Trust
shall, to the extent practicable, be invested and reinvested by such Trustee in
Permitted Investments pending the distribution of such funds on a Special
Distribution Date. (Section 4.04) 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 Agreement at
the request of such Certificateholders. (Section 7.03(e))
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 will provide 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.
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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).
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 Refunding 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
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)
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 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
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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 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)
DELAYED PURCHASE
In the event that on the date of the consummation of the Offering, the
conditions to delivery of the Equipment Notes are not all satisfied and, as a
result, any portion of the proceeds from the sale of the Certificates is not
used to purchase the Equipment Notes issuable under any Indenture, such
Equipment Notes may be purchased by the Trustees at any time on or prior to
March 31, 1996. In such event, the Trustees will hold such proceeds not used to
purchase Equipment Notes in an escrow account pending the purchase of the
Equipment Notes not so purchased. Such proceeds will be invested in certain
specified investments at the direction and risk of, and for the account of,
Continental. Earnings on such investments in the escrow account for each Trust
will be paid to Continental periodically, and Continental will be responsible
for any losses. (Section 2.01(b))
THE TRUSTEES
The Trustee for each Trust is Wilmington Trust Company.
With certain exceptions, the Trustee makes 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
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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 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 Certificate"), to be deposited with the Trustee as
custodian for DTC and registered in the name of a nominee of DTC.
Old Certificates originally issued in definitive, fully registered form
with respect to any Trust ("Definitive Certificates") will be exchanged for
beneficial interests in the Global Certificate, representing the New
Certificates of such Trust.
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 in the 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.
Qualified institutional buyers may hold their interests in the Global
Certificates directly through DTC if they are participants in such system, or
indirectly through organizations which are participants in such system.
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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 Definitive Certificates 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, which has been filed as an exhibit to the Registration
Statement. The provisions of the Liquidity Facilities are substantially
identical except as otherwise indicated. Upon request, copies of such documents
will be furnished to any prospective investor in the Certificates. Copies of
such documents are filed as exhibits to the Registration Statement and are
available from the Trustee.
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 six consecutive 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 Credit Suisse is the initial Liquidity
Provider for each of the Class A Trust, the Class B Trust and the Class C Trust,
Credit Suisse may be replaced by another entity with respect to one or more
Trusts under certain circumstances. Therefore, the liquidity provider for any
Trust may be different from the liquidity provider for any other Trust.
DRAWINGS
The initial stated amount available under each of the Liquidity Facilities
for the Class A Trust, the Class B Trust and the Class C Trust is
$30,078,208.00, $11,772,633.60 and $11,117,550.00, respectively. Except as
otherwise provided below, the Liquidity Facility for each Trust will enable 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 stated 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 Trusts, 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 equal to the then stated amount of such
Liquidity Facility; provided, however, that such Liquidity Facility shall not be
so reinstated at any time after (i) a Triggering Event 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 stated amount of the Liquidity
Facility for any Trust will
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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))
If at any time the short-term unsecured debt rating of the Liquidity
Provider for any Trust then issued by either Rating Agency 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 (i) equal to or higher than the Threshold Rating and
(ii) equal to or higher than the unsecured short-term debt ratings of the
Liquidity Provider being replaced issued by both Rating Agencies. (Intercreditor
Agreement, Section 1.1)
"Threshold Rating" means the short-term unsecured debt rating of P-2 by
Moody's and A-1 by Standard & Poor's.
The Liquidity Facility for each Trust provides that the Liquidity
Provider's obligations thereunder will expire on the earliest of (i) January 29,
1997; (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. Each Liquidity Facility
provides that the scheduled expiration date thereof may be extended for
additional one-year periods by mutual agreement. The Intercreditor Agreement
provides for the replacement of the Liquidity Facility for any Trust (other than
a Liquidity Facility which expires no earlier than 15 days later than the final
maturity date) in the event that such Liquidity Facility is not extended at
least 25 days prior to its then scheduled expiration date. In the event such
Liquidity Facility is not so extended or replaced within 25 days prior to its
then scheduled expiration date, the Subordination Agent shall request the Non-
Extension Drawing in an amount equal to all available and undrawn amounts
thereunder and 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, and subject to the same conditions, as cash payments of Interest
Drawings under such Liquidity Facility would be used. (Liquidity Facilities,
Section 2.02(b); Intercreditor Agreement, Section 3.6(d))
Continental, in consultation with the Subordination Agent, may direct the
Owner Participants (which shall follow such direction unless they have a bona
fide, good faith reason not to) to arrange for a replacement facility at any
time to replace the Liquidity Facility for any Trust. If such replacement
facility is provided at any
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time after the Downgrade Drawing or the Non-Extension 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, 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. (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 2.00%
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 or the Non-Extension 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 amount of interest
payable on the then outstanding aggregate principal amount of the Certificates
of such Trust at the Stated Interest Rate for such Trust on six consecutive
Regular Distribution Dates (without regard to expected future payments of
principal of such Certificates) 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. Any portion of the
Downgrade Drawing or the Non-Extension Drawing under any Liquidity Facility
remaining unreimbursed as of the tenth anniversary of the consummation of the
Offering (or, if such Liquidity is extended beyond such tenth anniversary, the
expiration date thereof so extended) shall be payable in eight quarterly
installments, commencing on the Regular Distribution Date immediately following
such date; provided that such principal installments shall not be required to be
paid so long as Continental complies with its obligation to purchase
participation interests in the Liquidity Facilities pursuant to a separate
agreement with Credit Suisse. The Downgrade Drawing or the Non-Extension Drawing
under any Liquidity Facility will bear interest at a rate equal to the
applicable LIBOR plus 0.75% per annum. (Liquidity Facilities, Section 2.06)
LIQUIDITY EVENTS OF DEFAULT
Events of Default under each Liquidity Facility (each, a "Liquidity Event
of Default") will consist of: (i) the acceleration of all the Equipment Notes;
and (ii) certain bankruptcy or similar events involving Continental. (Liquidity
Facilities, Section 1.01)
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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))
LIQUIDITY PROVIDER
The initial Liquidity Provider is Credit Suisse.
Founded in 1856, Credit Suisse is the oldest of Switzerland's three major
banks and maintains its corporate headquarters in Zurich, Switzerland. Within
Switzerland, Credit Suisse conducts its operations through 311 offices and
branches. Internationally, Credit Suisse maintains a presence on five continents
through its 73 foreign branches, representative offices and subsidiaries.
Banking operations of Credit Suisse in the United States began in 1940 and
currently include branches in New York and Los Angeles, an agency in Miami, and
representative offices in San Francisco, Atlanta, Chicago and Houston.
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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. The Intercreditor Agreement is
filed as an exhibit to the Registration Statement and is available from the
Trustee.
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 is 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. See
"Description of 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, the
Liquidity Provider shall have the right to direct such Loan Trustee with respect
to such matters at any time after 18 months from the acceleration of the
Equipment Notes under such Indenture, if at the time of such election the
Liquidity Obligations have not been paid in full; 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; provided that at any
time after Continental has acquired 100% participation interests in the
Liquidity Facilities, the Liquidity Provider shall not have the right to become
the Controlling Party. 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)
The Controlling Party may not, without the consent of the Liquidity
Provider (which consent shall not be unreasonably withheld or delayed), amend
the provisions of or direct the exercise of any remedy or the taking of any
other action (including the sale of any Equipment Note, Lease or Aircraft unless
its market value is paid within two years from the earliest such amendment,
exercise or other action) under the Indentures or various other agreements, if
the effect thereof would be to impair the ability of the Subordination Agent to
cause all Liquidity Obligations to be paid in full within one year of the date
when due; provided that, if the Controlling Party is an Owner Participant or its
affiliate, the consent requirements will apply to any disposition of any
Equipment Note, Lease or Aircraft, regardless of the terms of disposition.
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) the amount and
payment dates of rentals payable by Continental under the Lease for such
Aircraft may not be
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<PAGE>
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 commission an Appraisal with respect to the related Aircraft
at the request of the Controlling Party. (Intercreditor Agreement, Section 4.1)
"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.
"Appraised Value" means at any time with respect to any Aircraft, the
appraised value thereof as set forth in the most recent Appraisal, provided that
initially, the Appraised Value of any Aircraft means the lower of the average or
the median of the three appraisals provided by the Appraisers for such Aircraft.
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 and, if applicable, to replenish each Cash Collateral Account
up to the amount of interest payable on the related Class of Certificates
at the Stated Interest Rate therefor on six consecutive Regular
Distribution Dates (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.
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, any Trustee, any Certificateholder or the
Liquidity Provider in connection with the protection and realization of the
Equipment Notes or the Trust Indenture Estate;
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<PAGE>
(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;
(vi) to pay Final Distributions to the holders of Class A Certificates
(reducing the Pool Balance thereof to zero);
(vii) to pay Final Distributions to the holders of Class B
Certificates (reducing the Pool Balance thereof to zero);
(viii) to pay Final Distributions to the holders of Class C
Certificates (reducing the Pool Balance thereof to zero); and
(ix) to pay Final Distributions to the holders of Class D Certificates
(reducing the Pool Balance thereof to zero).
Notwithstanding the foregoing provisions, so long as no PTC Event of
Default shall have occurred and be continuing with respect to the most senior
Class of Certificates outstanding, any regularly scheduled payment received on
the Performing Equipment Notes shall be distributed as follows:
(x) the Performing Equipment Notes Interest Payment will be
distributed in the following order:
(1) to the Liquidity Provider in payment of the Liquidity
Obligations, and to the Subordination Agent, the Trustees, the
Certificateholders or the Liquidity Provider, as the case may be, in
payment of the amounts payable to such parties in clauses (i) and (v)
immediately above (the "Administration Expenses");
(2) to the holders of Class A Certificates in payment of accrued
and unpaid interest on the Class A Certificates;
(3) to the holders of Class B Certificates in payment of accrued
and unpaid interest on the Class B Certificates;
(4) to the holders of Class C Certificates in payment of accrued
and unpaid interest on the Class C Certificates; and
(5) to the holders of Class D Certificates;
provided that the provisions of this paragraph (x) will be given effect before
distribution of any funds received in respect of any Non-Performing Equipment
Notes;
(y) the Performing Equipment Notes Principal Payment will be
distributed in the following order:
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<PAGE>
(1) to the holders of Class A Certificates in payment of the
greater of (A) the Adjusted Expected Distributions to such holders on
such Distribution Date and (B) such holders' pro rata portion of the
Performing Equipment Notes Principal Payment based on the Adjusted
Pool Balance of such Trust;
(2) to the holders of Class B Certificates in payment of the
greater of (A) the Adjusted Expected Distributions to such holders on
such Distribution Date and (B) such holders' pro rata portion of the
Performing Equipment Notes Principal Payment based on the Adjusted
Pool Balance of such Trust;
(3) to the holders of Class C Certificates in payment of the
greater of (A) the Adjusted Expected Distributions to such holders on
such Distribution Date and (B) such holders' pro rata portion of the
Performing Equipment Notes Principal Payment based on the Adjusted
Pool Balance of such Trust; and
(4) to the holders of Class D Certificates;
provided that the provisions of this paragraph (y) will be given effect
after distributing any funds received in respect of any Non-Performing
Equipment Notes;
provided that if the aggregate amount of future scheduled payments in respect of
the Performing Equipment Notes, together with the Performing Equipment Notes
Principal Payment as of such Distribution Date, will be (assuming the
distribution of such amount as contemplated by paragraphs (x) and (y) and that
no further payment will be received at any time from the Non-Performing
Equipment Notes) insufficient to pay interest on any Class of Certificates and
reduce the Pool Balance of such Class of Certificates to zero before the Final
Maturity Date thereof, the amount of distributions to be made to the holders of
such Class of Certificates on such Distribution Date will be increased by the
amount of such deficiency prior to making any distributions to the holders of
any Class of Certificates junior to such Class of Certificates and such increase
shall be taken into account for the purpose of applying this proviso to the
holders of any such junior Class of Certificates.
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 amounts
required to be maintained therein to pay interest on the Certificates of such
Trust at the Stated Interest Rate for such Trust on six consecutive Regular
Distribution Dates 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, the Indenture, 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 Certificateholders and shall vote or consent in accordance
with the vote of the Certificateholders 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)
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<PAGE>
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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<PAGE>
DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS
THE AIRCRAFT
The Aircraft are comprised of nine Boeing 737-500 aircraft and nine Boeing
757-200 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>
Appraised Value
FAA Aircraft Engine Delivery ------------------------------
Number Type Type Date AISI BK MBA
- ------ -------- ------ -------- ----- ---- ----
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
N17104 757-200 RB21 1-535E4B July 1994 $48.80 $47.50 $49.77
N17105 757-200 RB21 1-535E4B Aug. 1994 49.02 47.50 50.00
N14106 757-200 RB21 1-535E4B Sept. 1994 49.24 47.50 50.23
N14107 757-200 RB21 1-535E4B Oct. 1994 49.45 47.50 50.45
N21108 757-200 RB21 1-535E4B Nov. 1994 49.67 47.50 50.68
N12109 757-200 RB21 1-535E4B Dec. 1994 49.89 47.50 50.91
N13110 757-200 RB21 1-535E4B Dec. 1994 49.89 47.50 50.91
N18112 757-200 RB21 1-535E4B Feb. 1995 50.33 47.50 51.36
N13113 757-200 RB21 1-535E4B April 1995 50.76 47.50 51.82
N17620 737-500 CFM56-3B 1 Feb. 1995 28.93 25.00 25.56
N19623 737-500 CFM56-3B 1 Jan. 1995 28.68 25.00 25.44
N13624 737-500 CFM56-3B 1 Feb. 1995 28.93 25.00 25.56
N46625 737-500 CFM56-3B 1 Jan. 1995 28.68 25.00 25.44
N32626 737-500 CFM56-3B 1 April 1995 29.44 25.00 25.78
N17627 737-500 CFM56-3B 1 April 1995 29.44 25.00 25.78
N62631 737-500 CFM56-3B 1 June 1995 29.95 25.00 26.01
N16632 737-500 CFM56-3B 1 July 1995 30.20 25.00 26.13
N24633 737-500 CFM56-3B 1 Aug. 1995 30.46 25.00 26.18
</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 January 3, 1996. As part of this process,
all three Appraisers performed "desk-top" appraisals without any physical
inspection of the Aircraft.
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 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.
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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 the Equipment Notes, the
Indentures, the Leases, the Participation Agreements, the Trust Agreements and
the Refunding Agreements and reference is made to all of the provisions of such
documents. Except as otherwise indicated, the following summaries relate to the
Equipment Notes, the Indenture, the Lease, the Participation Agreement, the
Trust Agreement and the Refunding Agreement relating to each Aircraft, forms of
which are filed as exhibits to the Registration Statement.
GENERAL
The Equipment Notes have been issued in four series with respect to each
Aircraft. The Equipment Notes with respect to each Aircraft were issued under a
separate 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 related Owner Trustee leases each Aircraft to Continental pursuant to a
separate Lease between such Owner Trustee and Continental with respect to such
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 Aircraft. The Equipment Notes are not, however,
direct obligations of, or guaranteed by, Continental. Continental's rental
obligations under each Lease are general obligations of Continental.
General Electric Company is currently the Owner Participant with respect to
all of the eighteen leveraged leases for the Aircraft. The Owner Participant or
its affiliate also acquired all of the Class D Certificates contemporaneously
with the consummation of the Offering. General Electric Company 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, and the Class D
Certificateholder will have the right to sell any or all Class D Certificates,
subject to the terms and conditions of the Pass Through Trust Agreement for the
Class D Trust.
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) payment
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.
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<PAGE>
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>
Trust 1996-A Trust 1996-B Trust 1996-C Trust 1996-D
% % % %
Aircraft No. Equipment Notes Equipment Notes Equipment Notes Equipment Notes Total
- ------------ --------------- --------------- --------------- --------------- -----
<S> <C> <C> <C> <C> <C>
N17620.......... $ 10,222,000.00 $ 3,577,700.00 $ 2,811,050.00 $ 2,300,000.00 $ 18,910,750.00
N19623.......... 10,200,000.00 3,570,000.00 2,805,000.00 2,300,000.00 18,875,000.00
N13624.......... 10,222,000.00 3,577,700.00 2,811,050.00 2,300,000.00 18,910,750.00
N46625.......... 10,200,000.00 3,570,000.00 2,805,000.00 2,300,000.00 18,875,000.00
N32626.......... 10,313,200.00 3,609,620.00 2,836,130.00 2,300,000.00 19,058,950.00
N17627.......... 10,313,200.00 3,609,620.00 2,836,130.00 2,300,000.00 19,058,950.00
N62631.......... 10,404,400.00 3,641,540.00 2,861,210.00 2,300,000.00 19,207,150.00
N16632.......... 10,450,000.00 3,657,500.00 2,873,750.00 2,300,000.00 19,281,250.00
N24633.......... 10,471,600.00 3,665,060.00 2,879,690.00 2,300,000.00 19,316,350.00
N17104.......... 19,342,666.67 6,769,933.33 5,319,233.33 3,400,000.00 34,831,833.33
N17105.......... 19,415,733.33 6,795,506.67 5,339,326.67 3,400,000.00 34,950,566.67
N14106.......... 19,488,666.67 6,821,033.33 5,359,383.33 3,400,000.00 35,069,083.33
N14107.......... 19,560,266.67 6,846,093.33 5,379,073.33 3,400,000.00 35,185,433.33
N21108.......... 19,633,200.00 6,871,620.00 5,399,130.00 3,400,000.00 35,303,950.00
N12109.......... 19,706,266.67 6,897,193.33 5,419,223.33 3,400,000.00 35,422,683.33
N13110.......... 19,706,266.67 6,897,193.33 5,419,223.33 3,400,000.00 35,422,683.33
N18112.......... 19,858,933.33 6,950,626.67 5,461,206.67 3,400,000.00 35,670,766.67
N13113.......... 20,009,599.99 7,004,060.01 5,502,190.01 3,400,000.00 35,915,850.01
--------------- -------------- -------------- -------------- ---------------
Total......... $269,518,000.00 $94,332,000.00 $74,117,000.00 $51,300,000.00 $489,267,000.00
=============== ============== ============== ============== ===============
</TABLE>
Interest is payable on the unpaid principal amount of each Equipment Note
at the rate applicable to such Equipment Note on January 15, April 15, July 15
and October 15 in each year, commencing April 15, 1996. 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--General", 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
The Equipment Notes issued with respect to any Aircraft will be redeemed,
in whole, 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 upon the
occurrence of an Event of Loss to such Aircraft if such Aircraft is not
replaced. (Indentures, Section 2.10(a))
The Equipment Notes relating to an Aircraft will be redeemed, in whole, on
a Special Distribution Date in connection with Continental's exercise of its
right to terminate the applicable Lease under Section 9 of such Lease 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 a Make-
Whole Premium (as defined below). (Indentures, Section 2.10(b)). See "--The
Leases--Lease Termination".
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All of the Equipment Notes issued with respect to an Aircraft may be
redeemed prior to maturity as part of a refunding or refinancing thereof under
Section 13 of the applicable Participation Agreement at a price equal to the
aggregate unpaid principal thereof, together with accrued interest thereon to,
but not including, the date of redemption, plus a Make-Whole Premium, if any.
(Indentures, Section 2.11)
If notice of such a redemption shall have been given in connection with a
refinancing of such Equipment Notes, such notice may be revoked not later than
three days prior to the proposed redemption date. (Indentures, Section 2.12)
If, with respect to an Aircraft, (x) one or more Lease Events of Default
shall have occurred and be continuing, (y) 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 Indenture or
commence the exercise of any significant remedy under such Indenture or the
related Lease or (z) the Equipment Notes with respect to such Aircraft shall
have been accelerated, then in each case the Equipment Notes issued with respect
to such Aircraft may be purchased by the Owner Trustee or Owner Participant on
the applicable purchase date at a price equal to the Redemption Price, 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) a Lease
Event of Default shall have occurred and be continuing for less than 120 days or
(B) the only Lease Event of Default under the related Lease arises from the
cross-default provisions of such Lease (in which event the option to purchase
may not be exercised for 60 days after the date of notice thereof). (Indentures,
Section 2.14)
"Make-Whole Premium" means, with respect to a redemption or purchase of an
Equipment Note, an amount equal to the greater of (i) zero and (ii) (x) the
present value, discounted on a quarterly compounded basis utilizing an interest
factor equal to the Reinvestment Yield, of the principal payments provided for
in the amortization schedule for such Equipment Note (including the payment at
final maturity) and the scheduled interest payments from the respective dates on
which, but for such redemption or purchase, such principal payments and interest
payments would have been payable on such Equipment Note, minus (y) the principal
amount of such Equipment Note so to be redeemed or purchased plus accrued but
unpaid interest thereon.
For purposes of the foregoing definition, "Reinvestment Yield" shall mean
the arithmetic mean of the two most recent weekly average yields to maturity for
actively traded marketable U.S. Treasury fixed interest rate securities
(adjusted to constant maturities equal to the remaining Weighted Average Life to
Maturity of such Equipment Note as of the date of the proposed redemption or
purchase), as published by the Federal Reserve Board in its Statistical Release
H.15(519) or any successor publication for the two calendar weeks ending on the
Saturday next preceding such date or, if such average is not published for such
period, of such reasonably comparable index as may be designated in good faith
by the Independent Investment Banker for such period. If no possible maturity
exactly corresponds to such Weighted Average Life to Maturity, yields for the
two most closely corresponding published maturities shall be calculated pursuant
to the immediately preceding sentence and the Reinvestment Yield shall be
interpolated from such yields on a straight-line basis, rounding each of such
relevant periods to the nearest month.
"Weighted Average Life to Maturity" of each Equipment Note means at the
time of the determination thereof the number of years obtained by dividing the
then Remaining Dollar-years of such Equipment Note by the then-outstanding
principal amount of such Equipment Note. The term "Remaining Dollar-years" shall
mean the amount obtained by (1) multiplying the amount of each then-remaining
principal payment on such Equipment Note provided for in the amortization
schedule for such Equipment Note by the number of years (calculated at the
nearest one-twelfth) that will elapse between the date of determination of the
Weighted Average Life to Maturity of such Equipment Note and the date of that
required payment and (2) totaling all the products obtained in clause (1) above.
71
<PAGE>
SECURITY
The Equipment Notes issued with respect to each Aircraft are secured by (i)
an assignment by the related Owner Trustee to the related Loan 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 Loan Trustee of such Aircraft, subject to
the rights of Continental under such Lease, and (iii) an assignment to such Loan
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 an Aircraft has occurred and is continuing, the Loan
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 Loan 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. (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.
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 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 (except in the case of certain Indenture Defaults), in investments
described in the related Indenture.
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<PAGE>
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.
Loan to value ratios below cannot be recalculated due to rounding.
The table is based on the assumption that the value of each Aircraft set
forth opposite January 1996 depreciates by 2% per year until the fifteenth year
after the year of delivery of such Aircraft and 4% per year thereafter. Other
rates or methods of depreciation would result in materially different loan-to-
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 No. N17620 Aircraft No. N19623 Aircraft No. N13624
-------------------------------- ---------------------------------- ---------------------------------
Equipment Equipment Equipment
Note Assumed Note Assumed Note Assumed
Outstanding Aircraft Outstanding Aircraft Outstanding Aircraft
Balance Value Loan to Balance Value Loan to Balance Value Loan to
(millions) (millions) Value Ratio (millions) (millions) Value Ratio (millions) (millions) Value Ratio
------------ ---------- ----------- ---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 1996 $18.91 $25.56 74.00% $18.88 $25.44 74.19% $18.91 $25.56 74.00%
January 1997 18.59 25.04 74.21 18.55 24.93 74.40 18.59 25.04 74.21
January 1998 18.27 24.53 74.45 18.23 24.42 74.65 18.27 24.53 74.45
January 1999 17.82 24.02 74.18 17.79 23.91 74.37 17.82 24.02 74.18
January 2000 17.38 23.51 73.91 17.40 23.41 74.34 17.37 23.51 73.90
January 2001 16.44 23.00 71.49 16.45 22.90 71.84 16.44 23.00 71.47
January 2002 15.44 22.49 68.65 15.42 22.39 68.89 15.43 22.49 68.62
January 2003 14.34 21.98 65.23 14.32 21.88 65.46 14.35 21.98 65.29
January 2004 13.09 21.47 60.99 13.08 21.37 61.20 13.10 21.47 61.04
January 2005 11.73 20.96 55.99 11.78 20.86 56.46 11.81 20.96 56.35
January 2006 9.84 20.44 48.13 9.91 20.35 48.68 9.94 20.44 48.64
January 2007 7.13 19.93 35.79 7.81 19.84 39.36 7.81 19.93 39.19
January 2008 5.42 19.42 27.90 5.46 19.34 28.23 5.45 19.42 28.08
January 2009 4.52 18.91 23.90 4.53 18.83 24.05 4.52 18.91 23.91
January 2010 3.49 18.40 18.97 3.45 18.32 18.84 3.40 18.40 18.71
January 2011 2.40 17.38 13.79 2.27 17.30 13.12 2.26 17.38 12.99
January 2012 0.54 16.36 3.30 1.01 16.28 6.21 0.99 16.36 6.06
January 2013 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Aircraft No. N46625 Aircraft No. N32626 Aircraft No. N17627
------------------------------------ ------------------------------------ ------------------------------------
Equipment Equipment Equipment
Note Assumed Note Assumed Note Assumed
Outstanding Aircraft Outstanding Aircraft Outstanding Aircraft
Balance Value Loan to Balance Value Loan to Balance Value Loan to
(millions) (millions) Value Ratio (millions) (millions) Value Ratio (millions) (millions) Value Ratio
----------- ---------- ----------- ----------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 1996 $18.88 $25.44 74.19% $19.06 $25.78 73.92% $19.06 $25.78 73.92%
January 1997 18.55 24.93 74.40 18.73 25.27 74.13 18.73 25.27 74.13
January 1998 18.23 24.42 74.65 18.41 24.75 74.37 18.41 24.75 74.37
January 1999 17.79 23.91 74.37 17.96 24.24 74.10 17.96 24.24 74.10
January 2000 17.40 23.41 74.35 17.53 23.72 73.91 17.53 23.72 73.91
January 2001 16.45 22.90 71.84 16.54 23.20 71.28 16.55 23.20 71.30
January 2002 15.43 22.39 68.91 15.47 22.69 68.17 15.47 22.69 68.18
January 2003 14.33 21.88 65.48 14.28 22.17 64.41 14.28 22.17 64.42
January 2004 13.08 21.37 61.21 13.03 21.66 60.16 13.03 21.66 60.17
January 2005 11.78 20.86 56.47 11.78 21.14 55.72 11.79 21.14 55.75
January 2006 9.92 20.35 48.72 9.91 20.63 48.05 9.92 20.63 48.09
January 2007 7.81 19.84 39.37 7.84 20.11 39.00 7.84 20.11 39.00
January 2008 5.46 19.34 28.23 5.50 19.60 28.09 5.50 19.60 28.09
January 2009 4.53 18.83 24.05 4.61 19.08 24.15 4.61 19.08 24.15
January 2010 3.45 18.32 18.84 3.59 18.56 19.32 3.58 18.56 19.30
January 2011 2.27 17.30 13.13 2.48 17.53 14.15 2.48 17.53 14.13
January 2012 1.01 16.28 6.20 1.30 16.50 7.91 1.30 16.50 7.88
January 2013 0.00 0.00 0.00 0.36 15.47 2.32 0.36 15.47 2.32
</TABLE>
<TABLE>
<CAPTION>
Aircraft No. N62631 Aircraft No. N16632 Aircraft No. N24633
------------------------------------ ------------------------------------ ------------------------------------
Equipment Equipment Equipment
Note Assumed Note Assumed Note Assumed
Outstanding Aircraft Outstanding Aircraft Outstanding Aircraft
Balance Value Loan to Balance Value Loan to Balance Value Loan to
(millions) (millions) Value Ratio (millions) (millions) Value Ratio (millions) (millions) Value Ratio
----------- ---------- ----------- ----------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 1996.... $19.2 $26.0 73.84 $19.2 $26.1 73.80 $19.3 $26.1 73.79
January 1997.... 18.8 25.4 74.05 18.9 25.6 74.01 18.9 25.6 73.99
January 1998.... 18.5 24.9 74.29 18.6 25.0 74.25 18.6 25.1 74.23
January 1999.... 18.1 24.4 74.02 18.1 24.5 73.99 18.2 24.6 73.97
January 2000.... 17.5 23.9 73.37 17.5 24.0 73.10 17.5 24.0 73.00
January 2001.... 16.5 23.4 70.62 16.5 23.5 70.45 16.5 23.5 70.36
January 2002.... 15.4 22.8 67.42 15.4 22.9 67.39 15.5 23.0 67.27
January 2003.... 14.2 22.3 63.57 14.3 22.4 63.69 14.3 22.5 63.54
January 2004.... 12.9 21.8 59.23 13.0 21.9 59.51 13.0 21.9 59.33
January 2005.... 11.6 21.3 54.58 11.8 21.4 55.30 11.8 21.4 55.11
January 2006.... 9.7 20.8 46.85 9.9 20.9 47.78 9.9 20.9 47.58
January 2007.... 7.5 20.2 37.34 7.8 20.3 38.66 7.8 20.4 38.34
January 2008.... 5.2 19.7 26.45 5.6 19.8 28.30 5.5 19.9 28.11
January 2009.... 4.6 19.2 24.09 4.7 19.3 24.57 4.7 19.3 24.37
January 2010.... 3.6 18.7 19.22 3.7 18.8 19.95 3.7 18.8 19.75
January 2011.... 2.4 17.6 14.00 2.6 17.7 15.07 2.6 17.8 14.82
January 2012.... 1.3 16.6 7.79 1.5 16.7 9.28 1.5 16.7 8.95
January 2013.... 0.3 15.6 2.34 0.6 15.6 3.88 0.5 15.7 3.70
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
Aircraft No. N17104 Aircraft No. N17105 Aircraft No. N14106
------------------------------------ ------------------------------------ ------------------------------------
Equipment Equipment Equipment
Note Assumed Note Assumed Note Assumed
Outstanding Aircraft Outstanding Aircraft Outstanding Aircraft
Balance Value Loan to Balance Value Loan to Balance Value Loan to
(millions) (millions) Value Ratio (millions) (millions) Value Ratio (millions) (millions) Value Ratio
----------- ---------- ----------- ----------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 1996 $34.83 $48.69 71.54% $34.95 $48.84 71.56% $35.07 $48.99 71.59%
January 1997 34.22 47.72 71.71 34.33 47.86 71.73 34.45 48.01 71.75
January 1998 33.61 46.74 71.91 33.73 46.89 71.93 33.84 47.03 71.95
January 1999 32.56 45.77 71.15 32.55 45.91 70.90 32.82 46.05 71.27
January 2000 30.76 44.79 68.66 30.69 44.93 68.31 31.08 45.07 68.97
January 2001 29.33 43.82 66.92 29.24 43.96 66.53 29.65 44.09 67.24
January 2002 26.85 42.85 62.66 26.74 42.98 62.22 27.19 43.11 63.07
January 2003 24.34 41.87 58.12 24.28 42.00 57.80 24.56 42.13 58.29
January 2004 22.63 40.90 55.34 22.56 41.03 55.00 22.85 41.15 55.53
January 2005 20.67 39.93 51.77 20.62 40.05 51.48 20.90 40.17 52.03
January 2006 18.37 38.95 47.15 18.29 39.07 46.82 18.73 39.19 47.80
January 2007 16.24 37.98 42.76 16.14 38.09 42.38 15.55 38.21 40.70
January 2008 13.01 37.00 35.15 13.15 37.12 35.42 10.77 37.23 28.92
January 2009 9.29 36.03 25.77 9.24 36.14 25.57 9.37 36.25 25.85
January 2010 7.79 34.08 22.86 7.69 34.19 22.50 7.88 34.29 22.97
January 2011 6.07 32.14 18.89 5.96 32.23 18.48 6.25 32.33 19.35
January 2012 4.13 30.19 13.68 4.07 30.28 13.44 4.50 30.37 14.80
January 2013 0.37 28.24 1.32 2.01 28.33 7.08 0.01 28.41 0.04
</TABLE>
<TABLE>
<CAPTION>
Aircraft No. N14107 Aircraft No. N21108 Aircraft No. N12109
------------------------------------ ------------------------------------ ------------------------------------
Equipment Equipment Equipment
Note Assumed Note Assumed Note Assumed
Outstanding Aircraft Outstanding Aircraft Outstanding Aircraft
Balance Value Loan to Balance Value Loan to Balance Value Loan to
(millions) (millions) Value Ratio (millions) (millions) Value Ratio (millions) (millions) Value Ratio
----------- ---------- ----------- ----------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 1996 $35.19 $49.13 71.61% $35.30 $49.28 71.64% $35.42 $49.43 71.66%
January 1997 34.56 48.15 71.78 34.68 48.30 71.80 34.79 48.44 71.83
January 1998 33.95 47.17 71.98 34.07 47.31 72.00 34.18 47.46 72.02
January 1999 32.44 46.19 70.23 32.64 46.33 70.46 32.69 46.47 70.36
January 2000 30.69 45.20 67.90 30.83 45.34 68.00 31.05 45.48 68.27
January 2001 29.23 44.22 66.09 29.41 44.35 66.30 29.65 44.49 66.65
January 2002 26.74 43.24 61.84 26.94 43.37 62.11 27.18 43.50 62.49
January 2003 24.25 42.26 57.39 24.47 42.38 57.74 24.61 42.51 57.88
January 2004 22.54 41.27 54.62 22.76 41.40 54.98 22.92 41.52 55.19
January 2005 20.59 40.29 51.11 20.83 40.41 51.53 20.94 40.53 51.67
January 2006 18.22 39.31 46.35 18.51 39.43 46.94 18.57 39.55 46.97
January 2007 15.86 38.32 41.39 16.40 38.44 42.65 16.46 38.56 42.69
January 2008 12.70 37.34 34.02 13.47 37.46 35.95 13.54 37.57 36.05
January 2009 8.77 36.36 24.11 9.63 36.47 26.41 9.73 36.58 26.60
January 2010 7.66 34.39 22.28 8.14 34.50 23.59 8.41 34.60 24.29
January 2011 5.88 32.43 18.13 6.48 32.53 19.93 6.69 32.63 20.49
January 2012 3.94 30.46 12.92 4.61 30.56 15.09 3.14 30.65 10.24
January 2013 1.85 28.50 6.50 0.10 28.58 0.36 0.10 28.67 0.36
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
Aircraft No. N13110 Aircraft No. N18112 Aircraft No. N13113
------------------------------------ ------------------------------------ ------------------------------------
Equipment Equipment Equipment
Note Assumed Note Assumed Note Assumed
Outstanding Aircraft Outstanding Aircraft Outstanding Aircraft
Balance Value Loan to Balance Value Loan to Balance Value Loan to
(millions) (millions) Value Ratio (millions) (millions) Value Ratio (millions) (millions) Value Ratio
----------- ---------- ----------- ----------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 1996 $35.42 $49.43 71.66% $35.67 $49.73 71.73% $35.92 $50.03 71.80%
January 1997 34.79 48.44 71.83 35.04 48.74 71.89 35.28 49.02 71.96
January 1998 34.18 47.46 72.02 34.42 47.74 72.09 34.62 48.02 72.09
January 1999 32.67 46.47 70.31 32.64 46.75 69.82 32.72 47.02 69.58
January 2000 30.94 45.48 68.03 30.88 45.75 67.49 30.85 46.02 67.04
January 2001 29.54 44.49 66.39 29.40 44.76 65.69 29.39 45.02 65.29
January 2002 27.06 43.50 62.22 26.93 43.76 61.54 26.93 44.02 61.17
January 2003 24.60 42.51 57.87 24.38 42.77 57.01 24.42 43.02 56.76
January 2004 22.89 41.52 55.12 22.68 41.77 54.30 22.70 42.02 54.01
January 2005 20.92 40.53 51.60 20.75 40.78 50.88 20.74 41.02 50.55
January 2006 18.56 39.55 46.93 18.38 39.78 46.21 18.36 40.02 45.88
January 2007 16.44 38.56 42.64 16.26 38.79 41.93 16.24 39.02 41.62
January 2008 13.52 37.57 35.98 13.04 37.80 34.49 13.09 38.02 34.43
January 2009 9.70 36.58 26.52 9.16 36.80 24.88 9.24 37.02 24.95
January 2010 8.37 34.60 24.18 7.35 35.81 20.52 7.40 36.02 20.55
January 2011 6.64 32.63 20.37 2.78 33.82 8.22 5.17 34.02 15.20
January 2012 3.09 30.65 10.08 0.87 31.83 2.74 2.53 32.02 7.90
January 2013 0.10 28.67 0.36 0.01 29.84 0.03 0.01 30.02 0.03
</TABLE>
LIMITATION OF LIABILITY
The Equipment Notes 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 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 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 Indentures or the Equipment Notes to the
Loan Trustees or to any holder of any Equipment Note.
INDENTURE DEFAULTS, NOTICE AND WAIVER
Indenture Defaults under each Indenture include: (a) 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) 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, (c) the failure by the Owner Participant or the Owner Trustee 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 such Indenture, the related Participation Agreement, the related
Refunding 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 the related Owner Trustee or Owner Participant to perform or observe
any covenant or obligation for the benefit of
76
<PAGE>
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 not being a citizen of the United States or (g) the occurrence
of certain events of bankruptcy, reorganization or insolvency of the related
Owner Trustee or Owner Participant. (Indentures, Section 4.02) There are no
cross-default provisions in the Indentures. 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. However, a Lease Event of
Default under any Lease will constitute a Lease Event of Default under all
Leases due to the cross-default provisions in the Leases, and will consequently
result in an Indenture Default under all Indentures. (Leases, Section 14.8)
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,
together with any interest thereon on account of the delayed payment thereof, in
which event the Loan 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. 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. (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.
(Indentures, Section 4.08)
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. (Indentures, Section 4.04(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 the corresponding Lease has been declared in default) one or more
of the remedies under such Indenture or such Lease with respect to the Aircraft
subject to such Lease. The related Loan Trustee's right to exercise remedies
under such 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 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 Federal Bankruptcy Code (the
"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
77
<PAGE>
applicable court or such Loan Trustee's consent to an extension of such period,
(ii) such Loan 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 Loan 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 Loan Trustee may affect the rights of
Continental under any Lease unless a Lease Event of Default has occurred and is
continuing. (Indentures, Section 4.04; Leases, Section 15)
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 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 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 Bankruptcy Code, which
provision enjoins repossessions by creditors for the duration of the
reorganization period, (b) the provision of the Bankruptcy Code allowing the
trustee in reorganization to use property of the debtor during the
reorganization period, (c) Section 1129 of the 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 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".
The Bankruptcy Reform Act of 1994 amended Section 1110 by, among other
things, providing that the lessor under a lease of aircraft first placed in
service on or prior to the date of the enactment of that Act will be entitled to
the benefits of Section 1110 if the lessor and the lessee have expressed in the
applicable agreement or in a substantially contemporaneous writing that the
applicable agreement is to be treated as a lease for Federal income tax
purposes. Each of the Leases relating to the four Aircraft placed in service
prior to the enactment of the Act contains such a written statement.
Cleary, Gottlieb, Steen & Hamilton, counsel to Continental, has advised the
Loan Trustees that the right of the Owner Trustee, as lessor under each of the
Leases, and the Loan 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 Bankruptcy Code with respect to
the airframe and engines comprising the related 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 Trustee's exercise of rights contained in the
Indenture, see "--Indenture Defaults, Notice and Waiver".
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The opinion of Cleary, Gottlieb, Steen & Hamilton does 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 will also not address the availability of Section 1110 with respect to
any possible sublessee of an Aircraft subleased 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 Aircraft is owned by the related Owner Trustee in trust, such
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 Loan Trustee to exercise its
remedies under the related Indenture might be restricted, although such Loan
Trustee would retain its status as a secured creditor in respect of the related
Lease and the related 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 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 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 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 Aircraft. (Indentures, Section 9.01)
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. (Indentures, Section 9.01(a))
OWNER PARTICIPANT'S RIGHT TO RESTRUCTURE
So long as GE or any of its affiliates is the Owner Participant with
respect to the leveraged lease of any Aircraft, subject to certain conditions,
such Owner Participant will 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,
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the Owner Participant will be obligated to deliver to the Loan 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.
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
Aircraft. Each Owner Participant is required to indemnify the related Loan
Trustee and the holders of the Equipment Notes issued with respect to the
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
Each Aircraft is leased to Continental by the relevant Owner Trustee under
the relevant Lease.
Lease Term Rentals
Each 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 equal to any increase in the amount of 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 "The Exchange Offer--General". 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; Indentures, Section 3.01)
"Lease Payment Date" means, with respect to each Lease, January 15, April
15, July 15 or October 15 during the term of such Lease.
Net Lease
Under the terms of each Lease, Continental's obligations in respect of each
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
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airworthiness certificate for the Aircraft in good standing at all times.
(Leases, Sections 7.1 and 8.1 and Annex C)
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. 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 the case may be, 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) 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 Event of Default under an Indenture, 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 if the relevant Owner Trustee or the
relevant Owner Participant fails to meet the applicable citizenship
requirements, and to record each Lease and Indenture and certain other documents
under the Transportation Code. (Leases, Section 7) 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)
So long as no Lease default or Lease Event of Default exists, Continental
has the right to register the 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, Section 7.1.2; Participation Agreements, Section 8.7.12)
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, the Owner Participant and Owner Trustee arising
under the applicable Indenture, the Lease 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) materialmen's, 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
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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, Owner Trustee or Owner Participant. (Leases, Section 6)
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 757-224 Aircraft and $200,000 for each 737-524
Aircraft. (Leases, Section 8.1 and Annex C)
Insurance
The Leases require Continental to maintain, at its expense (or at the
expense of a permitted sublessee), 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 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 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), insurance
proceeds will be applied to repair or replace the property. (Leases, Sections
11.1 and 11.5 and Annex D)
In addition, Continental is obligated to maintain comprehensive airline
liability insurance at its expense (or at the expense of a permitted sublessee),
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 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
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with the standard deductibles in the airline insurance industry available to
major U.S. airlines. (Leases, Section 11.1 and Annex D, Section A)
Continental is also required to maintain war-risk, hijacking or allied
perils insurance if it (or any permitted sublessee) operates any Aircraft,
Airframe or Engine in any area of recognized or threatened hostilities or if
Continental (or any permitted sublessee) 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)
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)
In respect of each Aircraft, Continental is required to cause the relevant
Loan Trustee, holders of the Equipment Notes, 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 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)
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 on or 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 such Aircraft 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 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 the 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;
Indentures, Section 2.10(b))
The Owner Trustee has the option to retain title to the 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
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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 the 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; 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 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 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; Indentures,
Section 2.10(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 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, 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 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 such Lease immediately
prior to the occurrence of such Event of Loss). Continental is also required to
provide to the relevant Owner Trustee, Owner Participant and Loan Trustee (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)
such Owner Trustee 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) such Owner Trustee and Loan
Trustee (as assignee of lessor's rights and interests under the Lease) will be
entitled to receive the benefits and protections of Section 1110 of the
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 has been duly recorded. (Leases, Sections 10.1.3 and
10.3)
If Continental elects not to replace such Aircraft, then upon payment of
the stipulated loss value for such Aircraft, together with all additional
amounts then due and unpaid with respect to the 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 the Lease relating to such
Aircraft shall terminate with respect to such Aircraft, the obligation of
Continental thereafter to make the scheduled rent payments with respect thereto
shall cease and the related Owner Trustee shall transfer all of its right, title
and interest in and to
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the related Aircraft to Continental. The stipulated loss value and other
payments made under the Leases 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. (Leases, Section 10.1.2;
Indentures, Sections 2.06 and 3.02)
If the Owner Trustee and the Loan Trustee 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 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. (Leases, Section 10.3.2)
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 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 immediately prior to the occurrence of the Event of Loss). (Leases,
Section 10.2)
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, (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 such Lease (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)
Purchase Options under the Leases
So long as no Lease default or Lease Event of Default has occurred and is
continuing, Continental will have the option to purchase any Aircraft subject to
a Lease on the last business day of the original Lease or on the last business
day of either of the two, in the case of the 757-224 Aircraft, or four, in the
case of the 737-524 Aircraft, 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
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Trustee shall not be under any obligation to sell the Aircraft to Continental if
the fair market sales value of the 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 the 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 the Aircraft to Continental, provided that all related
Equipment Notes have previously been paid in full. (Leases, Section 17.3;
Indentures, Section 10.01)
The holder of the Equipment Notes issued under an Indenture shall not have
any right to amounts payable by Continental in connection with its exercise of
purchase options for the related 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.
Lease Events of Default
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 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; (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; and (xi) a Lease Event of
Default under any other Lease. (Leases, Section 14)
Remedies Exercisable upon Lease Events of Default
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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
Indenture, the Loan 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, 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. (Indentures, Sections 4.03 and 4.04)
Notwithstanding that an Event of Default under an Indenture 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 such Indenture
or otherwise commence the exercise of any significant remedy under such
Indenture or the related Lease, the Loan 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. (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 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.
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 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 ERISA 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
in a Certificate, the Plan's assets would 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 that regard, the extent to which there is
equity participation in a particular Trust on the part of employee benefit plans
is not being monitored. If the assets of a
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Trust were 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 were applicable to the transaction.
The fiduciary of a Plan that holds any Old Certificate or proposes to
exchange such Old Certificate and hold any New Certificates should consider
whether such holding or exchange may involve the indirect extension of credit to
a party in interest or a disqualified person. In addition, whether or not the
assets of a Trust are deemed to be Plan assets under the Plan Asset Regulation,
if Certificates are held 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,
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 hold Certificates on behalf of a Plan, 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. There
can be no assurance that any of the 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 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
exchanging or holding any Certificates.
Any Plan fiduciary which proposes to cause a Plan to hold or exchange 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 holding
or exchange will not constitute or result in a non-exempt prohibited transaction
or any other violation of an applicable requirement of ERISA.
CLASS A CERTIFICATES
In addition to the Class Exemptions referred to above, an individual
exemption may apply to the holding of Class A Certificates and the exchange of
Old Certificates that are Class A Certificates for New Certificates that are
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 The First Boston Corporation,
Prohibited Transaction Exemption 89-90 (54 Fed. Reg. 42597, October 17, 1989),
as amended (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
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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 Investors Service, Inc.,
Standard & Poor's Ratings Group, Duff & Phelps Inc. or Fitch Investors Service,
Inc. (although not entirely clear, it would appear that the exchange of an Old
Certificate for a New Certificate should not constitute an "acquisition" of the
New Certificate for this purpose); 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 Certificates, the
Class C Certificates and the 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 Underwriter 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 continued holding of a Class A Certificate or the exchange of
Old Certificates for New Certificates should consider the availability of the
exemptive relief provided by the Underwriter Exemption, as well as the
availability of any other exemptions with respect to transactions to which the
Underwriter Exemption may not apply.
CLASS B CERTIFICATES, CLASS C CERTIFICATES AND CLASS D CERTIFICATES
The Class B Certificates, Class C Certificates Class D Certificates may not
be acquired by any Plan or by any entity that is using the assets of any Plan to
purchase or hold its interest in a Class B Certificate, Class C Certificate or
Class D Certificate (a "Plan Transferee"), 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 PTCE 95-60 have been
satisfied. Any insurance company that uses general account assets to hold Class
B Certificates, Class C Certificates or Class D Certificates that tenders such
Old Certificates in exchange for New Certificates will be required to represent
that PTCE 95-60 applies to its tender and the holding of such Class B
Certificates, Class C Certificates or Class D Certificates.
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 on 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
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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.
For a period of 180 days after 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 tax matters with respect to Section 382 are being 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 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 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.
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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 reference 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
Page
Available Information........................................... 4
Incorporation of Certain Documents by Reference................. 4
Prospectus Summary.............................................. 5
Risk Factors.................................................... 27
Recent Developments............................................. 34
Use of Proceeds................................................. 36
Ratio of Earnings to Fixed Charges.............................. 36
Selected Financial Data......................................... 37
The Exchange Offer.............................................. 39
Description of New Certificates................................. 47
Description of the Liquidity Facilities......................... 59
Description of the Intercreditor Agreement...................... 63
Description of the Aircraft and Appraisals...................... 68
Description of the Equipment Notes.............................. 69
Certain U.S. Federal Income Tax Consequences.................... 88
ERISA Considerations............................................ 88
Plan of Distribution............................................ 90
Legal Matters................................................... 91
Experts......................................................... 91
Continental Airlines, Inc.
Offer to Exchange
Pass Through Certificates, Series 1996,
which have been registered under the
Securities Act of 1933, as amended,
for any and all outstanding
Pass Through Certificates, Series 1996
PROSPECTUS
July , 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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(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 an 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 corporation's 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:
"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
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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 6.94% Continental Airlines Pass Through Certificate Series
1996-A
4.2* Form of New 7.82% Continental Airlines Pass Through Certificate Series
1996-B
4.3* Form of New 9.50% Continental Airlines Pass Through Certificate Series
1996-C
4.4* Form of New 12.48% Continental Airlines Pass Through Certificate Series
1996-D
4.5* Pass Through Trust Agreement, dated as of January 31, 1996, between
Continental Airlines, Inc., and Wilmington Trust Company, as Trustee,
relating to the formation of Continental Airlines 1996-A Pass Through
Trust
4.6* Pass Through Trust Agreement, dated as of January 31, 1996, between
Continental Airlines, Inc., and Wilmington Trust Company, as Trustee,
relating to the formation of Continental Airlines 1996-B Pass Through
Trust
4.7* Pass Through Trust Agreement, dated as of January 31, 1996, between
Continental Airlines, Inc., and Wilmington Trust Company, as Trustee,
relating to the formation of Continental Airlines 1996-C Pass Through
Trust
4.8* Pass Through Trust Agreement, dated as of January 31, 1996, between
Continental Airlines, Inc., and Wilmington Trust Company, as Trustee,
relating to the formation of Continental Airlines 1996-D Pass Through
Trust
4.9* Participation Purchase Agreement, dated as of January 31, 1996, between
Credit Suisse, acting through its New York Branch, and Continental
Airlines, Inc.
4.10* Revolving Credit Agreement, dated January 31, 1996, between Wilmington
Trust Company, as Subordination Agent, as agent and trustee for the
Continental Airlines 1996-A Pass Through Trust, as Borrower and Credit
Suisse, acting through its New York Branch as Liquidity Provider
4.11* Revolving Credit Agreement, dated January 31, 1996, between Wilmington
Trust Company, as Subordination Agent, as agent and trustee for the
Continental Airlines 1996-B Pass Through Trust, as Borrower and Credit
Suisse, acting through its New York Branch as Liquidity Provider
4.12* Revolving Credit Agreement, dated January 31, 1996, between Wilmington
Trust Company, as Subordination Agent, as agent and trustee for the
Continental Airlines 1996-C Pass Through Trust, as Borrower and Credit
Suisse, acting through its New York Branch as Liquidity Provider
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4.13* Intercreditor Agreement dated as of January 31, 1996, among Wilmington
Trust Company, not in its sole individual capacity but solely as Trustee
under the Continental Airlines Pass Through Trust 1996-A, Continental
Airlines Pass Through Trust 1996-B, Continental Airlines Pass Through
Trust 1996-C and Continental Pass Through Trust 1996-D, Credit Suisse,
acting through its New York Branch as Class A Liquidity Provider, Class
B Liquidity Provider, Class C Liquidity Provider, and Wilmington Trust
Company, not in its individual capacity except as expressly set forth
herein but solely as Subordination Agent and Trustee
4.14* Registration Rights Agreement, dated as of January 31, 1996, among
Continental Airlines, Inc., Wilmington Trust Company, as Trustee under
Continental Airlines Pass Through Trust 1996-A, Continental Airlines
Pass Through Trust 1996-B, Continental Airlines Pass Through Trust 1996-
C, Continental Airlines Pass Through Trust 1996-D, and the Initial
Purchasers
4.15** Form of Refunding Agreement, dated as of January 31, 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 Pass
Through Trust Agreements, The Boeing Company, as Initial Loan
Participant, General Electric Company, as Owner Participant and Loan
Participant, Wilmington Trust Company, as Subordination Agent, and
Wilmington Trust Company, as Loan Trustee
4.16** Form of Participation Agreement dated as of July 15, 1994 among
Continental Airlines, Inc., General Electric Company, as Owner
Participant, Wilmington Trust Company, not in its individual capacity
but solely as Subordination Agent and Loan Participant, First Security
Bank of Utah, National Association, as Owner Trustee, and Wilmington
Trust Company as Loan Trustee
4.17** Form of Waiver, Consent and Amendment to Participate Agreement dated as
of December 22, 1995 among Continental Airlines, Inc., Gaucho-2, Inc.,
The Boeing Company, First Security Bank of Utah, National Association,
as Owner Trustee, and Wilmington Trust Company as Indenture Trustee
4.18** Form of Participation Agreement Amendment No. 2, dated as of January 31,
1996, among Continental Airlines, Inc., General Electric Company, as
Owner Participant, Wilmington Trust Company, not in its individual
capacity but solely as Subordination Agent and Loan Participant, First
Security Bank of Utah, National Association, as Owner Trustee, and
Wilmington Trust Company as Loan Trustee
4.19** Form of Lease Agreement, dated July 15, 1994, among Continental
Airlines, Inc. and First Security Bank of Utah, National Association, as
Owner Trustee
4.20** Form of Lease Agreement Amendment No. 1, dated as of December 22, 1995
between First Security Bank of Utah, National Association, as Owner
Trustee and Continental Airlines, Inc.
4.21** Form of Lease Agreement Amendment No. 2, dated as of January 31, 1996,
between First Security Bank of Utah, National Association, as Owner
Trustee, and Continental Airlines, Inc.
4.22** Form of Amended and Restated Trust Indenture and Mortgage between First
Security Bank of Utah, National Association, as Owner Trustee, and
Wilmington Trust Company, as Indenture Trustee
II-4
<PAGE>
4.23** Form of Amended and Restated Trust Indenture and Mortgage Amendment No.
1, dated as of January 31, 1996, between First Security Bank of Utah,
National Association, as Owner Trustee, and Wilmington Trust Company, as
Loan Trustee
4.24* Form of Series A Equipment Note, dated January 31, 1996, by First
Security Bank of Utah, National Association, as Owner trustee, payable
to Wilmington Trust Company, as Subordination Agent
4.25* Form of Series B Equipment Note, dated January 31, 1996, by First
Security Bank of Utah, National Association, as Owner trustee, payable
to Wilmington Trust Company, as Subordination Agent
4.26* Form of Series C Equipment Note, dated January 31, 1996, by First
Security Bank of Utah, National Association, as Owner trustee, payable
to Wilmington Trust Company, as Subordination Agent
4.27* Form of Series D Equipment Note, dated January 31, 1996, by First
Security Bank of Utah, National Association, as Owner trustee, payable
to Wilmington Trust Company, as Subordination Agent
4.28** Form of Trust Agreement, dated as of July 15, 1994, between Gaucho-2
Inc. and First Security Bank of Utah, National Association
5.1* Opinion of Cleary, Gottlieb, Steen & Hamilton relating to validity of
New Certificates
II-5
<PAGE>
II-6
<PAGE>
12.1 Computation of Ratio of Earnings to Fixed Charges (incorporated by
reference to the Company's Registration Statement (File No. 333-03591))
23.1*** Consent of Ernst & Young LLP
23.2* Consent of Cleary, Gottlieb, Steen, and 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.
23.10*** Consent of Cleary, Gotlieb, Steen & Hamilton
24.1* Powers of Attorney
25.1* Statement of Eligibility of Wilmington Trust Company for the 1996-A
Pass Through Certificates, on Form T-1
25.2* Statement of Eligibility of Wilmington Trust Company for the 1996-B
Pass Through Certificates, on Form T-1
25.3* Statement of Eligibility of Wilmington Trust Company for the 1996-C
Pass Through Certificates, on Form T-1
25.4* Statement of Eligibility of Wilmington Trust Company for the 1996-D
Pass Through Certificates, on Form T-1
99.1* Form of Letter of Transmittal
99.2* Form of Notice of Guaranteed Delivery
II-7
<PAGE>
99.3* Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees
99.4* Form of Letter to Clients
- -----------------
* Previously filed
** Previously filed. With respect to such Exhibits, separate agreements have
been entered into with respect to each Aircraft. Except for differences in
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.
*** Filed herewith
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 10(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 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.
II-8
<PAGE>
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
plan's 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.
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-9
<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. 2 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 July 25,
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
Registration Statement has been signed by the following persons in the
capacities indicated, on July 25, 1996.
Signature Title
--------- ------
*
- ----------------------------- President, Chief Executive Officer (Principal
Gordon M. Bethune 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
David Bonderman
*
- ----------------------------- Director
Gregory D. Brenneman
*
- ----------------------------- Director
Patrick Foley
*
- ----------------------------- Director
Douglas H. McCorkindale
- ----------------------------- Director
George G.C. Parker
<PAGE>
*
- ----------------------------- Director
Richard W. Pogue
*
- ----------------------------- Director
William S. Price III
*
- ----------------------------- Director
Donald L. Sturm
*
- ----------------------------- Director
Karen Hastie Williams
*
- ----------------------------- Director
Charles A. Yamarone
*By: /s/ Scott R. Peterson
--------------------------
Scott R. Peterson, Attorney-in-fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit Page
Number Exhibit Description Number
- ------- ------------------- ------
<S> <C> <C>
4.1* Form of New 6.94% Continental Airlines Pass Through Certificate Series
1996-A
4.2* Form of New 7.82% Continental Airlines Pass Through Certificate Series
1996-B
4.3* Form of New 9.50% Continental Airlines Pass Through Certificate Series
1996-C
4.4* Form of New 12.48% Continental Airlines Pass Through Certificate Series
1996-D
4.5* Pass Through Trust Agreement, dated as of January 31, 1996, between
Continental Airlines, Inc., and Wilmington Trust Company, as Trustee,
relating to the formation of Continental Airlines 1996-A Pass Through
Trust
4.6* Pass Through Trust Agreement, dated as of January 31, 1996, between
Continental Airlines, Inc., and Wilmington Trust Company, as Trustee,
relating to the formation of Continental Airlines 1996-B Pass Through
Trust
4.7* Pass Through Trust Agreement, dated as of January 31, 1996, between
Continental Airlines, Inc., and Wilmington Trust Company, as Trustee,
relating to the formation of Continental Airlines 1996-C Pass Through
Trust
4.8* Pass Through Trust Agreement, dated as of January 31, 1996, between
Continental Airlines, Inc., and Wilmington Trust Company, as Trustee,
relating to the formation of Continental Airlines 1996-D Pass Through
Trust
4.9* Participation Purchase Agreement, dated as of January 31, 1996, between
Credit Suisse, acting through its New York Branch, and Continental
Airlines, Inc.
4.10* Revolving Credit Agreement, dated January 31, 1996, between Wilmington
Trust Company, as Subordination Agent, as agent and trustee for the
Continental Airlines 1996-A Pass Through Trust, as Borrower and Credit
Suisse, acting through its New York Branch as Liquidity Provider
4.11* Revolving Credit Agreement, dated January 31, 1996, between Wilmington
Trust Company, as Subordination Agent, as agent and trustee for the
Continental Airlines 1996-B Pass Through Trust, as Borrower and Credit
Suisse, acting through its New York Branch as Liquidity Provider
4.12* Revolving Credit Agreement, dated January 31, 1996, between Wilmington
Trust Company, as Subordination Agent, as agent and trustee for the
Continental Airlines 1996-C Pass Through Trust, as Borrower and Credit
Suisse, acting through its New York Branch as Liquidity Provider
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit Page
Number Exhibit Description Number
- ------- ------------------- ------
<S> <C> <C>
4.13* Intercreditor Agreement dated as of January 31, 1996, among Wilmington
Trust Company, not in its sole individual capacity but solely as Trustee
under the Continental Airlines Pass Through Trust 1996-A, Continental
Airlines Pass Through Trust 1996-B, Continental Airlines Pass Through
Trust 1996-C and Continental Pass Through Trust 1996-D, Credit Suisse,
acting through its New York Branch as Class A Liquidity Provider, Class
B Liquidity Provider, Class C Liquidity Provider, and Wilmington Trust
Company, not in its individual capacity except as expressly set forth
herein but solely as Subordination Agent and Trustee
4.14* Registration Rights Agreement, dated as of January 31, 1996, among
Continental Airlines, Inc., Wilmington Trust Company, as Trustee under
Continental Airlines Pass Through Trust 1996-A, Continental Airlines
Pass Through Trust 1996-B, Continental Airlines Pass Through Trust 1996-
C, Continental Airlines Pass Through Trust 1996-D, and the Initial
Purchasers
4.15** Form of Refunding Agreement, dated as of January 31, 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 Pass
Through Trust Agreements, The Boeing Company, as Initial Loan
Participant, General Electric Company, as Owner Participant and Loan
Participant, Wilmington Trust Company, as Subordination Agent, and
Wilmington Trust Company, as Loan Trustee
4.16** Form of Participation Agreement dated as of July 15, 1994 among
Continental Airlines, Inc., General Electric Company, as Owner
Participant, Wilmington Trust Company, not in its individual capacity
but solely as Subordination Agent and Loan Participant, First Security
Bank of Utah, National Association, as Owner Trustee, and Wilmington
Trust Company as Loan Trustee
4.17** Form of Waiver, Consent and Amendment to Participate Agreement dated as
of December 22, 1995 among Continental Airlines, Inc., Gaucho-2, Inc.,
The Boeing Company, First Security Bank of Utah, National Association,
as Owner Trustee, and Wilmington Trust Company as Indenture Trustee
4.18** Form of Participation Agreement Amendment No. 2, dated as of January 31,
1996, among Continental Airlines, Inc., General Electric Company, as
Owner Participant, Wilmington Trust Company, not in its individual
capacity but solely as Subordination Agent and Loan Participant, First
Security Bank of Utah, National Association, as Owner Trustee, and
Wilmington Trust Company as Loan Trustee
4.19** Form of Lease Agreement, dated July 15, 1994, among Continental
Airlines, Inc. and First Security Bank of Utah, National Association, as
Owner Trustee
4.20** Form of Lease Agreement Amendment No. 1, dated as of December 22, 1995
between First Security Bank of Utah, National Association, as Owner
Trustee and Continental Airlines, Inc.
4.21** Form of Lease Agreement Amendment No. 2, dated as of January 31, 1996,
between First Security Bank of Utah, National Association, as Owner
Trustee, and Continental Airlines, Inc.
4.22** Form of Amended and Restated Trust Indenture and Mortgage between First
Security Bank of Utah, National Association, as Owner Trustee, and
Wilmington Trust Company, as Indenture Trustee
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit Page
Number Exhibit Description Number
- ------- ------------------- ------
<S> <C> <C>
4.23** Form of Amended and Restated Trust Indenture and Mortgage Amendment No.
1, dated as of January 31, 1996, between First Security Bank of Utah,
National Association, as Owner Trustee, and Wilmington Trust Company, as
Loan Trustee
4.24* Form of Series A Equipment Note, dated January 31, 1996, by First
Security Bank of Utah, National Association, as Owner trustee, payable
to Wilmington Trust Company, as Subordination Agent
4.25* Form of Series B Equipment Note, dated January 31, 1996, by First
Security Bank of Utah, National Association, as Owner trustee, payable
to Wilmington Trust Company, as Subordination Agent
4.26* Form of Series C Equipment Note, dated January 31, 1996, by First
Security Bank of Utah, National Association, as Owner trustee, payable
to Wilmington Trust Company, as Subordination Agent
4.27* Form of Series D Equipment Note, dated January 31, 1996, by First
Security Bank of Utah, National Association, as Owner trustee, payable
to Wilmington Trust Company, as Subordination Agent
4.28** Form of Trust Agreement, dated as of July 15, 1994, between Gaucho-2
Inc. and First Security Bank of Utah, National Association
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. 333-03591))
23.1*** Consent of Ernst & Young LLP
23.2* Consent of Cleary, Gottlieb, Steen, and 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.
23.10*** Consent of Cleary, Gotlieb, Steen & Hamilton
24.1* Powers of Attorney
25.1* Statement of Eligibility of Wilmington Trust Company for the 1996-A
Pass Through Certificates, on Form T-1
25.2* Statement of Eligibility of Wilmington Trust Company for the 1996-B
Pass Through Certificates, on Form T-1
25.3* Statement of Eligibility of Wilmington Trust Company for the 1996-C
Pass Through Certificates, on Form T-1
25.4* Statement of Eligibility of Wilmington Trust Company for the 1996-D
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
- -----------------
* Previously filed
** Previously filed. With respect to such Exhibits, separate agreements have
been entered into with respect to each Aircraft. Except for differences in
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.
*** Filed herewith
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Continental
Airlines, Inc. for the registration of the Offer to Exchange its Pass Through
Certificates, Series 1996, totaling $489,267,000 and to the incorporation by
reference therein of our reports dated February 12, 1996, with respect to the
consolidated financial statements and schedules of Continental Airlines, Inc.
included in its Annual Report (Form 10-K) for the year ended December 31, 1995,
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Houston, Texas
July 19, 1996
<PAGE>
Exhibit 23.10
July 25, 1996
Re: REGISTRATION STATEMENT ON FORM S-3 (FILE NO. 333-04827)
Ladies & Gentlemen:
We hereby consent to the reference to this firm in the above-referenced
Registration Statement and the related prospectus under the headings "Risk
Factors - Certain Tax Matters" and "Legal Matters", without admitting that we
are "experts" within the meaning of the Act or the rules and regulations of the
Securities and Exchange Commission issued thereunder with respect to any part of
the Registration Statement, including this Exhibit.
Very truly yours,
CLEARY, GOTTLIEB, STEEN & HAMILTON
By: /s/ Dana L. Trier
-----------------------------
Dana L. Trier, a Partner
